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75 Ping Fu’s executive memoir

75 The networked world

76 A.G. La�ey plays to win

HAVE you ever met anyone who hasgrown rich just by saving? Probably

not. But you may well have met someonewho has grown rich looking after otherpeople’s savings. That dark secret lies at theheart of �Pound Foolish�, Helaine Olen’sexcellent book, a contemptuous exposé ofthe American personal­�nance industry.

With icy logic, Ms Olen, a journalist,demonstrates that much of the advice giv­en by moneymaking gurus on televisionor in print is either fatuous or based onridiculously optimistic assumptions aboutfuture investment returns. Take the ideathat saving the cost of a daily latte andinvesting the proceeds in the stockmarketwould make you rich. Saving $3 a day, or$1,100 a year, might be a sensible economymeasure but it won’t build a fortune.

Such faddish ideas are the �nancialequivalent of miracle diets. A belief ininstant riches lured millions into buyinginternet stocks in the late 1990s or over­priced houses in the middle of the past de­cade, when any personal­�nance adviserworth his salt should have been advisingclients to run in the opposite direction. Butoptimism sells, and realism tends not to.

As well as bad advice, the gurus haveplenty of expensive products to �og�fromcourses that teach people how to become

better real­estate investors to brandedgoods like a $49.99 canvas laptop bag or a$34.98 silver leather wallet. By the time cli­ents have bought all the books, attendedthe courses and stocked up on the accesso­ries, someone has de�nitely become rich,though probably not the saver.

Savers make all sorts of rookie mis­takes�from following the stock tips toutedon television to paying through the nosefor complex �nancial products when sim­ple low­cost alternatives (like index­track­ing funds) are available. And debtors aresimilarly foolish, running up big bills onhigh­charging credit cards. Perhaps suchlessons could be rammed home by �nan­cial­literacy courses but Ms Olen is cynical,noting that many courses are sponsoredby �nancial­services companies, creatingan obvious con�ict of interest.

Indeed, this is one of the central pro­blems of personal �nance�how to get ad­vice to apathetic consumers. The unwill­ingness of consumers to pay for advice hasled to hard­selling, high­charging sales­men taking over the industry. Britain hasjust reformed its payment system for �nan­cial advice and if Ms Olen’s book has afault, it is the lack of an international per­spective o�ering such examples. The per­sonal­�nance pages of British newspapersare doughty champions of consumerrights. While she rightly attacks the high­cost annuities sold to American consum­ers, she might have re�ected that the kindof low­cost annuities sold in Britain ensurethat retirees do not outlive their savings.

But Ms Olen is right to home in on thebiggest problem that personal­�nance gu­rus neglect; people earning $20,000 a yearwill struggle to pay for the basics in life andwill simply not be able to save their way toa life of comfort, let alone riches. As MsOlen concludes, �We do not live in an eco­nomic environment that will permit masspersonal­�nancial progress, no matterhow well meant the guidance or advice.�

Like Ms Olen, the latest book from JackSchwager, best known for his �Market Wiz­ards� books based on interviews withtraders and fund managers, takes a potshotat TV stockmarket tipsters. A four­yearanalysis of the share recommendations byJim Cramer, star of CNBC’s �Mad Money�,shows that while the stocks rose on the dayhe mentioned them, they underper­formed the market over longer periods.The experts polled by Louis Rukeyser on�Wall Street Week� (a programme on pub­lic television) proved to be almost perfectcontrarian indicators; they were most bull­

Business books quarterly

Personal �nance

Ghastly gurus

The best advice is to keep your wallet closed

Pound Foolish: Exposing the Dark Sideof the Personal Finance Industry. ByHelaine Olen. Portfolio; 292 pages;$27.95 and £17.99

Market Sense and Nonsense: How theMarkets Really Work (and How TheyDon’t). By Jack Schwager. Wiley; 343pages; $40 and £26.99

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74 The Economist January 12th 2013

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The Economist January 12th 2013 Business books quarterly 75

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ish in December 1999, at the peak of thedotcom bubble.

