Grand Intentions

Grand Intentions by Trevor Barr
Grand Intentions by Trevor Barr

Have you ever wondered how powerful chief executive officers negotiate their lucrative compensation packages? Grand Intentions by veteran internet and telecommunicatons scholar Trevor Barr shares their secrets.

 

Barr’s gripping novel opens with the telecommunicatons giant Telco One in crisis: rural Telco One client Thomas Bowie dies of an asthma attack due to a technical line fault. In the aftermath, Telco One’s board fires its chief executive officer and hires Clint Mason – a mid-market CEO with experience at the United States telecommunications firms MCI and Sprint, a fundraiser for the Republican Party, and who has a keen interest in American Native Indian culture and history. Mason is tasked with spearheading Telco One’s privatisation and the operational transformation that is required to remain competitive.

 

The first three chapters of Grand Intentions read like a negotiation masterclass: how Gordon Hunt (customer liaison and government division head), Nathan Thompson (a Telco One board member), and Jennifer Ralston (a Telco One board member and advocacy lawyer) deal with and disagree over the due diligence, compensation package negotiation, and rapid on-boarding of Mason and his operations manager Brad Botein. Australia’s prime minister, unions, and pension fund managers are carefully watching Telco One’s board. Each has a crucial role in vetting Mason’s appointment.

 

Mason has a strategic vision for Telco One: to shake-up Hunt’s customer liaison activities and identify new revenue sources, to improve Telco One’s share price by dramatically cutting head count, and to build and roll out a Next Generation Network – in only nine months. He has a close eye on the successes of Apple, Google, and today’s visionaries like SpaceX’s Elon Musk.

 

It’s a strategic vision of disruption that will also be familiar to shareholders of QANTAS, Commonwealth Bank, Rio Tinto and other companies who face a combination of industry, regulatory and technological head winds. Barr offers an informed insider’s view into the C-suite and senior management discussions that take place. In doing so Grand Intentions goes beyond media rhetoric about Silicon Valley disruption to convey the dilemmas and decision-making that business leaders face.

 

Barr traces the impetus and fallout from Mason’s corporate revitalisation through a range of Telco One employees. Gordon Hunt champions a consumer advisory council that will get close to Telco One’s customers. Hunt’s exchanges with Mason and Botein in a performance review meeting are eye-opening in how he gains buy-in for the council initiative. Barr shows Mason and Botein’s commercial acumen and what they really privately think about Hunt’s council. Other Telco One senior managers like marketer Jasmine Spencer and networks and systems engineer Lars Sorenson have their own competing ideas and initiatives.

 

Hunt hires counselors Paul Brooks and Max Groves to chair the consumer advisory council. Brooks and Groves are new to Telco One’s commercial world and they each grapple with Hunt’s neoliberal agenda. The council has to be solutions-based and identify new products and services. Brooks and Groves differ in their reactions to these pressures. Barr contrasts their experiences with their partners Karen and Nicole’s worlds of community radio and teaching.

 

Barr also has a few important ‘reality-check’ comments about Mason’s decision to shutdown Telco One’s research labs and instead create a senior management advisory. In the newly privatised Telco One, researchers now need to generate new revenues and have fundable research programs. Researchers can no longer be a cost centre or be solely reliant on government grants.

 

As Mason’s change agenda proceeds each of these characters faces career turbulence and ethical challenges. Some are able to thrive on the disorder and to emerge stronger: to be antifragile as philosopher Nassim Nicholas Taleb describes. Other characters make suboptimal decisions and must face the consequences. Mason’s change agenda thus acts as a sorting mechanism: a fictional depiction of the Tournament Theory process of economists Edwin Lazear and Sherwin Rosen, and the noncooperative Game Theory interactions of the late mathematician John Nash Jr (A Beautiful Mind). But Barr’s characters are not one-dimensional either, as Mason’s encounter with Aboriginal elder Amanyi Kunoth shows: he is deeply critical of Australia’s on-going mistreatment of its first peoples.

