Cloudy And Rich

Occasionally I am writing about Cloud Computing as an ameteur. I am writing because I really and strongly believe that Cloud Computing is some kind of cure to the IT companies struggling with the recession.Today I've just read about mass layoffs and outplacements of IBM (5000 people to the end of year, estimated) and Google (nearly 200) in US and yes sad but true. And I've read about Gartner's new predictions about Cloud Computing.Gartner report predicts Cloud computing revenue will soar faster than expected and will exceed $150 billion within five years. And One from IDC; Major shift to cloud IT services inevitableIT infrastructure and services delivered over the cloud will be ubiquitous within five years, and vendors that ignore the shift from on-premises software to Internet-delivered technology will be left in the dust, IDC analyst Frank Gens predicted at the IDC Directions conference in Boston on March 17, 2009.But I did choose to note about the hope.Here are the links (1) ,(2) for the original news.

CIOs & The Business Value

Well again a new and must read Article from McKinseyQuarterly about CIOs & The Business Value .The article bases to French best practices and analysis.But the coverage also includes and summarizes the global and international situation as well.As an addition you have to sign in to mckinseyquarterly.com as a member to read the full article ,as a member you can read this article for free,please click here to become a member and read the full article and for the conclusion. So , here are the 6 key headlines ;

1- Generating value-in-use

IT generates value at two complementary levels (Exhibit 1). The core asset value includes tangible items such as hardware and software, as well as softer benefits such as the IT organization’s processes and skills. IT’s vitally important value-in-use varies with a company’s core business priorities, such as whether it aims for an organizational transformation or operational excellence. A different set of metrics is needed to measure value-in-use, to account for both its economic and strategic dimension.

2- Optimizing investment value

Take the example of a group focused on optimizing investments among its various businesses—say, a banking group with multiple business units such as retail banking, consumer finance, capital markets, asset management, and the like. The economic value expected from the IT department can be measured through the improvement in the overall cost-to-revenue ratio, while the strategic value can translate into a competitive edge in terms of investment or acquisition capacity. (Since 80 to 90 percent of all synergies from banking mergers involve reducing the cost of operations, IT is indeed a key enabling factor during an acquisition.) The indicators that are tracked will be mainly financial, such as the ratio of IT spending to revenue, and will then be compared with the operating ratio—for example, operating costs over revenue

3-Measuring operations value

Similarly, in companies for which the priority is operational excellence (understood as quality and productivity of processes), the business value from IT will be measured in terms of key performance indicators (KPIs) at the process level. For example, IT will be seen as valuable if the systems helped to reduce the delay for processing an insurance claim or to ensure a no-error delivery of supplies to the production line .

At one global logistics company in our study, IT greatly improved supply chain operations—a key factor in a radical transformation—by helping the company to optimize its parcel-loading and truck-routing activities and to develop new value-added services, such as same-day delivery and made-to-order solutions for customers. IT also provided important data for more efficient risk management and better pricing.

4-Finding levers where IT and business units intersect

Traditionally, a CIO’s main responsibility has been using standard practices and performance measures to maintain IT’s asset value. Developing value-in-use is a different ball game, however, and CIOs need to examine new levers found at points where the IT department and the business units intersect . To succeed, CIOs must take on new roles—bridging functional silos—that may take them beyond their comfort zones. For one thing, they will need to collaborate with executives in the business units to work on major transformation projects, to coordinate strategic planning, or to manage investments collaboratively (see sidebar following this article, “Next steps: Identifying the challenges”).

5-Seeking alliances

Cementing new alliances within the organization is critical . A CIO in charge of optimizing IT investments at the group level will need to assume responsibility for managing a portfolio of investments. To do so effectively, the CIO will have to join forces with the CFO, who has expertise in maximizing returns on investment. If the corporate goal is operational excellence, HR is more likely to be the CIO’s preferred ally. This is due to the critical role of change management. Take the example of deploying a new enterprise-resource-planning (ERP) system: the critical challenge is ensuring that the target processes are codified correctly in the system, and that when it is implemented, the end users are sufficiently trained to effectively leverage the potential of the new tool. This requires a joint effort from HR and IT to synchronize and coordinate their tasks from the initial design to the rollout and subsequent life of the system.

6-Building better governance

The businesses that are the best at creating value-in-use, we found, embed their IT governance within the broader governance practices. In practical terms, this requires IT representatives to participate in company forums that traditionally have been the exclusive domain of business unit leaders. At successful companies, certain core business processes, such as managing the business project portfolio or determining the allocation of resources, dovetail with IT processes. This notion of an integrated business–IT governance model can also apply the other way around: we have witnessed examples of companies where strategic planning for IT actually serves as a platform for broader strategic planning by establishing mixed business–IT forums.

The Rise Of The Underground & The Next Billions

Today, afternoon I was @Bahcesehir University for my MBA class, Strategic Management Course. While I was waiting for the course hour and looking over the magazines ,newspapers etc, I just saw the article of Patric Barta of Wall Street Journal (Monday,March 16 2009) on pages 16 to 18, analyzing The Rice Of The Underground .Then now just about 15 minutes ago I saw an Article of HBR from Vineet Nayar , referring to a 44 pages report,analysis called The Next Billions . Is it a coincidence ? May be yes may be no ..see you in the next post..