Mr Schwager’s book starts o� withplenty of sound, basic advice�beware ofassuming that past high returns can bemaintained, for example�before expertlydemonstrating that a leveraged exchange­traded fund (a fund that promises to deliv­er an enhanced market return) is a dreadfulinvestment because of its structure, beingalmost bound to disappoint.

He then moves on to more sophisticat­ed measures of risk, rightly pointing outthat �faulty risk measurement is worsethan no risk measurement at all, because itmay give investors an unwarranted senseof security.� As the book develops, begin­ners may start to struggle with mathemati­cal concepts, such as Sortino and Calmarratios, that regularly get trotted out.

Oddly, this curate’s egg of a book thenveers o� in a di�erent direction�a lengthydescription and defence of the hedge­fundindustry. Mr Schwager demonstrates thathedge funds are less risky than many mu­tual funds, but he does not really deal withthe central issue; that their fees are too highfor the returns they deliver. One suspectsthat Ms Olen would respond to his conclu­sion that �hedge funds are a desirable in­vestment even for unsophisticated, lower­net­worth individuals� with a loud, andwell­deserved, raspberry. 7

�THERE are three friends of winter: thepine tree [strength], the plum blos­

som [courage], and bamboo [resilience],�Ping Fu was told as a child on the eve ofChina’s Cultural Revolution. �When youare like the three friends of winter, you takeeverything in your stride with grace.� MsFu has clung to these words ever since. To­day she lives in North Carolina, and lastweek agreed to sell her company, Geo­magic, to 3D Systems, one of the biggestproducers of 3D printers, where she willbecome chief strategy o�cer. The com­pany she founded produces 3D imagingsoftware and has worked with Boeing,Fisher­Price and NASA. It has made perso­nalised prosthetic limbs and customisedinvisible teeth aligners. She has even usedthe technology to print her own shoes.

Yanked aged eight from her warm,highly educated Shanghai family by Chair­man Mao’s Red Guards, Ms Fu wasdumped in a dank dormitory to look after

her baby sister. They lived on rations andfurtive acts of kindness. Gang­raped andbeaten, Ms Fu survived by secretly readingbooks smuggled in by her Uncle W, be­tween factory shifts and foraging for scrapswith which to make watery soup.

On Chairman Mao’s death in 1976 MsFu rushed to enroll at university. She wroteher dissertation on China’s one­child poli­cy, recalling the lengths o�cials had takento enforce the rules�inspecting girls’ sani­tary towels to check they were menstruat­ing, eventually resorting to checking theiranatomy directly. Ms Fu’s research re­vealed infanticide on a shocking scale. Un­known to her, the thesis was sent to thepress, becoming headline news and, ac­cording to o�cials, bringing internationalshame on China. She �ed to America.

Ms Fu waitressed, learnt English, stud­ied computer programming and took a jobat the National Centre for SupercomputingApplications (NCSA) where she worked onpredicting earthquakes and 3D imaging.She hired Marc Andreessen, now a soft­ware millionaire, and ran the team thatcreated Mosaic (later renamed Netscape),the �rst web browser to make the internetwidely accessible to non­techies.

Ms Fu describes her life as an embodi­ment of the American dream. When herboss at NCSA asked at a sta� meeting whohad the guts to start a business, she volun­teered. Ms Fu’s 1997 new­year resolutionwas to create something of value.

Being a CEO has been Ms Fu’s biggestchallenge, she says. She o�ers no blueprinthere for building a business, but adds, per­haps a little too simplistically, that �theonly way to triumph in business and in lifeis to love what we do.� She advises readersto focus on personal or social progress,rather than simply clambering up the hier­archy. �In order to make it to the nextmountaintop we must �rst descend theone we are on,� she says. Ms Fu also trum­pets retreat as the most important strategy,and tries to resolve con�icts before they es­calate. She strives above all to �be likebamboo, bending from the prevailingwind, but never breaking�. 7

An executive memoir

The world is 3D

Bend, Not Break: A Life in Two Worlds. ByPing Fu. Portfolio; 276 pages; $27.95 and£12.99

IN 1964 Paul Baran, an engineer, proposedthe use of distributed networks for com­

munication. Traditional networks de­pended on a central hub to pass informa­tion between points. If the hub wentdown, so did the system. Baran’s networkhad no centre. Instead it was composed oflots of nodes connecting to lots of othernodes, allowing for several routes throughwhat IT types call �redundancy�. The ini­tial response was sceptical, but in time Ba­ran’s architecture became the foundationof ARPAnet, the precursor to the internet.

