15th February 2012: MITx and Disruptive Innovation in Higher Education

Ken Wark and I had a brief Twitter exchange yesterday about an Atlantic Monthly story on MITx and disruptive innovation in higher education.

 

“It’s a complete misunderstanding of the business(es) universities are in,” Wark told me. “B-school bullshit.”

 

I spent Valentine’s Day night thinking about Rakesh Khurana and Henry Mintzberg, whilst writing PhD notes on the speculative bubble in terrorism studies.

 

The changes Wark notes have unfolded in Australian universities since at least the mid-1990s. As an undergraduate I saw cuts made to La Trobe University’s cinema studies department. Several of the senior academics went to Monash or University of Melbourne. I then worked in publishing, saw several companies fail, and lived through the dotcom era. As a postgraduate student, I lived through the rise and fall of the Australian Foresight Institute at Swinburne University and the first years of Monash’s counter-terrorism studies degree. As a researcher, I worked for a cooperative research centre and on a successful rebid. As a research administrator, I’ve worked on university audits and several institutional reviews. I’ve worked closely with three professors who have thought deeply about these issues over the past 8 years. What business(es) universities are in can look very different depending on whether you are a student, academic, or university administrator.

 

B-school has several lessons on navigating this debate:

 

1. Emphasise research programs and teaching that create (and extract) institutional value. Wark for example has made significant contributions to new media theory, cultural studies and to the debate on intellectual property. His distinction between people who create intellectual property (hackers) versus people who own it (vectoralists) has some implications for who controls the copyright on academic journal articles. This emphasis on value is foreign to many academics. It’s a view closer to music producers like Rick Rubin and musicians like Jay-Z and Kanye West, and to private equity and venture capital firms. However, my experience is that it’s vital to gaining tenure track, dealing with promotions committees, and handling salary contract negotiations. Successful academics can articulate their individual value and why it should be hard to imitate. Wark and I agree that there’s a ‘winner takes all’ dynamic for many academics.

 

2. Content differs from credentials. Mid-way through my Swinburne Masters studies, the professor and his teaching staff faced a student revolt. It occurred in a subject that used cohort-based learning to generate a lot of the content and insights. Several students decided they would get more value from coffee discussions with their new colleagues than paying for a five-day subject in accelerated delivery mode. When I recently wanted to understand the debate about high-frequency trading systems and market microstructure in finance, I assembled a personal reference library and spoke to industry professionals for less than the cost of a university subject. Students with Amazon Kindle software and research skills can do the same. HR managers still value credentials for specific degrees and career pathways.  Universities use credentials (and their absence) in contract negotiations. Initiatives like MITx promise to fulfill or satisfice the desire for credentials and quality content but without the current levels of student debt. It’s a value migration gambit that is potentially disruptive to tenured professors and their expertise.

 

3. Cost structure matters. Wark and I agree that higher education faces a ‘race to the bottom’ dynamic. In Australia, I see this as a competition in part between the Group of 8 institutions, a group of ‘challenger’ specialists (including Griffith, RMIT and Swinburne), and universities burdened by a high cost structure and operational inefficiencies. This impacts a range of managerial decisions from the institutional budget process to patterns of academic hiring and the quality assurance of international program delivery. The B-school curricula of GE, Jim Collins, Clayton Christensen, Michael Jensen, Aswath Damodaran, Moneyball, Stephen Schwarzman, and others has lots of relevant insights on how cost structure can be a shaping influence on institutional management. Academics who understand cost structure — even if they personally disagree with it — will have a shared framework to communicate more effectively with others.

14th February 2012: Chaos Theory

 

Chaos theory and the complexity sciences have come up in several recent discussions. In one exchange, I found Peter J. Carroll‘s writings to be ill-defined and unclear. In another exchange, different underlying epistemologies were discussed. Richard Metzger and Jason Louv were influenced by contemporary chaos magic: to do rituals and to create sigils in the tradition of Austin Osman Spare. I went in a different direction: studying chaos theory (James Gleick; Edward Lorenz; Benoit Mandelbrot; and others); then reading about how such models can affect your life (e.g. Steven Strogatz’s Sync or Albert-László Barabási’s Linked); and more recently, looking at dynamical systems, mathematics and simulation modelling in the context of financial markets. For me, contemporary chaos magic is but a shadow of the scientific vistas of chaos theory and the complexity sciences.

