Over the course of the semester I learned a lot more about organizations than I expected. Coming into the class I thought I had a strong conceptual understanding on how organizations work and the nuances that go into the decision making process. However, once we started exploring the economic modeling portion of the class I realized that the economics of organizations is much more complex than I previously thought. Taking to account human error, politics, personal goals, utility etc. there are many variables that need to be considered when examining an organizations structure. From my perspective, it seemed that the most difficult portion of the class was trying to understand how incentives and accountability fit into the overall success of a an organization. In sum, I guess I now have a greater appreciation for management and a deeper understanding on the many different approaches organizations take to maximize efficiency.
I enjoyed working through the excel homework, I found it very satisfying to tie the concepts we learned in class to deriving the mathematical equations. In some instances, I think it may be helpful to use different examples going forward. At times I felt as though we didn't cover the material in the excel homework until after the assignment was due. In addition, I thought the lecture style was interesting, but difficult for me to get used to. In all my other classes we usually have a set agenda with powerpoint slides and rarely stray from the topic. I enjoyed some of the tangents we went on in class, but other times I thought it was very confusing to follow the topic of discussion.However, I do admit that this class also allowed me to explore a new creative aspect that I normally don't see in other courses.
I really enjoyed to blogging aspect of the course. At first, I wasn't quite sure exactly what was required and thought the directions were a bit loose, but after a few weeks I really enjoyed writing about the different topics. I think the combination of planning out a blog post, thinking about the topic of discussion and tying in personal experiences helps students to synthesize the course material. I personally think I learn better when I take a subject and attempt to relate it back to my own knowledge/experience. I think it also would have been helpful if we spent the beginning of lecture on Tuesday breaking up into small groups and discussing out blog posts. For this type of lecture style I think there should be more student to student interaction. Overall I thought this was an interesting course.
Christina Romer Econ 490 Alias
Saturday, December 6, 2014
Saturday, November 22, 2014
Reputation
My personal
reputation is perceived fairly consistently between my friends, family and
peers at UIUC. I believe those who know me well would say I am hard working,
energetic, innovative and goal orientated. As a result, my actions and choices
I make on a day to day basis regarding school work, going out of my way to help
others, creating new projects etc. resonate with my peers at school, who might
not know me personally. I think my reputation has been built first by
internalizing my goals and then, more importantly, voicing my objectives and
using action to follow through with them. I believe actions are stronger than
words in shaping perspective and those actions communicate the type of person
you are to others.
More specifically, I
have a strong reputation at school for being involved in with the Investment
Banking Academy, Investment Management Academy and the Margolis Information
Lab. People often seek my out by finding my contact information on the school’s
website and ask for my advice in a variety of different segments. I help people
put together career plans or provide contact advice to help them achieve their
personal goals. In addition, I am also
involved in some of the newer organizations such as PRIME and The student
managed investment fund, so I think I also have a reputation for knowing what
is coming next and really wanting to grow UIUC’s finance program.
I personally have
never “cashed in” on any situation by leaving my reputation behind. If
anything, I have found that my reputation has been able to provide me more
attractive opportunities. My track record often allows me to volunteer for
really good opportunities that may not be available to the wider public. I’ve
also had the opportunity to work on interesting projects and be creative on my
own terms when possible.
Sunday, November 9, 2014
Basic Principle-Agent Model
When I was 19 I
interned at Northwestern Mutual, an insurance and wealth management firm. My title
was “Financial Representative” and my job was to introduce the firm to a wide
variety of potential clients in hopes of selling them life insurance and wealth
management products. I would meet with
potential clients to assess their financial needs using statistics, simple
finance calculations and basic rule-of-thumb insurance knowledge. For example,
I might recommend a simple term insurance policy for a newly wed couple or long-term
care insurance for a newly retired person. Each meeting I was accompanied by a
senior member of the firm in order to boost my credibility and shared any
commissions we earned from bringing in a new client.
