Jan 2016 - Sep 2017
Valuing today a future cash flow is the essence of Corporate Finance. There’s a risk that a cash flow promised today for delivery in the future may not be delivered. So it’s sensible to pay less today for that promise of future performance. In Corporate Finance during Module Eight of my Executive MBA at Oxford University Saïd Business School, we practised using formulae for performing such calculations.
One way which helped me to think about this was to compare my understanding today with my understanding during Module Two of the value of what I was then learning.
Way back in February, during that Second Module, we learned about how to use regression analyses of samples of data to produce a “good enough” prediction about the future performance of similar datasets. The same analytical tools we used to grasp regression analysis were used last week in teaching us how to compute together the relative risk profiles of the different elements of investment portfolios. How could I have known then that a decent understanding of regression analysis would be a key element in understanding Corporate Finance some six modules later?
If you’d asked me to pay you during Module Two for the knowledge our fantastic Analytics teacher (a professor of operations research, no less) was imparting to us, I would have given you at least £€$X.
Now, however, knowing how useful it is to understand these matters, I would offer you twice £€$X.
On second thoughts, as some reader is bound to point out, perhaps, given the recent fall in sterling’s value, I should now offer three times £€$X, or maybe actually convert the whole lot into $ or €.
To extend this analogy a bit, the value of what we’ve learned in previous modules of the Executive MBA course at Oxford University’s Saïd Business School increases as the modules stack one on top of the other.
During the “Global Rules of the Game” module, for example, which was taught in India, we first encountered the idea of the continual learning, worker-empowering characteristics of the “Toyota System” of manufacturing.
Now, again, in “Technology and Operations Management”, we encountered the same idea, as one answer to the question of why successful US companies during the nineteen-sixties and seventies were losing out to their Japanese rivals.
As soon as US companies began to integrate into their operations, continuous learning techniques, research has shown that those companies began to power ahead again.
As part of my assignment on “Technology and Operations Management” I came across the research of Harvard’s Kim Clarke. He used the modular nature of the IBM 360 computer as a metaphor to explain the mechanics of how modularisation in transportation (think containerisation), manufacturing and architecture was leading to a change in the structure of firms.
The idea is that different “boxes” or modules performing different functions can interface/transact/connect cheaply with each other, provided that they obeyed at least some of the same Design Rules.
Once these modules are frictionlessly linked together, the value of the whole can be more than the sum of each of its individual parts.
The Executive MBA at Oxford University is taught through a long series of modules the contents of each mutually reinforce the contents of the other modules.
There’s structural patterns running through each individual module.
Each module lasts a week.
Oxford University’s convening power draws world-class teachers.
Modules take place in the five-star hotel-like surroundings of the executive business centre of an ancient university’s business school.
The breakfasts, lunches and dinners we are treated to each day are varied and top notch.
But there are also “family resemblances” between the contents of what we are being taught during each module, even though our teachers are coming from very different places intellectually, geographically and commercially.
The value of what you learn during one module seems significant immediately.
When you get back to work after a module, its insights help you identify patterns. “Ah, this is a situation which I need to unfreeze, using this strategy.” Or, “here’s a situation that needs inspired management, using that strategy.”
Then, three months later during another module altogether, it’s fascinating to find new connections between two, three or even four superficially distinct courses.
Thus again the value of what you learned months’ earlier increases.
I expect these patterns to continue weaving themselves through challenges I experience over the rest of my career. This is definitely something worth looking forward to; worth paying for, especially in devaluing sterling.
So, if today you ask me to discount the future value of expected cash flows arising from what I’m learning at Oxford University, sure I’ll apply that Corporate Finance formulae we were just taught to use during Module Eight. I’ll offer you less cash today than I expect to gain as a result of this work in the future – what would you expect of a business student?
But, like many an investment banker before me, I’ll secretly be smiling if you accept this deal.
This is because, however much or little I convince you to accept today in return for delivering to me a future cash flow, I reckon I’m already in profit.
P.S. Here’s some photographs taken while studying in libraries and during torch-lit dawn runs along the river Isis in Christ Church Meadow.Back to top of article