The Long Tail – Its impact on grad recruitment

June 10, 2009
The Long Tail, as in use by the book of Chris ...
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I have recently been reading The Long Tail by Chris Anderson. The concept is quite clear, especially from a retail point of view, but we can see the ‘long tail’ appearing in pretty much every single situation you care to think of. Which Anderson acknowledges in his penultimate chapter. This got me thinking in terms of whether or not the long tail could be seen in graduate recruitment, and what impact it is having or could have in the future.

So does the long tail appear within graduate recruitment? I would say it does, when looked at from a ‘number of jobs vs. ranking of jobs offered high-to-low’ point of view. I think we can say fairly definitely that a few of the largest graduate recruiters (i.e. the Big 4 accounting firms), I can only talk about the UK, will have the largest number of vacancies right down to the SMEs that take on one or two graduates. Although, sadly,  I can’t find any freely available data to back that up. (anyone have that so I can make a pretty graph??)

What impact could the long tail ‘idea’ have on grad recruitment in the future? Something that Anderson talks about in his book is the increasing liklihood that someone’s individual tastes are catered for (in music for example). I think that in a few years time, and maybe we are beginning to see it already, graduates will increasingly want a graduate job that meets their particular needs. Maybe recruiters will have to start offering an massively expanded range of roles to satisfy all of the different niches. I can’t see recruiters liking that idea though!! What I have noticed is the increasingly common rotational placement-based graduate schemes, whereby a graduate moves to a new role every 6-12 months. This is something I particularly looked for when I was applying to grad roles last year.

I see it offering benefits to both the employer and the graduate. The employer gets a broader range of people interested in its programme, more choice of candidates. They also give the graduate experience of a wider range of roles which could be important a few years down the line when they are called upon to manage a section which they otherwise might not have had any knowledge of. For the graduate, they get to pick and choose the roles that interest them most.

I think most graduate schemes should take on this sort of rotational placement-style programme; with the exception of schemes in Audit where there isn’t much scope for variety except within types of clients. I see it being mutually beneficial for all parties and will , I believe, ensure that their programmes are relevant to and satisfy the needs of a wider range of people, leading to a greater candidate base to choose the best from.

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WikiJob Poll: What is the most important factor in choosing a job?

April 4, 2009

This is this is the first of an ongoing series of fortnightly posts which will analyse the results to the latest poll on WikiJob.

The latest poll looked at what WikiJob users thought was the most important factor to choosing their job, mirroring a previous poll from last year. the latest poll also included an option for ‘Job Security’ in light of the current jobs climate.

WikiJob Poll - Most Important Factor in Choosing a Job - Mar 09WikiJob Poll - Most Important Factor in Choosing a Job - 2008

Results are very similar…

The differences between the two sets of poll results are very minimal. But there has been a clear shift from career progression and pay towards training and job security. A clear reflection of the dramatically different graduate job market we are in compared to last year. As you would expect in a time of uncertainty over the future of jobs, let alone companies, WikiJob users have altered their decision making to take into account aspects of future jobs which will ensure they have good training (and are thus more employable should the worst happen) and the perceived job security of the offer (reflected in the increased popularity of public sector graduate schemes).

WikiJob users are, I would say from my experience, quite an ambitious lot; a reflection of the biggest sections on WikiJob, namely financial and professional services, and the competitiveness of those industries. So that ‘Career Progression’ is the biggest result with 43% is not a surprise. Interestingly I can’t really recall many organisations stressing the career progression available to their graduates, but I have probably been looking at a slightly different cross-section of organisations from the most common WikiJob users.

Second place is occupied by ‘Pay’ (with 25% maintaining second place from last year), maybe not quite as high as reality due to perceived negative connotations of choosing a job based on how much money you get. Undoubtedly it is an important factor for most graduates, especially now that those who had to pay top-up tuition fees are graduating this year with ever larger amounts of debt.

The option which I expected to come out top was ‘Training’ coming in third place (18%), which is my preference, but this may again be a reflection of the different groups of WikiJob users, with those seeking a move into accounting probably take into account the importance of getting good training and gaining a professional qualification.