Ian Davis's new McKincey Quarterly Article is a soft but powerful to read assesment about changing world and opportunities, you can read it here on my blog below or you can also read the original one by clicking here

The New Normal

The business landscape has changed fundamentally; tomorrow’s environment will be different, but no less rich in possibilities for those who are prepared.

It is increasingly clear that the current downturn is fundamentally different from recessions of recent decades. We are experiencing not merely another turn of the business cycle, but a restructuring of the economic order.

For some organizations, near-term survival is the only agenda item. Others are peering through the fog of uncertainty, thinking about how to position themselves once the crisis has passed and things return to normal. The question is, “What will normal look like?” While no one can say how long the crisis will last, what we find on the other side will not look like the normal of recent years. The new normal will be shaped by a confluence of powerful forces—some arising directly from the financial crisis and some that were at work long before it began.

Obviously, there will be significantly less financial leverage in the system. But it is important to realize that the rise in leverage leading up to the crisis had two sources. The first was a legitimate increase in debt due to financial innovation—new instruments and ways of doing business that reduced risk and added value to the economy. The second was a credit bubble fueled by misaligned incentives, irresponsible risk taking, lax oversight, and fraud. Where the former ends and the latter begins is the multitrillion dollar question, but it is clear that the future will reveal significantly lower levels of leverage (and higher prices for risk) than we had come to expect. Business models that rely on high leverage will suffer reduced returns. Companies that boost returns to equity the old fashioned way—through real productivity gains—will be rewarded.

Another defining feature of the new normal will be an expanded role for government. In the 1930s, during the Great Depression, the Roosevelt administration permanently redefined the role of government in the US financial system. All signs point to an equally significant regulatory restructuring to come. Some will welcome this, on the grounds that modernization of the regulatory system was clearly overdue. Others will view the changes as unwanted political interference. Either way, the reality is that around the world governments will be calling the shots in sectors (such as debt insurance) that were once only lightly regulated. They will also be demanding new levels of transparency and disclosure for investment vehicles such as hedge funds and getting involved in decisions that were once the sole province of corporate boards, including executive compensation.

While the financial-services industry will be most directly affected, the impact of government’s increased role will be widespread: there is a risk of a new era of financial protectionism. A good outcome of the crisis would be greater global financial coordination and transparency. A bad outcome would be protectionist policies that make it harder for companies to move capital to the most productive places and that dampen economic growth, particularly in the developing world. Companies need to prepare for such an eventuality—even as they work to avert it.

These two forces—less leverage and more government—arise directly from the financial crisis, but there are others that were already at work and that have been strengthened by recent events. For example, it was clear before the crisis began that US consumption could not continue to be the engine for global growth. Consumption depends on income growth, and US income growth since 1985 had been boosted by a series of one-time factors—such as the entry of women into the workforce, an increase in the number of college graduates—that have now played themselves out. Moreover, although the peak spending years of the baby boom generation helped boost consumption in the ’80s and ’90s, as boomers age and begin to live off of retirement savings that were too small even before housing and stock market wealth evaporated, consumption levels will fall.

Companies seeking high rates of income and consumption growth will increasingly look to Asia. The fundamental drivers of Asian growth—productivity gains, technology adoption, and cultural and institutional changes—did not halt as a result of the 1997 Asian financial crisis. And Asian economies—though they have rapidly deteriorated in recent months—are unlikely to be stopped by this one. The big unknown is whether the temptation to blame Western-style capitalism for current troubles will lead to backlash and self-destructive policies. If this can be avoided, the world’s economic center of gravity will continue to shift eastward.

Through it all, technological innovation will continue, and the value of increasing human knowledge will remain undiminished. For talented contrarians and technologists, the next few years may prove especially fruitful as investors looking for high-risk, high-reward opportunities shift their attention from financial engineering to genetic engineering, software, and clean energy.

This much is certain: when we finally enter into the post-crisis period, the business and economic context will not have returned to its pre-crisis state. Executives preparing their organizations to succeed in the new normal must focus on what has changed and what remains basically the same for their customers, companies, and industries. The result will be an environment that, while different from the past, is no less rich in possibilities for those who are prepared.

Future & Cloud - Tomorrow

As an addition to the Cloud & Electricity these 2 portfolio and wired.com Articles are strong enough to read for the issue.

The Future of Cloud Computing: A Long-Term Forecast

by Bryan Gardiner

Definitions first: What exactly is cloud computing? It goes by many aliases—utility computing, on-demand computing, grid computing—and encompasses at least four different business models. At its simplest, "the cloud" refers to data storage and number-crunching hosted by the likes of Amazon Web Services. Then there is the much ballyhooed software-as-a-service cloud—think Salesforce.com's customer relationship management products. Less well known is the platform-as-a-service cloud for remote software development, such as Google's App engine, and the business-process-as-a-service cloud for payroll, expense management, and the like.

These four dimensions of the cloud, while different in approach and implementation, are united by a common idea. The user rents computational time—or "pays by the drink" in I.T.-speak—and taps into it via the internet. The user's data and apps are "in the cloud," which is really just an effusive way of describing huge distributed data centers operated by companies like Amazon, Google, Microsoft, and IBM. Anything that goes on inside a desktop computer, or even a corporate data center, can, in theory, be ported to the cloud—saving huge amounts of money in the process. That's the hype.

