A New Start

FT: Cautious of creating too much complexity

Cautious of creating too much complexity

By Bernard Simon in Toronto

Published: June 16 2008 03:00 | Last updated: June 16 2008 03:00

John Hull has a confession to make.

As a professor of finance at the University of Toronto's Rotman School of Management, he has won international acclaim for designing and valuing complex financial tools such as options and other derivatives.

But when it comes to managing his own money, Prof Hull has little use for such exotic instruments. His investment portfolio comprises mainly index funds. And while he keeps reminding his students about the importance of hedging risk, his own liabilities are heavily concentrated in Canadian dollars.

"In retrospect, I certainly haven't behaved optimally," the 62-year-old, UK-born professor says with a wry smile.

Seen from a different angle however, Prof Hull's financial strategy is entirely consistent with the message he hammers home as a teacher, author, consultant and expert witness in derivative-related lawsuits: that is, keep things as simple as possible.

"There's a danger, with all the people with PhDs in physics and maths who have moved into this area, that some of the models become too complicated", Prof Hull says. "There's a tendency for people with that sort of background to just want a really difficult problem to solve. And that's not necessarily what's needed."

His avoidance of this tendency helps explain the respect his work has garnered.

Izzy Nelken, president of Super Computer Consulting in Chicago, who has known Prof Hull for 16 years and co-authored several publications with him, notes that while "some folks like to couch it all in huge mystery, John doesn't do that. He always brings the latest developments in a simple, easy-to-understand manner."

Armed with a Cambridge maths degree, Prof Hull's first job was in operational research at a UK shoe manufacturer.

An interest in applying mathematics to finance led him to do a PhD at Cranfield University.

He had his first taste of Canada as a visiting lecturer at the University of British Columbia in Vancouver in 1979. He then moved to York University in Toronto two years later so he could work in a leading financial centre. He has been at Rotman since 1988.

Quantitative analysis and analysts have made deep in-roads in trading rooms and financial research departments since two University of Chicago economists, Fischer Black and Myron Scholes, devised a mathematical model for pricing options and corporate liabilities in the early 1970s.

However, the recent turmoil in financial markets has jolted faith in the so-called "quants".

Prof Hull agrees that "there's some ground for concern" that traders and analysts have relied too heavily on mathematical models in their decision-making.

"We need a much more common-sense approach to risk management and must not let quants and traders run free-rein for short-term profits," he says.

The problem, in Prof Hull's view, has been an overdependence on models that are based chiefly on recent market trends.

Over the past three years, for instance, "we were looking at a period when volatilities were very low", he says, "so values at risk were lower".

"To some extent, that model led to a false confidence on the part of the banks. Somebody should have been saying: 'Let's look at the big picture, what could go wrong? How well will we come out if it does go wrong?'

"In most institutions I don't think anybody was doing that. They were just relying on: 'We're making a lot of money, the value-at-risk model says we're okay'."

But heavy losses since the onset of the US subprime mortgage crisis have prompted a good deal of soul-searching among quants, and those who employ them. "I don't think there is a substitute for sound managerial judgment," Prof Hull says.

"In a few companies, however, rather than senior managers letting the traders run loose on this, they sat back and thought about the environment out there; about what could go wrong and how badly they would suffer if it did."

As for his own approach, he says that "my claim to fame is not being an out-and-out quant.

"It's more looking at a situation, coming up with the simplest model that captures the essence of it, and then writing it up in such a way that people will easily be able to understand it."

His seminal book Options, Futures and Other Derivatives , now in its seventh edition, is widely regarded as the bible of the subject. According to Mr Nelken, "he's had a substantial impact on a whole generation of financial mathematicians".

Prof Hull tries to bring equations to life by including actual figures in them. His books are dotted with "Business Snapshots" that show how quantitative theories and models are applied in real-life situations.

His books also demonstrate his appreciation of the shortcomings, as well as the advantages, of exotic financial instruments.

For example, the chapter on asset-backed securities in the latest edition observes that these financial products have been created from exotic assets such as royalties from the future sales of a piece of music.

"Dealers have been very creative - perhaps too creative - in their use of this type of structure," he concludes.

Copyright The Financial Times Limited 2008

FT: Restyle in the aisles

Restyle in the aisles

By Elizabeth Rigby

Published: May 27 2008 22:11 | Last updated: May 27 2008 22:11

For many of us, wheeling a trolley up and down supermarket aisles is a routine affair. But for Dina Howell, the minutiae of shoppers’ wanderings on their weekly shop is very interesting indeed.

Ms Howell, who is in charge of all of Procter & Gamble’s in-store marketing worldwide, wants all the details, no matter how small. She wants to know how many people walk down the haircare aisles in a superstore and at what time of the day. She wants to see whether bigger, brighter displays attract more customers. And she wants to use this knowledge to try to understand how P&G can sell more of its goods in superstores.

To this end, P&G and a dozen other consumer goods companies – including Coca-Cola and Kellogg – and 18 US retailers such as Wal-Mart, Walgreens and Target have each spent $250,000 on “project Prism”, an initiative led by AC Nielsen, the media rating agency.

Infrared sensors have been dotted through 166 superstores in the US to monitor the movements of millions of shoppers as they push their trolleys along the aisles.

“It is a big test,” says Ms Howell, her eyes widening as she contemplates the information being gathered, and then extrapolated to apply to thousands of stores.

“We are getting data from the US right now and it is very interesting. Of all the business that happens [for P&G] in the US, we are getting data on 60 per cent of those volumes.”

Prism – “pioneering research for an in-store metric” – uses infrared beams to track shoppers’ movements and then correlate them with sales data. Advocates describe it as the first truly scientific measurement of the effectiveness of in-store sales tools such as shelf location and promotional displays.

The findings are still under wraps, but Ms Howell, who gave a talk about Prism at the annual World Retail Congress this year, says the research could change all manner of aspects of superstores, from how the retailers sketch out their floorplans to the types of products they stock.

“I suspect [that] with Prism we will begin to understand those aisles that you and I enjoy shopping [in] because they are so empty. Retailers will maybe start thinking ‘should I be devoting that level of real estate [to those categories]’,” she says. “I am sure that there are categories being underserved, but that data will reveal it.”

That could mean changes such as cutting back on the homeware section in return for bigger health and beauty aisles. But it could also bring about changes to how stores are set out if retailers and consumer goods companies can work out what type of shoppers go where and why.

In one retail chain, AC Nielsen monitored who was shopping in the haircare and soft drink aisles for a month. During that period, 1.7m shoppers – 1m of whom were women – walked through soft drinks but gave the haircare section a miss.

