Monthly Archives: May 2009

SMART Interviewing

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As fledgling MBAs, we were thoroughly trained in several techniques, such as the “STAR” technique, etc. If I can help one person by writing this, perhaps they can pay me some of their earnings The STAR technique has many advantages for both candidate and interviewer(s). As a candidate, you appear professional, analytical, and–above all–organized. As an interviewer in a structured interview, it is very easy to identify the competencies being communicated by the candidate, assess how genuine the candidate is, and have concrete material to back up the competencies identified for the job description.

It involves a lot of preparation (which also looks good to prospective employers), thought, and a little bit of role-playing the part of a human resource manager. One thing to remember when you get an interview is that time is money; and usually an employer won’t spend the time interviewing you unless they have an intention to hire you if you fit the bill. The method I’m proposing will help you fit the bill, to a “T,” and present it in a way that can’t be missed.STAR is very simple. It stands for (S)ituation, (T)asks, (A)ction taken, (R)esults.It helps if, before the interview, out of courtesy, you ask if you may take notes. This has the added benefit of making you look very organized, interested, attentive, and analytical.

Trained human resource professionals–experienced interviewers–know that flying by the seat of their pants and going by gut feeling has a very low validity; during my advanced studies in Recruitment and Selection as part of my MBA program, we studied the statistical validities of the various interview methods. By far the most reliable is the structured interview, with either behaviour-descriptive (use examples from your past to demonstrate specific competencies–the STAR method fits this method like a glove) or situational (what would you do if…?) In all structured interviews, desired competencies for the position (e.g. analytical skills, quantitative skills, relationship-building, time management, adaptability, etc.) are identified first during a thorough job analysis.

Questions are derived to assess whether or not each candidate has each competency identified. Scoring is pre-determined and standardized for sample answers to the question (again, you will see why the STAR method really shines in structured interviews). The same set of questions and answer scoring paradigm is applied to every candidate–no ad hoc questions, no scoring by “gut feeling.” This is the interviewing technique that large corporations are adopting to be defensible in their selections, to be accurate in their selections, and in some cases–to abide by law; all chartered banks, transportation businesses, and some others are covered by federal jurisdiction employment laws requiring rigorous recruitment and selection procedures be followed.

But I’m getting off-topic a little.When you are asked a question, if it is a good, structured interview, the purpose of the question will be to identify whether or not you have a specific competency. Your job, the night before, was to do a job analysis, yourself, on the position and try to identify as many competencies as you think are important to the position. Your job, the night before, was also to think of an example or two from your previous jobs, volunteer positions, or anywhere in life, where something you did shows that you have that specific competency (such as leadership–the time you had a school project and there was chaos people doing a lot of work, other people doing none, so you showed strong leadership, divided the project into work packages, delegated the work packages, tracked their progress, etc.), and then come up with answers in the “STAR” format.

In fact, I’ll use this exemplar to illustrate how to prepare your answers using the STAR format in your preparation for the interview the night before:

Suppose you are going to interview for a position as a camp counsellor.

List out competencies you think a camp counseller requires: creativity, people-skills, leadership, initiative, time-management, dealing with crises–I’m sure you can come up with more given a few minutes.Let’s take “leadership” as an example to prepare your answer the night before.

A question that might be asked tomorrow during the interview would be, “Can you give an example of a time you showed leadership skills?” This question obviously is designed to assess whether you have demonstrable competencies in leadership, initiative, management, people-skills.

Situation: What was the situation?- “One time, during a chemistry group project and presentation, we were placed into assigned groups. Naturally, the group dynamic began to show signs of chaos–some people seemed eager while others just joked around; some people came to group meetings with a lot of work, while others forgot they even had a meeting until the teacher told us to get into groups.”

Task at hand: What did you have to do?- “In the interests of doing well on the project, I decided (showing initiative) that I had to bring cohesiveness, organization, and responsibility to the group.”

Action taken: What did you do?- “I brought cohesiveness to the group by reminding everyone that this project was worth 50% of our grade in the course and that we had to have a more organized effort so that we could do a really good project. The other group members agreed.”- “I divided the work to be done into logical work packages, and knowing the strengths and weaknesses of each one in the group–or finding them out if I didn’t–I assigned these work packages to each group member… I found that even the members who didn’t care about the project seemed to take an interest when I assigned them something to do that involved something they were good at!”- “I set up a chart that I put on a web page for everyone to see that outlined the important dates and so they could report on their progress. This seemed to spur some friendly competition in the group and I found after a while that even the group members who weren’t so enthusiastic about the project were not just meeting their deadlines–they were beating them!”

