28 August 2025

Navigate the Noise

Recommendation

The more information a market provides the more efficiently it will operate, right? Well, in theory that’s so. In fact, market transparency has been a top goal of financial regulators in the U.S. for decades. But is it possible to have too much information? Richard Bernstein makes a compelling argument that not all information is good information. Noise - the deluge of 24-hour news coverage, constant cable TV market-chatter, continuous Internet feeds and barrages of electronic updates - is a danger to most investors, who lack the resources to separate the accurate from the spurious. This book is a Godsend for investors who think - usually mistakenly - they can make sense of it all. Bernstein tells you how to cut through the noise by focusing on long-term investment plans, diversifying and clearly assessing risk. BooksInShort recommends this informative book for its crisp, personal style, and for its practical approach to bringing some peace and quiet to your portfolio.

Take-Aways

  • A noisy market provides more information without better information.
  • The information explosion creates noise that interferes with good decision making.
  • The media plays up exciting news rather than the most accurate information.
  • When markets are volatile, noise levels go up.
  • Thinking that you can make sense of noise with your own investment analysis is dangerous.
  • Listening to noise can provoke excessive trading, more errors and costs.
  • The most popular investments are not necessarily the best investments; popular investments often subsequently under-perform.
  • Look for good stocks, not good companies, since good companies actually under-perform the market.
  • Listening to the noise disrupts effective long-term planning.
  • Rely on strategic planning, fundamental research and risk analysis, all within a disciplined investment approach.

Summary

The Information Explosion

Because there is so much information available today, the key to knowledge is not content, but the ability to sift through a huge amount of data. Investors encounter mountains of information daily and must discern just which information is really relevant. The explosion of information can cause bad investment decisions. Whether you get informed through rumor, gossip, chat rooms, notions about stock price momentum or other sources, you are more likely to be swayed by such information than you are to truly understand what is happening. You are better off with traditional, more accurate investment methods, such as strategic planning, fundamental research or risk analysis, all within a disciplined investment approach.

“An increased number of bad investment decisions are being made because of the increased availability of information.”

Increasingly, people are getting sucked in by all of the noise, much of it due to the new technology. However, if you examine the actual performance of investment portfolios, you will discover that present results are no better than the results produced before these technologies. In many cases, the later results are even worse. In fact, it is dangerous to think that you can invest on your own and make sense of all of today’s investment hype. You are more likely to fail, especially if you seek higher returns with less risk or trade frequently. The reality is that if you seek higher returns, you will have greater risks and more trading will often just run up extra costs.

“Rumor, innuendo, chat rooms, whisper numbers and stock price momentum have replaced strategic planning, fundamental research, disciplined investment approaches and risk analysis.”

Many investors also make the big mistake of seeking good companies with good management, products and growth prospects. Instead, look for good stocks, not good companies, because if everyone agrees a company is good, its stock price will probably reflect that. An undiscovered bad company will actually be a better investment.

Recognizing Noise

The media and the information age make it easier for everyone to obtain information, not just professional investors. However, as more information becomes available, it takes longer to search for the best information and to understand what is worthwhile. An increasing number of people think they don’t need professional advice because of all this available information, but they need more help than ever, just to sort through it. An increasing number of investors - apparently thinking that they know more than mutual fund managers - have turned to trading individual stocks, a common mistake.

“The users of such news flow should understand equities dominate the news not because of their importance in the financial markets, but rather because the providers of information realize equities are better entertainment.”

Unfortunately, many people were misled by the ease of making money in 1999, because the stock market, particularly tech stocks, did so well. About 70% of the technology stocks in the S&P 500 Index beat the index, so investing in almost anything resulted in success, leading investors to think they could do better than the professionals. However, many of these positive returns turned negative in 2000, whereas the mutual fund managers did much better, illustrating the danger of ignoring fundamental investment principles.

Does More Data Mean More Smarts?

The big error is thinking that you know more just because you have more information. You can waste a lot of time and make poor decisions when confronted by noise, which is more information without better information. Likewise, more timely information is not necessarily better, although some investors use daily information to trade based on the latest news. Dangerously, this is often the most exciting news, which is played up by the media.

