Ming the Mechanic:
Structural Holes

The NewsLog of Flemming Funch
 Structural Holes2004-06-17 16:02
9 comments
by Flemming Funch

David Teten writes on Online Business Blog.
You will usually benefit if the members of your network do not know one another. Ronald Burt, in his innovative and influential book, Structural Holes: The Social Structure of Competition, provides fascinating support for the argument that both people and companies benefit by sitting in a “structural hole” of a network. A structural hole exists when there is only a weak connection between two clusters of densely connected people.

For example, let us say you are the head of German country sales for Hasbro, Inc., a major manufacturer of games and toys. Your value to Hasbro is as a pipeline to the German market. It is in your interest to build relationships with many people in both Hasbro headquarters and in the German market. You fill a structural hole between those two groups. In order to preserve that structural hole, we recommend you should probably not introduce the two pools of people (the American Hasbro toy-sellers and the German toy-buyers).
I suppose that is traditional wisdom of job-security, applied to social networks. But I think that, as a general philosophy, that sucks big time. You try to deliberately keep the people from talking to each other that would most benefit from talking to each other, by making yourself the networking tollbooth.

Oh, I think most people do it in one way or another. Most people have their job because somebody somehow believes that they're needed for it. And if we're talking about knowledge work, or about the work of connecting some people over here with some people over there - then your job security might easily seem a little fragile. So, one easily gets into keeping some key pieces of information secret, so that nobody will be inspired to cut you out of the loop. Doesn't make it right, though.

In my ideal world, it would be the people who actually make the most difference who'd have the best job security. Not the people who pretend they're invaluable, simply because they hide part of the picture from everybody else. But, alas, society doesn't really work that way. You get paid by making somebody feel they have to pay you, not particularly by doing great work.

Although, the people who actually have figured out the system are doing the opposite. I.e. getting themselves out of the loop, rather than trying to seem like an invaluable link. I'm talking about the people who make businesses, as opposed to trying to hold a job and appear like a good employee. The trick is just how to engineer that most of us possibly might end up being so skilled or lucky.


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9 comments

18 Jun 2004 @ 01:03 by maxtobin : Ahh The Humble doorman
Do not forget the value of the doorperson. Most often one would/should create an agreement that rewarded this person for the duration of the resulting relationship. Seems fair to me, then the door person gets on with the task of 'seeing' other valuable connections. I am in the process of doing this right now, with a tool that has been developed to fault find network connectivity in a cheap scalable way accross the various networks (copper, fiber and wireless). We know we have a limited window to penetrate the market place, so the more doors we open most quickly, the more reward. Seems reasonable! Anyone want to stand on the other side of the door? You will need good networks in the telco/service provider arena.  


18 Jun 2004 @ 01:28 by ming : Doorman
Doormen can be very valuable. Is great when they can be rewarded for seeing relationships that nobody else is seeing, and sharing that information. Connecting people who ought to be connected is getting increasingly valuable.  