Results: Quantify the results if possible.- “As a result, our group put on the best presentation of the class, earned a grade of 96%, and the teacher even asked if she could keep our project and presentation as an example for later years.”

This should give you an example of about how much effort and thought you should put into preparing an example for each competency you identify.

During the interview, when the question is asked, you again remind your interviewer(s) of your organizational and analytical skills by asking for a moment to prepare your answer (taking your time to answer during an interview is something most people don’t do–but should). Turn to a fresh page in your notebook, write out the headings: S, T, A, and R vertically and begin filling in your story.When you’re good and ready–don’t rush!–give your answer. You are sure to shine above the other candidates when you complete the whole interview with this level of organization. And what about unstructured interviews? If you can give this level of preparation, organization, and analysis, you’ll wow your interviewer and blaze ahead of the competition.The most important thing is to give yourself ample time and effort the night before, doing a thorough job identifying competencies, examples from your past that show these competencies, and fitting them into the STAR model.

Even if a question takes you by surprise, don’t worry; you can do a STAR analysis right on the spot–the important thing is not to look rushed or scared. Just ask for some time to prepare your answer, which they’ll be more than happy to give (they want a good answer too, not one blurted out stream-of-consciousness style that goes nowhere and shows no competencies), try to identify the competency desired from their question, and open a fresh page

Buy low, sell high

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Everyone knows the way to make money on the stock market is, “Buy low, sell high.” 

It seems patronizingly obvious.  Yet people repeatedly buy high, sell low as if they just stepped off the boat from bizarro world.

It’s not usually the case that people forget that in order to end up with more money than they started with they must sell the security at a higher price than that at which they bought it–it’s that circumstances their perspectives to make it seem like the most favourable course of action. 

Most often the reason for this is because they see a stock that is rising rapidly and it looks like a good company to invest in–after all, it is exceeding earnings estimates, it is financially healthy–and their friends already made a killing from it.  It makes sense to invest in a healthy company that is

I believe the foundation of a stock’s price should be the valuation that any competent financial analyst should be able to calculate given a firm’s intended and emergent strategies, competitive and market environments, and its financial statements.   These factors must be considered together and not in isolation.  One common investing pitfall is completing an introductory financial accounting course and thinking just because you can calculate a bunch of impressive ratios that are designed encapsulate various measures of profitability and financial healthy.  I say designed because if you do not consider the other factors, you will be using the right calculations on the wrong numbers.

Also

Annual Reports Lie

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What good reason does a firm have to produce annual reports that are designed to give an accurate report on the status of the firm when it can use numbers that make itself appear better than it is?  

Even as a shareholder, I would want a firm I have invested in to get away with as much manipulation as it can get away with so they look as good as possible so that the stock price is as high as they can make it. 

Putting its best foot forward has more benefits than simply making shareholders rich.  Healthier companies have access to more debt and equity funds, more credibility and power to influence the markets in which they play, and are safer to do business with. 

I simply can’t see one good reason for a company to publish anything that does not take full advantage of every opportunity to make itself look good that it can get away with.

Keeping in mind this objective behind financial statements and annual reports, the need to analyze every financial statement critically and individually is patently clear.

Don’t buy stocks

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I don’t care what kind of system you have or what your source of hot stock tips is, don’t buy stocks. 

Before my peers flame me with their opinions on investing, I will qualify that by saying, “Don’t buy segregated securities.  If you want to try to outsmart the markets, have your portfolio desgiend by someone who does it for a living or buy the market.”  

If anyone were to ask if they should buy company XYZ’s stock, I wouldn’t even look up its quote, let alone analyze it.  My answer would be no.   

My rationale is as follows: if you need to ask if XYZ is a good investment, you clearly are not able to use the financial reports to value the stock yourself; further, since you didn’t describe the rest of your portfolio, you obviously were considering buying it without regard to diversifying any of its risk or whether it aligned with your investment objectives and horizon. 

Sure, people who aren’t finance experts have made lots of money buying and selling stocks.  But since they aren’t able to determine at what price the stock is overvalued and at what price it is undervalued, they made that money purely by luck.  For every lucky stock trade that does make more money than a risk-free t-bill, there are myriad others that either lost money or earned less than investing the money in a t-bill would have.  Statistically, then, you have a better chance of having more money in the end if you do not buy the stock, since 100% chance of earning 0% return on the stock and only a  will still leave you with more money than any probability of losing any amount.

“But in the long term the stock market consistently outperforms risk-free t-bills,” you argue. 