‘Job Security’ came a distant fourth (9%), which tells us that graduates are worried about their careers suffering an early setback due to the economic problems currently being experienced. I would take this as reflecting the rise in demand for public-sector, and careers perceived to be more secure, graduate schemes.

‘Working Hours’ and ‘CSR’ finished at the bottom of the pile with 3% and 2% respectively. One thing I have always questioned is companies’ keenness on stressing how socially responsible and ‘green’ they are, do graduates really care that much? I’m sure a minority do, but at the end of the day does it bother people sufficiently to accept or reject an offer based on how socially responsible they say they are.

How can employers react to meet these desires?

From these results I would suggest that employers (if targeting WikiJob users) should ensure that their graduate schemes provide graduates with a clear path of progression up the ranks of the organisation; obviously easier in some industries than others, and rapid progression should not be a requirement if a good graduate does not want it. They also need to provide a clear commitment to high quality training and personal development, whether through professional qualifications or just internal training courses and development opportunities. Both of these need to materialise, they cannot just have lip-service paid to them, in this era of openness (with the likes of WikiJob and social networking sites) businesses cannot afford for people disgruntled with unmet promises broadcasting to the world.

Are WikiJob users different from others? More ambitious, money mad?

Do these results conform to received wisdom on what grads want?

WikiJob Stats Man.

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Retaining Tomorrow’s Talent

March 22, 2009

In a 2007 report from Deloitte Research’s Robin Athey looking at “Connecting People to What Matters” they set out how they believe organisations should go about holding on to and nurturing their most important employees. This in answer to the first part of the series, where Athey showed how “the most effective recruitment tactics […] don’t address the core drivers of talent churn.”

In the report we are told that the most important factor in today’s increasingly competitive environment for talented individuals is ‘connecting’. With three core types of connecting mattering most to performance: People-to-People, People-to-Purpose, and People-to-Resources (See graphic).

The Connect Model (Deloitte Research)

The Connect Model (Deloitte Research)

People-to-People requires the organisation to facilitate the “building and sustaining [of] intentional networks of high-quality networks”, and as part of this formation of formal (and informal) communities of practice (as I have mentioned in previous posts) the organisation can help to develop their people. As, Athey says [although others might disagree], “it is through personal relationships that people learn how to perform complicated tasks, manage difficult colleagues, or navigate corporate politics. One estimate suggests that more than 70 percent of what people know about their jobs, they learn through everyday interactions with colleagues.”

People-to-Purpose needs four factors to be met: Motivating work, A sense of belonging, Pride of mission, Strategic direction.

People-to-Resources “mean[s] enabling them to manage knowledge, technology, time, and physical space in ways that improve their performance and allow them to adapt to change.” One very interesting point made by Athey is that organisations have “reengineered out” any slack in terms of time, flexibility and budgets, what they call an ‘organizational cushion’. And this in turn curtails technological innovation and employees’ ability to do great work.

So, by providing a framework to support these three needs, organisations can increase the likelihood that their employees will be productive through meeting their performance potential. And by meeting the employee’s desire for better skills and experiences, organisations can attract and retain the most talented workers, hopefully giving them a competitive edge. As John Hagel III, John Seely Brown, and Lang Davison say in their recent HBR blog post:

“Talented workers join companies and stay there because they believe they’ll learn faster and better than they would at other employers.”

What does Richard think about this?

As I have said in a previous post, I believe that in the current tough economic climate companies should be looking to use any slack time to develop their workforce and devote time to coming up with new ideas, finding efficiencies, defining the future strategic direction. The ‘organizational cushion’ is going to be temporarily enlarged (although not in terms of budgets!), and businesses need to find a way to facilitate the productive use of that cushion, be that through a relaxing of procedures (or increase), organised periods of ‘innovation time’, create something akin to Google’s “20% time”.

From my own experience I think everyone should have their own personal project with extended deadlines (>6mths), which builds on their knowledge, skills, and job role to create something which could provide something beneficial to the organisation.

Is it time for a less selfish capitalism?

