The Global Perspective - Market Leading Commentary On The World Economy

Economics 2.0

Via According To Julie (which is a fantastic blog written by the daughter of a great IT professor who once taught me), here is the most stunning example of Economics 2.0. A coffee shop where the punters decide what to pay (LINK to Seattle Times article):

With its blood-red walls and black leather sofas, Kirkland's Terra Bite Lounge looks like any other coffee shop — until you get to the menu. There are no prices listed. Terra Bite doesn't have them.

You read that right: No prices. Customers pay what and when they like, or not at all — it makes no difference to the cafe employees, who are instructed not to peek when people put money in the metal lock box.

Julie has two posts on the subject which are both worth reading (POST 1, POST 2). As she points out, "Using a strict rational choice economic model, no one would pay ... However, the average price of coffee (or a "transaction" which could be anything from an espresso to a double mocha with a cookie and a bagel) is 3 dollars."

This is the start of a big paradigm shift for micro-economic theory, which affects the way we all consume, and ultimately live.

Everyone has their own theory as to why this works, but I have a feeling this is brought about by the same cultural shift open-source technology and the internet is responsible for. It's not a matter of guilt, neither is it a matter of the consumer becoming more generous; instead, this is an example of the consumer becoming more accustomed/educated to a world in which he or she takes responsibility for the longevity of the products and services he or she enjoys.

This is an extension of Apple's idea to start selling music online. The critics who asked "why would anyone buy it online when they can get it for free elsewhere?" missed the point, as pornography barons pointed out. People want to keep something in business that they like. People, through the advent of technology, have been conditioned to the fact that they have to contribute if they want to keep something in existence that they like. In fact, it's the business model of the blogosphere, where people donate to their favorite bloggers and click on their ads in order to keep them in business.

It's a new spin on the old adage: "if people like what you're doing, they will come back." However, instead of forcing the consumer to accept the same pricing-scheme day-in, day-out, you're just letting them choose how much/when instead. It's no different to the "3-for-1" deals you see everywhere, except you let your customers decide when they get their "1". And ingeniously, the customer trusts you, and hence likes you, better than anyone else.

This is the paradigm shift in micro-economics we are seeing everywhere right now, for which technology is principally responsible, and as people become more accustomed to the new business model, they act more responsibly, and you're more likely to see more of these kinds of business models around.

It's about choice and trust. You keep the same economic principles in place as you had before, but you apply them in a way that leaves more choice for and trust in the individual. In other words, you let your customers become your sponsors.

How Not To Use Powerpoint

Presentation Zen, a great blog if you are a speaker looking to improve your general performance, has a hilarious example up of how NOT to use powerpoint (Via Fredd Kambo Joint):

This slide brings back all the memories I have of a number of similar presentations I've been to - truly exhausting experiences. Fredd Kambo, an uber-consultant at Shell, points out what's on the slide too. Here's the full transcription of the slide in all its glory:

1. Supposing the new consumer model, we tried to simulate more complicated diffusion process to observe the value alternation phenomenon and the value amplification phenomenon. We obtained the actual percentage of each type of consumers by an empirical consumer survey, and inputted them into the new simulation model. The results indicated that, if the market has more than 40% of technology-sensitive consumers,  the value-alternation phenomenon occured frequently and the demand side hypothesis was supported.

2. However, In this simulation, we only examined the competition between two competing technologies which did not qualitiatively change during the diffusion process. The qualitative change in one technology seems to be difficult to simulate in such a simple and general model, even though in a practical case, technologies may change qualitatively to some extent during the diffusion process. This point is the limitation of this simulation.

This is more exhasperating than an MBA class. Look at how the guy is reading that garbage off the slide too! Unfortunately, as anyone who goes to a number of presentations can similarly testify, this type of thing is all too common.  This slide took me three minutes to draw up against the clock and says the same thing:

Granted, it's no work of art, but it goes to show how much things can be simplified, which is the whole point of Powerpoint. Incidentally, the product looks like a highly sophisticated piece of technology with that kind of conversion rate, so some discussion about how it might be undermined by disruptive technologies should really be amongst that wad of material about 'qualitative empirical testing'.

Organisational Behaviour

Glancing through the recent stats, one of the most frequently searched for terms which leads people to this blog seems to be 'organisational behaviour' right now. Since this is becoming a pretty much daily event, I'll take a few minutes out to expand on the idea of this rather esoteric term, and offer some of the best links to sites dealing with it.