19 Dec 2014 @ 16:47 by Nazakat @186.94.49.137 : xLEMzLwXBVPnu
Bain CapitalUpdated: Oct. 11, 2012Bain Capital is one of the world’s largest ptriave equity funds, with $60 billion in assets under management and holdings that include Michaels Stores, the retailer of arts and crafts, and Clear Channel, the radio and advertising giant.Mitt Romney, the 2012 Republican presidential candidate, co-founded the company in 1984 as an offshoot of the Boston-based management consulting firm Bain & Company. Mr. Romney for the most part ran the company from 1984 to 1999. He was extraordinarily successful.Mr. Romney’s association with Bain earned him a fortune that helped finance his political career. It also gained him a reputation, deserved or not, as a ruthless businessman who bought troubled companies, loaded them up with debt and drove them into the ground while reaping sky-high profits for the firm and investors.In March 2012, the firm, which has distanced itself from Mr. Romney’s campaigns, spoke out in its own defense. In a letter to investors, Bain promoted its investment record and record on job creation, highlighting that revenue at its companies increased by more than $105 billion since Bain’s investment. It suggested that the news media and Mr. Romney’s opponents were only focusing on Bain’s bad deals, noting that revenues grew in 80 percent of the more than 350 investments during the firm’s ownership.But the two remain linked in many ways. Mr. Romney, as part of his retirement agreement from the firm, has been paid a share of Bain’s profits since his departure. Mr. Romney and his wife, Ann, also have a Bain-run family blind trust that earned a minimum of $5.6 million, according to 2011 disclosure forms.Business Ties to China, Despite Campaign ComplaintsAs a candidate, Mr. Romney has used China as a punching bag. He accuses Beijing of unfairly subsidizing Chinese exports, artificially holding down the value of its currency to keep exports cheap, stealing American technology and hacking into corporate and government computers.But the tale of Asimco Technologies, an auto parts manufacturer whose plants dot eastern China, would seem to underscore Mr. Romney’s campaign-trail complaint that China’s manufacturing juggernaut is costing America jobs.Nine years ago, Asimco bought two camshaft factories that employed about 500 people in Michigan. By 2007 both were shut down. Now the company manufactures the same components in China on government-donated land in a coastal region that China has designated an export base, where companies are eligible for the sort of subsidies Mr. Romney says create an unfair trade imbalance.But there is a twist to the Asimco story that would not fit neatly into a Romney stump speech: Since 2010, it has been owned by Bain Capital. Mr. Romney has as much as $2.25 million invested in three Bain funds with large stakes in Asimco and at least seven other Chinese businesses, according to his 2012 candidate financial disclosure and other documents.That and other China-related holdings by Bain funds in which Mr. Romney has invested are a reminder of how he inhabits two worlds that at times have come into conflict during his campaign for the White House.Mr. Romney’s campaign insists he has no control over his investments since they are held in a blind trust. That said, a confidential prospectus for one of the Bain funds, obtained by The New York Times, promotes China as a good investment for some of the same reasons that Mr. Romney has said concern him: “Strong fundamentals” like manufacturing wages 85 percent lower than what Americans earn, vast foreign exchange reserves and the likelihood that China will surpass the United States as the world’s largest economy.Bain, Other Equity Firms Depicted as ColludingIn September 2012, in court documents that lawyers for Bain Captial sought to keep secret, the company and other leading ptriave equity firms were depicted as unofficial partners in a bid-rigging conspiracy aimed at holding down the prices of businesses they were seeking to buy.In Bain’s biggest acquisition, the $32.1 billion purchase of the hospital giant HCA in 2006, competitors agreed ptriavely to “stand down” and not bid on the company as part of an understanding with Bain to divvy up companies targeted for leveraged buyouts, according to internal e-mail messages.The documents have become part of a lawsuit in Federal District Court in Boston brought in 2007 against Bain and 10 other major ptriave equity firms by shareholders who say the firms’ bid-rigging artificially deflated the sales price of more than two dozen companies and cost them billions of dollarsBain is a defendant in the lawsuit, which also names Goldman Sachs’s ptriave equity arm and the Blackstone Group.The New York Times brought a motion in August 2012 to make public the most recent allegations in the case, which were filed under court seal. In response, lawyers for Bain and the other defendants filed a heavily blacked-out version of a 217-page complaint that details evidence compiled to date in the case.The corporate takeovers at issue in the lawsuit include the acquisition of prominent companies like Neiman Marcus, Toys “R” Us, Michaels Stores, Univision and the Loews and AMC movie chains, and they date from 2003 to 2007. The class-action shareholders’ lawsuit, which was first filed in 2007, has grown since then after a series of court rulings.Mr. Romney was not mentioned in the publicly released portion of the documents, and lawyers for Bain said in opposing The Times’s motion to unseal the entire filing that he “could not have been involved in the deals at issue here” because