“One’s focus should probably be on ’good’ stocks rather than ’good’ companies. After all, if you know it’s a ’good’ company, and I know it is a ’good’ company, most other investors probably know as well. The odds are the current stock price already reflects the company’s quality.”

More reasoned, less timely data is generally more accurate. For instance, a tested stock selection model (used by the author since 1989) based on analysts’ earnings estimates, has a much better performance result. The model is based on month-end earnings estimates and does not incorporate frequently shifting, intra-month estimate revisions. The model’s long or "buy" portfolios have consistently done better than the overall market, while its short or "sell" portfolios have consistently done more poorly.

“The probability of short-term market forecasts being consistently correct is probably no higher than is that associated with Monday’s forecast for Saturday’s weather.”

The media tends to pay too much attention to stocks and less to bonds and other financial markets because equities are better entertainment. Given this, heed a few cautionary tips:

  • Be wary of information directly from companies, since many companies have their own investor relations departments that are hired to spin every company event positively or to create frequent positive surprises to keep their company in the news.
  • Be wary of noise from uncertain sources, such as from investor chat rooms. You really don’t know who is putting out this information. It could even be a person trying to manipulate a stock or a teenager just having fun.
  • Avoid excess trading due to noise. Investors who listen to noise tend to trade more often, which opens the door to making more mistakes on bad information. You pay more for making extra trades, as well as for the various publications and services that provide this noise. It may be fun and entertaining to keep up with this noise, but that really turns investing into a hobby. To succeed with serious investing, ignore the allure of the noise.

DIY Investors

The do-it-yourself (DIY) movement may be fine for tasks you can do with little professional help, such as painting a house or growing a garden. But mostly, DIY projects don’t meet professional standards - particularly in the case of investment decisions.

“In my opinion, investing by oneself and attempting to decipher and digest all the investment noise and hype is a plan for failure or at least for sub-par results.”

You may take the big risk of following an irrational or volatile strategy, which performs well for a time, but then fails because it is based on noise. For example, a data-mining strategy that worked in the past may not succeed in the future. All data-mining strategies eventually blow up, because they are not based on solid fundamentals. For instance, the author of a popular strategy proposed that seeking stocks with low price-to-sales ratios was the best strategy, while another advised looking for stocks with a low P/E-to-growth. However, in both cases, the strategies significantly under-performed soon after the books were published. Authors tend to promote strategies that have worked in the past, but these are not necessarily strategies that will continue to work. Investment ’how to’ books tend to look backward rather than forward. Be skeptical of claims of a superior strategy, especially when the author lacks an economic theory to support his strategy.

“Noise traders can indeed achieve higher returns, but typically must do so while incurring higher risks.”

To choose an effective investment strategy, test it first. Examine such factors as returns, risk and turnover. Define the correct benchmark to measure your strategy, such as using a broad index. Be a disciplined investor who follows a strategy with a long-term history of out-performance regardless of how it performs in the short-term. Having a well-understood investment discipline is the best way to filter noise from today’s huge amount of investment information.

In and Out of Love (with stocks)

Expectations contribute to noise and cause investors to fall in and out of love with stocks later than they should. For example, the equity market often discounts future events based on perception rather than reality, a practice that contributes to volatility and risk. All stocks go through an Earnings Expectations Life Cycle, where they are affected by various developments, such as positive and negative earnings surprises that contribute to earnings momentum or to declines that are out of step with true performance. In some cases, this process leads to an inflated bubble that eventually deflates, as happened with the technology sector. Distinguish between popular investments and the best performing investments, since they are not the same. Often, popular investments subsequently under-perform.

“’Bad’ companies significantly outperform ’good’ companies over the long-term.”

Growth investors tend to be high-expectation investors, who often find it difficult to sell, while value investors tend to have low expectations and often buy too early. In both cases, positive or negative noise can lead these investors respectively to hold too long or act too soon. The best investors buy when there is no noise and sell when there is a lot.

Turn a Deaf Ear

To be a successful long-term investor, don’t listen to the noise, because noise disrupts effective long-term planning. Noise can disrupt your propensity to diversify and reduce risk. It undermines goal setting and can lead to a tendency to take too much risk and to concentrate on the short term over the long term. Noise will undermine your discipline, since it makes you more likely to abandon your set strategy in the face of unexpected events.