In its broadest sense, organisational behaviour is a generic label given to describe the way an organisation aims, strategises and participates in the world we live in today. This is a more complex process than most people initially assume, since although it is predominantly management-driven, there are other and often overlooked aspects which affect an organisation's behaviour at any given time. An organisation's behaviour is often driven by both macroeconomic and microeconomic forces, not just management's strategy. To give a simple example of this, in today's current market climate the medium-term surge in oil prices has affected how many organisations allocate cost and spending controls.

Here are some macroeconomic forces which might affect the way an organisation behaves (without management being able to do much about it):

• Commodity prices
• Emerging market growth rates
• Environmental regulation
• Capital under management (i.e. is there more capital in short-term/long-term funds)
• Technology
• Wars

And here are some microeconomic forces which might affect the way an organisation behaves:

• Interest rates
• Inflation
• Recent performance of local equity markets
• Regulation
• Technology
• Infrastructure (i.e. power lines, telecommunication lines, transport etc.)

The list is far from complete but it at least gives a good sense of the type of factors impacting the way an organisation acts, and perhaps serves as a partial model to start with. Within the limits of the above, an organisation's behaviour is centrally driven by the strategy of the management. Broadly speaking, strategy can be broken down into the following components (in no particular order of importance):

1. Financial strategy
2. Ethical strategy (i.e. environmental concerns etc.)
3. Operational strategy (i.e. day-to-day management of the business)
4. Technological strategy
5. Sales & Marketing strategy
6. Personnell (Management) strategy
7. Competitive-response strategy (i.e. how a company reacts to competition)
8. Supply-chain strategy

This again is not a complete list - if you have any other sugestions leave them in the comments below. If you're curious about organisational behaviour, and want some good, quick analysis of real companies put under a microscope, there are a number of great blogs you can now visit mainly written by a bunch of consultants.

First of all, go and visit Tom Peters' blog. He tends to have a lot to say about every aspect of the organisation, all the way from the lofty hights of mergers and acquisitions down to managament of the company cafeteria. Here is a typical kind of quote:

Hats (waaaay) off to Dell! Along with Wal*Mart it did proffer a spanking new approach to "supply chain" organization and management. Most everybody, including the Army and Marine Corps, have assiduously copied.

And while there are some pretty good runs on Broadway (IBM's dominance stretched over two decades—and "unassailable" GM was on the King's throne for about 25 years), no model is "the last word." "Perpetual revolution" is my message in general, and especially to the likes of CIOs who are dealing with what are still immature technologies.

Then there's Guy Kawasaki. He's a great thinker, writer and venture capitalist and well worth checking out - mainly deals with the technology side of things. He's also quite generous with his time and if you e-mail him, he usually responds. An an example of his kind of work, his latest post The Art of Distribution details the top ways to pass "the test (of) the ability to achieve distribution":

• Define it right
• Separate distribution from virality
• Allocate responsibility
• Obey the law of big numbers
• Look for adjacency
• Focus on revenue
• Look out for the other guy
• Always be thinking, "Bigger pie, bigger pie, bigger pie"
• Sometimes be thinking, "Skim the cream"
• Don't kid yourself

Also, John Nesheim, author of a number of books and someone who really 'gets' the venture capital market. Here's a caption from a recent blog post of his dealing with start-ups:

Financial numbers should be created by the leaders who have to deliver results with the people, equipment and cash they sign up for. Of course investors are expected to challenge the numbers. But I find most of the challenges to be the same: "Find a way to do the same work with a lot less cash."' That results too often in under-funded startups. Sure, the Internet bubble had companies ruined with too much cash. But solid managers with experience know what they need for engineering staff, what wages will get the outstanding talent. They know what they can deliver, when. That is not for the VCs to decide. Instead, after due diligence, the investors are wise to bet on the leaders and stand aside, watching from the board room.

For a more academic pespective, go to Biz Deans Talk, a blog mainly written by the dean of the Instituto de Empresa. It's a good blog, and there are some very sophisticated guest bloggers there too.

On the academic note, you can also check out Harvard Business School's only blogging professor, Andrew McAfee.

Some others for more analysis of organisational behaviour are Steve Shu, Malcom Gladwell (to a lesser extent) and Fredd Kambo who is a consultant with Shell.