Although small businesses have been quick to adapt, larger corporate customers have voiced plenty of concerns about handing over their operations to another company. They're worried about lost or stolen data. In this economy, they're also concerned about cloud providers going belly up. Indeed, hard-liners see the very concept of the cloud as a deeply unreliable security nightmare. In an ongoing survey conducted by the research firm IDC, almost 75 percent of I.T. executives and CIOs report that security is their primary concern, followed by performance and reliability.

Similarly, the cloud has been described as everything from "a trap" by GNU creator and Free Software Foundation founder Richard Stallman—one where companies like Google will force customers into locked, proprietary systems that will gradually cost more and more over time—to "fashion-driven" and "complete gibberish" by Larry Ellison, founder of Oracle. That's the backlash.

So cloud computing is at an awkward stage. Conventional wisdom has it as both the next big thing, and a fundamentally flawed idea. Obviously, it can't be both.

"It's definitely a new paradigm," sighs Rajen Sheth, senior product manager for Google Apps, but, he argues, reliability is a non-issue. In fact, "the cloud is less risky than on-premise systems," Sheth says.

The same goes for security. "Name one time when security was not an issue for businesses," scoffs Daryl Plummer, an I.T. analyst at Gartner, an I.T. research and advisory firm. "It's just one of those things people are always going to worry about—the perennial monster under the bed, ready to scare those who want to be scared."

"I think the real question is: More secure than what? More reliable than what?" adds Adam Selipsky, vice president of product management for Amazon Web Services. The cloud might not be perfect, he says, citing the company's Simple Storage Service's (S3) 99.9 percent network uptime, but it's very close. Compare that to the reliability of in-house systems.

According to study of Fortune 1000 companies by Infonetics Research, a large corporate network is typically hit with 1.76 outages per month, with the majority lasting more than 90 minutes. That same survey found an average of over 500 hours of network downtime per year, which works out to only a 94 percent network uptime rate.

Security is a harder metric to quantify, so to allay the fears of potential customers, cloud companies are putting their servers into fortified bunkers that easily outdo anything ever seen on Mission: Impossible. Salesforce.com's Fort Knox boasts round-the-clock security patrols, five levels of biometric hand geometry scanners, and even "man trap" cages designed to spring on those without the proper clearances.

Consider, too, the 69 computers that have gone missing from the Los Alamos nuclear weapons laboratory in New Mexico over the past two years. As Salesforce.com VP John Taschek notes, "when a user of a cloud-based service logs out of his or her computer, there's nothing left on the laptop to be lost or stolen."

Yet despite all the efforts Google, Amazon, Microsoft, and others put into making the cloud feel safe and fluffy enough for big corporate I.T. managers, there's a good chance they will never be convinced. For many, there's simply a philosophical commitment to keeping physical control of data. If so, then the cloud will only come of age after the current generation of corporate decision-makers is ousted.

According to Gartner, that will be in about 10 years, when somewhere between 40 and 60 percent of the U.S.'s current I.T. workforce is expected to retire. Those I.T. workers will take with them implied assumptions about how businesses should work, and will be replaced by a new breed of tech guy who has grown up in the Web 2.0 era. He uses Gmail, Facebook, Twitter—indeed, he's been weened in the cloud—and looks on their elders' deep concerns about those systems' "reliability and safety" as exaggerated and quaint.

"Basically, we heard these same arguments used against the internet," says Plummer, confident that eventually all corporate computing will be outsourced to the cloud. "Look what happened there. At some point, people just adapt or get left behind."

You can view the original Article by clicking here or copy & paste the url http://www.portfolio.com/views/columns/dual-perspectives/2009/03/09/A-Long-Term-Forecast to your browser.

Future & Cloud - Today

As an addition to the Cloud & Electricity these 2 portfolio.com Articles are strong enough to read for the issue.

The Future of Cloud Computing: Today's Weather Report

by Todd Woody

Talk about remote control: When Eli Lilly’s Dave Powers needs to fire up a rack of servers so scientists can run an experiment modeling, say, a potential blockbuster drug, he pulls out his iPhone and taps the screen. When the job is done, he flicks his finger and the computers disappear. Literally.

That’s because they don’t really exist—at least not on the premises of the pharmaceutical giant. They’re located in the “cloud,” or to be more exact, at one of Amazon.com’s massive data centers. Lilly rents computational time from the virtual vendor, paying only for the firepower it needs at any given moment. When a job is done, the meter stops ticking.

“While we’re talking I can take out my iPhone and literally spin up a 100-node Linux cluster and do some genomic analysis and it’ll cost $10,” says Powers, an associate information consultant for Eli Lilly’s research and development unit. “When we’re done, we tear it down. We don’t own it and we don’t pay for the costs of storage, the data center, or the people to support it.”

In the old days—nine months ago—it would have taken seven to eight weeks for Powers to deploy enough servers in a Lilly data center so scientists could conduct that experiment; today, it takes five minutes to get them online at Amazon. “I can go to a scientist and say ‘I can give you eight weeks of time for your research, what’s that worth to you?” notes Powers.

Startups and small businesses were the first to embrace cloud computing, in some cases offloading their entire I.T. operations. But Fortune 500 companies are also starting to look skyward. “In terms of trends, a lot of people are doing what I call science experiments, investigating using the cloud informally or for large-scale computer jobs that run infrequently,” says Joseph Tobolski, director of infrastructure R&D for Accenture, the global management consulting and technology-services company.