“One of the simplest methods for filtering noise is to extend one’s time horizon.”

Adopt a deliberate counter-strategy of screening out noise by reviewing your long-term strategies at timed intervals - once a year, or better, once every two or three years - rather than based on events. This makes you a more disciplined investor, reduces the propensity to trade during noise and focuses you on your investment goals and strategy. A long-term strategy and plan assures that you have assessed your own risk tolerance more effectively, and thus won’t worry as much about the financial markets’ daily, weekly, and monthly gyrations.

“The more information available to us, the more we must necessarily understand to make the information worthwhile. The more numerous the sources of information, the longer we must search for one having the best answer to our inquiry.”

Particularly avoid being influenced by the noise during times of higher volatility in the market, when the level of noise goes up. If you really have a long-term horizon, the daily news, financial television and rolling assessments of your portfolio’s daily value are relatively unimportant. Screen them out, because investment noise generally focuses on short-term events and can persuade you that unimportant events are much more important than they are. For instance, risk tends to be short-term, but noise tends to focus on risk and short-term events, whereas over the long-term, risk dissipates.

Good Companies, Good Analysts

To do well as an investor, seek good stocks rather than good companies. For example, there are relatively few A-plus companies - only about 60 out of 1600 major companies - based on return on equity, sales growth, earnings growth and other factors. But, relative to the performance of the equal-weighted S&P 500, these stocks have slightly under-performed the overall market on a long-term basis (about 15 years). Many investors, unaware of this performance record, think these companies will do well and invest in them. Then, too, the performance of A-plus companies tends to be cyclical, so owning a diversified portfolio of A-plus stocks is like owning an expensive index fund. Further, the valuation of these stocks tend to be high and their overall performance as stocks tends to be low, because other investors are aware that these are good companies, which keeps the price up.

By contrast, bad companies, characterized as C & D stocks, not only do better than the A-plus stocks over time, but they perform the best of any category over the long-term because most investors underrate their performance. This keeps their value low, but they do better over time, and their stocks rise.

Finally, get solid help. To assess a good analyst, skip those who are the most visible and go to those who are really providing value. Often the most visible analysts are simply providing noise. The line between reporting and analyzing has diminished. Reporters discuss what has already happened, whereas good analysts can help you understand why it happened or predict what might happen in the future. A good analyst conducts proprietary research rather than accepting company spin and realizes that valuable investment information comes from deriving informed decisions, whether others agree or not.

About the Author

Richard Bernstein is a quantitative analyst at a major Wall Street firm. He developed a stock selection model based on analysts’ earning estimates, which he has been running since 1989, and back-tested it to early 1986, to provide a very effective model for selecting stocks. Using data that is updated monthly, it has produced long or buy portfolios that have consistently out-performed the overall market, while its short or sell portfolios have consistently under-performed the market.


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Navigate the Noise

Book Navigate the Noise

Investing with One of Wall Street's Top Investment Strategists

Wiley,


 



28 August 2025

Luxury Online

Recommendation

How do you market luxury items, which by definition are exclusive, on the internet, which by definition is accessible to the masses? This is the conundrum facing the luxury products industry, explains high-end marketing strategist Uché Okonkwo, and most deluxe brands have failed to find a solution – so far. Prada didn’t even have a website until 2007. Today, countless blogs, forums and websites are dedicated to exchanging information that once belonged exclusively to the elite. For instance, in 2009, online “fashionistas” saw Madonna’s Louis Vuitton ad campaign months before the images appeared in Vogue. Thousands of savvy observers congregated on the web, talked about the ads, pronounced judgment and moved on to the next big thing. Okonkwo explores how the web has revolutionized the way people perceive, view and purchase luxury goods. She explains why the industry must do a better job of responding to and participating in the digital world. Her exposition is thorough, solid and relevant, with abundant helpful pictures, though wordiness and repetition somewhat impede smooth sailing. Still, BooksInShort believes it is a landmark resource for the luxury sector and of interest to anyone in e-commerce.

