45
Managing Design and Development
Some market watchers decry the incubator fund process of new product development.
Such funds are generally owned by insiders, have very small amounts of assets, and are
aggressively managed. If they hit the jackpot, they are offered to the public and aggres-
sively marketed. If they flop, they are given a quiet burial. Firms start large numbers
of incubator funds in order to “ upwardly bias investors ’ estimates of their ability, and
thereby attract additional inflows, ” killing them when they fail to repeat their success
after they enter the real world. Nevertheless, in an industry that has come to focus on
asset-gathering as its highest priority, product proliferation works. Investment manage-
ment is now more about product marketing than investment management.^1 This is not
necessarily a bad thing. By adopting quality, money management firms add credibility to
their performance records. In a quality world, investors can safely assume that a fund ’ s
advertised rates of return are accurate, not pure illusion. Here is an example.
Returns of giant mutual funds often include the superior results they achieved when
they were much smaller, returns that a fund ’ s bloated size virtually precludes in the future.
Management greed condones the marketing of funds and gathering assets beyond their abil-
ity to manage the funds effectively.^1 This is a striking conflict between the interests of the
investors and that of the manager. This type of behavior is inconsistent with quality. Quality
is the best marketing tool of all because it encompasses both substance and image.^24.1. Trading and Money Management Firms
Development of trading/investment systems is centered on knowledge-based innovation. As
such, top management and product teams must work in concert to build new revenue streams
in the hopes of earning entrepreneurial reward with management ’ s primary responsibility
being to invest in new strategies that may potentially become new revenue streams and to max-
imize the value of the portfolio of new and existing trading/investment systems and product
teams ’ responsibility being to maximize the value of individual systems. Financial firms do
combat against other firms, where product teams are the foot soldiers and trading/investments
systems are the weapons. The new Lanchester strategy for financial market is that the victors:● Innovate to develop trading/investment strategies.
● Increase revenues by attacking competitors within range of their own core competencies.CHAPTER ◆ 4