March 11, 2009

Lord Richard Layard, London School of Economics – Centre for Economic Performance, sets out his views on the need for a less selfish capitalism in an interesting article in the FT.

Lord Layard argues that we should change our measure of society’s progress:

[…]we should stop the worship of money and create a more humane society where the quality of human experience is the criterion.

He goes on to explain that despite massive wealth creation, happiness has not risen for nearly 60 years (in UK and USA). As such, Layard believes people should not saccrifice the most source of happiness, human interactions, in the pursuit of economic growth.

Our society has become too individualistic, with too much rivalry and not enough common purpose. We idolise success and status and thus undermine our mutual respect.

Lord Layard finishes with the following:

Values matter and they are affected by our theories. We do not need a society based on Darwinian competition between individuals. Beyond subsistence, the best experience any society can provide is the feeling that other people are on your side. That is the kind of capitalism we want.

What does Richard think about this?

While the idea that a society where everyone wants to work together to achieve a common set of goals and not care about personal economic reward is a noble one. It is, I feel, highly unlikely to ever succeed within the traditional Western-developed world. While most people have some altruistic tendancies and may be willing to saccrifice their own time to benefit others (although there is some debate as to the motivation behind altruistic actions), there will always be those people who only desire to have as much personal gain as possible and are very willing to abuse the generosity of others to meet their own personal goals. In this respect I am following Lord Layard’s statistic that 30%, in both Britain and the US, believe “most people can be trusted””. I would like to think that it is possible to have a free capitalist society where people choose to act in a manner which does not only benefit themselves, but realisticly I don’t see that happening.

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Tropicana & 100 Square Feet of Rainforest

March 5, 2009
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Over on the Freakonomics blog Steven Levitt highlights a campaign being run by Tropicana in the US. Whereby each carton of Tropicana Orange Juice (maybe others?) has a unique code, which when entered on their special TropicanaRainforest.com website will result in Tropicana preserving 100 square feet of rainforest.

While highlighting their own environmental awareness they are also enabling their customers to feel good about themselves in also making a difference. Now Steven Levitt roughly estimates that it probably would cost 11 cents to buy 100 square feet of Amazon rainforest, but because in developed countries land prices are much greater and this results in a very wide disparity between the perceived cost and its actual cost. And this disparity allows Tropicana to appear to be doing many times more (in cost terms only) than they actually are.

From their FAQ section it says that Tropicana are donating money on the customer’s behalf:

…donate money to Cool Earth, who sponsors and protects it for a minimum of ten years. Tropicana and Cool Earth will be working with The Ashaninka, one of the largest surviving Amazon ethnic groups, to protect an area of rainforest in Peru. Sponsoring the protection of a piece of rainforest means Cool Earth and its partner Ecotribal can work with the Ashaninka to secure rainforest and all the environmental services that the forest provides.

When people think of Tropicana and orange juice, they probably think of Floridian oranges. But in recent years Tropicana have expanded production massively (under PepsiCo’s ownership) in S. America and India.

I say this: Carry on doing what you are doing, if it costs you a little to make a small difference in a small part of the Amazon Rainforest, but boosts sales then everyone wins.

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Transparency: does it work?

February 26, 2009

The Economist in this week’s (21/02/09) Economics Focus looks at whether transparency in financial markets is really beneficial. Transparency is currently one of regulator’s and governments’ most popular words, everyone seems to be demanding more of it.

In the recent past many in the financial services industry were calling for opacity, arguing that not having full-transparency allowed them to fully exploit the potential of secret trading strategies and that with full disclosure they would have little incentive to correct market inefficiencies through arbitrage. No one seemed to mind in the good years when everyone seemed to be benefiting.

So you can understand the attraction that greater transparency has in the current economic and social climate.

The Economist article says:

Yet transparency is amorphous; it can, frustratingly, be anything but transparent and, implemented wrongly, may harm the very interests it is supposed to serve.

When we think of financial markets and transparency we probably think of annual reports, interim trading statements etc. (in other words information disclosure). But the desire to provide full disclosure often results in “incomplete, irrelevant or outright incomprehensible” information for the user to understand. I can’t imagine Joe Bloggs on the street without training being able to understand it and make an informed decision based upon it. Maybe even most institutional investors don’t know what it all means with their poor record of investing other people’s money!