Driving the move online is the bleak economy and budget-slashing bean counters. “Every CIO I speak with is looking to avoid capital expenditure and decrease risk,” says Adam Selipsky, Amazon Web Services’ vice president of product management and developer relations. “They’re trying figure out how to do the same or more with less.”

Tobolski estimates the savings from cloud computing can be substantial. A recent Accenture report that he co-authored cited the example of a global logistics company that could spend $4 million to buy 150 servers plus $1 million in annual software license fees. Contrast that with the Amazon cloud services fee of $131,000 a year for everything—a price not much more than the $70,000 a year that would be needed just to keep the in house servers powered up.

Powers has yet to calculate the dollars-and-cents savings that came from moving some of Lilly's R&D to the cloud. But he says that leaving the company’s in-house data centers behind has already unleashed his scientists' creativity. Now Powers can launch unique computing environments on the fly for scientists’ individual projects. That allows them to quickly test hunches that in the in-house computing era would have gone unexplored.

When it comes to cloud computing, the only problem, says Tobolski, is that “the hype level is at DEFCON 2” and the whole concept needs a reality check. No large company is going to scrap all its data centers and beam its entire IT operation into the clouds. Rather, the future, he says, probably will belong to the hybrids—those companies that combine a private in-house cloud for mission-critical operations while using the public cloud for more routine back-office work and heavy-duty computing like Lilly’s pharmaceutical research.

The key, according to Tobolski, is to carefully evaluate which jobs are most suited for cloud operations and in what order they should be moved out of the in-house data center. Security, privacy and the reliability of the cloud continue to be concerns as well as worries about tying one’s corporate fortunes to a cloud provider’s proprietary format. Powers concurs, noting that Lilly didn't just dump existing IT operations on remote data centers; rather they took the time to redesign internal processes to best exploit the cloud’s computing power. “The cloud is not the cure for cancer," says Tobolski, "but there are tremendous opportunities out there.”


You can view the original Article by clicking here or copy & paste the url http://www.portfolio.com/views/columns/dual-perspectives/2009/03/09/Todays-Weather-Report to your browser.

Cloud & Electricity

According to Andy Patrizio, the process that Cloud Computing in , is very similar as of Electiricty. Interesting comparison to read. You can also read this and that for an altenative vision or may be a solution to some problems. Here is what Andy Patrizio says;



The New Utility: Cloud Computing

March 6, 2009
By Andy Patrizio



Cloud services will be what the electrical grid was a century ago: the basis for a whole new set of services, markets and possibilities that can change the way we live and operate, but also threaten the dominant computing hierarchy, said Nicholas Carr, controversial author of Does IT Matter?, in his closing keynote speech at the IDC Directions '09 conference. The theme of the day was cloud computing.

Carr's 2008 book The Big Switch compared cloud computing with how electricity was generated a century ago, and his speech built on that. Back in the 1800s, individual businesses built their own power generators. Sitting next to a company, whether it was a steel mill or a factory, was its own power plant. The advent of Thomas Edison's direct current (DC) power allowed for the creation of power plants that let companies simply pay for it from a third-party. DC power had a short transmission length, however, and in 1910, 60% of firms still generated their own power.

It was the arrival of alternating current (AC) from mad genius Nikola Tesla that allowed for long distance power transmission. Now, we're all plugged into the power grid and our lights, appliances and computers are powered by giant utilities. Carr didn't have a modern day equivalent to Tesla, but believes AC has arrived in the form of cloud computing. "We are moving today to a different assumption, where more and more it capabilities and services and assets will be supplied as services over a network," he told the audience.

Essence of Virtualization

Computing power has become so cheap today, you can take things that existed as hardware, servers and storage, and turn it into pure software and run it on other computers, Carr said. "This is the essence of virtualization," he said. "The price of computing will go way, way down and accessibility of computing will go way, way up. That will force companies to re-think how they build their products and connect with customers."

He quoted Eric Schmidt, current CEO of Google, who said back in 1993 when he was CTO of Sun Microsystems: "When the network becomes as fast as the processor, the computer hollows out and spreads across the network."

The Internet is becoming exactly what Schmidt predicted, Carr said, "a shared computer everyone can tap into and use for whatever, and at a price much cheaper than before."

Moving to on-demand computing means a much greater pairing of capacity and demand, as companies will pay for what they need, as opposed to maintaining this steady amount of capacity that's sometimes underutilized, other times over utilized. Capacity can adjust to customer needs and they only pay for what they need. To illustrate his point, Carr cited a big computing job at The New York Times. The venerable newspaper had scanned all of its issues dating back to the mid-1800s in TIFF file format, which is very big.

Faced with converting 4TB of TIFF files to something more usable, an IT staffer at the Times rented time on a 100 virtual machines on Amazon EC2 to convert all the TIFF files to PDF, which is smaller, lighter and easier to transfer over the Internet. The job was done in 24 hours and cost $240. It was a lot cheaper than tying up Times company servers for hours or days on the conversion—assuming the company had the horsepower to spare.

"I don't think companies have realized what this is going to mean," said Carr. "Not only what they can do quickly and cheaply without having to make a big investment, but the IT department won't be the bottleneck for big computing jobs within the company."