AC Nielsen estimates that half of those 1m women were between the ages of 24 and 54 and therefore the target audience for makers of shampoos, conditioners, hair dyes and styling mousse. Getting even a fraction of them to walk through the haircare aisle could eventually amount to millions of dollars more in sales.

“If you are not a huge company, you might not be able to get retailers to change around aisles,” says David Sommer, managing partner of in-store media planner MEC Retail, who is also involved in the Prism project.

“But say there is someone who you want to sell breakfast cereal to and you know they don’t walk down that aisle – you could find another place in the store where you could reach them, such as putting a sign in the dairy section to remind them that breakfast cereal is a good way to start the day and point them to aisle two.”

As well as spotting missed opportunities, Prism can help consumer goods companies work out whether in-store campaigns are really converting browsers into buyers.

“[Ahead of a marketing campaign] we monitor the amount of people walking through and we are able to know that 15 per cent of people were converted to buy that category [be it haircare, detergents and so on].

“If we then do a marketing exercise in that aisle, we can measure if the conversion rate is higher, say 20 per cent,” says Ms Howell.

“Then you can take the difference [in sales volumes] times the average dollaring [sales] and know what the size of that prize really was and not what it was projected to be.”

In July, Nielsen will start selling the Prism data to a wider group of companies in the US.

Mr Sommer says: “It is a huge deal. Up to now, in-store [marketing] was handled by the sales guys who worked for Colgate or Campbells or P&G and it was just about stocking them high and letting them fly. Now it is much more analytical, so you are not just trying to sell things, you are trying to understand who you are reaching.”

Ms Howell, a veteran of 18 years at P&G, says that reaching those women who might buy Tide for their laundry or Pantene for their hair is getting trickier in the internet age.

“The way to get shoppers’ attention is so scattered – if you think about daily life, how many things do you do in a day? So it is very important to find ways to get to her.”

Until now P&G has spent $7bn a year talking to “her” through television and print adverts. But that could change as it tries to reach out to the shopper in the aisles instead.

Copyright The Financial Times Limited 2008

NY Times: Making Economics Relevant Again

 

==

 

http://www.nytimes.com/2008/02/20/business/20leonhardt.html?_r=2&sq=leonhardt&st=nyt&oref=slogin&scp=2&pagewanted=print

 

 

 

---

February 20, 2008

Economic Scene

Making Economics Relevant Again

It was only a decade ago that economics seemed to be an old and tired discipline. The field no longer had intellectual giants like John Maynard Keynes or Milton Friedman who were shaping public policy by the sheer force of their ideas. Instead, it was devolving into a technical discipline that was even less comprehensible than it was relevant.

Some Wall Street firms had become hesitant to hire Ph.D. economists, and the number of undergraduates majoring in the subject was plummeting. “A good deal of modern economic theory,” John Cassidy wrote in an article titled “The Decline of Economics” that appeared in The New Yorker in 1996, “simply doesn’t matter much.”

Over the last decade, however, economics has begun to get its groove back. Armed with newly powerful tools for analyzing data, economists have dug into real-world matters and tried to understand human behavior. Economists have again become storytellers, and, again, they matter.

They have explained why Americans don’t save enough money — and come up with clever ideas to increase savings. They have discovered that modest increases in the minimum wage don’t actually destroy many jobs — and thus made possible the recent state-by-state push to raise minimum wages. Since the mid-1990s, the number of undergraduates majoring in economics has risen sharply.

But there are more than a few economists who believe that the renaissance has come with a big downside. They argue that the new research often consists of cute findings — which inevitably get covered in the press — about trivial subjects, like game shows, violent movies or sports gambling. Economics may be popular again, but there still is no one like a modern-day Milton Friedman or John Maynard Keynes.

So when I recently set out to conduct my second annual survey of economists, I decided to try to uncover the next best thing. In its first incarnation, the survey simply asked for the names of the next generation of stars specializing in the economics of everyday life. This year, though, I went the other way — toward the big picture — and asked which economists were managing to do influential work on the crucial questions facing modern society.

Who, in other words, was using economics to make the world a better place?

I received dozens of diverse responses, but there was still a runaway winner. The small group of economists who work at the Jameel Poverty Action Lab at M.I.T., led by Esther Duflo and Abhijit Banerjee, were mentioned far more often than anyone else.

Ms. Duflo, Mr. Banerjee and their colleagues have a simple, if radical, goal. They want to overhaul development aid so that more of it is spent on programs that actually make a difference. And they are trying to do so in a way that skirts the long-running ideological debate between aid groups and their critics.

“Surely the most important societal question economics can help answer is why so many people are crushingly poor and what can be done about it,” David Romer, a professor at the University of California, Berkeley, said. The macro issues (like how to build a democracy) remain maddeningly complex, Mr. Romer noted. But thanks in part to the poverty lab, we now know much more about how to improve daily life in the world’s poorest countries.

The basic idea behind the lab is to rely on randomized trials — similar to the ones used in medical research — to study antipoverty programs. This helps avoid the classic problem with the evaluation of aid programs: it’s often impossible to separate cause and effect. If aid workers start supplying textbooks to schools in one town and the students there start doing better, it could be because of the textbooks. Or it could be that the town also happened to hire a new school administrator.

In a randomized trial, researchers would choose a set of schools and then separate into them two groups. The groups would be similar in every respect except for the fact that one would receive new textbooks and one wouldn’t. With a test like this, as Vinod Thomas, the head of independent evaluation at the World Bank, says, “You can be much more accurate and much more clear about the effect of a program.”

The approach can sound cruel, because researchers knowingly deny help to some of the people they’re studying. But what, really, is the alternative? It’s not as if someone has offered to buy new textbooks for every child in the world. With a randomized study, you at least learn whether your aid money is well spent.

Ms. Duflo, who’s 35, and Mr. Banerjee, 46, came to economics from opposite ends of the intellectual spectrum. She was studying history at the École Normale Supérieure, one of the most prestigious colleges in

France

, when she decided that the more scientific approach of economics offered a better way to address global poverty. He dropped out of the similarly prestigious Indian Statistical Institute after two and a half months of studying math; he found the subject too abstract.

By 2003, they were both working on development at M.I.T. At the time, randomized trials were becoming more popular in the

United States

, but they were still fairly rare in the developing world. So along with Sendhil Mullainathan, a colleague, Ms. Duflo and Mr. Banerjee founded the lab. (It’s named for the father of an M.I.T. alumnus, who owned the exclusive right to sell Toyotas in

Saudi Arabia

.) Day to day, the lab is now run by Rachel Glennerster, who came from the International Monetary Fund, and it has become a magnet for some of the world’s best development economists, including Marianne Bertrand, Michael Kremer and Edward Miguel.