Take-Aways

  • The luxury industry’s e-business activities lag behind other sectors and need to catch up.
  • Deluxe-goods marketers initially viewed the internet as a mass-market, discount communication vehicle, but now their wealthy clientele is online.
  • High-end brands can no longer haughtily keep their customers at arm’s length.
  • Monitor and participate in the social media to gauge how clients feel about your products.
  • Your web activities should feature “transparency, independence, passion, accessibility, informality” and “interactivity.”
  • Wealthy shoppers are active bloggers, so you can harness blogs to target affluent clients.
  • Your web activities must incorporate and stay true to your brand image. Extend the opulence and lavishness you pour into your product to your website.
  • Create an “ambience” or “webmosphere” that arouses all five senses to convey a brand’s personality and message.
  • In the face of technology’s advances, the luxury industry must be true to its core essence.
  • Educate younger generations about true luxury and fulfill clients’ shifting expectations.

Summary

The Challenge

The luxury industry lags far behind other segments in online business. Most deluxe-goods marketers initially viewed the internet suspiciously as a mass-market, discount communication vehicle. Though the web has been in popular use for years, luxury marketers long believed that it wasn’t worth their attention. As one luxury brand employee retorted, “Our CEO doesn’t like the internet and he doesn’t use a computer. We don’t need the internet. The internet is not luxury.” Why would luxury goods sellers be so blatantly, stubbornly disinterested in the many opportunities that burgeoning new technologies offer? The luxury sector is a distinctive industry. It exquisitely crafts fine items for the pleasure of a few select, rich buyers. Those who sell high-end timepieces, handbags, furniture, fragrances or jewelry rely on loyal, wealthy clients who are committed to perfection and able to afford such indulgences. The web’s accessibility breaks these customary social and financial stratifications.

“Luxury has been built on the foundation of certain principles that can neither be ignored nor compromised.”

The “digital revolution” has affected every aspect of society. E-commerce has changed how people buy and sell goods. Luxury-loving clients, now online in great numbers, are not immune to such change. The advent of the social web, featuring “citizen journalist” bloggers and popular social networks, has placed tremendous commercial power in consumers’ hands. Brand marketers can no longer disseminate messages from the “top down” to retain market control. The consumer has assumed that control and replaced top-down communication with “word of mouse” as people congregate online and exchange opinions totally independently of corporate influence.

“Online luxury consumers are writing their own rules of the game and in the process driving the brands to the point of ‘freaking out’.”

Clearly, the luxury industry must develop e-business strategies and engage in them fully – including “online communications, client relationship management, consumer monitoring, internet marketing, experiential marketing, branding, retail, logistics, and the related merchandizing and after-sales support.” Yet “luxury on the internet has not come of age.” The challenges and opportunities that luxury marketing faces as it strives to catch up include:

  • Developing its existing business practices to work well across various web platforms.
  • Instead of treating online business as a mere add-on, creating internal e-commerce departments that participate in corporate budgeting and decision making.
  • Establishing interactive advertising. Brands cannot advertise online the same way that they advertise in print or on television. The internet is a two-way channel.
  • Carefully considering how to present luxury products’ traditional core “identity, personality and image” online.
  • Using every facet of cyberspace communication, from websites to the social media.
  • Studying targeted data about internet users based on quantitative and qualitative research to determine what to sell and what tactics to use to sell it.
  • Developing and implementing social media strategies.

Feeding the Wealthy Client’s New Social Media Habit

Luxury fashion blogs – personal online journals – draw multitudes of readers who offer positive and negative comments in voluminous forums about posh brands. Yacht enthusiasts chat online with their sailing peers. Thousands of women regularly check Rose Beauty, Lancôme’s “online community” – a “top reference in online beauty portals in China” – for makeup tips. These internet users symbolize how online culture is changing. Luxury clients’ behavior has shifted to follow technology’s advancement. The wealthy are online and they enjoy the control it gives them over their transactions. They turn routinely to the web to share ideas, information, stories, product evaluations and leads to great buys. So as a marketer, you must ask how your customer has “taken the lead in online brand perceptions and relationships.” How will this “economic revolution...redefine luxury management practices?” “What are the real challenges and opportunities” in this setting for your luxury products? How will the web affect future consumers’ perceptions about upscale products? What strategies will work to sell your high-end goods?