You can view the original Article by clicking here or copy & paste the url http://www.cioupdate.com/features/article.php/3809146/The-New-Utility-Cloud-Computing.htm to your browser.

What did JP Morgan forsee for 2009 Internet Industry ..

After receiving Alex Goldman's (internetnews.com) sentences of a JPMorgan report about Internet Acquisitions, about Large companies will buy smaller firms for their technologies instead of investing in R&D and for sure I am totaly agree with Mr. Goldman. Then thought that,there must be a report of what did JP Morgan forsee about 20O9 internet investments, downloaded to somewhere in my desktop..so here is the report, I frankly want to share. And you can also read Alex Goldman's 09 March 2009 dated internetnews.com article below,



New Wave of Internet Acquisitions May Be Ahead
Large companies will buy smaller firms for their technologies instead of investing in R&D.
March 9, 2009
By Alex Goldman: More stories by this author:

A new report from J.P. Morgan suggests that the future of Internet business starts with consolidation in 2009, as the biggest companies buy the best of the small.

With the economy approaching zero or even negative growth, Internet companies are still under pressure to grow -- and the only way to do so is through acquisitions, J.P. Morgan Analyst and Managing Director Imran Khan wrote in a report.

Large companies have every reason to put money into mergers, he added.

For one reason, the stock price of smaller companies (those with market capitalizations under $1 billion) is getting cheaper, while the stock of larger companies (those with market caps over $5 billion) is not. While large companies' stock prices remains close in value now to their value at the start of the year, the stock of small companies has fallen in value by 23 percent, on average -- potentially making them a steal.

At the same time, acquisitions would give large companies access to the fruits of smaller companies' research and development, which is becoming increasingly critical as they trim their own research budgets. According to Khan, large companies have decreased the rate of growth of investment in R&D from 25 percent a year ago to a projected 9 percent this year.

Many large companies also still retain a significant cash hoard, Khan added. The five largest Internet companies -- Amazon (NASDAQ: AMZN), eBay (NASDAQ: EBAY), Google (NASDAQ: GOOG), Priceline (NASDAQ: PCLN) and Yahoo (NASDAQ: YHOO) -- together have a total of $26.8 billion in cash on hand.

Add related cash-hoarders Microsoft (NASDAQ: MSFT) and Cisco (NASDAQ: CSCO), and the total cash available for acquisitions balloons to $76.7 billion, Khan said.

Coupled with the fact that their stock prices have remained relatively stable, that mass of wealth gives large-cap companies plenty of options to do a deal whether they wish to use cash or stock.

So where will they start shopping?

Khan describes in very specific terms what acquirers are looking for.

"We believe the attributes that potential acquirers will seek include: 1) brand strength of the target, 2) product leadership, 3) ease of integration, and 4) barriers to entry," he wrote.

He names two companies that are strong in all four of the above categories: Web analytics firm Omniture (NASDAQ: OMTR) and Latin American e-commerce platform Mercado Libre (NASDAQ: MELI).

Of course, the stock of Omniture and Mercado Libre is relatively expensive because the companies are able to charge the stock market a premium for an investment in their relatively strong and safe position.

Shares of OMTR were trading up 1.88 percent to $10.28 by late afternoon today, while shares of MELI were down 3.23 percent, to $14.10.

For the Original Article Click Here Or Copy & Paste http://www.internetnews.com/bus-news/article.php/3809351/New+Wave+of+Internet+Acquisitions+May+Be+Ahead.htm to your Browser

Last Night, I was reading the HBR's Kathleen Carr...

Last Night, I was reading the HBR's Kathleen Carr Article Winning in Turbulence: Pursue Game-Changing M&A and Partnerships ,above all the sentences and word and etc. written , only this short sentence sparkled, twinkled to me much more then the others. This, " The key in strategic deals or alliances is the same: to strengthen the core and stay flexible " summarized all the story.. Well then if you want to have a look, you can also click here or copy & paste the url http://ceomemo.harvardbusiness.org/2009/03/4_winning_in_turbulence_pursue.html to your browser.

PS: For the pdf version try this or http://tinyurl.com/b39k3

Well... Again a Knowledge@Wharton coverage helps to..

Well... Again a Knowledge@Wharton coverage helps to see the beyond of the crisis.It was benefiting for me ,so I hope same for you too.

A World Transformed: Panelists Look Beyond the Crisis

Published: March 04, 2009 in Knowledge@Wharton

Most Americans don't need a university professor to tell them that the economy is in trouble. Hard luck stories are everywhere, linked to the country's rising unemployment, snowballing foreclosures, skidding stock prices and billion-dollar bank bailouts.

But many still wonder when the tide will turn. Could the United States be on the cusp of another Great Depression? Will the most recent government stimulus get us out of this hole or dig us in further? And what should we do to make sure an economic crisis like this never happens again? These were some of the questions a panel of University of Pennsylvania professors tackled last month at the inaugural David and Lyn Silfen University Forum, organized by Penn president Amy Gutmann and titled, "After the Fall: A World Transformed?"

Two Videos from the Forum: The Roundtable Discussion followed by the Q&A

Drawn from Wharton, the University's law school, and Penn's political science and economics departments, the professors debated the severity of the crisis and how long it would endure. While there was not a lot of consensus, the panel did agree on a few things. First, this crisis is big, it's bad and it probably won't be short-lived. According to corporate law professor David Skeel, nobody really knows when the economy will bottom out, "but a consensus answer is that nobody thinks it's going to be over soon. It's not going to be two or three months. It's going to be a year, two years, three years, four years."

