Published by UCLA Anderson School of Management
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The New Master of Financial Engineering Program
Everyone seems to want to find something or someone to blame for the current financial crisis. They blame greed, the government, bad home loans, bad car loans or just plain bad karma. In some quarters, they blame a dizzying array of financial products with names like derivatives, collateralized debt obligations and mortgage-backed securities. Complete article >
Unraveling the Recession: Regaining Trust
The current recession has lasted so long – 15 months and counting at press time – that it already has its own history. The recession hasn’t run its course but there certainly are lessons to be learned from it already. The impacts of the recession are as numerous as its victims, and even if your name is Gates or Buffett, we’ve all been victimized to some extent by current economic conditions. Complete article >
Faculty on the Recession
The following are excerpts from articles written by faculty from various academic areas, adding their insights and proposals for possible solutions to the discussion of different aspects of the current economic downturn. Complete article >
Chaired Professor and Donor Recognized by Dean
Dean Judy D. Olian held an intimate dinner to recognize the appointment of Aimee Drolet to the Betsy Wood Knapp Professorship for Innovation and Creativity, a term chair that rotates holders every three years. Complete article >
A Passion for Wholesome Cuisine
Serial entrepreneur T.K. Pillan (FTMBA ’96) was sick of pizza. So, he opened The Veggie Grill. Now with three successful Southern California locations (two in Orange County and one in El Segundo), Pillan and his partners are preparing a fourth to open in West Hollywood in the fall. Complete article >
By Paul Feinberg
Everyone seems to want to find something or someone to blame for the current financial crisis. They blame greed, the government, bad home loans, bad car loans or just plain bad karma. In some quarters, they blame a dizzying array of financial products with names like derivatives, collateralized debt obligations and mortgage-backed securities. Not really fully understood by those placing the blame, these financial products often become easy targets in trying to explain the financial mess.
“People like to blame complicated stuff,” said Francis Longstaff, Allstate Professor of Insurance and Finance at UCLA Anderson. “We hear that a lot in our field.”
However, Longstaff understands what many do not. Even though some popular financial products seem overly complex to those on Main Street, those on Wall Street understand them very well. In addition, the complexity of the products had nothing to do with creating the toxic assets now in the system. These bad loans may be part of a mortgage-backed security instead of on the books of a bank, but bad debt is bad debt. There is no choice but to remove it from the system as the global economy works itself back from the brink.
With that recovery in mind, the need for quantitative financial expertise on Wall Street continues to grow. This year, to help meet that demand, UCLA Anderson launched the new Master of Financial Engineering (MFE). The program provides students with a deep knowledge of modern financial economics and practice, enhancing their quantitative skills and preparing them for positions as risk managers, investment bankers, asset managers, derivative traders and developers of specialized securities. Bob Mark, founding executive director of Anderson’s MFE program (and chief executive officer of Black Diamond Risk, which provides corporate governance, risk management consulting, risk software tools and transaction services) described the growing need for such experts as a virtuous circle.
“The more those with higher mathematical skills enter the financial markets, the more they develop things that have high analytical content. The more analytical content, the more products you create and thus more people are needed to understand the high-end quantitative content,” Mark said. “Financial engineers have talents that are usable in lots of different areas within a financial institution. They might provide analytical information to traders or be part of the portfolio management or risk management areas.”
The Need for More than Mathematics
Mark describes today’s prototypical financial engineer in terms of a Venn diagram (naturally), placing the engineer at the intersection of three circles marked practical knowledge, quantitative mathematical skills and financial knowledge. MFE students enter the program with the mathematical know-how and leave with both a deep understanding of finance and the practical knowledge to convey what they know to others.
“When a financial engineer is asked to explain a process or specific solution, they should be able to respond not just in mathematical terms,” Mark said. “It’s very easy to talk in math terms. It’s a lot harder to recognize things from another’s perspective and then to respond using terms they can understand. It’s our goal to ensure that our students can do just that.”
UCLA Anderson’s MFE is not the only program of its type, but it is one of the very few housed in a management school (most are housed in math departments). Longstaff, faculty director of the MFE program, believes this gives the Anderson MFE an advantage, particularly in light of the goal Mark laid out.
