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Summer Read

Summer is a great time to disconnect from digital media and appreciate the feel and touch of paper books, deep diving into the thoughts, analysis, experiences, and beliefs of their authors, who relentlessly dedicate their own time to their future readers.

Personally, I like to combine educational, business and recreational literature, reading several books in parallel and listening to their audio versions when driving.

Here is my summer shelf:

1.      “Good Strategy/Bad Strategy” by Richard Rumelt (finished)

2.      “The Silk Roads: A New History of the World” by Peter Frankopan

3.      “How the World Really Works: A Scientist’s Guide to Our Past, Present and Future” by Vaclav Smil

“Good Strategy/Bad Strategy”, 2011.

Richard Rumelt has vast academic and consulting experience in strategic management. In his book, he provides definitions of strategy and gives multiple examples of various business actors’ challenges to define or re-invent their strategies and organizations.

According to Dr. Rumelt, true strategy is not a simple collection of goals or a “shopping list” type set of actions, but rather a coherent and focused plan that addresses the fundamental challenges and opportunities a person or an organization faces. Many companies lack a clear understanding of their underlying problems and a plan to overcome them. He identifies this as “bad strategy,” which often leads to wasted efforts and missed opportunities.

Here are some quotes that stood out for me:

“A strategy is, like a scientific hypothesis, an educated prediction of how the world works.”

“Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. Strategy is at least as much about what an organization does not do as it is about what it does.”

“The most basic idea of strategy is the application of strength against weakness. Or, if you prefer, strength applied to the most promising opportunity.”

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Transformational Leadership

Recently, I have been asked about the most effective leadership style in today’s world and the style I personally practice.

First and foremost, a leader should be someone whom people can trust, someone who actively listens and demonstrates empathy. It is essential for a leader to lead by example, possessing a clear vision and the ability to enable, defend and empower their teams.

The COVID-19 pandemic has changed our work dynamics and our perceptions of life, family, and commitments. It is crucial to adapt the leadership style to this new reality.

Traditional autocratic leadership is no longer effective, whether in military settings or office environments. Disengaged teams are a ticking time bomb for any organization.

On the other hand, I am also skeptical about the efficiency of democratic leadership. When every stakeholder has equal power, reaching a consensus can be challenging, which would result to unsolved issues, loss of productivity and competitiveness. Mistakes must be alowed and tolerated, they contribute to the famous “learning curve”. As Mance Rayder (The-King-Beyond-the-Wall in the “Game of Thrones” TV series) said, “The freedom to make my own mistakes was all I ever wanted.”

There are numerous other leadership styles, each with its own advantages and disadvantages and a great leader is able to use a variety of them in different circumstances. However, in my current context, I would like to emphasize the importance of Transformational leadership.

Considering the tectonic shifts in the retail industry, an exceptional leader is someone who inspires and motivates their teams to surpass expectations and achieve remarkable results through changes and sacrifices for the good of organization. Transformational leaders invest time in the personal growth of their teams, providing support, offering a clear vision and direction, and challenging the status quo.

I would recommend “Transformational Leadership” by Bernard M. Bass and Ronald E. Riggio to those who wish to study this subject further.

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Inflation and Price Elasticity

So we are in the second year of an incredible roller coaster, when the bills continue to rise and the economy is staring into the abyss from the top of the ride.

Food retail is one of the industries where inflation is most obvious.

A quick example: an average price of a dozen of grade A large eggs in the US (Source: U.S. Bureau of Labor Statistics) in January 2022 was $1.929 and in January 2023 already $4.823. An increase of 250%!

Yet, as one might intuitively guess, consumption of eggs did not decline. It is stable.

In an imaginary world of economics, this means that an egg’s price is “inelastic”.

source: https://www.quicklizard.com/wp-content/uploads/2021/12/price-elasticity-ebook.pdf

In the graph above you can see a very small factor of elasticity of eggs, equal to 0,1 (elasticity index below 1 means that an additional 1% price increase results in a less than 1% quantity decline; elasticity index above 1 means that an additional 1% price increase results in a higher than 1% quantity decline).

So, groceries in general are inelastic, as they represent a commodity that we cannot live without and would need to purchase anyway.