Add to this list if you feel so inclined, I merely want to offer a quick aggregation of the best analysts of organisational behaviour. If you're still fascinated after having read all the above, and just can't seem to get enough of the subject, my advice is to go and pursue an MBA.

Careers & Brands

Steve Shu has an interesting piece up over at his blog on the importance of brand name recognition in employing firms:

But fact of the matter in professional situations, like when I'm in a room introducing myself and there are brand names like Booz Allen and McKinsey at the top of people's minds and perhaps sitting at the same table, people will often give me less attention until I back up my pedigree with actual experiences. Only then am I able to get myself ahead or on level ground. In some ways, it's another level of explanation that I need to get through before I can get across the message of the "real me".... in things like startup and engineering environments, where relationships are more closely knit, organization structures are small, and where interactions are more frequent between people, the notion of brand name will not matter so much. In a larger company, however, there may be many more one-off interactions (in certain areas of a company like business development or consulting), and brand name of your past employers may matter "more".

This seems like a pretty fair summary to me of the importance of brand name recognition in the working environment - most notably, that it's impact and importance varies from situation to situation. I would also add that training in a brand name environment is great from an anlaytical point of view - if you're in something like analysis or consulting, perhaps - but probably not the best option if you are looking at a purely results-driven discipline such as sales. The problem with sales training in environments where there is large brand name recognition is that the recipient of the training tends to learn to rely on the brand name of the firm to do his/her job rather than foster real skills and relationship development: it is, after all, here that "backing up your pedigree with personal experience" is the object of the excercise. The best way to do this really effectively is by having to.

Sources of Innovation

From a class I'm sitting in on at my MBA at the BI, here are some interesting suggestions on sources of innovation for consideration:

• Unexpected occurrences

• Incongruities

• Process needs

• Industry and market changes

• Demographic changes

• Changes in perception

I would add that there's a difficult paradox inherent here: innovation usually comes along not when one or two of these sources appears statically, but when two or more of them are present and interactive with one another, and that the more sources and the higher the interactivity, the greater the environment for innovation. Indeed, this is what usually makes innovation so difficult: the sources are commonly reflexive, and influence the process and outcome of one another. Success in innovation however comes out of managing these components individually once they take on this reflexive relationship.

Leaders of The Future

One of the interesting things about having your own website is seeing all the different search terms that lead people your way, and in some cases, noticing patterns and trends amongst them.

As I am studying for my MBA at BI in Oslo, and as such tend to write about the experiences here on 'The Global Perspective', if you type in anything to do with MBA's into a search engine, chances are this weblog will be pretty high on the list.

The following are some real examples of MBA and organisation-related searches that have led users here:

• how does an MBA degree help in personality
• about organizational behaviour of any organization
• does mba make a good manager
• current affairs for m.b.a.
• google, mba hungry
• organizational behaviour
• humbler, kinder people are going to be the future business leader
• humbler and kinder managers should be mbas

What is curious about all of the above searches - and they represent only a scattering of many - is that they all originated from Google India. What this seems to imply is very revealing - a deep interest in personal development to become leaders of the future.

Compare this with the following MBA and organisation-related searches returned from Google's webpages in the U.S.A., U.K. and Europe that again, led to this weblog:

• Does MBA make higher income
• MBA millionaire??
• how can i make millions with MBA
• MBA's and income

Not one of the 'Western' searches related to the above contained any terms about bettering leadership or managerial ability - equally, none of the Indian searches have so far mentioned money, salaries, or income.

The comparison is startling: while the Indians seem to be focusing on education as a form of leadership training and bettering the organisation per se, Western countries appear to be focusing on the bottom line. Without reading too much into such limited data, it's hardly surprising so much business is being outsourced.

The trends should be at least wake-up-call as to where business is to continue to be headed over the next few decades unless Western business education and practice can adopt a less selfish form of thinking - after all, such immediate focus on profit maximisation has led to the ruination of many a once-great organisation.

The Online Tabloid Effect

More insightful news from Editor's Weblog:

The famous financial daily, The Wall Street Journal, may be thining itself from a width of 15 to 12 inches and the globetrotting newspaper designer Mario Garcia may be pushing for a compact, but it doesn't appear that the Dow Jones' flagship will be cut down to tabloid size.

Garcia is currently working on a redesign after having helped the Journal add color to its front page in 2002.