14th February 2012: Grammys Lessons

Rick Rubin (New York Times)

 

The 54th Grammy Awards held several important lessons for me. Adele credited Rick Rubin (New York Times profile) for raising her awareness of “quality” and helping her to make several decisions. Dave Grohl credited musicianship, a garage studio and producer Butch Vig for the execution success of the Foo Fighters album Wasting Light. Nicki Manaj‘s ‘Roman Holiday’ performance was a Catholic-influenced train wreck. These lessons on execution, mentoring and team-building are critical to the advice that I give to academics on their career development and research programs.

13th February 2012: Dan Drezner on the New Al Qaeda

Foreign Policy‘s Dan Drezner on the new Al Qaeda and threat escalation:

 

That said, I’m going to continue to insist that the United States faces a much less threatening threat environment now than it did fifty years ago.

 

I reached a similar conclusion here using Richard Ned Lebow‘s counterfactual method. As did John Mueller, and Adam Curtis in his documentary The Power of Nightmares (2004). September 11 could have been much worse.

13th February 2012: John Grinder on Human Excellence (1985)

 

Full-length clips of neuro-linguistic programming (NLP) co-creators John Grinder and Richard Bandler are rare. This clip of Grinder from the early period of NLP New Code discusses NLP as a “technology of excellence”; eliciting, modelling and transferring behavioural strategies; Grinder’s provocative philosophy of learning; and strategies to integrate the insights from NLP Practitioner training. It’s like seeing a time capsule of NLP training after the ‘classic’ period of 1974-79 had ended.

6th February 2012: Peter Feaver on Obama’s National Security Record

Peter Feaver‘s book Armed Servants (Boston: Harvard University Press, 2005) is a masterful study of civil-military relations.

 

I reach different conclusions, though, to Feaver’s Shadow Government critique of the Obama administration’s national security record.

 

Feaver argues:

 

1. Obama’s foreign policy successes have come when he has followed Bush policies; his failures have come when he has struck out on his own.

 

Here, Feaver quotes an argument that Thomas Friedman first raised. Friedman makes several assumptions:

 

(A1) Obama’s campaign rhetoric would translate into Obama administration policy;

(A2) Bush’s policies have traceable continuity with Obama administration actions; and

(A3) Obama is responsible for operational and scoping failures.

 

A1 is unrealistic to succeed: few campaign promises survive their impact with the Beltway. There is too much bureaucratic interest to keep Guantanamo Bay operational, for instance. A2 and A3 enable Republicans to engage in George Lakoff-like framing games: juxtapose Bush’s success (A2) with Obama’s failures (A3). This is brilliant if you’re a Karl Rove-like political consultant. Except, as Thomas Ricks pointed out, Obama wasn’t responsible for failures like the 2003 Iraq War decision. (Or, North Korea going nuclear and the problems with the Non-Proliferation Treaty regime.) As Feaver knows, administrations can have both political continuity with their predecessors and can adapt to emergent security dilemmas. A3 introduces civil-military tensions, coordination problems amongst government departments, and the challenge of translating strategy into implementable operations. There’s the genesis here of an interesting academic journal article.

 

Feaver then suggests:

 

Obama has made relatively effective use of the tools and instruments of power that he inherited from his predecessor — it raises the question, what new tools and instruments of power is Obama bequeathing to his successor?

 

This very interesting question also has several assumptions:

 

(B1) Political administrations and the United States President (executive power) shape the ‘contexts of use’ of instruments of power.

(B2) The instruments of power are transferable between different political administrations.

(B3) Instruments of power are capabilities that can emerge, develop, be sustained, or decay over time (diachronic orientation).

 

The late Terry Deibel’s book Foreign Affairs Strategy: Logic for American Statecraft (New York: Cambridge University Press, 2007) is one of the best conceptual analyses on instruments of power and B3: diplomatic, informational, military and economic. Regarding B2, the Bush administration’s record will remain debated: it re-engaged with counter-insurgency for Afghanistan and Iraq; reviewed intelligence after the September 11 attacks and the 2003 Iraq War decision; and failed to deal with A.Q. Khan’s covert nuclear proliferation network. But other capabilities might have developed regardless of the political administration assumed in B1: the legislative and judicial branches can shape the scope and use of instruments of power;  Stephen Brooks’ Producing Security (Princeton: Princeton University Press, 2007) makes the case that multi-national corporations can affect innovation and threat perception; and P.W. Singer’s Wired for War (New York: Penguin, 2009) documents how robotics research for drones has taken decades. As Feaver concedes, many of the capabilities he mentions were developed in the Clinton administration and a few can be traced to the Reagan administration and earlier. Likewise, the Obama administration’s focus on Special Operations Forces capabilities recalls John F. Kennedy’s nurturing of SoF capabilities. E-diplomacy is one capability that has matured during the Obama administration (if you believe it has credibility); so has a renewal of the United States-Pacific alliance structure.