When the recession began is a bit more certain. Although official numbers say it started in December 2008, the real drop in the economy began in September 2008, according to Wharton finance professor Richard Marston. "In September, it got terrible and, as a result, consumer confidence fell, business confidence fell. In my view, that was the beginning of the recession." The numbers bear that out. The bulk of the 3.5 million jobs lost since the beginning of 2008 came in the last five months, Marston said, adding that 600,000 jobs were lost in January 2009 alone. "You're going to want to hope that you're a sophomore," Marston commented to the students in the audience, "because as far as jobs are concerned, I think it's going to be a bad job market through 2010.... Next year is going to be a very tough year for jobs."

Most of the panelists agreed that job growth would probably not turn around before 2010. Penn political science professor Donald Kettl predicted the economy might not regain its footing for another two years. When the economy does turn around, it's not clear how quickly the recovery will take hold. "Is it a V?" which, because of its shape, is often used to describe a period of short and sharp decline followed by a strong recovery. "Or is it a U with a long bottom?" Kettl asked. "Nobody knows."

Nevertheless, comparisons of the current economic crisis with the Great Depression were classified as "ridiculous" by Penn economics professor Harold Cole. "The standard of comparison should be post-war recessions," Cole said. "There are post-war recessions which look substantially worse." A comparison of today's "real side" numbers -- such as economic output, employment and productivity -- reflect an economic downturn that is mild compared with the 1930s. For example, output per hour (GDP per adult) was down 42% in 1933 relative to 1929, Cole said. Today, output has dropped only about 0.2% from its peak.

One of the biggest differences between now and the Great Depression is the breadth of the economic crisis, the panel agreed. Today's crisis spread quickly around the world, Kettl pointed out. "The perception is that this is big and broad and global. There's the sense of the news cycle out there which tells everybody whether things are better or worse.... The anxiety spreads around very quickly, and because [the downturn] is rooted in housing, it's unclear where people are going to go. It's not clear what is safe anymore."

Relying on 'the Kindness of Strangers'

The current crisis also differs in some ways from previous banking crises such as Japan's in the 1990s, said panelist Jennifer Amyx, a Penn political science professor who focuses on the economy of East Asia and has written extensively about Japan. "The U.S. crisis is much larger in scope because it had securitized assets," noted Amyx, referring to the process of bundling mortgages and selling them to investors who have no relationship to the borrower.

"One thing the U.S. has done well is recognize the problem quickly," Amyx said, "but the U.S. is not as well positioned going into this crisis. Japan had high savings rates. The debt was to Japanese households, not spread around the rest of the globe. The U.S. has zero household savings.... We're relying on the kindness of strangers and foreign investors to finance the stimulus that we need to get us out of this crisis."

The interconnectedness of the world's economy and financial systems has also made today's crisis more global than in the past. Problems caused by mortgage-backed securities spread like a virus through world financial systems. Other countries, especially those dependent on exports to the U.S., are struggling to cope with a problem they didn't create. "This is something that has hit every country around the globe regardless of their history," Amyx said. "Many people [in the U.S.] are thinking about jobs and their pensions, but there are a lot of other people in countries out there who have just been dropped below the poverty line."

The degree and depth "of resentment and frustration that this crisis is going to generate -- has already generated -- around the globe is under-appreciated here in the United States," added Amyx. And yet the U.S. is more likely to come out of this recession more quickly than countries such as Japan or China. "Many other countries are going to be feeling this for years."

Because the crisis has spread worldwide, the United States needs to consider the global impact of the steps it takes to alleviate the crisis, panel members suggested. "Never assume you can't make a bad situation worse," Kettl stated. "We have in our power the ability to really make this one worse if we engage in massive protectionism." For example, "we could put in anti-competitive efforts in the attempt to restructure the auto industry."

According to Cole, too much government intervention could hurt the U.S. as well. "You can do very negative things in terms of intervening and interfering with the markets. There are some things we can learn from the Great Depression and some fairly negative things we can learn about the New Deal.... They put in place a very anti-competitive ... set of policies that are commonly called the National Recovery Act. My own research argues that these were important factors in dragging out the Great Depression after 1933."

Amyx noted that during Japan's financial crisis in the 1990s, many government measures didn't work. "Japan had five injections of capital into banks. So one clear lesson is that, in terms of re-capitalization, the government needs to do its due diligence." Japan also spent massive amounts of money on fiscal stimulus. "It didn't work; it didn't get Japan out of the recession." One reason: Japan's political battles at the time. "The fiscal stimulus was directed in very political ways. It had nothing to do with where the economy was going. So I think one of the lessons is that [fiscal stimulus] needs to be done judiciously."

The U.S. can also learn from the fact that Japan's turnaround took hold when the government was finally able to stop propping up the market, according to Amyx. So as the Obama Administration considers its stimulus programs, it should keep an exit strategy in mind. "It's very common for governments to come in and create institutions to jumpstart markets," said Amyx. "The difficulty is to withdraw that support."