Mr. Kremer and two other economists, in fact, did the textbook experiment — and found that textbooks didn’t improve test scores or graduation rates in rural western

Kenya

. (The students were probably too diverse, in terms of preparation and even language, to be helped by a single curriculum.) On the other hand, another randomized trial in the same part of

Kenya

found that treating children for intestinal worms did lift school performance. That study has led to an expansion of deworming programs and, as Alan Krueger of

Princeton

says, is “probably improving millions of lives.”

Mr. Banerjee estimates, very conservatively, that $11 billion a year — out of roughly $100 billion in annual development aid worldwide — could be spent on programs that have been proved to work. Unfortunately, nowhere near $11 billion is being spent on such programs. “Right now, we don’t have a lot of things that have been taken up by the policy world,” he said. “But the policy lag is usually substantial. Now that we have a lot more results, I expect that in the next 10 years we will have a lot more impact.”

Mr. Banerjee and Ms. Duflo may not be a modern-day Keynes or Friedman. But they have still managed to do something rather profound. They have brought together the best of the new economics and the best of the old.

As has been the trend over the last decade, they have plunged into the world around them, refusing to accept the idea that economics is merely an extension of math. Yet no one can accuse them of working on some little problem that doesn’t matter.

E-mail: leonhardt@nytimes.com

Related

More on the Jameel Poverty Action Lab: The Study on Textbooks The Study on Deworming Other Randomized Trials Abhijit Banerjee's Web Site Esther Duflo's Web Site Rachel Glennerster's Web Site Other Researchers at the Center

Copyright 2008 The New York Times Company

NY Times: You Are What You Spend

---

February 10, 2008

Op-Ed Contributors

You Are What You Spend

 

By W. MICHAEL COX  and

RICHARD ALM

   

Dallas

WITH markets swinging widely, the Federal Reserve slashing interest rates and the word “recession” on everybody’s lips, renewed attention is being given to the gap between the haves and have-nots in America. Most of this debate, however, is focused on the wrong measurement of financial well-being.

It’s true that the share of national income going to the richest 20 percent of households rose from 43.6 percent in 1975 to 49.6 percent in 2006, the most recent year for which the Bureau of Labor Statistics has complete data. Meanwhile, families in the lowest fifth saw their piece of the pie fall from 4.3 percent to 3.3 percent.

Income statistics, however, don’t tell the whole story of Americans’ living standards. Looking at a far more direct measure of American families’ economic status — household consumption — indicates that the gap between rich and poor is far less than most assume, and that the abstract, income-based way in which we measure the so-called poverty rate no longer applies to our society.

The top fifth of American households earned an average of $149,963 a year in 2006. As shown in the first accompanying chart, they spent $69,863 on food, clothing, shelter, utilities, transportation, health care and other categories of consumption. The rest of their income went largely to taxes and savings.

The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status.

So, bearing this in mind, if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1. A similar narrowing takes place throughout all levels of income distribution. The middle 20 percent of families had incomes more than four times the bottom fifth. Yet their edge in consumption fell to about 2 to 1.

Let’s take the adjustments one step further. Richer households are larger — an average of 3.1 people in the top fifth, compared with 2.5 people in the middle fifth and 1.7 in the bottom fifth. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1. The average person in the middle fifth consumes just 29 percent more than someone living in a bottom-fifth household.

To understand why consumption is a better guideline of economic prosperity than income, it helps to consider how our lives have changed. Nearly all American families now have refrigerators, stoves, color TVs, telephones and radios. Air-conditioners, cars, VCRs or DVD players, microwave ovens, washing machines, clothes dryers and cellphones have reached more than 80 percent of households.

As the second chart, on the spread of consumption, shows, this wasn’t always so. The conveniences we take for granted today usually began as niche products only a few wealthy families could afford. In time, ownership spread through the levels of income distribution as rising wages and falling prices made them affordable in the currency that matters most — the amount of time one had to put in at work to gain the necessary purchasing power.

At the average wage, a VCR fell from 365 hours in 1972 to a mere two hours today. A cellphone dropped from 456 hours in 1984 to four hours. A personal computer, jazzed up with thousands of times the computing power of the 1984 I.B.M., declined from 435 hours to 25 hours. Even cars are taking a smaller toll on our bank accounts: in the past decade, the work-time price of a mid-size Ford sedan declined by 6 percent.

There are several reasons that the costs of goods have dropped so drastically, but perhaps the biggest is increased international trade. Imports lower prices directly. Cheaper inputs cut domestic companies’ costs. International competition forces producers everywhere to become more efficient and hold down prices. Nations do what they do best and trade for the rest.

Thus there is a certain perversity to suggestions that the proper reaction to a potential recession is to enact protectionist measures. While foreign competition may have eroded some American workers’ incomes, looking at consumption broadens our perspective. Simply put, the poor are less poor. Globalization extends and deepens a capitalist system that has for generations been lifting American living standards — for high-income households, of course, but for low-income ones as well.

W. Michael Cox is the senior vice president and chief economist and Richard Alm is the senior economics writer at the Federal Reserve Bank of Dallas.

February 10, 2008
	Nicholas Felton
Copyright 2008 The New York Times Company

                       

   

Today: Prison Service

SINGAPORE: Here is the man credited with single—handedly turning the island’s prisons from grim places of condemnation to symbols of hope where those who faltered try to rebuild their lives even before they step out of the sombre jailhouse gates.
But Mr Chua Chin Kiat, who stepped down as director of Singapore Prison Services on Wednesday, would have you know that he is the one left transformed.
"Some people say I’ve changed the prisons service. While that may be true, at the same time, the prison service has also changed me I didn’t come in with the idea that rehabilitation is the way to go," confessed the 54—year—old, as he looked back on his nine—year tenure.
The Singapore Armed Forces and President Scholar joined the prison service in 1998, after four years at the apex of the Criminal Investigation Department. But the transition from cracking the most deviant criminal minds to helping inmates get back on the straight and narrow was no easy task.
The noble mission of reforming and re—integrating inmates into society was born out of less glamorous circumstances: He was merely trying to tackle the "very real" problem of overcrowded prisons exacerbated by a chronic shortage of officers.
"I remember my predecessor actually asking the police’s help in slowing down enforcement. That’s a non—option," said Mr Chua.
He embarked on a 14—month brainstorming exercise with his staff. Sweeping changes followed, whereby prison officers shed their traditional role. Gone are the custodians watching over the convicts’ every move; in their place are officers who steer the lives of the inmates through counselling and educational programmes.
While some might hail this as a romanticised notion of a more humane regime, Mr Chua simply saw it through the eyes of a detached, methodical law enforcer: "Slowing down the revolving door will help to reduce the prison population.
"Barring those on life imprisonment and the death penalty, the law requires (prisoners) to be released. So if you don’t do anything to make them better, then it’s a certainty that they will come back."
The result? Recidivism rate or the frequency of ex—offenders being arrested again has fallen from 44 to 24.9 per cent. The prison population, which swelled to an all—time high of 17,375 in 2003, has gone down to 12,761 last year.
More than these statistics is the success of the Yellow Ribbon Project one of several re—integration and reformative programmes introduced under Mr Chua’s watch. Insisting that the credit should go to various organisations involved, Mr Chua admitted that its success surprised him, turning the sceptic into a convert.
He said: "Over the years, my opinion about it has changed. Now, I’m firmly of the belief that it can be done. People can change." Starting out with a working benchmark that 70 per cent of offenders can be re—integrated into society, he now believes that only about 5 per cent, or "hardened criminals", cannot be reformed.
Due to retire next May, Mr Chua will be seconded, in the meantime, to Aetos Security Management as an executive director. He would miss his old job, but could return as a volunteer.
Mr Chua’s legacy has left Mr Ng Joo Hee the new man on board feeling like a certain prodigious golfer.
Said Mr Ng, 41: "I feel like Tiger Woods when he first turned professional and he had to live up to the legacy left by Jack Nicklaus. Mr Chua Chin Kiat has totally transformed the prisons service during his watch... But like Tiger, I will play my own game."

