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Innovation/Global Risk 


The World Is Still Drowning in Debt!


By Shlomo Maital  


    The good news? America is halfway through its deleveraging (debt reduction) process.  The bad news?  The rest of the world is still piling up debt and hasn’t even begun.

  A report in McKinsey Quarterly by three McKinsey scholars * provides a useful summary regarding where the world stands in its deleveraging process.  This is crucial, because until households and businesses feel comfortable with the existing level of debt, they are unlikely to resume their spending and investment and economic growth and job creation are unlikely to resume.  Here are the results:   


  •          Although the debt ratio of US households remains high, they may be halfway through the deleveraging process.
  •        In the United States, household deleveraging may have only a few more years to go, while in Spain and the United Kingdom it has just begun.
  •         … up to 14 percent of UK mortgages could be in difficulty—identical to the percentage of US mortgages in difficulty today.
  •        Significant public-sector deleveraging typically occurs after GDP growth rebounds.  (The World Bank says developed country GDP growth this year will be very weak, only 1.4 per cent). 
  •        The deleveraging process that began in 2008 is proving to be long and painful.   The unwinding of debt—or deleveraging—has barely begun. Since 2008, debt ratios have grown rapidly in France, Japan, and Spain and have edged downward only in Australia, South Korea, and the United States. Overall, the ratio of debt to GDP has grown in the world’s ten largest economies.      


Fasten your seat belts.  More lean years are ahead, as the massive amount of debt continues to grow in most countries.




 * Working out of debt . McKinsey Quarterly, JANUARY 2012 . Karen Croxson, Susan Lund, and Charles Roxburgh .


Innovation/Global Risk

A New “Kodak Moment” – Going Bust!

By Shlomo Maital  

Kodachrome, they give us those nice bright colours

They give us the greens of summers

Makes you think all the world’s a sunny day, oh yeah

I got a Nikon camera, I love to take a photograph

So mama don’t take my Kodachrome away

– Simon and Garfunkel

  Remember the “Kodak moments”?  Remember when Eastman Kodak sold nine out of every 10 rolls of film in the United States?  Remember when Kodak was a generic term for camera, and when its gross margins were 70 per cent?  Yesterday, Kodak filed for Chapter 11 bankruptcy.  It will continue to operate while trying to pay off its massive debts. Kodak does have strong revenues, from its digital imaging and printer business, but its losses over the years have created a mountain of debt that it can no longer service.

   What is the lesson we can learn from Kodak – and from other giants before it, who ‘owned’ their industry (AT&T, Xerox, NCR)?   Strategic agility!  Kodak actually invested huge amounts in digital photography.  According to The Economist, “extensive R&D contributed to Kodak’s undoing,  since the firm ended up pioneering the very digital cameras that went on to kill its core business.”  Kodak did not miss the digital camera trend. It simply flopped at riding the wave.  Why? Silver-iodide photograph is chemistry. Eastman Kodak was tops in chemistry, and even had a huge chemicals business.  Digital photography is electronics. Kodak never did build the key core competency in electronics, and perhaps never really could match the capabilities of true electronics firms like Japan’s Canon and Sony.

   So, yes, Simon & Garfunkel, they have indeed taken away our Kodachrome.  And it was not inevitable.  Kodak should have acquired an electronics company, realizing this was the key core competency it lacked.  It could have done so when it dominated its industry. It should have done so, had it been strategically agile.  But Kodak, like so many elephants, never did learn to dance.  It never did ask the late C.K. Prahalad’s core question: What is the core competency we need at this moment? Do we have it?  How can we get it, fastest? 

    Good bye, Kodak.  Perhaps other huge companies will learn from your demise.  But I doubt it.

Innovation/Global Risk 

Nature’s Resilience: Bacteria “Eat” the Gulf Oil Spill

By Shlomo Maital  


 oil-eating bacteria


According to the BBC World Service program “Science in Action”,  the disastrous oil spill in the Gulf of Mexico, caused by a massive ‘leak’ in a British Petroleum oil well “Macondo 252”, has been effectively battled – not so much by cleanup crews as by Nature itself.  At times, 53,000 bbl. of oil a day spilled into the lovely waters of the Gulf.   But the oil sounded a ‘dinner bell’ for Nature —  Hey, lunch is served, come and get it!  And the bacteria came. 

    As their food supply expanded,  the bacteria themselves ‘bloomed’, meaning they reproduced very quickly and grew huge colonies around and in the oil.  Nature very quickly assembled bacteria for whom hydrocarbons were tasty.   The cleanup crews used chemicals to break up the oil, and at times the chemicals themselves were worse pollutants than the crude oil. 

   According to reporters, there are still clumps of tar on the beaches along the Gulf Coast, which makes its living from both oil wells and from tourism.  But for the most part, Nature has been far faster and far more effective in cleaning up the mess than anyone expected.  Some 800 m. liters of hydrocarbons spilled into the Gulf. Around one quarter was cleaned up by humans.  The rest?  Leave it to Nature.  According to the Scientific American, as much as half of these 800 m. liters have already been eaten up by bacteria.  Many of the bacteria are new forms, not familiar to scientists, that perhaps have evolved in response to the huge and unexpected ‘feast’.  And yes, the tar balls ARE a big problem, as they spread across beaches and the world’s oceans. 

   But again, Nature has proven that it is not only humans who are resilient, but Nature itself.   If only we humans could help miraculous Nature protect itself, rather than dump ever-larger messes on it and test the innovative power of natural evolution.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
January 2012
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