Weaving the Social Web

The social web is a combination of interactive media where users with common interests gather in online collaborative communities to communicate and share; they also influence each other. Its platforms include “blogs, peer-to-peer networking, podcasts, online social networks, wikis, discussion platforms, messaging platforms, and various user-to-user communities and virtual worlds.” The social web gives luxury brand promoters an unparalleled vehicle for obtaining insight into the minds of their customers. Marketers who monitor the social media can read their shoppers’ reactions to their goods and to their competitors’ products. Using social networks, brand marketers can identify leaders and influencers, monitor customer preferences, gain a clearer view of their clients’ psychographics, and predict reactions and trends. The social web is a superb channel for building targeted brand awareness and communication. Its common traits include:

  • “Transparency” – Participants know who runs their social networks, in contrast to corporate blogs such as Gucci Space and Prada Handbags.
  • “Independence” – These sites’ leaders work on their own, not within corporations.
  • “Passion” – People eagerly gather online to discuss their common interests.
  • “Accessibility” – Anyone with a computer and an internet connection can join.
  • “Informality” – Ordinary enthusiasts with no formal training bring dedication and excitement to their blogs and networks.
  • “Interactivity” – People want to connect with others who share their interests.

Luxury Bloggers

The World Wide Web hosts more than 180 million websites and more than 184 million blogs, with more than 26 million blogs in the U.S. alone. More than 346 million people read blogs; that’s 77% of internet users. People write blogs to present their frank thoughts and opinions, while encouraging participation, debate and reader exchanges. Bloggers are often amateur journalists who have become proficient in fostering conversation and using technology. Popular luxury blogs include Café Mode, Luxist and Le Blog Luxe. Dedicated fans follow their favorite brands’ blogs, such as Louis Vuitton Addict. Blogs such as Travel Horizons or A Luxury Travel Blog cover luxury services.

“Having a web presence, whether through the brand’s own website or in the social web, is now a given.”

Luxury marketers are trying to find a profitable, consistent strategy for harnessing the power of blogs, and some have made mistakes along the way. Vichy, a French skincare company, started a blog under the guise of a character named Claire, who gushed online about the marvels of its new anti-wrinkle cream. When it came to light that Vichy’s marketing department generated the blog, readers and other bloggers were outraged, and the company suffered a public relations nightmare. Blogs, even corporate ones, are supposed to be transparent. To use a wide variety of blogs and social media effectively, luxury marketers should consider these seven strategies:

  1. Find blogs that are appropriate forums for their brands or products.
  2. Look for social media outlets and blogs that match their demographic targets.
  3. Get to know individual blogs by seeing how their readers communicate with them, and how the blog’s authors – and other readers – participate.
  4. Match your brand, or facets of its personality, to specific blogs or social media sites.
  5. Reward staff members for tracking relevant blogs and for jumping into the conversation “as brand ambassadors.”
  6. Place your ads on blogs that relate to your target audience, your goods or your brand.
  7. Build your “online buzz through word-of-mouth and word-of-mouse.” To draw attention in the virtual world, consider giving “privileged information” to chosen bloggers.
“The social web enables consumers to shop better, look better, learn better, complain better and generally feel better.”

Luxury brands can no longer maintain a haughty distance between themselves and their clients. Instead, their marketers must develop a social media strategy with clearly defined goals, including contact with micro online societies and relevant interest groups.

The allure of luxury is the opportunity to have a special, unique experience. Just think how it feels to drive a Porsche, wear an Hermès tie or sip a 20-year-old Scotch. Every luxury brand faces the challenge of conveying or even duplicating this experience online, and, to date, most have fallen short. Luxury brand websites tend to be heavy-handed with flashy graphics, 3-D images and black backgrounds. They often sacrifice the aesthetics of their brand’s core identity. Instead, luxury marketers must create an online “ambience,” or “webmosphere,” that provides a virtual environment replicating the brand’s offline sensibilities.

“Creating a luxury website is like embarking on a journey in much the same way that visiting a luxury website should be a journey of pleasurable discovery.”