 

Grand Intentions is filled with Barr’s commentary and reflections on why telecommunications is the underlying infrastructure for today’s internet economy. It’s an opportunity to be privy to conversations inside corporations about growth initiatives that capture and sustain the media’s attention. It’s a cautionary guide for MBA graduates on how to accumulate power, navigate organisational politics, and climb the career ladder. Finally, Grand Intentions is poignantly candid about the human costs and casualties of disruption, and what winner-takes-all really looks like.

 

Grand Intentions is available in Australia from Readings and other good bookstores. Internationally, it is available from Book Depository (with free shipping), from AbeBooks resellers, and as an Amazon Kindle ebook.

15th June 2013: HFT, Disruptive Innovation & Theta Arbitrage

23rd July 2009 was perhaps the day that retail investors became aware of high-frequency trading (HFT).

 

That was the day that New York Times journalist Charles Duhigg published an article on HFT and market microstructure changes. Duhigg’s article sparked a public controversy about HFT and changes to United States financial markets.

 

Then on 6th May 2010 came the Flash Crash. HFT was again the villain.

 

For the past few years HFT has inspired both pro and con books from publishers. HFT has changed how some retail investors and portfolio managers at mutual and pension funds view financial markets. Now, Matthew Philips of Bloomberg Businessweek reports that 2009-10 may have been HFT’s high-point in terms of being a profitable strategy.

 

Philips’ findings illustrate several often overlooked aspects of Clayton Christensen‘s Disruptive Innovation Theory. Scott Patterson notes in his book Dark Pools (New York: Crown Business, 2012) that HFT arose due to a combination of entrepreneurial innovation; technological advances in computer processing power; and changes to US Securities and Exchanges Commission regulations. Combined, these advances enabled HFT firms to trade differently to other dotcom era and post-dotcom firms that still used human traders or mechanical trading systems. This trading arbitrage fits Christensen’s Disruptive Innovation Theory as a deductive, explanatory framework.

 

The usually overlooked aspect of Disruptive Innovation Theory is that this entrepreneurial investment and experimentation gave HFT firms a time advantage: theta arbitrage. HFT firms were able to engage for about a decade in predatory trading against mutual and pension funds. HFT also disrupted momentum traders, trend-followers, scalping day traders, statistical arbitrage, and some volatility trading strategies. This disruption of trading strategies led Brian R. Brown to focus on algorithmic and quantitative black boxes in his book Chasing The Same Signals (Hoboken, NJ: John Wiley & Sons, 2010).

 

Paradoxically, by the time Duhigg wrote his New York Times article, HFT had begun to lose its profitability as a trading strategy. Sociologist of finance Donald MacKenzie noted that HFT both required significant capex and opex investment for low-latency, and this entry barrier increased competition fueled ‘winner-takes-all’ and ‘race to the bottom’ competitive dynamics. HFT’s ‘early adopters’ got the theta arbitrage that the late-comers did not have, in a more visible and now hypercompetitive market.  Duhigg’s New York Times article wording and the May 2010 Flash crash also sparked an SEC regulatory debate:

 

  • On the pro side were The Wall Street Journal’s Scott Patterson; author Rishi K. Narang (Inside The Black Box); and industry exponent Edgar Perez (The Speed Traders).
  • On the con side were Haim Bodek of Decimus Capital Markets (The Problem With HFT), and Sal L. Arnuk and Joseph C. Saluzzi of Themis Trading (Broken Markets) which specialises in equities investment for mutual and pension fund clients.
  • The winner from the 2009-12 debate about HFT regulation appears to be Tradeworx‘s Manoj Narang who was both pro HFT yet who also licensed his firm’s systems to the SEC for market surveillance, as a regulatory arbitrage move. The SEC now uses Tradworx’ systems as part of the Market Information Data Analytics System (MIDAS, Philips reports.

 

Philips announced that HFT firms now have new targets: CTAs, momentum traders, swing traders, and news sentiment analytics. That might explain some recent changes I have seen whilst trading the Australian equities market. Christensen’s Disruptive Innovation Theory and theta arbitrage both mean that a trading strategy will be profitable for a time before changes in market microstructure, technology platforms, and transaction and execution costs mean that it is no longer profitable.