On paper, this
principle agent model was bilateral stretching directly from Northwestern
Mutual to the client. Federal Law, legislation and the term “Fiduciary
Responsibility” aimed to make sure that the incentives of the firm/financial
representative and the client were directly aligned at all costs. Company
policy was set so that all the advice a client was given was 100% in their own
best interest and in the best interest of the firm. However, in reality this
was not the case. The true model was more like a triangle where incentives
rarely aligned with each agent.
Representatives were constantly incentivized to focus on selling
products to earn more commissions and were also given financial bonuses as well
as prestige from the firm. A simple example follows: The representative’s
financial assessment finds that a whole-life policy would not provide any more
utility than a term policy to a potential client. Both provide the same level
of protection, however the whole life policy is more expensive. In this
situation, you might find the representative push the whole life policy to earn
more commission. In this scenario the
client receives the coverage needed to protect their family, but is lured into
buying the “Cadillac” vs. the “Honda” of insurance plans. As you can imagine,
many conflicts of interest arise.
The misalignment of
incentives within the insurance industry is well known publically. Often,
potential clients enter the meeting with a deep mistrust of the representative.
The first job of the representative is to earn the trust and respect of the
client. Over the summer I found that open communication, presenting mathematical
evidence, discussing the range of options and using personal experience helped
build trust. Throughout the course of the meeting you want to make it clear
that your goal is to help the person’s family and put yourself in their shoes
to make the experience as personal as possible. If the client doesn’t believe
you, it is nearly impossible for a sale to occur. If the above-mentioned
actions are taken usually the sale in the best interest of the client will take
place, however in the eyes of the firm this is the bare minimum level of
performance.
Saturday, November 1, 2014
Conflict in the Workplace
Conflicts are fairly common in the
work place and in settings where individuals are required to work in groups. As
I mentioned in earlier blog posts, it is extremely important to understand the
key components of an organizational structure to avoid conflict, and in some
cases, conflict may be unavoidable. Miscommunication, personal differences,
difference of opinion and many other factors contribute to the break down of
group structures, causing conflict. I’ve described several situations, in which
I’ve worked in a group setting to achieve a common goal, successfully, and now
I would like to illustrate an example of a conflict, and how it was handled.
Back in high school I worked at
Carson’s as a shoe salesman. This was the first job I ever held and each day I
learned something new about customer service, handling money and sales.
Although the job wasn’t group orientated by nature, all the sales people helped
each other out whenever possible. This may seem counter intuitive, because each
person was paid on commission and it is in everyone’s best financial interest
to only focus on his or her sales. One day while I was working a customer
requested that I help her sort though some shoes on the shoe rack. Each time
she found a shoe she liked I went in the back storage room to find and retrieve
the shoe’s mate. On one instance I could not find the shoe that matched the
mate the customer was interested in finding. I went to the costumer to deliver
the bad news at which point she began to yell and demand that I bring her the
shoe. I tried my best to calm to customer down, but at one point I said, “ I
don’t know what else to tell you, the shoe was lost – I am sorry”. She
continued to yell and demanded to speak with my manager. After yelling and explaining the situation to
my manager she simply ran off and left the store.
Fortunately for me, my manager was
not upset and completely understood the situation. This conflict stemmed from
lack of communication and was my fault. My manager was able to look at both
sides of the situation and pinpoint exactly what went wrong and what could have
been done to improve the situation. From my perspective, I could not understand
why the woman didn’t simply accept that the shoe lost. However, what I failed
to do what share the information that I had with her. I should have told her
that the back storage room is extremely disorganized in regards to sale items.
The sale items are often older models, returns or defective and it extremely
common for shoes to inadvertently get thrown away - this is why we offer those shoes at such
low prices. I strongly believe that if I explained that portion of the
situation she would have understood and stopped yelling. Secondly, having a
weak background in sales and customer service I should have offered her a
discount on another pair she liked, or given her some other gift for her
inconvenience. For whatever reason,
giving her a gift next crossed my mind.