This online universe must appeal to all senses to reinforce a brand’s message. It should feature strong visuals with zoom features and 360o views, along with music, sounds and movement that fit the brand’s personality. Close-ups “enhance the tactile sensory response.” For example, La Maison Calavas, a French cosmetic company, uses tight shots to “reproduce the sense of touch on its website.” Page flipping also duplicates a hands-on experience. The “My Virtual Model” program enables “online shoppers to create personal avatars with their exact human proportions” to try on clothing. To help shoppers sense the flavor of your candy or cakes, stimulate their taste buds with imaginative visuals, warm testimonials and evocative descriptions. Fragrance brand sites also try to awaken the customer’s sense of smell by using emotive language and memory recall techniques. A digital software package called “iSmell,” a USB plug-in with a cartridge holding “more than 100 primary odors” actually allows online users to sniff a product’s aroma.

“The unique and long-standing relationship between luxury and avant-gardism means that luxury brands are expected...to be leaders in innovation.”

In designing a luxury brand’s website, keep the seven “Cs” in mind:

  1. “Concept” – A website’s graphics and attractiveness.
  2. “Competence” – Its ease of use.
  3. “Content” – Genuine, intriguing, pertinent data.
  4. “Commerce” – Access for purchasing products conveniently and easily.
  5. “Customization” – “Personalization” of all kinds of web content.
  6. “Community” – Participation by brand ambassadors on relevant blogs and forums.
  7. “Computing” – “The technology, programs, systems, applications, software and other tools that make up the back office of a website.”

Online Communications

Luxury brand sellers, so far, prefer to communicate with the public through the traditional media, but these channels are no longer effective. “Today’s challenge is to create intimate, two-way conversations with the customer while protecting the luxury brand’s identity.” Luxury product promoters must understand that communicating online differs from placing ordinary media ads. Many luxury marketers no longer emphasize posting one-way messages like magazine ads. Today’s promoters should focus on generating interactive communications that build trust and provide information that customers want. Marketers must be aware that online clients have the option of rejecting their brand message and spreading their own interpretation on the web.

“Anyone who believes that today’s luxury client is the same as the one of the last decade is in for a surprise.”

The two-way concept also applies to how luxury clients make purchases. Modern online shoppers are “smart, savvy, informed and knowledgeable.” This international clientele also tends to be “demanding, culturally aware and convenience-driven.” Marketers in the luxury industry are learning that people are likely to seek opinions from their social communities before purchasing big-ticket items. These shoppers want to collaborate as they shop. When they buy luxury items online, they tend to follow these steps: gain “website access, watch [products and prices], blog and post, browse, select and purchase,” and “share.” This luxury client is still evolving. Given digital technology’s rapid advances, the luxury industry must remain true to its core essence, educate younger generations about true luxury and fulfill clients’ quickly changing expectations.

About the Author

Uché Okonkwo is a luxury-sector strategist who works with brands such as Louis Vuitton, Tiffany and Co., Gucci, Cartier and Burberry. She is the founder of the Luxe Corp consultancy, editor of Luxe-Mag.com and author of Luxury Fashion Branding.


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Luxury Online

Book Luxury Online

Styles, Systems, Strategies

Palgrave Macmillan,


 



28 August 2025

Virtual Teams

Recommendation

Globalization can create as many problems as opportunities. One big problem is figuring out how to unite people worldwide to work on projects for your company. In an age that lacked a worldwide communications net, the answer would probably be quite depressing. However, as authors Jessica Lipnack and Jeffrey Stamps make clear, the modern Internet makes it quite possible for workers all over the world to collaborate. The physical location of your firm’s various experts is no longer a barrier to effective team building, be they in Dublin, Bangalore, Las Vegas or Bangkok. In fact, the authors claim that companies that fail to create effective teams across cyberspace will be left in history’s dustbin. This might be overstating the case, but BooksInShort recommends this book for its candor about exactly how challenging it is to create virtual teams. Still interested? If so, this book serves as an excellent primer of both theory and practice.

Take-Aways

  • Virtual teams are the future of corporate networking.
  • Links are the key to virtual teams and define their value.
  • Virtual teams are complex and not easy to build.
  • The diverse participation of virtual teams increases innovation.
  • Virtual teams reduce costs for your company.
  • New networks mean creating new ways to communicate without physical cues.
  • Workers can learn more about the Internet by playing in cyberspace.
  • Coaching is also an important aspect of acquiring new technological skills.
  • Employee implementation makes technological change real.
  • Companies that don’t perfect or understand virtual teams won’t survive.