“There are few MFE programs located within business schools, and not surprisingly, these are the highest rated,” Longstaff said. “There are important synergies between financial engineering and business schools – a shared language and vocabulary and a similar approach to problem-solving. Within a math department, the focus ends up being on mathematics, with not a lot of practicalities. The companies out there employing quantitative students really want people who are multidimensional and who understand the real world needs of a business environment. That is what a great management school can produce.”
Anderson’s MFE degree is earned in one year. Students begin in the winter quarter, spending both the winter and spring in the classroom, before undertaking an internship in the summer. They then return to campus in the fall for a final quarter of instruction. According to Longstaff, the first quarter of the curriculum resembles the finance core of the MBA program, with courses such as Fundamentals of Investment, Fundamentals of Corporate Finance and Accounting, and Empirical Methods in Finance offered, plus an introductory course in Stochastic Calculus and Derivatives. In the following quarters, the curriculum delves deeper into quantitative finance, touching on derivative markets, asset management, risk management and credit markets, among other things.
The initial class of 37 accepted students average 29 years of age. Forty-three percent majored in engineering as undergraduates, while 48 percent studied engineering as graduate students. Other common courses of undergraduate and graduate study were economics, physics, computer science and mathematics. More than a third held jobs in the financial industry before entering the program. More than 60 percent are international students.
The Value of Interaction
After earning his doctorate in mechanical and aerospace engineering, Bharanidharan “Bernie” Rajamani (MFE ’09) decided he preferred industry to academia and sought work in the financial realm. He soon realized that while his “math was good” his background in finance was not. He decided that the best way to fill in his educational blanks was through an MFE program. Rajamani believes that his MFE coursework is every bit as rigorous as his doctorate work, which he feels helped prepare him for studying financial engineering – at least as far as the calculus and other mathematical concepts are concerned. The greater distinctions come outside the classroom.
“Anderson is a wonderful place but quite different from engineering,” Rajamani said. “In engineering, there is barely any teamwork. You work on your own projects and maybe only your advisor knows what you are doing. Here, there is a lot of teamwork, and that’s new to me. The class camaraderie is great, and it’s wonderful to share the work.”
Rajamani carefully explained that this focus on teamwork and a related focus on leadership skills are more than just “nice to haves.” He thinks they are essential to the MFE experience and feels strongly that he has become a better professional as a result. “In this program, you learn what your faults are, and you get a better understanding of where and what kinds of mistakes you are making when you interact with other people. You see that others approach their work in different ways, which doesn’t happen when you are working alone. Here you get to analyze yourself a bit more in terms of what other people do, and in that way, I’ve made a lot of changes.”
Connecting to the UCLA Anderson Network
The orientation towards leadership and teamwork skills was not new for Scott Cowin *(FTMBA ’08, MFE ’09), the first MFE class president. Cowin received his MBA from UCLA Anderson just last year – where such traits are considered a hallmark of the program. When he’s not working on his studies, he’s looking to build bridges with the rest of the Anderson community.
“This year in the MFE program is a lot different from the first year in the MBA program. I think the biggest difference is that we don’t have any second-year students to help the first-years,” Cowin said. “As the class president, I’m trying to build some of that infrastructure that the MBA program has in place. I’m trying to get a mentoring program built up, and I’m trying to get us connected to the community as a whole.”
Shengjie Guo (MFE ’09) studied mathematics and business administration at the University of Nebraska and went to work as a pension actuary in Chicago before heading to Los Angeles to pursue an MFE degree. “I’ve always been good with numbers,” Guo explained. “I have a quantitative background, and my actuary experience exposed me to finance. I realized that is what I wanted to get into, and the MFE degree will open a lot of doors for me.”
For Guo, participating in a program housed inside a business school was paramount. She cited the same advantages that Longstaff did, noting that management school faculty “not only know how the numbers work, they know how to apply the theories in real business settings.” She also mentioned another advantage.