But even the government's focus on stimulating the economy may be misdirected, Kettl suggested. "The real problem is that we have been playing the wrong kind of politics so far. We have allowed this debate over the stimulus to dominate everything else -- and have spent a lot of money that we probably didn't need to spend to get a stimulus that's not going to help very soon -- instead of working on trying to fix the banking system. The stimulus is not going to matter unless the banks get fixed. So ultimately, none of this is going to matter without focusing on the central problem -- which nobody really knows for sure how to attack right now."

Marston advised the Treasury to be as innovative in its approach to the bank bailout as the Federal Reserve has been about the commercial paper markets. "The Fed has been heroic," Marston said. "The Fed has basically re-written its rulebook in the last five months."

When the commercial paper markets seized up in October, the Fed "realized that the only way short-term security markets could start working again is if they took things into their own hands," Marston noted. "The Fed said there has to be a commercial paper market in this country, so we're going to invest in commercial paper to the tune of $200 billion. By doing this, they restarted the commercial paper market. So today, the Fed is withdrawing from the commercial paper market. It's now on its own.... And as a result, the short-term securities market has come back."

Stuck Paying the Bill

Meanwhile, there is no shortage of grass-roots support for slapping new rules on the banking system. "Many ordinary American citizens are concerned to the point of being angry about the bailout of the banking industry," said Gutmann, who acted as the panel's moderator. "They suspect the government is taking failing banks out to dinner and leaving ordinary taxpayers with the check."

Indeed, the crisis may present an opportunity to rethink the way the government regulates banks.

"I think one of the most important things we can do right now is to restore and create new, more effective regulations," said Skeel. "One place I think this crisis does look a lot like the New Deal is that in the New Deal, our financial services and securities regulation got a stress test. And they failed that stress test. It was clear that in the 1930s our banking and securities regulations were not up to the task of overseeing the problems at the time. We're in exactly the same kind of position now. Our financial services regulation is not prepared to deal with this kind of crisis. One of the questions we need to be asking is, are we going to have another crisis like this in 10 or 15 years? And if we don't want one, what are we going to do to try to prevent it?"

One of the few "silver linings of a crisis is that you get popular attention on issues like fixing our banking system," Skeel noted. "You can make changes that are good for a generation. That's what happened in the New Deal. Roosevelt passed securities regulation that was good for 50 years." Added Cole: "A lot of what we need to do is roll back our regulatory structure to what it was in 1980. We want to go back to trying to put in place a fairly stark regulatory structure for our financial markets."

But turning the clock back 30 years could prove difficult, Kettl said, given how the world has changed. "American autonomy in this might not be quite what it was before. We may not be able to roll back to 1980. There may be a lot of other countries that are going to have real concerns about how we allowed [ourselves] to get them into all this trouble. There's going to be a lot of real international pushback."

The U.S. also has "to recognize that we've had an abnormal situation in our country with consumer finance," Amyx said. "There's no society around the globe, no country where you could talk about the sub prime mortgage issue -- about the way Americans could get mortgages -- and have any empathy for what's happening right now in the United States. It's abnormal, and we need to change expectations."

"A lot of what's going on is about how much risk an individual can take," added Kettl. "We are increasingly looking to government to protect us from the risk.... In case after case, we are looking to government to provide these protections, but at the same time we talk about the need to assume more responsibility. There's a fundamental conflict here. And at some point we're going to have to come to terms with what the implications for that might be."

Skeel boiled the issue down to a single query. "I think we really need to re-think all the subsidies we give to people who are buying houses and all the pressure we put on lenders to lend into the housing market, and ask the question: 'Can everybody genuinely afford to have a house?'"

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For me , a strong In-Depth look to the buzz, I strongly recommend you all to read this Knowledge@ Wharton article

For me , a strong In-Depth look to the buzz, I strongly recommend you all to read this Knowledge@ Wharton article,

The Buzz Starts Here: Finding the First Mouth for Word-of-Mouth Marketing

Published: March 04, 2009 in Knowledge@Wharton

Call it viral, buzz or word-of-mouth advertising: Getting customers to spread the word about a new product through their social or professional networks is a hot strategy in the marketing world. Its proponents insist that the technique -- whether online or face-to-face -- is sure to boost a company's return on investment (ROI).

But how can companies find the right individuals to deliver the message? Marketers may wonder if they are finding the best "seeding points" -- that is, well-connected people at the hub of social networks who will latch on to a product and promote it widely among the people they know.

New research led by Wharton marketing professors Raghuram Iyengar and Christophe Van den Bulte, working with University of Southern California preventive medicine professor Thomas W. Valente, has found that traditional targets may not be as influential as previously thought. The pharmaceutical firm that sponsored the research for their recently published paper, "Opinion Leadership and Social Contagion in New Product Diffusion," had its "a-ha" moment when they found Physician No. 184 on a map.

The map was part of the researchers' presentation that reported the results to the sponsoring firm. Charted on the map was a tangle of points and lines representing physicians practicing in a large city and the connections between them. Researchers had tracked how prescriptions of a new drug spread from one physician to another, depending on who talked to whom and referred patients to whom.

Mapped out on the screen, the story became clear: The medical community was actually divided into two sub-networks split apparently by ethnicity, with one sub-network dominated by physicians with mostly Asian names and the other with mostly European names. Connecting the two, like a spider suspended on a thread between two webs, was the dot for Physician No. 184 -- a doctor the company's marketing department and salespeople barely knew.Not only did the study indicate that word-of-mouth had been affecting physicians' prescription behavior -- even after controlling for the effect of sales calls (referred to as "detailing visits" in the pharmaceutical industry) -- but it also showed that converting the right individual could have a dramatic impact. And for executives in the conference room, it revealed something else: They had been overlooking some of the networks' most important social hubs.