Often times, these products come from local farmers, who rarely can have an upper hand in negotiations with professional buyers. Thus, in most countries, governments grant farmers extra protection. It exists in several forms, from an unconditional price acceptance by retailer, to the strict regulation of both buying and selling prices and in some extreme cases, to establishing caps on the profit margins of the “essentials” food basket.

Last year several EU countries removed Value Added Tax from grocery products to limit the inflation burden on their citizens.

On the other hand, most of FMCG products, like home and personal care are elastic.

Source: https://www.euromonitor.com/

Not only HPC producers must avoid inflation if they want to grow their sales, but what is more, they need to constantly sell on promotion (elasticity index >1)!

In some categories, sales with discount represent from 50% to 80% of total sales.

Business models of FMCG suppliers are built on higher than average margins, offset by the volume of discounted products.

Raw materials and energy inflation represent a small increase in the cost of the final product and can be mitigated by

(a) direct and often disproportional price increases;

(b) lowered discounted/promotional activities;

(c) shrinkflation

and notorious and most famous (d) cost cuts.

Needless to say that all top FMCG manufacturers are the experts in this game and have managed to grow both their top and bottom lines last year, declaring record breaking results while paying the biggest ever dividends to their shareholders.

Highly recommend Noam Chomsky’s “Profit Over People” if you want to understand better this broken system.

#inflation#elasticity#fmcg#retail

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Being a snail

Source: https://www.reddit.com/user/Jeremy-gayass/

Here is a random fact for you. Snails are the 2nd most populous species on earth after insects.

There are at least 60,000 known species of snails. They live in both fresh and salted waters as well as on land. For comparison, humans are only one species – homo sapiens and we share our preferred habitat with snails.

What makes snails so populous is probably the fact that they can reproduce both with and without partner. Snails can combine both solitary and social behaviors. Studies showed that the snails deprived of the social group interactions would prefer to stay solitary the rest of their lives and never return to society.

Humans, on the contrary are the social beasts. Our ability to dominate all other life forms and nature is not due to our large brains (in fact they are 25% smaller than of Neanderthals), nor our longevity (Hydras are known to be immortal and whales can live more than 200 years), but of our ability to create social links, form groups, organizations and governments.

One of the oldest human projects was probably Göbekli Tepe – an 11,000-year-old ritual site, built by stone age people, erecting 5-meter-tall pillars weighing up to 10 tons. It is located less than 200 km away from the city of Gaziantep, in the region where on February 6th 2023 two consecutive earthquakes took place, destroying countless number of homes and killing tens of thousands. Since then, more than 40 countries have sent their rescue workers to help save as many people as possible. Same governments pledged to support the rebuilding efforts financially.

In the turbulent times some of us act like snails, hiding in their shells, sealing the door shut and ignoring the outside storm. Others prefer to act. And it is this act of bravery, solidarity and compassion that moves humanity forward, pushing our horizons, changing our lives for better, achieving unprecedented results.

Being snail is easy as long as you have your shell…

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Innovations

I flew next to one of the major bank’s regional head recently (imagine, they fly economy too! :)).

After a small talk we introduced ourselves. He was fascinated by the retail industry and the tectonic shifts in both retail and consumption behaviors. It reminded him of the old days when the ATMs transformed the retail banking. Everyone those days was afraid of losing jobs to machines. Manual retail banking operations have indeed dramatically decreased, but so did the space they had to occupy. Thus, the need for smaller space and the lower cost pushed competitors to open much more “proximity” banks, greatly increasing the number of staff needed, growing the retail industry thanks to the ingenious automation.

Retail of 2023 is about sense. Seamless flow, automation and digitalization, mixed with smart cost management and nature preservation are the key ingredients in the recipe of success.

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The Bank of England

Fascinated by my new read that I picked up in London recently:

Value(s) by Mark Carney – a former governor of the Bank of England.

According to Mark, the original charter of the Bank of England (established in 1694) was to promote the public good to the benefit of the people.