Summary

Why Virtual Teams Matter

When the people who developed the Internet are asked about the future of organizations, they assert that the Internet forces companies to deal with the new reality of networked human interaction. This new technology brings individuals, small groups and communities back to the center of attention. Four terms capture the truth of virtual teams: people, purpose, links and time:

  1. People fill groups of every kind and size.
  2. Purpose holds the groups together.
  3. Links give access to vast amounts of data and unprecedented possibilities for interaction.
  4. Time dominates virtual teams and includes schedules, milestones and calendars.

The Profit Motive

Virtual teams have the power to increase profits. Advantages of virtual teams include:

1. Cost Reduction

Virtual teams reduce costs and increase the time your employees have for their work. This creates a new economy of scale.

2. Shorter Cycle Times

Parallel communication is faster than serial communication. This also establishes greater trust and better exchanges of information and ideas.

3. Increased Innovation

More diverse participation increases creativity and encourages new business synergies.

4. Leveraged Learning

Virtual communication makes learning a natural by-product of working. Employees also gain a wider access to expertise and can share best practices.

Groups Forever

People always live and work in small groups. Small groups permeate every kind of organization, from large companies to startups. Yet each age has its own signature form of organization.

“It’s hard to bring physical bearing to bear when you’re communicating by e-mail. All the CAPITAL LETTERS and !@$* characters of indignation on the computer screen can’t compare with someone on a power trip staring you down.”

In their 1980 book, The Third Wave, Alvin and Heidi Toffler explain that major transformations divide human history into four great ages that are marked by nomadic, agricultural, industrial and information-based cultures.

1. Nomadic

Hunter-gatherers honed small-group skills. Building these skills required our early ancestors to acquire ability to speak, make tools and start organizations.

2. Agricultural

Agriculture created hierarchies. Farming and herding eventually replaced hunting and gathering.

3. Industrial

Bureaucracy was created by the industrial age. This age matured in the 20th century as factories replaced farms as society’s prime economic mover. This era later gave birth to the digital society.

4. Information

Networks were created by the Information Age. The world’s economies are now information-based and interdependent, making the planet smaller.

“In time, virtual teams will become the natural way to work, nothing special. Virtual teams and networks - effective, value-based, swiftly reconfiguring, high-performing, cost-sensitive and decentralized - will profoundly reshape our shared world.”

Companies are betting that virtual teams, which pull people together across geography, large or small, will provide a competitive edge in the future. Proponents believe that virtual teams accomplish tasks that would be impossible within the current 9:00 a.m. to 5:00 p.m. business model.

The creation of virtual teams is not easy and virtual teams are but microcosms of the organizations and environments that spawn them. In other words, a company torn apart by bad morale, low expectations and poor talent shouldn’t expect its virtual teams to be any different.

“For virtual teams and networks to be truly transformational, they must include what is timeless and enduring in human groups. They also need to reflect the features that are really new in the turbulent years following the turn of the millennium.”

Human relations are still the heart of the matter. When teams go global, their language and culture issues clearly loom larger. However, all teams will have to cope with the fact of increasing diversity in the workplace. Not only is the workplace becoming more diverse, but the task requirements of complex work demand that a more diverse group of people work together, whether in traditional settings or in virtual teams.

Knowledge Capital is Crucial

Knowledge is the new source of wealth in the information age. Shared knowledge is the dominant productive source of 21st-century economics, with unanticipated consequences now unfolding at startling speed. Knowledge resides in all the shared sources of learning and information.

“Words such as conception, gestation, birth, childhood, adolescent, adulthood, midlife crisis and old age all apply to team life. Powerful results accrue when any team, virtual or not, consciously works its way through a life-cycle process.”

Cyberspace widens this previously limited source of wealth and makes it powerful in new ways. In fact, experts aren’t even sure of all of the implications of knowledge capital.

Working in groups, such as virtual teams, makes the most of shared knowledge. We can’t avoid teaming. We can only team well or badly. Thus, we will accrue or deplete our corporate social capital with every small group in the organization, whether we consciously acknowledge the value of relationships or not.