— TODAY/so

Science: How well can game theory solve business and political disputes?

http://www.sciencenews.org/articles/20071027/mathtrek.asp

 

Mathematical Fortune-Telling

How well can game theory solve business and political disputes?

Julie J. Rehmeyer

Predicting the future is not very hard, according to Bruce Bueno de Mesquita: a little mathematics is all you need. Figuring out how to manipulate a situation to achieve specific aims is a bit less straightforward, but Bueno de Mesquita says his mathematical tools can usually do that, too.

The New York University political science professor has developed a computerized game theory model that predicts the future of many business and political negotiations and also figures out ways to influence the outcome. Two independent evaluations, one by academics and one by the U.S. Central Intelligence Agency, have both shown that about 90 percent of his predictions have been accurate. Most recently, he has used his mathematical tools to offer approaches for handling the growing nuclear crisis with Iran.

Bueno de Mesquita provides the computer tools, but he relies on political or business experts to identify specific issues, their possible outcomes, and the key players. He asks experts narrow, carefully delineated questions about which outcome each player would prefer, how important the issue is to each player, and how much influence each player can exert. But he does not ask about the history of the conflict, the cultural norms of the area, or what the experts think will happen.

With careful interviewing, Bueno de Mesquita finds that he can get experts to agree on what information the model needs as input, even when the experts disagree sharply on expected outcomes. Once, after generating a report for the CIA using information from the agency's experts, he had his students assemble the same information from news reports. "Over 90 percent of them came up with the same results as I got [when I was] locked in a lead-lined vault at the CIA headquarters," Bueno de Mesquita says. "It's basic information that experts agree on and that you can even find in The Economist."

 

Bruce Bueno de Mesquita has led a shift in political science toward quantitative models. Analyses of his model of political decision-making show that it has a 90 percent accuracy rate. Courtesy of Bueno de Mesquita

The elements of the model are players standing in for the real-life people who influence a negotiation or decision. At each round of the game, players make proposals to one or more of the other players and reject or accept proposals made to them. Through this process, the players learn about one another and adapt their future proposals accordingly. Each player incurs a small cost for making a proposal. Once the accepted proposals are good enough that no player is willing to go to the trouble to make another proposal, the game ends. The accepted proposals are the predicted outcome.

To accommodate the vagaries of human nature, the players are cursed with divided souls. Although all the players want to get their own preferred policies adopted, they also want personal glory. Some players are policy-wonks who care only a little about glory, while others resemble egomaniacs for whom policies are secondary. Only the players themselves know how much they care about each of those goals. An important aspect of the negotiation process is that by seeing which proposals are accepted or rejected, players are able to figure out more about how much other players care about getting their preferred policy or getting the glory.

The details of his study of negotiation options with Iran are classified, but Bueno de Mesquita says that the broad outline is that there is nothing the United States can do to prevent Iran from pursuing nuclear energy for civilian power generation. The more aggressively the U.S. responds to Iran, he says, the more likely it is that Iran will develop nuclear weapons. The upshot of the study, Bueno de Mesquita argues, is that the international community needs to find out if there is a way to monitor civilian nuclear energy projects in Iran thoroughly enough to ensure that Iran is not developing weapons.

One of his most famous past predictions also concerned Iran. In 1984, the model predicted that when Ayatollah Khomeini died, an ayatollah named Hojatolislam Khameini and a little-known cleric named Hasheimi Rafsanjani would rise to succeed Khomeini as leaders of Iran. At the time, most experts considered that outcome exceedingly unlikely, since Khomeini had designated a different person as his successor. But in fact, when Khomeini died five years later, Rafsanjani and Khameini succeeded him.

Bueno de Mesquita says he also predicted that Andropov would succeed Brezhnev long before experts considered it likely. He foresaw that China would reclaim Hong Kong 12 years before it happened, and he predicted that France would narrowly pass the European Union's Maastricht Treaty.

Former CIA analyst Stanley Feder says that he has used Bueno de Mesquita's model well over a thousand times since the early 1980s to make predictions about specific policies. Like others, he has found it to be more than 90 percent accurate. In situations where predictions of the model differed from experts' predictions, the model always turned out to be correct.

"I'm always stunned that it works so well," Bueno de Mesquita says. "This 90 percent is not my assessment."

The main reason that the model generates more reliable predictions than experts do is that "the computer doesn't get bored, it doesn't get tired, and it doesn't forget," he says. In the analysis of nuclear technology development in Iran, for example, experts identified 80 relevant players. Because no individual can keep track of all the possible interactions between so many players, human analysts focus on five or six key players. The lesser players may not have a lot of power, Buena de Mesquita says, but they tend to be knowledgeable enough to influence how key decision-makers understand the issues. His model can keep track of those influences when a human can't.

"Given expert input of data for the variables for such a model, it would not surprise me in the least to see that it would perform well," says Branislav L. Slantchev, a political scientist and game theorist at the University of California at San Diego. Predictions based on game theory can fail in a context where people don't act rationally, but in Buena de Mesquita's work, Slantchev says, rational action mostly means that the players are promoting their own perceived interests as best they can, something humans tend to do.

However, he points out that the model relies on having a considerable amount of expert input. "Honestly, if you had all this information," Slantchev says, "you should be able to predict fairly well how the issue would be resolved." The main reason that the model does this better than experts is that it "strips ideological blindfolds, cultural prejudice, and normative commitments that very often color the view of experts."