Two new books about how networksare changing the world use Baran’s designas a metaphor for the future. The state, �­nancial institutions and universities allserve as hubs through which �ow bothpower and information. But the primacyof these large organisations is being threat­ened by people who are dreaming up newways of doing the same thing�education,research, funding, even governance�byorganising themselves through networks.

One example is Kickstarter, a crowd­funding site for creative projects. In 2011theamount of money raised through Kickstar­ter exceeded the annual budget of Ameri­ca’s National Endowment for the Arts. Ifindividuals can bypass government andthe market to �nance music videos and artprojects, surely the same can be done inother �elds. Marina Gorbis uses this pre­mise to suggest a series of future scenariosin �The Nature of the Future�. Universitiesneed no longer have a monopoly on high­er education if people were permitted tocreate bespoke programmes for smallgroups of students. Governance could bemodelled on the jury system with �partici­pation determined by algorithm�. Patientswould share health details to create data­bases and self­organised groups wouldconduct informal clinical trials. Ms Gorbiscalls this process �socialstructing�.

Her predictions are rooted in currenttrends. Education is being unbundled fromuniversities through popular start­ups likeUdacity, a private organisation. Inexpen­sive do­it­yourself DNA lab tests are avail­able online. But Ms Gorbis uses the samesmall clutch of examples too often to sug­gest broader trends. And �ctional charac­

The digital age

Reaching out

The Nature of the Future: Dispatches fromthe Socialstructed World. By Marina Gorbis.To be published in April by Simon & Schuster;256 pages; $26 and e­book £8.99

Future Perfect: The Case for Progress in aNetworked Age. By Steven Johnson. River­head; 233 pages; $26.95. Allen Lane; £20

76 Business books quarterly The Economist January 12th 2013

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BOSSES fail for many di�erent reasons.Some are just unlucky. Some are sunk

by their lack of ambition. As Alan La�eyand Roger Martin see it, settling for mud­dling along rather than going all out for vic­tory means that a company �will inevita­bly fail to make the tough choices and thesigni�cant investments that would makewinning even a remote possibility.�

Many are brought down by making astrategic error, of which there are six com­mon varieties. There is the Do­It­All strat­egy, shorthand for failing to make realchoices about priorities. The Don Quixotestrategy unwisely attacks the company’s

strongest competitor �rst. The Waterloostrategy pursues war on too many fronts atonce. The Something­For­Everyone tries tocapture every sort of customer at once,rather than prioritising. The Programme­Of­The­Month eschews distinctiveness forwhatever strategy is currently fashionablein an industry. The Dreams­That­Never­Come­ True strategy never translates ambi­tious mission statements into clear choicesabout which markets to compete in andhow to win in them.

Mr La�ey, who usually goes by his �rstinitials, A.G., did not fail. In his ten years atthe helm of Procter & Gamble (P&G), he re­vived the global consumer­goods giant,roughly doubling its sales while increasingpro�t margins. He credits much of this toembedding a rigorous approach to busi­ness strategy in every part of P&G’s vastempire. In doing so, he drew on conversa­tions with the leading academic thinkerson strategy, including the godfathers of the�eld, Peter Drucker and Michael Porter. Healso had a personal �brain trust� advisinghim as he designed and implemented hisstrategies. It included Clayton Christensen,an innovation expert at Harvard BusinessSchool, and a design guru, Tim Brown ofIDEO, a consultancy. Above all, he reliedon Roger Martin, initially a consultant atMonitor Group and latterly dean of theRotman School of Management at theUniversity of Toronto.