Yes and no.  Yes, on average, stock prices have always risen over the long-term.  Business cycles and periodic recessions guarantee drops in stock prices will occur.  And anyone who bought Bre-X or Nortel will tell you, while the market as a whole always increases in value over time, it does not mean that all stocks individually will increase in value in the long run.   That is why even though it seems a sure bet that a given stock will make you a millionaire, statistically, you have a better chance of ending up with more money in the end if you invest in an optimially-diversified portfolio comprising a combination of more than one security, securities that are known to react oppositely to each other with respect to economic conditions, and risk-free securities; even though this will necessarily reduce your potential returns, it also guarantees three critical things:

  1. Should unforeseen circumstances cause your company’s stock price to plummet, investments in other companies will mitigate the drop to your overall investment, mitigating the specific risk;
  2. Oppositely-reacting securities will mitigate any price drops due to economic conditions, mitigating the volatility due to business cycles; and
  3. Risk-free securities will guarantee a minimum value and reduce the impact of  market-wide factors such as recession. 

Integrating those types of securities in both long and short positions also helps dampen portfolio fluctuations due to intrinsic systematic risk in the markets.

[Obviously, if you're well-versed in finance and know how to maximize the returns from that stock while diversifying away as much of its risk as possible, then I wouldn't tell you not to buy because you wouldn't have to ask me in the first place.   And if you are a finance MBA or a CFA and still asked, I would still tell you not to, which would mean you were less risk-averse than I, in which case, you might as well disregard my risk-averse policy.]

Why should a B.Comm/BBA go back for an MBA?

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When I first began my MBA back in September, 2000–an eager, enthusiastic, ignorant pup at McMaster University’s Michael G. DeGroote School of Business, I wondered why some of my newfound friends who had business undergrads needed to come back so soon for an MBA when at first glance it looks like it’s just an undergraduate commerce or business administration degree compressed into two years.

The corollary of this was the common opinion among B.Comm/BBA grads who do not choose to do an MBA that MBAs are undeservingly overpaid and undertrained.  Sure, part of that sentiment obviously arises from the observation that, in general, MBAs achieve more senior positions with higher compensation more rapidly than their undergraduate business counterparts.  I believe the recent trend in accepting MBA students with less and less business experience and the presentation and design of MBA courses as simple accelerated versions of the undergraduate courses has only exacerbated the problem by failing to differentiate MBA course goals from undergraduate business course goals.

Based not on any course descriptions or objectives but on my impression of people’s critical thinking abilities and experience levels, I see the role of a business undergraduate largely as the foot-soldiers who carry out the objectives decided by managers with more experience–but most importantly, with well-developed critical thinking and analytical competencies.

One of the objectives of the MBA degree was to make management more scientific and systematic.  Given that objective, MBA graduates should be expected to leverage their experience in their fields to make decisions using the methodologies they learned during their MBA studies.

At this point, I should mention there is an obvious dichotomy in MBAs.  Some people pursue an MBA with the intention of specializing in a discipline.  They enroll in programs like the “Finance MBA” or the “MBA with marketing concentration.”  While they are required to become familiar with all the functional areas at the introductory level, the majority of the second-year (of a two-year full-time MBA program) is spent taking courses in their specialization.

At McMaster University, where I completed my MBA, the finance MBA required second-year students to select seven (out of 10) courses from the finance specialty.  People who select this path might also consider the CFA program and intend to spend their careers as specialists in their fields.

Although I originally enrolled in the finance stream, after the 19 introductory courses in the first year, I firmly believed 70% finance courses was far too narrow for me and that I wanted to embrace a more multidisciplinary approach to management.  (I also came to the conclusion because throughout my life I have found that I generally pick up anything I try relatively easily; consequently, I kind of like everything I try.  I wanted to continue taking courses in marketing, human resources, finance, and organizational behaviour after first year.)

The other type of MBA, then, is the polar opposite of the specialist.  Some have described the MBA as “one mile wide and one inch deep.”  Indeed, some people consider an MBA the only graduate professional degree.  I submit that it is nothing like either a traditional graduate degree or a professional degree.  Both traditional graduate degrees as well as professional degrees are structured to narrow your field of specialization progressively and groom you to be an expert in that narrow field.  The MBA is primarily course-based rather than research-based requiring courses from a wide variety of disciplines, both quantitative and qualitative, and I feel in no way intended to be used as foundation knowledge, which I believe undergraduate degrees provide.

That said, I believe that taking an MBA should aim less to educate you and more to develop critical thinking and learning competencies and demonstrate that in demanding situations you can quickly identify what knowledge and skills you need to address the issues at hand, rapidly learn and internalize what you decided to learn, and most importantly, deliver to a high standard.