Buena de Mesquita offers his services through Mesquita and Roundell, a company he founded that uses his model to advise businesses and governments. "It's pretty exciting when you sit down with a client," he says, "and you know that they're making decisions involving life and death questions or billions of dollars, and at the end of the day they are relying on a body of equations."

FT: The hidden beauty of numbers

“I want to show you that I am a serious professor,” he says near the end of one of his presentations, “which is why I have put some bullet points on a PowerPoint slide.”

The hidden beauty of numbers

By Simon Briscoe

Published: July 16 2007 17:06 | Last updated: July 16 2007 17:06

Hans Rosling wants to help people make sense of the world by “unveiling the beauty of statistics”. One of a few bright lights in the world of number crunchers, the professor of health at Sweden’s Karolinska Institute thinks figures should be “out there, understandable, free and searchable”.

To help him put an end to lifeless spreadsheets and dull PowerPoint presentations, Prof Rosling has created Trendalyzer, a software programme that uses eye-catching graphics and animation to display data.

Video

Swedish health academic, Hans Rosling, is on a mission to add pizzazz to official statistics with eye-catching graphics

His application, which he sold to Google in March for an undisclosed amount, holds out the promise of changing public perceptions of official statistics, and it offers companies a potentially powerful weapon in the war for sales.

Prof Rosling’s dissatisfaction with traditional ways of presenting data is echoed by others. Enrico Giovannini, the chief statistician at the Organisation of Economic Co-operation and Development, is horrified by research showing many people have “no idea” about inflation or unemployment rates in their country, even though most say they want to know more.

He believes that inventive ways of presenting data can make citizens more knowledgeable, citing the weather map as the perfect example of something that is widely understood, even if only meteorologists can grasp the millions of underlying numbers.

Technology can help. IBM’s “Many Eyes” project, a recently launched data display website, allows users to load, visualise and discuss numbers – ranging from economic indicators to sport or even literature statistics. It has also added social networking tools.

California-based Swivel is another site that lets people share and display data in a similar way. Users can load data, merge it with other figures and present it in chart form at the click of a button. The service is free if the data remain in the public domain but Swivel will shortly release a “professional” version for companies that want to keep data private.

The appeal of Rosling’s software – which can be seen in presentations on his foundation’s website, www.gapminder.org – is its dynamic element. Users can play around with different variables, highlighting them in colour, chopping and changing between years, switching from countries to continents, and watching them shift over time.

In one Gapminder presentation, the traditional points on the compass are replaced with “healthy”, “sick”, “rich” and “poor”. All the world’s countries are plotted with Norway and Iceland in the top right quadrant and Somalia and Liberia among those in the bottom left. Cuba is in the top left and Equatorial Guinea in the bottom right. Press play, and the countries – represented as coloured bubbles – expand, contract and shift on the screen as the years pass.

Brian Mulloy, chief executive of Swivel, says such presentation tools could have many applications for small and medium-sized businesses. For instance, a head of sales might want to add some pizzazz to revenue updates for a far-flung team, or a company’s analyst might want to plot turnover against the weather or some other unusual variable.

Prof Rosling began developing the software as a way of helping his students. After some years working in Africa, where he discovered konzo, an epidemic paralytic disease, and was a co-founder of the Swedish arm of Médecins Sans Frontières, he took a teaching job at the Karolinska Institute. It is thanks to his students’ outdated view of the world, he says, that he strayed into the world of statistics and their presentation.

He relished the discovery – “where there is ignorance I can teach” – but says he worries about how many heads around the world “are full of preconceived ideas”. On the premise that “the world can never be understood without numbers – or with only numbers”, he set about constructing a programme that could help people and business make sense of the world.

The link between data and people ought to be simple, he says, passing from source, through interpreters and researchers, then the media and finally to citizens. However, statistics often appear “boring, difficult, expensive and generally not fun to look at”.

He draws an analogy with music: most people would find the written notes dull but love them when they are played. He says he wants to “play the statistics” and is adamant that “he has the eye of the user” in mind all the time.

There is no doubting the impact of his work among statisticians, which is partly down to his engaging lecture style. Paul Cheung, head of statistics at the United Nations, says that his “bubble graphs and horse-racing jokes” have “pushed and cajoled statistical offices around the world to reach for a higher standard of data dissemination”.

Prof Rosling is a consummate performer but has a simple message. In the same way that “you don’t have to pay to walk up a street”, he says, information and understanding about our world should be free and widely accessible. “Statistics should be the intellectual sidewalks”.

Google should be able to deliver that. The search engine group describes the software as “a genuinely innovative way of showing complex data in a way that people can easily understand” and reflects that its mission is “to organise the world’s information – including public data – to make it universally accessible”.

Prof Rosling claims to have a strong following among heads of state, who love to compare their country’s performance with a neighbour’s, and among the web-based young. He also says companies are “extremely interested” and expects corporate applications to follow rapidly – arguing that businesses, already very analytical in their approach, need little persuasion of the appeal of a fact-based view of the world.

He warns, however, that the inefficient use of data could hold back progress. In contrast, the problem with public-sector data is that national agencies are reluctant to allow access.

Presentation styles in the corporate world of the management consultant are ready for a shake-up, he says, and mocks anodyne executive presentations using PowerPoint and given from behind lecterns. “I want to show you that I am a serious professor,” he says near the end of one of his presentations, “which is why I have put some bullet points on a PowerPoint slide.”

One regular conference speaker says: “Speaking after Rosling is worse than the session after lunch in a hot auditorium – he’s a tough act to follow”.

Copyright The Financial Times Limited 2007

FT: Secrets of the new talent scouts

Secrets of the new talent scouts

By Chris Hughes

Published: April 25 2007 16:52 | Last updated: April 25 2007 16:52

Headhunting used to be a shadowy and clubby world whose practitioners had only to be properly presented, well-spoken and in possession of a little black book of contacts. Today, though, the “executive search professionals” are sharpening up their act. And that means managers need to be better prepared for the tell-tale words: “Is now a good time to speak?”

Companies engage headhunters to find board candidates and those in the so-called “marzipan” management layer: executives just below board level and the divisional and regional managers who report to them.

In the 1990s, there was little science in performing a search for one of these roles. The stereotypical headhunter had a background in the army, and the search process relied on their personal contacts.

But companies have come to expect greater professionalism from their headhunters. The industry now draws its researchers from business and management consultancy. Searches are global. And databases with detailed information on candidates have replaced the leather-bound contacts book with a few scribbled notes in the margin.

“Sole operators with small black books cannot deliver highly international general managers to a FTSE-20 company like National Grid or BP in the way that we can today,” says Luke Meynell, head of the UK board practice at Russell Reynolds, himself a former soldier.

The upshot of this is that contact with a headhunter carries greater risks and opportunities than in the past. Information gleaned from a potential candidate is likely to find its way into a database, and a bad impression could stick. But this can also be a chance to position yourself for a future role.