Does transparency improve liquidity?

Transparency of information and liquidity in markets are closely linked, markets are effectively based on an investor’s belief that they have better knowledge than everyone else, thus when investors start thinking that other people are privileged to lots more relevant information and that they have an unfair disadvantage they are likely to resist activity in the market.

So “[s]ymetry, not the amount of information, matters” (Economist, Feb 2009).

What does Richard think about this?

Calling for transparency through full-disclosure of information is all very well and it sounds right at first glance, but I believe that this full-disclosure can result in less transparency than you had to begin with, if the users of information are overwhelmed by the sheer volume of it, and its complexity, then you actually have a retrograde step. I would argue that regulators must instead focus on ensuring that when information is disclosed it is reliable, accurate, and relevant to its purpose. Anyone can pump out tons of information, but unless it is accurate and relevant then it is a pointless exercise.

Only time will tell what the world’s financial regulators will do…

Update: some links from the Economist.com article page.

Bengt Holmstrom, an economics professor at the Massachusetts Institute of Technology, has published a paper examining transparency. Another article on the subject is by by Marco Pagano, an economics professor at the University of Naples Federico II, and Paolo Volpin, a finance professor at London Business School. America’s government publishes the Sarbanes-Oxley Act of 2002. George Akerlof discusses writing “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism”.

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We must maintain transparency in financial statements

February 26, 2009

With governments and regulators scrambling around trying to appear active, and looking to implement populist changes to rules, and in particular financial regulations, will we see poorly thought out changes having a detrimental impact on businesses and investors? In particular, will changes to accounting rules reduce transparency?

The International Accounting Standards Board‘s (IASB) Conceptual Framework sets out, among other things, the objectives and characteristics of financial statements. It identifies four key characteristics:

  • Understandability
  • Relevance
  • Reliability
  • Comparability

Transparency is, in my opinion, important to all four of the above characteristics, but in particular understandability and comparability.

Understandability

Information should be presented in a way that is readily understandable by users who have a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently. [F.25]

Comparability

Users must be able to compare the financial statements of an enterprise over time so that they can identify trends in its financial position and performance. Users must also be able to compare the financial statements of different enterprises. Disclosure of accounting policies is essential for comparability. [F.39-42]

So it goes without saying that I wasn’t surprised to hear Sir David Tweedie, head of the IASB, talk recently about ensuring that changes to accounting standards do not result in less transparency for the users of the financial statements, in particular within financial services.

With financial regulators under pressure from governments to do something, an often talked about change is to introduce “dynamic provisioning” or pro-cyclical policies — forcing banks to put aside funds in provision reserves during profitable years to reduce the impact of bad years.

Sir David, and other accountants, are concerned that this sort of accounting, if not implemented properly, could result in “cookie jar accounting” where companies mask their performance in poor years through the use of such provisioning (cookie jar accounting is banned by the SEC for public companies).

What does Richard think about this?

If the purpose of financial statements is to allow users of them (investors and many other groups) to make rational economic decisions “both by (a) helping them evaluate past, present, or future events relating to an enterprise and by (b) confirming or correcting past evaluations they have made. [F.26-28]” (IAS Plus) then it requires the finanical statements to provide a clear picture of the organisation’s performance over the period (Income Statement) and its current financial status (Balance Sheet).

Anything that provides scope for companies to mask their true performance through some creative accounting should be opposed at all costs.

On this basis, I am concerned that the EU will try to exert pressure on the IASB to implement what EU finance ministers want rather than what might be best for everyone (if you believe that the IASB acts in everyone’s best interest). As we saw just last month with the EC proposing to provide substantial funding to the IASB in an attempt to gain leverage and influence over the international standard setters.

What is the point of financial statements if they don’t reflect reality? I don’t see any, do you?

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Sir Allen Stanford makes cricket look stupid. And is there a common thread to the latest frauds?