From the shopper’s perspective, I
imagine she held the mentality of “ the customer is always right.” From the outside
looking in, stores often look like tightly run corporate entities, but often
they are mismanaged and operate only as well as the workers who run them. The
woman clearly held one of the shoes in her hand and could not possible image
that the other shoe was not located somewhere in the back. It simply made no sense
to her. I am sure the woman had many other things on her mind and didn’t take
the time to realize that losing a shoe isn’t that big of a deal in the
perspective of an billion dollar business. Overall, this was a valuable learning
experience. It is important in the work place, group setting etc. to share all
the information you have with the other person to make sure you are both on the
same page. In a customer service setting
you need to make sure the customer is happy and if they do not have what they
wanted, a good employee will try to compensate in some other fashion.
Friday, October 24, 2014
Gift Giving
The New York time’s article “How to Get the Rich to Share the Marbles” shed’s light on the phycology behind gift giving and sharing rewards. Applying the information gained from the article to an organization or team production could be extremely useful. The idea is that verbiage emphasizing competition, “to each their own”, or “eat what you kill” may not be the best way to curb wealth inequality in America. The study found that when children work together and feel as though they are working towards a common goal they are much more inclined to share the reward, more so than if they were just given an unequal amount of the reward. One might take this information and say that organizations should focus more on team building and striving to meet a common goal rather having an “every man for him” mentality in the work place. As we learned in class, employers do their best to create incentives or give gifts to works to help increase productivity. In an ideal situation, the incentive or gifts perfectly align giving the worker that much more motivation to do the task well. Thinking of the classroom as an organization, the gift Professor Arvan gave us to motivate us to do better on the next exam was 25 points. In class he made us feel as though we were working together, with his help, to achieve the 3 goals we talked about on the first day. This shows that the phycology behind working together to achieve something goes further than simply giving people more points so they can individualistically achieve their desired course grade.
I will attempt to apply this framework to an experience I saw this summer at William Blair, first some background: For a long time investment banking was all about receiving a very high end of the year bonus, which varies from employee to employee based on their contributions to the firm. This created an environment where everyone competed against each other to receive the highest bonus. To add more color, these bonuses do not stem from how much revenue you generate for the firm, but are an attempt to quantify how hard you worked during the year usually measurable in terms of how many hours you were in the office. This is important to note because unlike selling stocks or trading, in M&A you are constantly working in a team and you really need to help one another to complete a deal. The competition became so high that the firm was actually losing productivity as people were less inclined to help one another.
This past year the industry has undergone a huge transition. Most investment banks are trying to create a more collaborative environment and are changing the compensation structure. The banks are raising base pay, preventing analysts from working 7 days a week and are monitoring management to make sure the competitive culture is changing. In other words, the banks is gift giving by letting analysts have more free time and less “face time” and rewarding them with higher base salaries to decrease focus on winning that big bonus. They hope this new system will encourage analysts to lend a hand to a coworker even if they won’t get recognized for it or cover for another employee if they are feeling ill. This is much more beneficial for closing deals compared to the “eat what you kill culture” This example has many moving pieces and was simplified to make sure readers from all backgrounds can grasp the main concept.
Friday, October 17, 2014
Income Protection
I’ve spent the last four years of college
accumulating a series of learning experiences to prepare me for entry to the
job market upon graduation. In high school I took part in business and
economics related competitions, which prompted me to elect economics as my
major at UIUC. Although I was fortunate enough to have my parents pay for
college, tuition price and the average starting salary of economics majors
really influenced my decision making process. My goal was to make the most out
of my parent’s generosity while aiming to receive a job with a high enough
starting salary that would allow me to be independent from my parents. I’ve
spent the past three summers working in finance/economics related internships
to help improve my chances of winning a great full time job offer. I spent one
summer working in personal wealth management and insurance planning which
taught me a lot of valuable lessons regarding income protection and the various
methods people use to determine how much money they need to save or budget for
their monthly expenses. I also spent two summers working in mergers and
acquisitions, which is where I would like to start my career.