 

Feaver asks:

 

So, the Republican nominee should ask, in what ways will Obama’s successor have a larger and more powerful toolbox than the one Obama got to use?

 

Obama is constrained by the Afghanistan and Iraq wars, and by the fallout from the 2007-09 global financial crisis. So, a potential incoming Republican or a second term Obama administration might face more of a clean slate, and more demands to renew the United States’ national economic infrastructure. One challenge to a Republican administration would be how to deal with Obama’s multi-lateral approach.

2nd February 2012: Gina Rinehart’s FXJ Move

On 31st January 2012, mining magnate Gina Rinehart bought nearly 8% of Fairfax (FXJ) through Morgan Stanley.

 

New Matilda‘s Ben Eltham observed:

 

Precisely why Gina Rinehart is buying a stake in Fairfax remains a mystery. Neither Rinehart nor her company, Hancock Prospecting, have issued any comment on the move. Rinehart simply issued instructions to her broker, and bought up stock worth about $180 million. . . . It’s simply not necessary to buy a stake in a media company to get your message across.

 

Eltham and Jason Wilson each suggest Rinehart’s bid is to gain control of Fairfax and to promote her political views.

 

Examining the pattern of FXJ trading suggests other possibilities. FXJ jumped from $0.74 close on 2nd February to open at $0.82 on 3rd February. There were major sell-offs that day: during a 14-minute rally period from the market open 10:04am (4.27 million shares), 10:16am (1977.69k shares), to 10:18am (1523.01k shares); during the trader lunch period at 1:22pm (2779.19k shares); at 2:24pm (2185.33k shares); and an end of day sell-off (5.25 million shares) which ensured FXJ shares would open lower the following day.

 

The sell-offs fit a well-known strategy used amongst institutional trading desks: the ‘market squeeze’ trade. In late 2011, I watched J.P. Morgan and Japan’s Mitsubishi UFJ bank use this strategy with several other Australian shares. I found out the details from two sources: ASX regulatory filings made on behalf of offshore hedge funds, and from ThomsonReuters’ SIRCA database which has tick data of individual trades.

 

Here’s one way how the ‘market squeeze’ trade works:

 

1. The trading desk buys up huge amounts of a target share: enough to move the share price. This creates a volume spike that will initially move the share upwards: a stochastic market dynamic used in jump diffusion models of mathematics and option pricing.

 

2. The volume spike creates a red alert which attracts other, different traders. Day traders who use technical analysis, charting, or momentum/rally signals now focus on the share. Exchange trade funds and institutional money managers who must rebalance their portfolios are now also interested. This creates a market for the trading desk to sell to. The share also shows up on the daily volume indicators of the major share trading platforms. The financial media becomes interested.

 

3. The trading desk then dumps a large volume of the share at strategic times during the day. This locks-in a short-term or daily profit for the trading desk. It also influences the upper and lower bounds of the share price. Monte Carlo Markov Chain simulation can predict the share price pathways. The trading desk can then adjust its order book and its market execution costs.

 

4. Meanwhile, the trading desk sells off smaller blocks of shares over a 3-4 week period. This tactic influences high-frequency trading systems. It usually means that the share price trends downward as the trading desk has market-maker control — or several trading desks at different firms create a market equilibrium.

 

5. The trading desk can make profits in several ways. It can dump a large amount of shares at the market open which usually means the share price will fall during the day. This tactic will create cyclical and volume-based effects. It can force other traders to sell once their stop-loss levels are breached. Finally, it can sell shares at the peak of a volatility spike and then buy them back at a much cheaper price when the market trends lower. The trading desk’s volume, its order size, and its lower execution and transaction costs means that it can make a profit from spreads of several cents.

 

FXJ’s trading after Rinehart fits the ‘market squeeze’ pattern. It’s possible that Rinehart will pursue the ownership agenda that Eltham and Wilson emphasise: Michael Milken financed Sir James Goldsmith and others to do so in the 1980s era of leveraged buyout deals. But it’s also possible that Rinehart is using value investment criteria to make a quick profit from market volatility. Or, that Rinehart’s announcement enabled Morgan Stanley and/or other trading desks to use a combination of long/short, paired, and event arbitrage strategies. Someone made a killing on trading FXJ on 1st February 2012.

 

Eltham is right: you don’t need an ownership stake for a media company . . . if you pursue other agendas.