“Here, we are a part of the UCLA Anderson community,” Guo said. “We attend Anderson Afternoons and participate in the MBA Finance Club. The staff of the Parker Career Management Center has even conducted specific workshops for us on how to cold-call companies when looking for work. In a recession environment like this, you have to be able to do things like that well.”
Part of the Solution
The end goal of the course for all of the MFE students is employment. Rajamani, like the majority of his classmates, is seeking a purely quantitative position with a financial company. Guo says she is looking for something a little less quantitative and hopes to land a position that blends quantitative/strategic planning with a hedge fund.
Francesca Baugh, MFE program director, heads a team of Anderson staffers that assist students with everything from financial aid to housing, but perhaps no position is more challenging than that of Sandra Buchan, the program’s director of career services. Longstaff says that Buchan “is making steady progress” despite the rough economy, connecting students with potential employers and arranging summer internships. Longstaff also says the program enjoys great support from UCLA Anderson Board of Visitors members and members of the board for the Laurence and Lori Fink Center for Finance & Investments. Baugh, Longstaff and company are already perusing applications for the second class.
Everyone involved hopes that UCLA Anderson’s new MFE program will contribute to the resolution of our current financial woes. Increased understanding of the intricacies of the marketplace can only help the process of restoring confidence in and stability to our financial system.
By Paul Feinberg
The current recession has lasted so long – 15 months and counting at press time – that it already has its own history. The recession hasn’t run its course but there certainly are lessons to be learned from it already. The impacts of the recession are as numerous as its victims, and even if your name is Gates or Buffett, we’ve all been victimized to some extent by current economic conditions.
In the pages that follow, Assets looks at the recession through the eyes of a few of UCLA Anderson’s alumni. We’ll get the perspective of a pair of financial advisors and learn how they’re helping their clients and what their advice is for the rest of us. We meet an award winning public relations expert, who describes ways in which we can creatively and effectively use communications to our advantage in this environment. Finally, we’ll hear from a marketing executive whose seat at the boardroom table at one of the nation’s leading mortgage companies gave him an up close and personal view of the bursting of the housing bubble.
Managing Money with Confidence in Any Environment
As partners, certified financial planners and principals at Quantum Wealth Management (www.quantumwm.com) David DeWolf (EMBA’05) and Darius Gagne (EMBA ’05) are making it a point to study the aforementioned lessons.
“I think definitely the surprise is the magnitude of the recession,” DeWolf said. “In past recessions, clearly some people lost a lot of wealth, but there weren’t so many people wondering ‘Wow, do we have to cut back on our lifestyle?’”
“It seems to be everyone’s recession this time,” Gagne added. “You can probably say that in past recessions, post World War II, some areas of the economy were affected worse than others, whether geographically, industry-wise and so on. But this one is just hitting everyone.”
The pair traversed divergent paths before coming to UCLA Anderson, ending up as partners sharing a common vision on how best to manage wealth. DeWolf received his undergraduate degree at UCLA, and then earned his C.P.A. while at Price Waterhouse. He then took a few different jobs in finance before deciding to enter Anderson’s Executive MBA (EMBA) program. His goal was to improve his finance skills and parlay his MBA into a chief financial officer position.
Gagne (who also holds a UCLA undergraduate degree) studied science, eventually receiving his doctorate in physics from UCLA. He then headed straight for Wall Street, joining a cadre of quantitative specialists with advanced degrees in subjects like math and engineering, to create models for products like interest rate options, mortgage-backed securities and collateralized debt obligations. After five years, he returned to California to work at PIMCO in Newport Beach. He entered the EMBA program, because he considered himself “a finance guy who knew very little about business.”
While still at Anderson, Gagne approached DeWolf with the idea of becoming partners – and the opportunity struck a chord. They spent their second year consulting with faculty and leveraging the experience and expertise of classmates while formulating their final business plan. They opened the doors of Quantum Wealth Management – the name derives from Gagne’s background as a physicist – immediately upon graduation without a single client. Within a few months, their client list had grown to more than a dozen.