"That was the biggest 'aha!' for the company," said Van den Bulte. Physician 184 "was not the most important in the number of connections he was getting, but he was vitally important in linking the networks."

Who's the Leader?

The study indicates that the spread of a product by word-of-mouth -- what the authors call "contagion" -- can and does happen over social networks. The study also indicates that marketers may need to re-think whom they identify as the best seeding points in their word-of-mouth campaigns.

Traditionally, drug companies have focused their efforts on reaching notable community leaders, believing well-known experts to be the most effective emissaries of a new product. In other industries, said Iyengar, marketers and their market research companies have tried to find opinion leaders through direct surveys, asking people, in essence, "Are you an opinion leader?" and then linking those answers to observable characteristics such as age, income, education level, media habits and so on. That, however, has proved rather ineffective, leading some companies to give up on finding seeding points and go for flashy "buzz" campaigns everyone talks about, such as when British fashion retailer French Connection UK put its four-letter acronym in large letters on its bags and shopping windows.

Both of those approaches differ from those used by sociologists and network researchers, who focus on how people interconnect. For example, to identify the most influential leader in a medical community, a sociologist would ask, "Whom do you turn to for advice for treating this kind of ailment?" The different approaches can produce widely different results, the study found.

The researchers tracked the behavior of physicians in three cities -- San Francisco, Los Angeles and New York -- looking specifically at how quickly they started prescribing a new drug to treat a potentially lethal disease. The study started by identifying the physicians who were active in treating the condition during the two years before the drug's launch. Researchers then surveyed those physicians and identified a group of what researchers called "self-reported opinion leaders," doctors who reported themselves to be well-connected, influential members of the community.

The researchers also asked all physicians to name up to eight other doctors with whom they felt comfortable discussing the clinical management and treatment of the disease, and up to eight doctors to whom they typically referred patients. These nominations from fellow physicians produced a second group, whom researchers called "sociometric leaders" -- the most influential and well-respected physicians in the community based on how often they were mentioned by their peers.

"Our study shows that these two measures of opinion leadership do not overlap very well," said Iyengar. "Asking people how important they are is not the best measure of how important they really are. Just because people think they're important doesn't mean it's true. And some people are actually more important than marketers believe, or even they themselves believe."

Physician 184, for example, didn't fit the description of [an individual] who marketers thought would be the most effective promoter of their product -- an outgoing, high-profile doctor whose name often pops up on research papers or on conference speaker lists. "Physician 184 was self-effacing. He did not want to stand on a soap box," said Van den Bulte. "He was respected, but not in a flashy fashion. He was the opposite of a rock star."

Reputation Matters

Physician 184 didn't stand out as a "self-reported opinion leader," but he did stand out in the second group. He was known widely in the local community because he was very involved with treating patients suffering from the disease, and worked tirelessly and closely with colleagues to solve problems and get things done.

Matching the network data with prescription records, the study showed that sociometric leaders like Physician 184 were quicker than the self-reported opinion leaders to use the new drug, and were also more likely to influence other physicians to try it. The study also found that sociometric leaders did take into account what their colleagues were doing. For marketers, this implies that word-of-mouth can affect opinion leaders as well as followers, in contrast to what is often believed and taught -- that only followers are affected by social influence.

Although self-reported opinion leaders were quick to adopt the new drug, they lagged behind the sociometric leaders identified by their colleagues, the study found. The researchers speculate that this was because the self-reported opinion leaders, identifying themselves as having above average status, are less interested in what others are doing. "The people who believe themselves to be opinion leaders are less affected by others," Iyengar said. "These are guys who say, 'I know I'm important. I don't need to care about what other people are doing.'"

The pharmaceutical company found the research so intriguing that it commissioned a similar study, Van den Bulte said. Researchers subsequently collected data for several cities in China where the company planned to launch word-of-mouth marketing efforts targeting sociometric, rather than self-reported, opinion leaders.

Meanwhile, Rivermark LLC, the marketing research company in Lambertville, N.J., that connected the Wharton researchers with the drug company for the first study, recently contacted Iyengar and Van den Bulte about conducting another study. "What is happening now is that people in the pharma industry are starting to wonder how to best re-allocate their marketing efforts to leverage the power of word-of-mouth and they want hard evidence about what works or not," Van den Bulte said.

In the new study, the company has decided to re-deploy its sales force in three cities, reassigning its salespeople to target physicians who are sociometric opinion leaders, rather than self-reported leaders or high-profile research experts. As part of the effort, the company has even tweaked its lists of physicians who are invited to speak at seminars and other events.

The study will compare a year's worth of sales in the three cities with three other similar cities in which the sales force makes no change in strategy. The new sales figures will also be contrasted with sales figures in the previous year.

"This second study tries to answer the question of whether corporate marketers can actively leverage opinion leaders to turbo-boost their marketing ROI. This may well be the very first academic study open to peer-review that investigates this in a clean before-after, test-control field experiment," said Van den Bulte. "The data is still coming in, but the early results are encouraging."

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