Worth Reading

Strategist Edward Luttwak on Atilla the Hun and the status of military historiographers in academe.

Barry Saunders on journalism in an age of data abundance.

The Kevin Rudd essay (PDF) that the geopolitics journal Foreign Affairs rejected.

How the collapse of Lehman Bros. created a global shockwave and the anniversarial debate.

Why the StatArb hedge fund Renaissance Technologies red-flagged Bernie Madoff in 2003 and the SEC report (PDF).

Rewriting the political punditry of military historian Max Boot and neocon Paul Wolfowitz, who calls for a rethink on realist foreign policy, despite critics.

View some free university lectures on Academic Earth and YouTube Edu.

Goldman Sachs’ Foresight Culture

Recently I posed two questions about Foresight in Organisations: What are are the intervention points?  After five or six years, who are the teachable case studies for successful implementation of the foresight function?

I’ve only read the Los Angeles Times and New York Times reviews but Charles D. Ellis’s The Partnership: The Making of Goldman Sachs (Penguin Press HC, New York, 2008) has some answers to both questions.

Ellis suggests Goldman Sachs has three intervention points to cultivate a foresight function: (1) a human resources function staffed by A+ people who recruit “A+++ people” usually in computational finance, financial engineering and statistical arbitrage; (2) an organisational culture tolerant of the “longer-term view” that is linked to the “[operational] details” necessary for strategic execution; and (3) a creative tension between past excellence and new frontiers.  Intriguingly, the “longer-term view” or “forward view” in Foresight parlance, emerges from people in a supportive culture who are faced with challenge at the boundary of the firm and the external competitive environment.

Two other biographies partially validate Ellis’s insights.

Perry Mehrling’s biography Fischer Black and the Revolutionary Idea of Finance (New York: John Wiley & Sons, 2005) and his working paper ‘Understanding Fischer Black‘ describe why Goldman Sachs recruited the economist Black: to tap his academic knowledge to design new financial instruments, and use his influence as coauthor of the Black-Scholes equation in finance to impress clients.

Emanuel Derman describes his Goldman Sachs collaboration with Black in My Life As A Quant: Reflections on Physics and Finance (New York: John Wiley & Sons, 2004) and how the firm benefited from the influx of PhD graduates in the 1980s.  Derman was bored at AT&T Bell Labs which had a reactive culture of research management.  He transitioned into Goldman Sachs’ fixed income division in 1985 and then moved to equities in 1990 where he thrived for the next decade in a culture that appreciated how conceptual expertise can underpin a firm’s competitive advantage in new growth markets.

The contrast was so different that I pointed Derman’s experience out in a private submission to Australia’s National Innovation System Review (aka Cutler Innovation Review) in comments about the institutional design and research management culture of Cooperative Research Centre consortia.  Maybe given the subprime fallout CRCs can also learn something from Goldman Sachs and Berkshire Hathaway‘s Warren Buffett who has now taken a $US5 billion equity stake in Sachs’ foresight culture.