“There is an incredible sophistication of database management. We aim to know who is ready for a move. We should be able to say: ‘You have been in your current role for four years, we know you just missed out on the top job, surely you are thinking of a move?’ At its most sophisticated, we might also know that the candidate has a daughter who is being educated in Switzerland but they want her to go to school in the UK for GCSEs,” says Mr Meynell.

By the same token, the modern headhunting process has become more thorough and is not to be embarked on lightly. What starts as a phone call and a fireside chat can lead to couple of meetings with your potential new chief executive, one over dinner, and end with you and your family being invited to Sunday lunch with board members to check everyone gets along.

“One of the arts of headhunting is gauging the cultural fit,” says Simon Fenton, who runs the European, South African and Indian operations of Spencer Stuart.

Headhunters say it is wise to have a clear view of one’s career ambitions, and regularly refresh this, so that if a headhunter calls you know precisely where you want your career to go. For example, the mooted position may be the right job, but in a public company when your preference is to move into private equity.

“It is quite a draining and time consuming process. The best managers go into it only if they feel the learning curve is flattening in their current position,” says Mr Meynell.

“Have a perspective on how stimulating you find your current role, what you are learning and how big a contribution you are making. Don’t waste your time and consequently [that of] all those others engaged in the process if in reality you are highly unlikely to move.”

It also pays to be courteous. Headhunters say candidates are often off-hand and superior, even rude, which can make a bad impression from the start. Another piece of advice is to involve family early on in the process, especially when a spouse also has a high-flying career.

Andrew Gilchrist of Egon Zehnder, Europe’s largest headhunting firm, says: “An executive can get intoxicated by a role and then tell his wife and family right at the end of the process. I have seen appointments fall apart late in the day for non-business reasons.”

What has made the search process become quite so rigorous and process-driven? Headhunters say it is a by-product of investors demanding higher standards of corporate governance and professionalism from boards.

“Ten to 15 years ago, the industry was more amateurish and clients were less discerning. Today everyone is under far more intense pressure to deliver. If the chairman and non-executives are not impressed with a main board candidate, the chief executive and group human resources director will be in the spotlight,” says Mr Meynell.

Mr Gilchrist says: “The economic cost of hiring someone inappropriately is huge. It pays to invest up front. There is also a demand to be seen to be doing things correctly. Even if there is a strong internal candidate, the company wants to be certain proper due diligence is done.”

These changes are forcing headhunting firms to reinvent themselves as trusted strategic advisers similar to investment bankers, rather than talent scouts who work on one discrete project after another.

“Search has a lot in common with management consulting. Sometimes your client wants to turn right and you have to suggest that turning left is a better option,” Mr Fenton says.

Unsurprisingly, the cost base of the typical executive search firm has shot up. Fortunately for the industry, revenues have grown in line with rising executive pay, since fees are typically levied as one-third of a candidate’s first year salary and bonus, with a minimum of £50,000 (€73,453)($100,235).

Headhunters say the industry’s move to greater professionalism has some way to go. Mr Gilchrist says the profession’s historic reliance on commission has driven perceptions that headhunters are no better than estate agents.

Meanwhile, companies do not list a retained headhunter in their annual report in the way they cite their auditors, although they may be mentioned in announcements of major appointments.

All the same, some feel that the industry’s image is improving. As headhunters come to be treated more like strategy consultants, so there are many more legitimate reasons to be in contact with them.

“If you are a respected executive, then why shouldn’t a headhunter be asking your opinion about a non-executive director role or a former colleague?” says Mr Meynell.

Until this shift is complete, however, many will remain sensitive when the headhunter calls.

Rules for when the headhunter calls

Be courteous, not superior. The impression you make as an individual counts. It is not in a headhunter’s interest to be wasting your time.

Form a view. Have a clear perspective on your current role, whether you find it stimulating and whether you are still learning.

Where do you see yourself in five years’ time? If the role being pitched is inappropriate, explain why and outline where you would like to take your career. That could put you in line for an approach the next time such an opportunity emerges.

Don’t be a timewaster. Do not get heavily involved in the process if you already know you are unlikely to leave your current role. It will create substantial demands on your time and energy; and withdrawal late in the process could create ill will.

Talk it through at home.  Involve family early on, especially where your spouse has his or her own career or if the new role involves relocation.

Copyright The Financial Times Limited 2007

BizWeek: Gap, Paul Pressler

http://www.businessweek.com/magazine/content/07_09/b4023067.htm?chan=top+news_top+news+index_careers&chan=innovation_branding_brand+profiles

                                  

Close Window

        

   

FEBRUARY 26, 2007

    THE CORPORATION

      

Paul Pressler's Fall From The Gap

Hailed on his arrival, the former CEO is now viewed as "the wrong guy at the wrong time"

      

When Paul S. Pressler arrived as the chief executive officer of Gap Inc. (GPS ) in the fall of 2002, he was exactly what the board wanted--or at least what it thought it wanted. The polished, good-looking Disney veteran was a hard-nosed operations wizard, not a dreamy fashion junkie. He seemed to be just the man to restore discipline to the floundering company. But over the next four years, Gap's performance came apart at the seams. On Jan. 22, Pressler resigned.

The immediate post-mortem analysis: He was a numbers guy who didn't appreciate the nuances of the fashion business. That's true, but it's only part of the story. Pressler's problems involved more than just a few bad bets on colors and styles. According to 12 former employees interviewed by BusinessWeek, he also bungled some of the very things that were supposed to be his strengths, including cost-cutting campaigns, human resources initiatives, and supply chain streamlining efforts. One ex-employee characterizes Pressler's tenure as "total system failure."

Pressler's management shortcomings were particularly visible at the company's most important division: its flagship Gap brand. The story of his failed effort to fix this once-proud chain, insiders say, is a classic demonstration of what can happen when a talented man is handed the wrong mission. "He is a skilled leader and he understands how to build a team, but unfortunately he didn't build a team for the particular challenges Gap faced," says a former insider. "Maybe he was the wrong guy at the wrong time."

Gap wouldn't comment for this article. "We've said what we have to say on Paul's departure and are moving on with the business," said company spokesman Greg Rossiter. At the time Pressler left, board Chairman Robert J. Fisher said that the company "improved its operations, strengthened its balance sheet, greatly enhanced its online presence...and improved its standing as a global corporate citizen" under the ex-ceo's leadership. Pressler didn't respond to repeated requests for comment, including a list of written questions.