Most of the original charter is repealed, but here is part of the original text available online (https://lnkd.in/gjr-nihG)

Bank of England Act 1694
1694 CHAPTER 20 5 and 6 Will and Mar

An Act for granting to theire Majesties severall Rates and Duties upon Tunnage of Shipps and Vessells and upon Beere Ale and other Liquors for secureing certaine Recompenses and Advantages in the said Act mentioned to such Persons as shall voluntarily advance the summe of Fifteene hundred thousand pounds towards the carrying on the Warr against France:

X1Wee your Majesties most dutifull and loyall Subjects the Comons assembled in Parliament for the further Supply of your Majesties extraordinary Occasions for and towards the necessary Defence of your Realmes doe humbly present your Majesties with the further Gift of the Impositions Rates and Duties herein after mentioned…

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Carbon Dioxyde

Carbon Dioxyde is a gas me, you and most of living organisms on earth exhale. It is light, invisible and we generally ignore it (unless you cover your head with the blanket for a minute while in bed).

With all humans weighing about half of gigaton (500,000,000 tons), we manage to emit 40 gigatons (40,000,000,000) of CO2 per year (or 80 times our own weight). Exhaling, unfortunately is not the major source. It is the transformation of our planet into the man-made world of concrete, metal, glass and polymers that does the damage.

Now, CO2 is extremely light, as all gases. 1 ton of CO2 under standard atmosphere (so, at the earth’s surface, or at 101KPa) takes about 556 cubic meters of space!

Imagine if CO2 emitted would be appropriated to each of us equally, that would mean that you and I, each inherit 5 tons of CO2 per year (40×10ꝰ / 8×10ꝰ = 5). That is 2,780m3 of a greenhouse gas per year per person! A cube with a side of 14m. In your lifetime, you will continue “building” your “castle in the sky” out of these cubes and after 80 years of a construction, you and I will be the proud owners of 1 cubic kilometer 3D plot each, warming our hearts as well as the rest of the planet by a few degrees.

OurWorldInData.org is a great source run by the University of Oxford. It allows you to have a deeper understanding of the global trends. It has a set of comprehensive tools for the CO2 emissions and you can see for yourself how your country is doing compared to the world.

Overwhelming amount of emissions comes from the energy sector – more than 73% or 29 gigatons per year (industry 24%, buildings 17,5%, transport 16%). This is by far the first priority to focus on.

On top of that, more than half of the world’s emissions are coming from only these 3 countries: China (31%), USA (13%) and India (7%).

Transforming energy sector from fossil fuels to renewables is an outmost priority for all.

CO2 has been ignored and neglected until the moment it became a killer gas. The gas that will finish human reign on the blue planet unless we learn to emit much less as well as to capture what’s been emitted by us and our predecessors.

Consuming less is the practical and pragmatic answer. The “3R” (reduce, reuse, recycle) is the magic formula for the bright new world that is ahead of us.

What is it that you are ready to forgo to save humans? Don’t worry about the planet, it will live another 7,5 billion years before the sun consumes it. Worry about your children…

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Fooled by Randomness

I have been recommended this book and I cannot stop reading it! I haven’t finished it, but already can’t wait to share some of the great thoughts it contains!

The idea that a pure luck is behind almost everything that we encounter was cultivating inside my mind for a while and this book describes best what I tried to figure out.

On top of the odds and volatilities, the book talks about our self-imposed biases, noise that distorts our reality perception and black swan events. Through basic examples and thorough fundamentals discussion (i.e. Shiller redux, Monte Carlo simulation), it creates an important foundation to anyone interested in psychology, negotiations or applied sciences.

Here are some quotes that moved me

“The problem with information is not that it is diverting and generally useless, but that it is toxic.”

“Mild success can be explainable by skills and labor. Wild success is attributable to variance.”

“Probability is not a mere computation of odds on the dice or more complicated variants; it is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance.”

“Those who were unlucky in life in spite of their skills would eventually rise. The lucky fool might have benefited from some luck in life; over the longer run he would slowly converge to the state of a less-lucky idiot. Each one would revert to his long-term properties.”

“No matter how sophisticated our choices, how good we are at dominating the odds, randomness will have the last word.”

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The Confident Mind

Put yourself in the best possible state to perform by creating an attitude of energetic curiosity.

You do this by deliberately thinking, Let’s see how well I can [run/throw/sing/speak..] right now! Instead of being dead serious and thinking, This [race/game/audition/speach..] is super important, so I really have to do well right now or I’m in big trouble!

Dr Nate Zinsser “The Confident Mind”