As Mr La�ey’s �principal external strat­egy adviser�, Mr Martin was the only per­son with whom the boss really shared his�out­of­the­box strategic musings�, and�Playing to Win� is essentially their re�ec­tions on how to do business strategy e�ec­tively, as seen through the lens of theirwork at P&G. This is a fascinating tale, fea­turing a cast of familiar brands, including

Pampers, Tide and Olay, each of whichwent through a transformation under MrLa�ey’s eye. He has written about this be­fore, notably in �The Game­Changer�, a2008 bestseller written with Ram Charan,but the extra detail in illustrating lessonslearnt makes this the better, meatier book.

A good strategy has �ve components,the authors argue, all designed to shortenthe odds of success by helping managersmake the right choices. The �rst two areclosely intertwined: �guring out whatwinning looks like and which markets toplay in when seeking that victory. For P&G,sometimes the goal became global domi­nation, sometimes local; sometimes justone category of consumer for a brand,other times many. The next component is�guring out how to win�the company’sdistinctive strategy in any market it istrying to dominate. This in turn will beheavily in�uenced by the fourth and �fthcomponents: identifying, and playing to,the company’s unique strengths relative toits competitors, and identifying thosethings that need to be managed for thestrategy to succeed.

The mirror image of the �fth compo­nent is deciding what not to manage. Oneof Mr La�ey’s most important innovationswas a slimmed­down strategy­review pro­cess. This replaced needlessly sprawlingbureaucratic meetings with agendas thatfocused on the most important questions.One strength of the book comes from theexamples provided to illustrate each of the�ve prongs of strategy, none stronger thanthe book’s opening tale of how Oil of Olaywas transformed from a struggling skin­care brand with a declining market re�ect­ed in its nickname, �Oil of Old Lady�, intothe booming Olay range serving thefastest­growing part of the market with itsproducts for �ghting the �seven signs ofageing�. A crucial part of this strategy wasto convince consumers who had onceshunned Olay to buy its new incarnationsat prices that were signi�cantly higherthan those charged by other mass­marketcosmetic brands.

The book could have bene�ted frommore about Mr La�ey’s handful of strat­egies that did not deliver, for brands suchas Folgers co�ee, Pringles snacks, and phar­maceuticals. Rather than explore and learnfrom them, Mr La�ey prefers to bury thesefailures in an appendix.

Since Mr La�ey left P&G in 2009, thecompany has stumbled badly, and its newboss, Bob McDonald, is �ghting to keep hisjob. Meanwhile, Monitor, Mr Martin’s own�rm, got into �nancial di�culty and hasbeen sold at a discount to Deloitte. Whatdo these sorry tales say about strategy?Rather than explore whether their manystrategic successes somehow also sewedthe seeds of later problems, Messrs La�eyand Martin coyly note that �no strategylasts forever�. 7

Business strategy

Staying on top

Playing to Win: How Strategy Really Works.By A.G. La�ey and Roger Martin. HarvardBusiness Review Press; 272 pages; $27 and£17.99

ters do not mix well with real people at thebest of times, let alone in a book trying topersuade readers of a new movement.�The Nature of the Future� is deeply tintedwith the colours of techno­Utopianism.

Steven Johnson takes quite a di�erentapproach in �Future Perfect�. Drawing onmany of the same examples, such as Kick­starter, Wikipedia and the Occupy move­ment, he makes an argument for a newpolitics based on �peer­progressive val­ues�. In some areas, he says, the best sol­utions come from �open collaborative net­works, not from private competition�.

Mr Johnson is a clever and subtle writ­er. He does not suggest that any problemcan be solved �by throwing Facebook atit�. Instead, in an age of shrinking govern­ment budgets and disillusionment withfree markets, creating platforms for peopleto solve things together may be the bestway to �ll any gaps. Patrons of expensiveart, such as opera, already supplementgovernment grants and boxo�ce takingswith private donations.

Technology has made it possible fordispersed, niche interests to become sus­tainable communities. This is a cheeringthought. But the vast majority of connec­tivity platforms, from Facebook to Kick­starter, are still controlled by a small centrethat can change the rules at whim. Ms Gor­bis and Mr Johnson caution against thedangers of merely shifting control fromone central hub to new ones. But neitherauthor suggests how to get around this.�Peer progressives� and �socialstructers�think about ordering society in interestingways. But they are not yet a third waybetween the state and the market. 7