Creating the Intelligent Organization

Bob Buckman, the former chairman and CEO of Bulab Holdings, is a manager who is doing it right. He embraces networks and virtual teams, explaining, “The speed at which you can communicate defines how quickly you can make money.” Buckman explains that having a company that can respond to a client anywhere in the world within six hours is a competitive advantage.

“What gives virtual teams such distinction as a new form of organization is their links. Relatively suddenly, multiple, constantly enhanced modes of communication are available.”

To get more out of each individual employee, your company may need to rethink its span of communications. Buckman’s company is part of a long line of innovation and change. “We’ve been working on this form of organization for a long time,” said Buckman, who asserts that the changes within his company have increased the total intelligence of the organization. Because of the firm’s news groups and Internet communication among workers, questions that once took days to resolve are now solved in hours. Buckman instituted a few key changes to bring his company to this point. Those changes include the following:

1. Technology

Every employee has access to laptops and PCs. Any employee who travels abroad carries an electronic first aid kit.

2. Free Unrestricted Access to the Internet

Instead of a company that prods its employees to not waste time on the Internet, Buckman encourages his employees to go and play on the Internet. “People have to learn how to be comfortable with technology,” he said.

3. Facilitation and Coaching

Coaches spent 12 hours a day online just helping people understand the technology. Now, every discussion area has a moderator. Over time, many of these moderators go on to create their own ways of working online.

4. Culture Change

Employees bring about 90% of these changes. They have to make the changes that work within the organization’s evolving culture.

How to Launch Your Virtual Team

Each virtual team that your company creates should represent a combination of purpose, links and time. Your company can launch a simple virtual team by employing a basic seven-step process. The seven steps are:

  1. Create identity
  2. Draft mission
  3. Determine milestones
  4. Set goals
  5. Identify members
  6. Establish relationships
  7. Choose media
“Some companies are already working in the 21st century, virtual team style. For Pfizer, Buckman Labs and Sun Microsystems, virtual teams are, over time, a key business strategy.”

If you’re creating a simple team, these steps may be all the action you will need to take. On the other hand, if you are trying to create a more complex team, these steps provide a groundwork to get you started and then to generate scope, define frameworks and make long-term decisions. Often, sub-teams can be created within established teams just by using these basic steps.

Virtual Teams Can be Hard

Virtual teams are complex. In fact, virtual teams have the same complexity of any other group of people. To guide your team through the complexities involved any time a group of people tries to accomplish something together, you have to create online functions that support it, such as places, plans and a handbook:

A Place

The virtual team-meeting site should be as simple as possible. It should have a name banner, clickable pointers to people and current events, and a purpose. For something more complex, you can create a two-tiered site, something with a home page and then four other pages for the walls. For a long-term team, you can create a long-term multilevel project - much like a bigger house for a bigger family - that grows and morphs as the team’s goals become more complicated. You can also use programs and enterprises to create visible dynamic models of teams, even within the larger context of many other teams.

A Plan

Plan your virtual team to the necessary level of detail and no more. Just detail the short term, sketch the long term and fill in as you go. You can, in effect, walk inside your virtual team’s room. The walls of the room actually determine your planning framework. And, of course, the plan should include the four rules of purpose, people, links and time.

The Handbook

As the team progresses, it will accumulate a lot of detail about its work. A hard copy of the handbook is useful in conjunction with the Web site. You should put information like the hierarchy, team directory and other important background material in the handbook. This can be an uncomplicated and low-tech way to manage a simple team in the early stages.

A Matter of Survival

As the world becomes a more complex and faster place, we need to smarten up. This means companies have to learn how to communicate information to their organizations’ members. To do that, businesses need to diversify and create intelligent groups. Firms that don’t adapt to the marketplace’s new complexity simply won’t survive. Firms have to create better networks and groups to handle massive global change. Networks and virtual teams open new channels of opportunity, expand social capital and decrease transaction costs. Furthermore, virtual teams create extra value by solidifying relationships among workers.

About the Authors

Jessica Lipnack and Jeffrey Stamps are cofounders and the directors of NetAge Inc., developers of virtualteams.com. They are considered the world’s leading experts in virtual teams and networked organizations. For more than 20 years, they have lectured, consulted and been widely published. They have also launched virtual organizations (teams) for Fortune 100 companies.


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