I observed this expectation first-hand when I was a finance analyst at the Canadian Imperial Bank of Commerce in the Finance Group.  I had been asked to build a database for comparative analysis of retail and commercial banks and broker/dealers.  Approaching a more experienced MBA graduate also from my school, I asked how to go about doing this.  He replied, “You’re an MBA.  You figure it out.”  He didn’t mean he didn’t want to help.  What he meant was that my MBA had proved I had the critical thinking skills and abilities to be granted the latitude to figure out what characteristics were important, come up with my choice of the best implementation, and implement it without being spoon-fed step by step.

And I have come to appreciate this latitude.  I have come to see it as an opportunity to showcase your full potential.

Introductory Integrative Business Courses

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I’ve pretty solidly established my strong feeling that business education must be more holistic from the get-go in my previous posts and I try to make it central to all my work (cf. http://robincheung.info/samples/bbc.pdf) 

I was first introduced to the business academic world in about 1998 when I was already nearly finished my Bachelor of Science in Biology and Biotechnology.  I had run my own small businesses prior to that, but when I think back about it, it was reckless without at least a basic understanding of business.  I have long believed in having a wide knowledge base upon which to draw regardless of your position or field, and I had taken electives such as classical civlizations, psychology, children’s literature, and even american sign language by then.  My sister, who was attending McGill University in a BA, Political Science and East Asian Studies program decided to take a course together while she was home one summer.  She got a letter of permission to take a course at my school (Carleton University) and we chose Introductory Financial Accounting for some reason. 

By the time I finished Introductory Financial Accounting, I had convinced myself of a few inaccuracies:

  1. Business was all about Accounting
  2. I could read–and more importantly, analyze and interpret–any financial statement for any company.
  3. I knew how to run a business
  4. I knew how to make investment decisions

While I was taking that introductory financial accounting course, a friend of mine–whom I had known since grade five and I considered my best friend–found a better job than the one he had preparing corporate profiles for a senior executive in Investment Partnerships Canada, a department within Industry Canada.  He knew I was strong analytically and had developed a certain scientific rigour from my program and that I was taking my first financial accounting course.  (Incidentally, he never chose to do an MBA after his B.Comm.  He is now a seasoned project manager at IBM and not only feels he hasn’t missed out by not doing an MBA, but shares a belief common amongst B.Comm grads that MBAs are overpaid and not trained thoroughly–more on this later).

I was hired at that point as a Research Analyst, primarily to identify strategic foreign direct investment opportunities for IPC in Germany and Austria.  Since I had a rather erratic first few years in undergrad, I would work there and finish my BSc part-time.  I will admit that the analytical and reasoning skills developed in undergrad are severely insufficient to take the knowledge from an intro financial accounting course and tailor it to a specific application.  If I were told, “calculate the accounting ratios,” I could do that.  If I were told, “look at the financial statements and identify potential candidates with specific trends in their financials, I could do that.  But in no way could I propose a set of metrics that would identify ideal candidates, let alone competently make adjustments to the financials to correct for non-recurring items, and then come up with a ranking for the candidates.

But I digress.  The point was even a first-year business course desgined for people who have had no business training left me believing it was the only thing I needed to learn–or at the very least, the most important.

I’m pretty sure all the introductory business courses are designed similarly–even when I began my MBA along with students from a wide assortment of undergrad backgrounds, many of whom have also had no formal business training, I found marketing courses were developed as if accounting did not exist.  And finance courses that were ignorant that operations management exists.

I was pleasantly surprised then, when a friend of mine in computer science at University of Waterloo who was interested in investing in the stock markets told me he would take a first-year business course called “Functional Areas of an Oragnization.”  Someone had finally seen the importance of a solid foundation in all functional areas at the early stages of a business education.  I thought it sounded ideal for business majors in that it would help them select an area of interest without being influenced by the primacy effect, and it was great for non-business majors if it were the only business course they would take. 

One feeling I left the sciences with was that scientists were generally quite idealistic.  They often believed that research would be funded based on its merit.  The reality, of course, is that nothing gets funded without a business need, and more importantly, a business plan that will lead to profitable returns.

(The corollary, incidentally, is that businesspeople are often quite myopic and should be more aware of their place in the universe.  They could also benefit a great deal from the rigour and critical analysis so characteristic of science.)

Upon skimming the course outline, however, I found that the course is still quite accounting-heavy and the majority of the 12 lectures are based on it.  I prefer a top-down approach beginning with the big picture and how the various functional areas work together.  Before teaching the details of each functional area, I would begin with basic strategy, such as SWOT, the value chain, and Porter’s five forces.  Strategy should be used to make business decisions, employing the five functional areas as required, taking advantage of any possible synergies. 

The way business school segregates disciplines into courses designed largely ignorant of the other functional areas and do not require including them in their own case assignments is a backward bottom-up approach, classifying the business issue as an accounting one or a marketing one, then using that to see what solutions are possible and selecting from those.