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Financial Darwinism: Create Value or Self-Destruct in a World of Risk Hardcover – November 3, 2008
“While Tilman's thesis is directed to financial firms, the concept applies to all businesses. Failure to adopt a risk management strategic planning model will lead to extinction, hence the "Darwinism" in the title. Summing Up: Recommended.” (Choice, April 2009)
"...Tilman couldn't have chosen a better time...clearly written and with plenty of rational advice for financial institutions" (City A.M., December 11th 2008)
"One of the book's merits is that he offers tables that provide taxonomies of business model transformation." (Financial World, February 2009)
"This book is highly recommended for finance professional sat all levels of an organization as well as investors desiring insights into how firms can weather the "tectonic shift" in the financial landscape. The terminology and models used should be within the grasp of anyone who has taken an undergraduate course in finance." (Journal of Corporate Finance and Accounting)
“[Tilman] sees much to be learned from the collective blindness that led to the economic meltdown. … says the first steps to recovery are humility and innovation” (Alpha magazine)
"This book offers a deeply thoughtful and well-reasoned analysis of what has gone wrong and the outlines of an eventual road to recovery." (Financial Executive International)
From the Inside Flap
"Financial Darwinism" explores why and how financial firms must continuously evolve amidst genuine complexity and uncertainty in order to survive and remain competitive. It analyzes the strategic, investment, regulatory, and public policy implications of a "future that has already happened" and identifies actionable ways of putting new ideas into practice in risk-focused manner.
This book starts by introducing Dynamic Finance--and evolutionary thesis about the origins, the drivers, and the implications of the ongoing financial revolution. After examining how financial institutions used to create economic value in the past, Tilman offers a concise new risk-based approach to thinking about economic performance. He then develops a practical decision-making framework he calls Financial Darwinism that is designed to help financial institutions navigate the dynamic new world. "Financial Darwinism"--a blend of business strategy, corporate finance, investment analysis, and risk management--gives financial executives and investors a menu of broad choices on how to create economic value. In the process, a new kind of strategic vision, the breadth of global perspective, and command of advanced financial tools are shown to be essential ingredients of success.
This book is about change, and change is always difficult, indeed wrenching--institutions must be redesigned, outdated paradigms discarded, and corporate cultures redefined. However, the alternative--the Darwinian failure to evolve--is far more painful, particularly when capital markets, clients, and competitors beat you to the punch and make difficult choices "for" you. "Financial Darwinism" is an invaluable road map to the new financial order and an essential guide to adapting and succeeding in it.
For more information, visit www.FinancialDarwinism.com
Top Customer Reviews
The theory is solid and fascinating and is clearly a strong suit. This is why I couldn't wait to get to the "real life" examples presented in Chapter 5, which is the heart of the message. The case study of the current financial crisis illustrates why Tilman's theory works. This chapter makes getting through the detail in prior chapters, where the reader is trying to understand the implications of the book's ideas, worth it.
Notwithstanding somewhat excessive use of dashes (the author's amusing style quirk), the clarity of thought is impressive. As a journalist and personal investor, I was afraid that this book would only be understandable (and of use) to finance experts, executives, economists, and such. This was not at all the case - thanks to all the main points clearly laid out in the first chapter.
Despite the Darwinian message, it is likely this book will become the new "bible" for businesses and investors around the world.
Tilman's new book is a fascinating eye-opener that exposes what has been happening with capital markets and financial institutions over the past 20 years. I agree with Rubenstein's quote: this book "explains the tectonic shifts now underway in the investment world far better than any book I have seen to date."
The evolutionary thesis called Dynamic Finance is the first part. It explains how global forces have progressively pressured financial businesses and how this, in turn, changed the riskiness of financial firms and the behavior of financial markets. The major innovation here is that risk management language is used to explore issues like corporate earnings and strategy, macroeconomics, and investments. A whole new set of concepts is also introduced: risk-based business models, risk-based economic performance, and risk-based transparency. Even though most of the discussion is focused on financial institutions, all of this cannot be more relevant for non-financial corporations - just think of recent troubles with auction-rate securities, pension plans, and fx losses.
Tilman convincingly argues that a healthy amount of paranoia also won't hurt financial firms and their executives: they need to continuously evolve and strive to create value. Resistance to change inevitably leads to loss of busines`s, larger risks, and ultimately the extinction -- the crux of Darwinism. Financial executives must develop the new way of thinking about business models. Once this has been done, what will determine successes is their requisite risk management skills. The decision-making framework covered in the second half of the book should help this a great deal.
Tilman has conveyed original and far-reaching ideas in clear and knowledgeable ways. This book will spur a lot of research and discussion in the coming years.
Brilliant! A one-of-a-kind must read.
1. make changes to their underlying business models to survive
2. begin incorporating risk management as an integral part of their enterprise-wide business decisions, not just as an after-the-fact policing or compliance function
One of my favorite quotes comes from W. Edwards Deming in an attempt to stress the importance of having the appropriate information before making decisions. "In God we trust; all others bring data." Once again, W. Edwards Deming provides some great perspective which Tilman uses to stress the importance of change for financial companies. "It is not necessary to change. Survival is not mandatory."
The need for change though is not necessarily what is illuminating. It is the type of change that companies must start to make.
No one will deny that financial companies have been making some significant changes over the past several years to deal with factors such as increased competition, reduced net interest margins, compression of banking fees, limited global inflation, the global savings glut, and other pressures to maintain the growth rates investors and shareholders had come to expect. However, what Tilman argues is that the primary reaction of finance companies was to pursue a variety of corporate finance activities to reduce the cost of captial, increase fee-based business to supplement earnings, and pursue alternative investments and complex financial products, which inherently involved higher risks necessary to provide the higher returns.
Tilman suggests that banks and other financial services organizations must begin to make more full-scale transformations to their underlying business models. Only then will they be able to adapt to the new economic reality. And this ability to evolve from their current, static business model to more dynamic business models is the core driver of Financial Darwinism.
As organizations move to more dynamic business models, the ability to understand and take into account the associated risks of any business pursuits will become that much more critical. For example, companies need to move beyond understanding customer profitability to take into account risk-adjusted profitability. To date, risk management has primarily been driven by regulatory and compliance requirements, such as Basel II. It has provided organizations with a view into risk, but even that now appears tainted.
However, if organizations can figure out how to more effectively incorporate risk management directly into their core business processes, there could be signficant benefits. I've already seen a harbinger of this at a large Korean bank. As part of a Basel II project, they chose to perform the analysis of risk data at the beginning of their credit review process. As a result, they were able to reduce credit application processing errors by 30% and dramatically improve the overall quality of their loan portfolio...in addition to becoming compliant with the Basel II regulations.
Of course, these suggestions will not ensure the survival of financial companies in today's environment. But they should at least improve the chances for success and help banks start thinking about how to create the competitive advantage they need.
Most Recent Customer Reviews
we are? Where are we going? What to do about it?
Treasury Secretary Timothy Geithner, February 10, 2009
Leo Tilman's book was published just as the...Read more