he had already left Bain by the time the first deal was finalized.Lawyers for Bain and the other equity firms said in their court filing opposing The Times’s motion that the documents include confidential company information that would inevitably become “washed into the spin of the campaign news cycle” because of Mr. Romney’s presidential run.Mr. Romney and his advisers say that he has played no “active role” in the company since 1999, when he took a leave from the firm to run the Winter Olympics in Salt Lake City. But he did not complete a retirement deal with Bain until 2001, and his name appeared on dozens of corporate documents in that time period.E-Mails Cited to Back Claims in Collusion LawsuitIn October 2012, newly released e-mails filed in the bid-rigging lawsuit were cited to back claims that equity firms colluded on big deals. Some e-mails show, for example, that longtime rival firms like Blackstone Group and Kohlberg Kravis Roberts appeared to be on much cozier terms during the last decade’s buyout boom.While top executives at Bain Capital are mentioned in some of the more revealing e-mail exchanges, Mr. Romney does not appear in the newly unsealed documents.The lawsuit’s allegations date to the years leading up to the financial crisis. Private equity firms, armed with billions of dollars from state pensions and sovereign wealth funds seeking returns on investments, were buying ever-larger companies. And flush banks like JPMorgan Chase and Citigroup backed the firms with billions of dollars of loans to finance their acquisitions.Led by the likes of Bain, Carlyle Group and Apollo Management Group, the ptriave equity firms made headlines with record takeovers of a number of the nation’s iconic companies. The country’s largest casino operator (Caesars Entertainment), hospital chain (HCA), and lodging company (Hilton Hotels) all fell into the hands of ptriave equity firms.An unusual feature of these megadeals is at the heart of the lawsuit: The ptriave equity firms are said to have teamed up to do them. As purchase prices reached into the tens of billions of dollars, the firms pooled their money together to make the acquisitions. The ptriave equity industry has said that the consortiums, or club deals, allowed the firms to spread the risk of owning such a large company. In addition, the firms said that by working together they could bring complementary skills in operating the companies once they acquired them.The ptriave equity firms scoff at the idea that their conduct was improper.Other Questions Related to Romney’s DepartureThe timing of Mr. Romney’s departure from Bain has posed other questions for his campaign. In June 2012, President Obama gleefully went after Mr. Romney and Bain Capital, declaring that “we do not need an outsourcing pioneer in the Oval Office.” The president was citing an article in The Washington Post reporting that Bain had invested in companies that specialized in the practice of relocating American jobs to low-wage nations like China and India.Mr. Romney’s campaign questioned that article, saying that when those investments occurred Mr. Romney, had already left Bain in to run the 2002 Salt Lake City Olympics. But that defense led to a new round of charges, when news reports focused on dozens of federal filings between 1999 and 2001 in which Mr. Romney had described himself as the owner or chief executive of the firm.The attacks thrust Mr. Romney’s three-year leave to the center of attention, putting his campaign on the defensive when it could have been attacking Mr. Obama’s job record.A senior Romney campaign official said that the candidate had “retired retroactively” from Bain more than two years after leaving in 1999, an example of how the complexity of Mr. Romney’s business has proved difficult to explain in the simple terms favored by political campaigns.The complications arise in part from the ways in which Bain was organized. When Bain Capital was originally created, Mr. Romney was given full control of the ptriave equity firm’s new management company, Bain Capital Inc. When Mr. Romney went on leave in 1999, he retained ownership of that entity — and with it, in theory at least, the power to control Bain Capital’s funds.At the time, Mr. Romney appeared to be leaving open the possibility that he would return to Bain. His leave was originally characterized as part time, and he told The Boston Herald in 1999 that he would be providing input on investment and personnel decisions in his absence.Campaign and company officials now say that the Olympics job quickly became all-consuming and that Mr. Romney delegated his management powers to the active partners, most of them longtime friends and colleagues. And in recent years, Mr. Romney has been far more definitive in characterizing his departure.