In the wake of Pressler's departure, Gap is still reeling. Companywide, sales at stores open at least a year fell 7% in the most recent fiscal fourth quarter, which ended Feb. 3. Full-company earnings for 2006 are expected to decline 33%, to $739.8 million. Although shares ran up significantly following Pressler's arrival, increasing from about $10 a share in the fall of 2002 to more than $24 during the summer of 2004, they have traded in the $17-to-$20 range ever since. Now frustrated investors are waiting for a big strategy pronouncement the Gap has promised to deliver on Mar. 1. Some hope the board of directors will put the entire company up for sale.

That's a steep fall for a retailer that, just a decade ago, seemed perfectly attuned to American tastes. When the workplace went casual in the 1990s, Gap was at the ready with big selections of khaki pants. When fleece vests were popular a few years later, Gap had them in a rainbow of colors. Everyone seemed to own a classic Gap pocket T-shirt or two. Yet the brand, always a symbol of affordable style, also appealed to fashionistas. Actress Sharon Stone wore a black Gap mock turtleneck to the 1996 Oscars. Supermodels donned white Gap jeans and shirts on the cover of Vogue magazine in 1991.

Between 1989 and 2001, companywide sales rocketed from $1.6 billion to $13.7 billion. Those stunning results were driven in part by the breathtaking success of the Old Navy chain's inexpensive wares. At the same time the Banana Republic chain--which in 1989 shed its original safari theme in favor of a more sophisticated, urban aesthetic--also sizzled.

ALIENATING LONGTIME CUSTOMERS
But by the end of 2001, the Gap brand and Old Navy were suffering sharp growing pains. Under Millard S. "Mickey" Drexler, the company's ceo at the time, the two chains overexpanded. Long-term debt ballooned from $780 million to $2 billion in 2001. Simultaneously, the usually trend-savvy Drexler oversaw a series of fashion missteps, in particular veering toward super-hip clothes that alienated longtime customers. Earnings sank, and in 2002, Drexler was pushed out.

   Along came Pressler. A 15-year Walt Disney Co. (DIS ) veteran, he had risen to the chairmanship of the company's amusement parks and resorts unit. By nature a methodical thinker, say people who worked under him at Disney, Pressler embraced market analyses and other research to help him understand consumer spending patterns. He also imposed strict cost controls that irked his creative staff. "At Disney, he never had to deal with the creative, qualitative side of design," observes Steve Roukis, managing director at Matrix Asset Advisors, which holds about 2 million Gap shares.

Gap could not have been happier with its new leader. "Paul knows how to lead creative, customer-focused organizations," said Gap founder Donald G. Fisher in a statement announcing Pressler's hiring. Once at Gap, Pressler, who wore neat jeans, jackets, and a ready smile, came across as a likable and approachable manager. "Anyone who's ever met Paul agrees he's a nice guy," says a former Gap insider.

So the honeymoon began. At the start, Pressler had the benefit of excellent timing: Clothing designed during Drexler's final year on the job was starting to appear in stores and did well. Sales rose at the Gap brand, and companywide, for more than a year. Earnings shot up, too. Pressler went on a hiring spree, bringing in a handful of former Disney colleagues, including Chief Financial Officer Byron H. Pollitt Jr., who paid down debt and restored the company's credit rating to investment-grade status. Pressler also hired another ex-Disney co-worker, Eva Sage-Gavin, to lead human resources.

It was Gap's longstanding corporate culture that caught Pressler's attention early on. At the time, the no-nonsense corporate mantra was "Own it, do it, get it done." But Pressler thought this ethos didn't sufficiently promote collaboration. He set out to promote a new environment built around the slogan "Purpose, Values, and Behaviors." Among the catchphrases were bromides such as: "Explore, Create, and Exceed Together." Pamphlets promoting communication and teamwork landed on employees' desks. Posters and banners trumpeting the bland new slogans went up around headquarters.

In the beginning, "people were very receptive" to the effort, says Alan J. Barocas, the company's former senior vice-president for real estate. "It was embraced." But eye-rolling started as the initiative began consuming a lot of time. Former employees say they had to sit through countless meetings, workshops, and role-playing seminars where Pressler and his hr executives discussed the new culture. Many staffers felt they were wasting their time in get-togethers that didn't address the crucial matter of creating and marketing clothes. "hr was out of control," says a former insider.

Over the next couple of years, employees also felt bogged down in what they thought were unnecessary meetings with cfo Pollitt. With Pressler's blessing, Pollitt demanded highly detailed presentations that explained minutiae managers thought were far too detailed for a cfo, such as the margins on individual products or the costs of decorative trims. Confabs with Pollitt were "the antithesis of being creative and nimble. It was talking about the work vs. doing the work," says a former employee. Gap said that Pollitt declined to comment.

Despite Pressler's expertise and comfort with the operational side of the company, some of his initiatives in that area also backfired. In 2003, he kicked off a plan to remake the retailer's supply chain. One goal was to combine fabric purchases across all three of the company's brands, which had previously used separate suppliers. Pressler wanted to cut costs and speed the flow of merchandise from drawing board to store shelf.

But the effort stumbled. Since all three brands sell jeans made of denim, in late 2003 they began purchasing it together. But the big buying deals yielded denim of a single quality, weave, and weight. That meant all three brands were limited to one kind of fabric even though, with their different audiences, they needed to be able to offer an array of jeans. And with all that denim ordered in advance, there was less incentive for designers to keep their eyes open so they could jump on the next great style. Jeans made with material from the pooled purchases ended up largely falling flat, and the joint purchasing effort was abandoned.

RAISING EYEBROWS
As part of the supply chain revamping, Pressler also tinkered with the way the Gap brand produced clothing samples. These prototypes had long been made at studios in Manhattan's Garment District. But Pressler moved sample-making to Asia, where the company's many suppliers are located. With that change, designers had to create patterns, ship them to Asia, get the samples back, make changes, and ship them back to be remade. While making samples in Asia was cheaper than in New York, it delayed the process and "made you less nimble," says a former insider. Aggravating matters, the company instituted a new cost-cutting rule: No overnight shipping to Asia without high-level approval.

The summer of 2004 brought a pivotal change. Pressler reassigned Gap brand head Gary P. Muto to lead Forth & Towne, the new store aimed at women older than 35. While he searched to fill the hole at the top of the namesake division, Pressler led the Gap brand himself. The move raised eyebrows among employees, who worried about his lack of experience in apparel.

Their fears were confirmed. The Gap brand needed someone to referee when designers disagreed with the merchants, a common occurrence at retailers everywhere. Designers constantly push the limits toward edgier styles; merchants must make sure that whatever lands in their stores sells to the brand's mainstream audience. While Pressler encouraged designers and merchants to work together, "there was no tiebreaker.... He made it clear that he didn't want to be that person," says a former employee.