February 19, 2009

A nice cartoon from an article in today’s FT. Well now we know where all of his money came from! It appears that he made his initial fortune in Texan real estate, then evolved the insurance and real estate business started by his grandfather in 1932 into a wealth management business with clients globally.

His Stanford Financial Group business based in Texas, with the banking division registered and located in Antigua (as Stanford International Bank, having been initially started in Montserrat under a different name).

I speculate here, but could all of his splashing out on sponsoring sporting events and sports stars, and especially the cricket world, have been part of some way to keep his mind off of any financial problems his organisation was facing? What probably started on a very small scale, I assume, grew and grew further and further out of Stanford and his associates’ control. (That is pure speculation on my part)

Is there a common thread to recently uncovered frauds?

Stanford:

  • Business named after him.
  • Audited by very small firm of accountants.
  • Offering improbably high returns.

Madoff:

  • Business named after himself.
  • Audited by very small firm of accountants.
  • Offering improbably high returns.

I will end with some questions… Ignoring the name idea, why do affluent investors get drawn into these sorts of frauds? If someone is offering you 10% returns on your investments, while the average return available in the market is around 5%, does that not ring alarm bells? Or is it simply greed? Also, do regulators ever check that an audit firm’s size is likely to enable it to carry out an audit to a sufficiently high standard? Would it not make sense that if some $50bn dollar business is audited by MickeyMouse LLP that it is placed under extra scrutiny?

Update:

Sir Allen is also suspected of laundering money for the drug barons of the notorious Gulf cartel, and that one of his private jets was detained as part a Mexican investigation last year. Telegraph report.

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Use the downturn wisely, prepare for the future upturn

February 17, 2009

John Baldoni in a recent Harvard Business Review blog post suggests that companies should be looking at preparing their organisation and its employees for when the economy starts on the upward trend.

So rather than sitting around moaning at a lack of demand and laying off workers or having enforced shutdowns (as in the automotive industry), managers should instead focus on activities which they would not normally have time to do, but nonetheless can be benefitial to the organisation.

John Baldoni gives four key suggestions for leaders on how to prepare their organisations:

  • Master your operations,
  • Use the downtime wisely,
  • Invest in your people,
  • Spread some hope throughout the organization.

To master your operations organisations need to work at understanding their strengths and weaknesses, so they know where to improve and what strengths they can leverage to greater use. Examine everything about your product offering and what your competitors are doing, can you learn anything from this? Secure your financial position to enable investment in the future, this may involve cost cutting exercises but could also be through divesting business units which are not core to the organisation’s strategic direction. As Baldoni says, “In short, get your house in order.”

Use the downtime wisely, with a reduced workload your employees can spend time to think about the activities they do on a day-to-day basis, what could be done better, does it even need to be done? Baldoni suggests organising brainstorming sessions and strategic planning exercises. And to encourage idea generation, it is in the downturn that organisations can be innovative and have potentially revolutionary products hitting the market just as the up-turn hits full steam. At an organisation I have worked for, they set one morning a week as a time to work as a team/section to come up with new ideas and reduce waste effort, this is the sort of thing I think organisations should be doing all the time and not just in times of trouble.

Invest in your people, with employees less busy now is an ideal time to invest in training them up with the latest skills. Apart from emerging with a more capable workforce,  which in theory should improve performance, organisations will also, Baldoni says, “demonstrate a commitment that has a better chance of being returned when the good times do.”

Spread some hope throughout the organization, Baldoni suggests leaders should “control what you can control and live on.” So, rather than dwelling on all the negative things, of which there is likely to be lots, they should concentrate on things they have control over and can make a positive contribution. In other words, have clear goals and objectives for the short term, work with purpose, not in hope that nothing bad will happen.

What does Richard think about this?

It would be nice to have some positive news from organisations for a change… Those organisations that do use this slow-period wisely to: take stock, reorganise, train and invest for the future, are the ones which are likely to survive for a long time yet, and if they are lucky out of this downturn might come that ‘killer idea’ which revolutionises their sector and sets them up for a long period of success.