The Quantum moniker connotes more than just Gagne’s physicist-turned-financier history. It is a firm whose management approach and philosophy is grounded and guided by research. For example, DeWolf noted that they have found that it is asset allocation – not stock selection – that accounts for the vast majority of returns. Therefore, the focus on research informs the company’s philosophy, which has been trademarked as Total Market Portfolio™.
“We believe that value migrates from business to business, industry to industry, nation to nation,” DeWolf said. “Predicting the flow is usually impossible, but fortunately, entirely unnecessary, because we also believe that the global productive capacity for creating value is immense. Although we do not know where the bubbles will be in a pot of boiling water – i.e., where value will migrate to – we know overall that the heat will rise. There is no shortage of objective research supporting these beliefs. Therefore, the most rational thing one can do from an investment perspective, in order to maximize returns while minimizing downside, is to own a share of each of the global capital markets. That is the Total Market Portfolio, which includes over 10,000 stocks, 10,000 bonds and hundreds of real estate investments around the globe.”
In today’s economic climate, Gagne thinks the first and foremost key is not to panic. The most common mistake a lot of investors make is panicking, he said. DeWolf added that their clients have an investment strategy, which is developed at the beginning of the relationship. It serves as an anchor to ground them if they start getting anxious. The plan is actually built on the possibility of a bear market, so clients can be reminded that their portfolio still has a lot of safety built into it. Then they leave with “a weight off their shoulders,” feeling a lot better, DeWolf said.
One way not to panic is to understand one’s risk. Gagne believes that another of the big lessons being taught by the current recession is a heightened awareness of what is meant by risk. “This crisis has reminded us of how important it is to have the right risk exposure at any time, especially heading into a crisis,” said Gagne. “The common strategy out there is to say, ‘Hey, things look great; let’s be close to 100 percent in stocks’ or ‘Hey, things look bad; we should be 100 percent out of stocks.’”
“We don’t buy that, because the market timing thing never seems to work,” added DeWolf. “What we say is, ‘You should have the right amount of risk at any time.’ Safe doesn’t mean cash either. There are a lot of good opportunities in the bond market right now, which we’ve seen develop in the last six months.”
It’s tempting to try and pin down exactly what the ideal portfolio should look like. But the truth is, every situation is unique, and there is no ideal portfolio that covers everyone. But, there are some general principles that DeWolf and Gagne adhere to. For example, they believe that a portfolio should have seven to 10 years of fixed income cash flow. That way, when there are massive losses on the equity side, investors have time to let them come back. During this recession, what then should investors who’ve suffered large losses do? Is it possible to convert a “damaged” portfolio into one with more acceptable fixed-equity ratios?
“Unfortunately, no,” DeWolf said. “If somebody had $2 million – and we’ve run into these people – then suddenly they have $1.2 million, they might not have the bandwidth to have 10 years of protection at this point, because they’ve lost so much. Markets are going to go up and down, and it is the disciplined investor who prospers at the end of the day. However, it’s very challenging to maintain that discipline.”
“The category of folks that we’re talking about suffer from a behavior bias called ‘recency effect,’” said Gagne. “What they should be doing is looking at this $1.2 million as if they just got it, as if they just inherited it. And then they should ask, ‘What’s the most rational thing I can do with it?’ Instead, they look at it as ‘Darn, it was $2 million,’ and that obscures smart decision-making regarding what they have left.”
Helping their clients make smart decisions is what DeWolf (who specializes in serving executives in transition) and Gagne (who specializes in serving entertainment industry professionals) do. DeWolf has recently authored a white paper offering five key concepts for financial success. They include: (1) leverage diversification to reduce risk, (2) seek lower volatility to enhance returns, (3) use global diversification to enhance returns and reduce risk, (4) employ asset class investing and (5) design efficient portfolios.
When talking with the Quantum pair, it’s the globally-related third item that is emphasized. It’s a complex issue, but ultimately, DeWolf and Gagne make the case for a global stock portfolio. They explain that there is so much that gets ignored through a home-country bias, because U.S. market capitalization only represents about 40 percent of the total in the world.