Knowing something about income protection and
roughly the starting compensation of an investment banking analyst I’ve started
to create my budget and saving plan. Although there is no one close to me
personally who has already gone through this process, I had the opportunity to
pick the brains of the other analysts I worked with to learn more about their
income protection process. I plan to purchase workers compensation insurance,
save roughly 20% of my income and max out my yearly 401k compensation. I want
to be in a position to support myself for at least a year in case I am laid off
from work and make a habit out of saving for retirement. I currently do not
have much savings; I’ve been fortunate enough to do a lot of traveling while in
college. I do hold an on campus-teaching job, which helps pay for my day-to-day
expenses.
I recently accepted a full time job offer and
have already started to think about what job I will pursue next. I hope of
taking what I’ve learned about preparing and building my learning experiences
will guide me to my next opportunity. I am extremely interested in private
equity and will likely try to read about the industry and network as much as
possible over the next two years. I also plan to had another layer of income or
job protection by taking the GMAT next semester. If I get laid off or cannot
find a second job I will take out a loan and go to business school to rebrand
myself and improve prospects. Although this is a huge cost in the short run, I
think in the long run this will provide me with more opportunities in the
future.
Saturday, October 4, 2014
Illini Bucks
Introducing Illini bucks to campus would certainly create an
interesting array of opportunities for students to illustrate which services,
activities, events or goods they preference. If I understand correctly, the
hypothetical situation introduced in the prompt gives each student an equal
number of “Illini bucks” at the bringing of the semester. Before spending this
campus currency, students would already have an understanding of how much each
illini buck can purchase on campus. For example, maybe students can use these
bucks to get in the front of the line for access to sporting events, concerts,
registering for classes, interviews, library tables, gym lockers etc. It seems
as though the potential uses are endless.
There are many aspects of everyday campus life that I wish I
could simply, “cut in line”, some of which I mentioned above. We learn in
economics that each person has his or her own set of preferences, which makes
up an indifference curve and influences their spending habits. All things being
equal, and there being no seniority for picking classes based on credit hours,
I would choose to spend my illini bucks on picking classes before others. I
personally think tuition is meant to purchase education and using this
imaginary currency, paid for by my tuition, to increase my learning experience
would provide me with the most utility. It is known, that many of the best,
interesting, even “easiest” classes fill up first during registration. Those
who have the most credit hours in their respective class have the opportunity
to pick courses that will, in theory, give them the best educational advantage.
There has been many instances where I would (not literally) wish to pay someone
just to save me a spot in a highly regarded course. We mentioned in class that there are many
ways other schools across the nation allow students to choose courses; I think
introducing illini bucks would greatly change that process here on campus.
However, not everyone shares the same preferences. I know
many friends who would rather choose to spend their Illini bucks on getting
first picks for basketball season tickets, or the best parking spots on
campus. I cannot say what percentage of
students would apply their currency to educational vs recreational benefits,
though it would be an interesting study. I have to imagine that the majority of
students would choose to use the currency on registration, tutoring session,
job fairs, etc. After all, this is the reason why we go to school. Pricing all these options out would be an interesting
process.
Quite frankly, I think it would be impossible to set an
effective fixed pricing scheme for illini buck purchases. I don’t see an
efficient situation where the campus government could accurately determine the
preferences of the entire campus and as a result set prices on a supply/demand
basis. If prices are set too low, disproportionate to demand, students will end
up still entering a first come first serve basis system as the services in high
demand will have long lines with people wanting to spend their bucks first. If
prices are too high, then students, I assume, will end up spending the majority
of their bucks on educational related services, while all other services
continue to operate on a first come first service basis as people deplete their
funds.
I think this fixed price system would result in a secondary
market for educational and recreational related services. As people change
preferences throughout the semester I would expect prices to fluctuate and
people willing to either exchange real money, or illini bucks for services in
demand.
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