I understand, however, that for a lot of companies the lack of credit availability is severely impacting on their ability to function when combined with severely diminished sales, in this situation it is imperative to undertake Baldoni’s first two suggestions, these will guide the way to scaling down their organisation to their restricted circumstances.

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UK Audit Market Concentration: The Solutions

February 15, 2009

In this second post on UK audit market concentration I want to look at the potential solutions to the problems I outlined in my first post.

The three main problems brought about by the severe concentration in the UK audit market are as follows:

  • High barriers to entry;
  • Negative Perceptions;
  • Lack of Choice.

What to do about the UK audit market has been the subject of numerous studies, the Financial Reporting Council (FRC) have an ongoing project looking at solutions to the problems, and that is upon what my solutions are based.

The Solutions:

Break up the Big Four:

One argument (McMeeking, 2006) is for audit regulators to mandate the break-up of one or more of the Big Four. Doing this will broaden the choice available to the largest companies, solving one of the biggest issues. However this solution would require the agreement of audit regulators across the world, given the global nature of the Big Four firms. Also the favour with which this sort of solution is viewed will depend greatly on the concerns held by the local regulators, for instance the UK Auditing Standards Board have few urgent concerns because audit quality remains high, this might not be true in other markets.

Raise awareness of capabilities:

As part of the FRC’s ongoing project, the FRC Market Participants Group (2007) found that:

“The FRC should continue its efforts to promote understanding of audit quality and the firms and the FRC should promote greater transparency of the capabilities of individual firms.” (FRC Market Participants Group, 2007)

The general idea being to obtain greater transparency on individual audit firm’s audit capabilities and resources, hopefully leading to a situation where audit committees are no longer reliant on reputation and branding of audit firms in making their choices, as there are no systemic differences in audit quality between Big Four and mid-tier firms (Grant Thornton cite Kyla Gillan and Lynn Turner).

It might also be possible for mid-tier firms to become specialists in certain industries, providing a viable alternative to the Big Four within these sectors.

Greater regulation for Big Four:

McMeeking (2006) proposed that legislation could be introduced which would open up the audit market to other suppliers (i.e. National Audit Office, Audit Commission). With the biggest change being the introduction of an “auditor of last resort” which would guarantee that all firms could turn to an independent auditor, this would have a beneficial impact on the stock market as the risk of there being no independent auditor available is removed.

However: “direct regulatory intervention […] has not been accepted by the OFT or the government.” [Beattie, V. and Goodacre, A. and Fearnley, S. (2003)]

Another regulatory option is to introduce compulsory auditor rotation periods, which might encourage audit committees to look beyond the Big Four, thereby having the dual benefit of increasing auditor independence and competition in the market.

Change Perceptions:

Oxera (2006) concluded that unless perceptions of the non-Big Four audit firms changed, entry into the FTSE 100 and FTSE 250 audit markets would require uneconomic levels of investment.

How this might happen is difficult to answer, but ultimately I think it is the only long-term solution. But it might be easier than it looks… could audit committees be seeing a problem (investors want only Big Four) that doesn’t exist? Peter Montagnon, the ABI’s Director of Investment Affairs, said: “It is important that companies approach this choice with an open mind. Investors are content for companies to choose an auditor from outside the Big Four, if this suits their circumstances.” [Montagnon (2006)]

Merger between mid-tier firms:

Finally, a solution to the issue is for mid-tier firms to merge, creating audit firms comparable on scale to the Big Four. This is obviously a very real possibility, as the Big Four have shown. However, merged mid-tier firms may get to a comparable size but the perceptions (stigma, possibly) might stick, so audit committees may still stick to the current Big Four.

Conclusions:

My personal favourite solution is a free-market one, without imposed regulations, but with assistance from the regulator bodies such as the FRC in reviewing and publishing, in a transparent fashion, the capabilities and resources of all audit firms, not just the Big Four.

It is a very tricky problem to overcome, luckily in the UK there are no real concerns over audit quality and so the need for solutions is not so urgent. Although some critics would argue that auditors are complicit in the current economic downturn, in particular within financial services, but I personally think this is significantly down to the expectations gap evident within the general population.

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