“Since Feb. 11, 1999, Mr. Romney has not had any active role with any Bain Capital entity and has not been involved in the operations of any Bain Capital entity in any way,” reads a footnote to Mr. Romney’s most recent federal financial disclosures.Yet because he retained technical control of Bain Capital’s management and because his wealth remained heavily tied up with the firm, Mr. Romney’s name or signature appears on dozens of documents filed with the Securities and Exchange Commission between February 1999 and August 2001, when he finalized a retirement deal with the active Bain partners and transferred to them his shares of Bain’s management entity.No evidence has yet emerged that Mr. Romney exercised his powers at Bain after February 1999 or directed the funds’ investments after he left, although his campaign has declined to say if he attended any meetings or had any other contact with Bain during the period. And financial disclosures filed with the Massachusetts ethics commission show that he drew at least $100,000 in 2001 from Bain Capital Inc. — effectively his own till — as a “former executive” and from other Bain entities as a passive general partner.Companies’ Ills Did Not Harm BainIn June 2012, The New York Times reported that Bain Capital held a majority stake in more than 40 United States-based companies from its inception in 1984 to early 1999, when Mr. Romney left Bain to lead the Salt Lake City Olympics. Of those companies, at least seven eventually filed for bankruptcy while Bain remained involved, or shortly afterward. In some instances, hundreds of employees lost their jobs. In most of those cases, however, records and interviews suggest that Bain and its executives still found a way to make money.Bain structured deals so that it was difficult for the firm and its executives to ever really lose, even if practically everyone else involved with the company that Bain owned did, including its employees, creditors and even, at times, investors in Bain’s funds.Bain officials vigorously disputed any notion that the firm had profited when its investors lost, arguing that a full accounting of their costs across their business would show otherwise. They also pointed out that Bain employees put their own money at risk in all of the firm’s deals.“Bain Capital does not make money on investments when our investors lose money,” the company said in a statement. “Any suggestion to the contrary is based on a misleading analysis that examines the income of a business without taking account of expenses.”To a large extent, however, this is simply the way ptriave equity works, offering its practitioners myriad ways to extract income and limit their risk.In four of the seven Bain-owned companies that went bankrupt, Bain investors also profited, amassing more than $400 million in gains before the companies ran aground, The Times found. All four, however, later became mired in debt incurred, at least in part, to repay Bain investors or to carry out a Bain-led acquisition strategy.On the few occasions when Bain’s investors lost, lucrative fees helped insulate Bain and its executives, records and interviews showed.Bain has always been known for its data-driven, analytical approach. The companies that fell into bankruptcy were clearly the exception, and the causes were often multilayered. Some companies proved too troubled to rescue, and others were hit by broader economic or industrywide downturns.In at least three of the seven bankruptcies, however, companies appear to have been made more vulnerable by debt taken on to return money to Bain and its investors in the form of dividends or share redemptions.Debt from acquisitions, usually part of a “roll-up” strategy of buying competitors, played a role in at least five of the seven bankruptcies The Times examined. In most of these cases, Bain investors garnered some initial gains before the companies faltered.The numerous fees collected by ptriave equity firms have been a frequent lightning rod for the industry. First, the firms charge their investors a percentage of the fund as a management fee, meant to cover its overhead. During Mr. Romney’s tenure, this was initially 2.5 percent and then dropped to 2 percent.Private equity firms also collect transaction or deal fees, ostensibly for advisory work, from companies they buy. These fees are generally collected for major transactions, like the purchase of another company, a public stock offering or even the initial acquisition of the company. A third fee stream comes from annual monitoring or advisory fees that portfolio companies typically pay to their owners, the buyout firms.In 1998 alone, Mr. Romney’s final full year at Bain, The Times was able to identify roughly $90 million in fees collected by the firm across its various funds, a figure that is probably low because most companies in Bain’s portfolio did not have to file financial disclosures.These fees covered Bain’s expenses — like rent, salaries and lawyers — and the bulk of the remaining money was awarded to Bain employees as annual bonuses.When deals sour, fees can provide a hedge.Toward the end of Mr. Romney’s tenure, Bain bought Anthony Crane, a crane rental company, which then acquired a slew of smaller competitors, financed by debt. But a building slowdown hit the company hard, and it filed for bankruptcy in 2004, wiping out $25.6 million from Bain’s investors, along with $9.5 million from Bain employees. The firm, however, collected $12 million in fees over the life of the deal.  


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While I do not agree with your political psiitoon I too will be sitting the 2012 presidential election out. I will go to the polls but not vote for either the Democratic or Republican candidate deserves my vote. This country need a viable multiple party system and by that I mean more than two parties.In my opinion President Obama is incompetent. In 2008-2010 he squandered the chance he had to show leadership on a more liberal and moral addenda. Instead he rushed to get in bed with corporate interests. Romney is a con man. Essentially his addenda is a minor rehash of policies that go us into this bad economic situation. I am reminded that one of the definitions of insanity is doing the same thing over and over again and expecting different results. So someone who is trying to sell such an insane addenda deserves the title con man.  


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