Communicating Effectively Even in an Economic Downturn
Peter Marino (FTMBA ’02) founded Chicago-based Dig Communications (www.digcommunications.com) five years ago with just one client. Recently named PR Week’s Small Agency of the Year, the full-service public relations agency now represents high-profile clients such as MillerCoors, The Wm. Wrigley Jr. Company and Solo. Marino has more than 14 years experience in public relations and strategic consulting, beginning his career at Cramer-Krasselt working on Master Lock’s famous “shot lock” Super Bowl ad campaign, among others. He was also at Ketchum Communications, working with the Miller Brewing Company (now MillerCoors) and with then travel startup Orbitz. After UCLA Anderson, Marino joined the Los Angeles office of the Boston Consulting Group, before moving to Chicago to become chief executive officer of Dig Communications.
Like many others, Marino and his clients are feeling the effects of the recession. He said that his company has been perfectly fine when you consider that “flat is the new up.” However, he acknowledged that Dig has felt the impact of the down economy, as clients cut back on spending and funding decisions take longer to make. He said a lot of his clients are delaying these decisions as long as possible, trying to see what the potential pitfalls may be before committing.
Of course, it helps when your two biggest clients are MillerCoors and Wrigley. With just a touch of humor, Marino explained that beer is fairly recession resistant and chewing gum is an affordable luxury. However, not every industry is recession proof or easily affordable. For the rest, Marino believes public relations can be both an effective tool and an efficient use of marketing funds, particularly in a rough economy.
Public relations campaigns are an excellent way to set one’s company apart from the competition. As an example, Marino describes Miller High Life’s recent Super Bowl campaign. Miller, it seems, can’t actually buy a commercial during the game, as a rival brewery holds an exclusive. So, this year, the company launched a guerrilla campaign to get attention by taking a swipe at everyone who paid $3 million for
a minute of commercial time by creating a “one-second commercial.” Along with the commercial, a website was created, and Miller High Life’s “delivery man” spokesperson ended up on the late night talk show circuit. The public relations campaign netted coverage in USA Today, Advertising Age, countless column inches and blog activity. The result: Miller High Life sales were up 8.6 percent, and the entire campaign created buzz proclaiming the beverage as the right brand for the economic times. As Marino pointed out, all marketing ultimately needs to deliver sales.
Social media – blogs, Facebook, Twitter and the like – is a growing area of opportunity where Marino sees great potential. He said that there is a gray area surrounding such new media, with advertising agencies, public relations companies and marketers all playing in the space. His company is using a lot of social media these days, he said, since it is relatively affordable and easy to track.
“I think you need to be diligent about differentiation,” Marino said. “Consumers are looking for unique products that offer enjoyment and functionality, and providing such things is one way to survive the recession. Companies also need to be topical and find ways to get into news stories, particularly in ways that show your products and services can be a benefit.”
What about companies in more dire circumstances? How up front does a company need to be with its customers? Here, Marino also emphasizes honesty, believing that consumers and clients can sense when a company is being disingenuous.
“Figure out what your story is,” Marino said. “There aren’t too many companies out there that aren’t feeling pain in this economy, so you can be honest and upfront. Talk about your situation realistically and be upfront about your strategy to come out stronger than ever. I would encourage everyone to not be defensive and to look for ways to affordably play offense. Great power comes with clarity, so be clear about what you want to stand behind.”
Bearing Witness to the Collapse in Housing
“The Foreclosure of America” is the first book written by Adam Michaelson (EMBA ’04). It is in one sense an autobiography – an insider’s look at the mortgage crisis that fanned the original flames of the recession – but it is also a meditation on the marriage of marketing and finance in the economy.
Michaelson spent a decade and a half working at ad agencies, such as Ogilvy & Mather and Grey Worldwide, before joining Countrywide Financial as senior vice president. In the book’s opening chapter, he describes a meeting in the mortgage giant’s semi-legendary “vault,” a conference room that was specifically designed to be part bomb shelter, part panic room. (The vault was left over from when it was used for top secret meetings when the building was the Cold War headquarters of Lockheed Corporation.) The meeting was to discuss the introduction of pay option loans, mortgages where buyers had the option to pay less than a standard mortgage payment every month. (Michaelson noted that Countrywide did not invent the pay option concept; other financial institutions, like Wachovia, had similar products.)
