FutureVisions^SM

creating sustainable results in growth and performance

We call this approach "What would Croesus do?" as a shorthand for imagining where price is no object.

In his day, Howard Hughes had a Croesus-like flair for spending money to find to problems. There is a story told about Hughes in Las Vegas. Imagine that it's 1966 and that you have a hankering to watch old Bogart films. What do you do? Unfortunately, the VCR has yet to be invented. Remember, you have lots of money. What Howard Hughes did was to buy a local television station, KLAS. He used the station as his private VCR. Whenever he wanted,

Rich as Croesus?: Croesus (rhymes with Jesus) was the supremely rich king of Lydia (modern Turkey), reigning from 560 to 546 B.c. His wealth came from mining gold in the river Pactolus, where Midas was said to have bathed. Croesus was the first to mint coins of pure silver and gold. His lavish gifts and sacrifices made his name synonymous with wealth. Even today we say "rich as Croesus."

In this spirit, "What would Croesus do?" begins by imagining a customized and very expensive solution. We don't begin with a view that the solution has to be practical. Instead we ask, Are there any at all?

Thinking this way is a tool to get you to be a bit bolder and more outrageous than you might otherwise be. In fact, these im­practical don't even have to exist, except in your mind. In that way, you are lulled into finding that you imagine might well exist - that should exist.

Of course, the purpose of asking WWCD is not to produce an immediate solution. Imagining what Croesus would do is just a first step. In the real world, price is an object. The fact is that we are all creatures with limited resources -even, at some point, King Croesus, Howard Hughes, and Bill Gates. But imagining how you might solve a problem if you had almost unlimited resources often suggests ways that, ultimately, would benefit us all. And by auto­mating or standardizing one of these expensive , an in­novator might produce 99 percent of the benefit for 1 percent of the cost.

Being Put on Hold. Unconstrained consumers tend to get exactly what they want. They don't have to settle for just any bowl of candy; they can have their personal assistant pick out just the yellow M&Ms. (*When we wrote this, we were just kidding. Only later did we discover that this service actually exists. Mars will sell you a customized collection of M&Ms in whatever colors you want. See Colorworks Web page. )

Sometimes WWCD becomes a manifesto for per­sonal choice. Of course, we can't all afford personal assistants. But markets can be reorganized to facilitate choice. Instead of automation, what is sometimes needed is standardization that makes it easier to get what you want. Not as good as a personal assistant, but a fraction of the cost.

Let's start with an easy problem-the annoying Muzak that is meant to distract you while you wait on hold. Why not be given the ability to choose different genres by pushing a number on the keypad? Pushing 1 will get you rock; 2 will get you classical; 3 will get you jazz; 4 will get you news; and 5 will get you silence.' And phones are not the only service that would benefit from this option.

Although offering a choice of music on hold is an improvement, WWCD suggests a way to attack the deeper problem. We doubt that Donald Trump or Bill Gates spends much time waiting on hold. What do these magnates do instead? They have an assistant wait on hold and then buzz them when the call goes through.

Is there any way the rest of us could emulate this strategy?

Well, yes. Instead of waiting on hold to speak with an airline customer representative, why not have the airline call you back (just like Gates's assistant) when the rep is ready to talk to you? Arranging for the airline to call you back would be no harder than hanging on hold. With caller ID, you wouldn't even have to enter your number. The airline could simply play an announcement:

"All agents are currently busy. Your call is very important to us. That's why we will be calling you back in approximately six minutes. If you'd like us to call back at another time, please enter that time now."

Waiting on hold is not only a pain for the caller, but also expensive for the receivers who have to pay per-minute charges for the time their toll-free customers are on hold. (The cynic in us might say that perhaps the reason they have you wait so long on hold is that they really want you to give up. If that's truly the case, then they could announce, "We'll call you back in two weeks.")

Since automatic callback is currently available when the line is busy, by asking where else it would work-translating automatic callback for busy signals to calls on hold-we might have come up with the idea. But we wouldn't get there by simply looking at what customers do.

Watching how constrained consumers come up with low-tech and innovative applications is a valuable tool for routinizing ingenuity. But WWCD teaches us that imagining (or ob­serving) how unconstrained consumers behave can lead us toward that we might not have thought of if we had focused on the more constrained work-arounds.

With the benefit of hindsight, offering an automated callback seems pretty obvious. While it's hard now to imagine how we might have not tome up with that idea, most of us have spent plenty of time on hold without hitting on this solution. Once you adopt a WWCD frame of mind and start looking at life through this lens, callback rather than hold almost jumps out at you.

Like a Virgin: Managing money is a complicated problem. Typically, money is spread out into checking accounts, savings accounts, a money market account, perhaps even some municipal or treasury bonds. At the same time, off in a separate bucket, you may have a mortgage to worry about.