OFF-THE-MARK MARKET RESEARCH
Even more frustrating were Pressler's contributions during line reviews, where designers present clothing samples for a future season, and "store-set" meetings, where store-design staff show proposed merchandise displays. According to former employees, Pressler's suggestions were frequently phrased as questions. Typical of one: "Do you think it would be better to move the denim to the middle wall?" Afterwards, "meetings would end, and no one had a clue what he'd said," says one former insider. "We all had opinions, and it would be a bicker and a fight. All hell would break loose."

The first clothes produced under Pressler's leadership of the Gap brand started to reach shelves in the spring of 2005. But even supported by an advertising blitz fronted by actress Sarah Jessica Parker, the brand's sales fell 4% that spring and summer.

One sore spot was Pressler's directive to use the findings of the research staff, known as the consumer insights group, that he had created. Some designers and merchants didn't believe that the group's output--which included findings from consumer focus groups, polls, and surveys of customers and store employees--was particularly useful in the fashion business, because consumers aren't good at predicting what they'll buy in the future. "Paul didn't know how to interact with the design team, who didn't react to the science being imposed on them," says an ex-employee.

The constant disagreements delayed determining final designs. Ideas for any given season ping-ponged back and forth. Entire collections were made, and altered, and then reworked, sometimes several times over. With no decision-maker, "we'd go back and forth, and change, and redo, and then we'd be out of time" before orders had to be placed or stores would have empty shelves, says a former insider. In the 11th-hour crunch, staffers would end up falling back on lowest-common-denominator items, bland styles that they hoped would please everyone but risked pleasing no one. Last August, for instance, Gap heavily promoted the good old safe T-shirt, hawking it as "the ultimate vehicle for self-expression." The campaign didn't reverse the brand's ongoing sales decline, which that fall clocked in at 7%.

Meanwhile, the search for a Gap brand head was dragging on. Pressure to fill the job was mounting. A presentation to Wall Street analysts on Apr. 21, 2005, was fast approaching, and a gaping hole in the executive lineup wouldn't go over well. Three days before the meeting, Pressler announced his choice: Cynthia Harriss, a former Disney colleague he hired 14 months earlier to lead the Gap Outlet unit, representing a sliver of the company's total sales.

Harriss had little big-time fashion experience. She'd worked for Disney's retail stores for five years before moving to its resorts business in 1997. While she had worked for 19 years at Paul Harris Stores Inc., a Midwestern apparel chain, its annual sales were well under $1 billion, compared with the Gap brand's $5 billion. Arun Daniel, senior consumer analyst at ing Investment Management (ING ), which holds about 1.3 million Gap shares, considers the promotion of Harriss to be one of Pressler's critical mistakes. "He needed a strong No. 2 in merchandising," says Daniel. "Cynthia Harriss was an operations person."

Under Harriss, the Pressler-style management of the brand continued through the rest of 2005 and beyond, say former employees. "She made no decisions," says one. "She defaulted to Paul, who made no decisions." (Harriss declined requests to comment.)

The clock was ticking. By the end of 2005, speculation was widespread that Pressler, who'd won the nickname "Dead Man Walking" on Wall Street, would soon be on his way out. Chairman Fisher, though, publicly supported Pressler, calling him "the right person to lead this company." Nonetheless, industry watchers predicted that 2006 would be Pressler's last shot at a turnaround. Sales declines at the Gap brand were widening, reaching an 8% drop in the first quarter of fiscal 2006.

The tumult dragged on. Ad campaigns came and went, including last fall's commercials for black pants that used footage of Audrey Hepburn. They failed to reverse the sales declines that Wall Street had come to expect. In November, the company's credit rating dropped back into junk territory, and holiday sales for the Gap brand plummeted 9%.

It came as no great surprise when the company said Pressler and the board "have mutually agreed that Mr. Pressler will step down from his position." And it didn't come as much of a surprise when the company spelled out the qualifications for its next ceo: Gap is now seeking an executive who sounds like the opposite of Pressler, one with "deep retailing and merchandising experience, ideally in apparel," and who "understands the creative process."

   The search is still under way.

     

By Louise Lee

Economist: The importance of statistics

3 pre-requisites for public trust
- $ to collect stats and hire good people (competing with top financial firms)
- free from political interference
- reach the public as free as possible from political spin

see article below and this file => Download st_gst_offsets_for_poor_may_not_last_19_years.pdf

 

==
The importance of statistics

Lies, damned lies

Mar 1st 2007
From The Economist print edition

Government figures must be trustworthy. Britain's new system does not pass that test

Claudio Munoz

JOHN COWPERTHWAITE, the British civil servant who ran Hong Kong's finances from 1961 to 1971 and helped create its free-market economy, despised statistics. Governments should not collect them, he said, lest they be provoked into attempting to remedy perceived ills—and mess things up.

Nowadays not many share his views. The UN says every country should have a national statistics office, governed by a statistics law to guarantee quality and independence. The OECD's comparisons of national figures on health, education and economic activity are used to encourage laggards. Countries that have managed until now to produce statistics with no specific legal framework, including Britain, are increasingly strengthening their statistical systems with legislation.

Cowperthwaite's suspicions notwithstanding, this is surely a good thing. Of course, the odd official number will encourage the odd government to do something foolish, but they have plenty of other provocations. Far from letting governments loose, statistics are often an economic liberal's best friend, a way to hold Leviathan to account.

But only if those numbers can be trusted—and that requires three things. The first is money. Luring statisticians away from the fleshpots of high finance means paying them well. And good numbers don't come cheap. Britain's next decennial census alone will cost £500m ($980m), America's $12 billion.

The second condition is that the numbers be produced by professionals free from political interference. Argentine statisticians have taken to the streets to protest against the removal of the official in charge of inflation figures after she supposedly refused to change the way they were calculated. The inflation figure the Argentines reported for January was one-third lower than independent analysts reckoned it should be. Usually, though, political pressure is more subtle. Bean-counters are often overruled in technical matters, such as how figures are to be aggregated into indices and when to drop a series.

This points to the third prerequisite for public trust: even if the numbers are correct, they must reach the public as free as possible from political spin. This particularly matters once you move away from hard economic data to softer numbers on crime, education and social policy. Norway is a paragon: the statistics office publishes figures with its own analysis, according to its own timetable. Government ministers see the information at the same time as everyone else, so they cannot mine the data for the bits that flatter them.

Stand up and be counted

Britain, whose number-crunching systems have provided a model for many other countries, is now a crucial battleground for two reasons. First, it is the country fondest of targets, from hospital waiting times reduced to school classrooms built. Second—and this is not a coincidence—it is the country where statistics are most obviously spun by politicians. Crime figures, for example, come from the government department charged with fighting crime, embedded in press releases putting the best gloss on hard-to-interpret series. Fewer than one Briton in five believes o