Michaelson explained that the products were predicated on the notion that real estate prices would rise for the foreseeable future or “in perpetuity.” While everyone at the meeting alternated between gloating about the new product and discussing how to market them, Michaelson raised questions, wondering what would happen if real estate prices did not continue to rise. Five years later, Michaelson runs his own company, Michaelson Marketing Group (www.MichaelsonMarketing.com), and it is almost difficult to believe that these were once the thoughts of very smart, very successful people. They had crunched all the right numbers and created all the right spreadsheets, coming to the conclusion that loan products built on the notion of always rising real estate prices were well worth the risk.
Michaelson reflected not only on these past events but also on his emotions at the time. “At that moment, I had actually spent an entire career selling things to people that they maybe didn’t necessarily need,” he recalled. “But making them feel like they needed it, which is fine when it comes to toys or technology or things that are sort on a lesser scale. However, when you’re selling home ownership – the American dream – I took that responsibility very seriously. At that time, I became concerned over whether what we were doing was responsible.”
Michaelson’s concern, other than the projections regarding future real estate prices, was that under pay option plans, home owners could actually end up owing more on their house each month than they did the month before. A drop in home prices could leave homeowners upside down, and the rest, as they say, has been history. He makes it clear that he was not the only person who was worried about the negative potential of pay option mortgages, though he said he may be the first to write about it. So, it is legitimate to ask why banks and mortgage lenders created and sold the products.
“I liken it to a space launch, where they run the numbers, they do risk assessment and they freely admit that it’s possible that ‘this thing could explode,’ but we believe it’s worth the risk,” Michaelson said. “That’s the nature of any business decision. The first thing they teach you at Anderson is that you’ll never have all the information you need, and you need to make an educated best guess, based on all available data, intuition, history and what’s best for your shareholders. And at the time, what was best for our shareholders was to increase value by increasing loan volumes and by getting more people into homes.”
The collapse of the real estate economy is well documented (see the summer 2008 edition of Assets). Michaelson, like the rest of us, is left to consider the lessons learned. From his perspective, there are several. First, he believes that not everyone in America was ready for home ownership. Home ownership, he suggested, used to be a privilege that was earned by saving for a 20 percent down payment, creating good credit and establishing character in one’s community. That’s how you got a loan.
“Somehow, it morphed into ‘everyone has the right of home ownership.’ Clearly, not everyone was ready for the responsibility,” Michaelson said. “The saddest truth of this crisis is that, in this nation, subprime used to mean ‘second chance,’ and everybody deserved a second chance. Now, subprime has become a dirty word, and because of this crisis, it’s going to be even harder for someone with a minor credit ding to get a loan.”
Faculty on the Recession Members of the UCLA Anderson Faculty Contribute to Analysis in the Media
The following are excerpts from articles written by faculty from various academic areas, adding their insights and proposals for possible solutions to the discussion of different aspects of the current economic downturn:
An Independent Eye on Stimulus Spending
By John de Figueiredo, associate professor of strategic management and associate professor of law
“Disbursing such a huge amount on the basis of influence or favoritism isn’t just disheartening to contemplate. It will likely be detrimental to our efforts at economic recovery. … I propose the creation of an Investment Commission, a nonpartisan panel of experts that will transparently and publicly recommend specific allocations. The idea takes its inspiration from the nonpartisan Base Realignment and Closure commission, which has the job of shutting excess military installations. That panel is in the business of ending things rather than starting them, of course. But the principle – experts making judgments without political interference – is the same. … The American people are calling on government to put aside partisan bickering and pork-barrel politics to act for the good of the country. An Investment Commission could help engender confidence in the political process and help create a stronger recovery.”