Let's say your checking account earns no interest and you're paying 6 percent on your mortgage. This doesn't make much sense. Why don't you just take all your cash and prepay your mortgage? That way you would effectively earn an extra 6 percent on your money.

Unfortunately, this proposal seems totally impractical. You need to have some cash to pay your bills and cover emergencies. If you put all of your money into your mortgage, you couldn't get it back when you needed it.

Why not? Why can't you get your money back? If you can pre­pay your mortgage, why can't you de-prepay it? If you put some extra money in now and get ahead, why not take that money out later if you need it?

Actually, there is a way to do this. If you are a sophisticated banking customer, you can take out a home-equity line of credit, use that to prepay your mortgage, and then expand and contract the home equity line as you need it. Even this isn't a full solution, because we haven't found a line of credit service that lets you auto­matically write checks from your normal checking account that will be backed by the line of credit.

The general idea is that your money should be moved around to wherever it is most productive. What a modern Croesus would do, and what you'd like to do, is to arrange for all your cash to be "swept" into the highest paying account each night and then be made available again the next day. In short, the best person to move your money around isn't your adviser or even your personal CFO-it's the bank.

This may all seem like bankers' science fiction, but just such a product is available in the United Kingdom, thanks to the Virgin Group. Led by the flamboyant Richard Branson, Virgin's busi­nesses have evolved from the music industry to include everything from mobile phones to car sales, trains to airplanes, colas, bridal wear (Virgin Bride!), and mortgages. In the process, Virgin has become one of the three most respected brands in the U.K. (The other two are Marks and Spencer and Tesco, both retailers.)

In 1997, Virgin teamed up with AMP and Royal Bank of Scotland to offer the Virgin One account. The Virgin One account rec­ognizes that the customer has a net state of indebtedness. A person with a $200,000 mortgage and $10,000 in a checking account really has a net debt of $190,000. Thus the Virgin One account charges the person interest only on this $190,000.

The Virgin One account is a model of simplicity. Your salary is directly deposited into your mortgage account. This and any other deposits you make reduce your outstanding balance. Mean­while, your credit card and checking accounts are tied in the other way. Any checks you write or credit card charges you incur are taken out of this account, thereby increasing your outstanding mortgage.

Really rather nice, isn't it? Since you are unlikely to find a place to park your money that pays more than your mortgage rate, you no longer have to think about CDs, money market accounts, and the rest. Just put all your savings into your mortgage.

Virgin One was launched in late 1997 with a modest target of twenty thousand customers. The program beat that target, and by early 2001 had more than fifty thousand customers. That may not seem like many, but those fifty thousand accounts accounted for more than £4 billion in mortgages.

Mortgage Takes a Holiday: If you can take a vacation from work, why not take a vacation from paying your mortgage? There is no reason why you need to make mortgage pay­ments all twelve months of the year. Christmas time often puts extra financial burdens on the family. You could make eleven payments a year, skipping December, and just extend the length of the mortgage. While skipping a pay­ment means that you'll have to pay back more later, this is much cheaper than racking up credit card debt

The feasibility of this option has been established in Australia, New Zealand, and the U.K., where it is a common feature of "flexible" mortgages. It is also has strong consumer appeal. As one happy customer explained: "I [asked] for a mortgage payment holiday to help pay for our actual holiday. We had an absolutely brilliant time with no bills to worry about when we came home. I'd never go back to a traditional mortgage now-they're com­pletely old hat "

The Virgin One account was sold to Royal Bank of Scotland, and this type of mortgage and its imitators have since become the most popular mortgage product in the U.K. So how much was the idea worth? Virgin and AMP'S combined 50 percent share was bought out for £100 million (about $150 million). Not too shabby.

Although this all-in-one mortgage account is a great innovation, it isn't rocket science. The Bank of New South Wales in Australia first came up with the idea. It is a natural evolution of home equity lines-think of it as a mortgage with a home equity line built in. It is also an example of how a bank can automate money manage­ment for you.

Banks already do this for their commercial customers, so it's clear that you don't have to invent the answer from scratch. Instead, you can take custom that already exist, simplify them, and bring them to the mass market. This doesn't mean it's easy to do.

Keep in mind that you can sometimes generate the same why not from multiple directions. For example, we could have come up with the Virgin One account either by asking WWCD or by looking to break symmetries. We told the story as a way of sweeping your money between savings and mortgage accounts so that the automation component was emphasized.

But the idea can also come from the symmetry concept of de-prepaying your mortgage. At present, people can pay their mortgage more quickly than required. Turning this around, why can't they also take the option of paying it more slowly? A half step in this direction is to let them undo any prior speed-ups.

Creativity requires spending time "doing nothing" - workaholism guarantees its death

 _______________________________________________________________________________