A Banking System We Can Trust
By Edward Leamer, professor of global economics and director of UCLA Anderson Forecast, with Laurence J. Kotlikoff of Boston University
Forbes, April 23, 2009
“Before throwing more money at Wall Street, let’s understand what our financial system was supposed to deliver, what it did deliver and what price it charged. The system was supposed to channel our hard-earned savings into the best real investments: new homes, offices, factories, equipment and research. And it was supposed to correctly price our assets. It did neither. Instead, Wall Street morphed into a vast gambling enterprise, generating massive trades of existing securities without, in fact, raising the investment rate or growing the economy. During the dot-com bubble, Wall Street funded all manner of silly businesses, and during the housing bubble, it put millions of people in homes they couldn’t afford. … We need a financial sector but not one like this. Nor do we need Wall Street hitting us up for its gambling debts. What we need is Limited Purpose Banking (LPB), which would transform all financial corporations, including insurance companies and hedge funds, into mutual funds. They would, henceforth, be called banks.”
Cut Pay, Not People
By David Lewin, professor of management, human resources & organizational behavior
The Wall Street Journal, Jan. 29, 2009
“Still, most private and some public employers primarily responded to the early 2000s recession by cutting jobs. While those job cuts resulted in modest short-term gains in company financial performance, they also resulted in larger long-term financial performance losses because companies did not have the necessary talent to respond to economic recovery. If we are to successfully manage in and recover from an economic downturn as serious and widespread as the one we face today, we must go beyond traditional thinking about cutting costs. A broad sharing of pain through pay reductions among a company’s overall labor force works better than a narrow imposition of the pain of layoffs on one or more parts of a company’s work force.”
Rethinking Links in the Global Supply Chain
By Christopher S. Tang, professor of decisions, operations & technology management, with ManMohan S. Sodhi of the Cass Business School at City University, London
Financial Times, Jan. 29, 2009“When you have a real lemon on your hands, like the present economic downturn, you should think lemonade. This bitter and difficult financial crisis provides an opportunity to rethink an entire business, and more specifically, its supply chain. This is a good time not only to look at initiatives to improve the company cash flow in the near term but also to think about long-term issues such as being in markets with zero growth. In the short term, there is a need to lower operating costs, for instance, by outsourcing supply chain functions with demonstrable savings or by shedding projects whose incremental benefits cannot justify incremental costs in the near term.”
Chaired Professor and Donor Recognized by Dean
Aimee Drolet Appointed First Recipient of the Betsy Wood Knapp Professorship for Innovation and Creativity
By Tracy Mlakar
Dean Judy D. Olian held an intimate dinner to recognize the appointment of Aimee Drolet to the Betsy Wood Knapp Professorship for Innovation and Creativity, a term chair that rotates holders every three years. Term chairs are the highest form of recognition for faculty and research excellence and are among the top priorities of the school’s ACCELERATE the Campaign for UCLA Anderson.
“Term chairs are vitally important to the school, because they enable us to publicly recognize, nurture and retain rising stars, who are among the most productive in their fields, and are therefore especially attractive to other top schools seeking exceptional faculty,” said Olian. “Term chairs provide essential research support for highly creative and original thinkers like Aimee. I am indebted to Betsy Wood Knapp for her vision in establishing a term chair.”
“One of the most wonderful things about this new chair is that it is a term chair,” said Drolet. “There are many great, up-and-coming scholars here at Anderson whose research would benefit immensely from this kind of support. So, while I am thrilled to receive this honor, I’ll also be thrilled to see it go to the next person.”
Aimee Drolet joined the marketing area faculty in 1997. Her research focuses on consumer decision-making and the role of cognitive resources and emotions on these decisions. Her expertise is in the consumption decisions of older consumers. In 2004, she was awarded the Eric and E Juline Faculty Excellence in Research Award for Outstanding Achievement in Teaching and Research.
Betsy Wood Knapp, entrepreneur, investor and philanthropist, is founder and chief executive officer of BigPicture Investors LLC, a management and consulting firm for startup and early stage companies. She is chair of the UCLA Foundation, a member of the executive committee of the UCLA Anderson Board of Visitors and a circle member of Women & Philanthropy at UCLA. She is also chair of the board of Kreido Biofuels Inc., an alternative energy company.
By Paul Feinberg
Serial entrepreneur T.K. Pillan (FTMBA ’96) was sick of pizza. So, he opened The Veggie Grill. Now with three successful Southern California locations (two in Orange County and one in El Segundo), Pillan and his partners are preparing a fourth to open in West Hollywood in the fall. The Veggie Grill has collected glowing press clippings along the way, including being named Orange County’s “Best New Restaurant” by the Orange County Register in 2007, Restaurant of the Year (nationwide) by VegNews magazine in 2008 and one of Los Angeles magazine’s 2009 “Can’t-Miss” Cheap Eats. The carefully-timed rollout is part of a plan to take The Veggie Grill nationwide. And Pillan doesn’t eat pizza anymore.
Pillan Thirumalaisamy fell in love with Los Angeles when a tech company he worked for transferred him to Southern California as part of their corporate expansion. (He later legally changed his name to T.K. Pillan, and everyone just calls him Pillan.) He chose to attend UCLA Anderson, because he wanted to further his career by increasing his understanding of the business side of things and to nurture his own entrepreneurial inclinations. His time as a student was in many ways exploratory. He became involved with the Harold and Pauline Price Center for Entrepreneurial Studies and began searching for different entrepreneurial ideas.
“At the beginning of my second year, I saw some opportunities with the Internet,” Pillan said. “I really viewed the Internet as a fundamental change. So, I co-founded a company that enables commerce on the web. Being at Anderson was a great asset at that time. I was able to get very valuable help in writing the business plan, taking advantage of the chance to run different concepts past my professors.”
The company Pillan and his partners created while he was still at Anderson became Guidance Solutions. Timing might not be everything, but it doesn’t hurt either, and 1996 was the perfect time to catch one of the first waves of what became the Internet tsunami. By the end of 1999, Guidance employed 100 people, and Pillan and his partners sold a share of the business to a large private-equity firm. In 2004, Pillan stepped away from his day-to-day activities at Guidance, traveled and didn’t begin to consider his next move until the end of that year.
In early 2005, an investment banker, Kevin Boylan, invited him to attend a meeting. Boylan wanted Pillan’s take on a tech company he was considering investing in. If they both liked the deal, the thought was that Pillan would also invest and then run the company. They didn’t like the deal, but afterwards, they sat down at a popular Seattle-based coffee emporium and brainstormed. Boylan asked Pillan what he would do, if he could do anything he wanted. Pillan told the banker that he was tired of picking up a pizza on his way home from work. He found it was a tremendous challenge to find delicious, wholesome food to eat out or bring home. The banker felt the same way, and their mutual feelings got each other more excited about the idea.
So, calling on the skills he learned at Anderson, Pillan wrote a mini-business plan. He and Boylan studied market trends and looked at all the consumer research they could find regarding healthy food and restaurants. They then embarked on a coast-to-coast tour to sample the best of “healthy” cooking. They went looking for two things: great tasting food and an approach that would be scalable in a quick-service or “fast-casual” restaurant format.
After the tour, he and his partner spent some time coming up with the exact concept, considering everything from branding and marketing to packaging and the creation of a simple, workable menu that would allow for the control of food costs. Ultimately, they approached Ray White, owner of a local restaurant whose food Pillan and his partner thought was exceptional. He truly embraced their vision and business plan and joined their team. White would focus on the food, while the two businessmen focused on brand building, as well as the look and feel of the new restaurants.
The Veggie Grill locations are well-lit and brightly colored – with quasi-neon hues in abundance. Orders are placed at a counter, where friendly staff members are available to answer any questions one might have about the menu of classic American sandwiches and burgers that are made using vegetarian specialties (you have to try them to truly believe how good they are). The concept has been successful. At lunchtime, there is always a line at the counter, and business is brisk.The Veggie Grill has become a destination for anybody looking for delicious food they can feel good about eating. Similar to how Whole Foods has changed the grocery store experience, The Veggie Grill is changing the quick-service restaurant experience.
“We could grow faster,” said Pillan, who has been inundated with franchise requests. “But we’re being disciplined in our approach to the rollout. Building The Veggie Grill is definitely a passion for us. We really believe in it.”
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