But despite having switched its European and Asian editions to a compact format, it is doubtful the Journal itself will adopt the design that Garcia predicts will soon be standard.

"In five years, you will hit a generation of readers who don't remember life without the Internet," said Garcia. "People who are coming from . . . the screen of the Internet are used to reading within the confines of a smaller place and transfer more quickly to the tabloid.""

This should be required reading for anyone who still claims that newspapers are going to be the dominant medium for news distribution in twenty years time. Once printer developments catch up with the pace of online and software developments too, it is difficult to believe that anyone will make the trip out to purchase a newspaper or magazine when they can stay in and print their own at home.

Garcia's observation that the next generation will think differently is prescient: far too often, businesses tend to think in terms of the habits of today's customer base, and when they do talk about tomorrow's, they do so without thinking of the habits and practices of those customers now.

Long-term business effectiveness depends upon thinking about what everyone who is not your customer is doing instead.

The famous financial daily, The Wall Street Journal, may be thining itself from a width of 15 to 12 inches and the globetrotting newspaper designer Mario Garcia may be pushing for a compact, but it doesn't appear that the Dow Jones' flagship will be cut down to tabloid size.

Garcia is currently working on a redesign after having helped the Journal add color to its front page in 2002.

But despite having switched its European and Asian editions to a compact format, it is doubtful the Journal itself will adopt the design that Garcia predicts will soon be standard.

"In five years, you will hit a generation of readers who don't remember life without the Internet," said Garcia. "People who are coming from . . . the screen of the Internet are used to reading within the confines of a smaller place and transfer more quickly to the tabloid.""

Going Green?

An interesting piece appeared in last week's Reason Online about corporate environmentalism. Poignantly, it pointed to how companies are using environmental regulations to establish a new form of competitive advantage:

"By exceeding expectations a little—and then making a big deal out of it—BP avoids getting singled out as a bogeyman. If environmental groups are going to choose someone to target, why not encourage them to choose your competitor? And if shareholders question the money spent “mobilizing Malaysians,” they’ll be glad enough when the next protest against the oil industry is held outside Exxon’s headquarters instead of BP’s."

Enironmental standards for corporations are all very well and undoubtedly beneficial, but as with every industry cycle, for real effect changes have to come from consumer behaviour patterns. Corporations are only the supply side of the traditional supply-demand equation.

The Eternal Institution

It’s startling how the parturitional division of even just two hours of airtime can change the environment you’re in so completely. Last week, as I sat outside on the Piazza Di Spagna with a glass of Chianti, amidst the fervent nocturnal alacrity of the southern continent, the rainy four degrees of northern Europe and its four p.m. nighttimes seemed a world away. Having just spent a week in Rome, I am slowly adjusting back to the neutral, and by comparison rather uninspired routine efficiency of Oslo and the demands of my MBA programme this week.

For those who haven’t been, in stark contrast to northern Europe, Rome is a gargantuan, sprawling labyrinth of archetypal European madness. The physical infrastructure of the city holds together an impossible range of architectural accomplishments, all in varying states of disarray from every period from around 500 BC right up to the present day.

But there is also a deeper, more esoteric infrastructure at work, residing in the Northwest of the city, just above the glamorous nightspot of Trastevere.

The Vatican has to be one of the most startling displays of institutionalism at work in the twentieth century. Not only because of the vast wealth of the Church, but also the sheer quantity and diversity of the population in the world who subscribe to the Catholic doctrine: with over two billion Catholics alone, and another billion Christians, this city within a city is the spiritual home to nearly forty percent of the world population, all the way down the alphabet from the Americas to Zambia.

Into Eternity

Management guru Tom Peters started out his career obsessed by the large organizations, but has since departed this realm of the gargantuan to concentrate on the smaller organizations. And indeed, most of consultancy and academia has gone the same way.

The Catholic Church (which is the second largest owner of real estate in the world, after Mc. Donald’s), riveted by scandal after scandal of sexual molestation, lawsuits and a social trend towards moral disinterest has so far managed to defy all odds and remain virtually indestructible.

His Holiness Benedict XVI’s establishment, is an institution that, due to its size, is deeply fragmented and has ceased becoming consistently innovative. The areas of the institution that are still innovative are innovative in all the wrong ways, taking advantage of their customers and competitors with its financial and moral weight and shaming its long established reputation. And yet, still, in some way, and for many, the Catholic Church is the greatest institution around, despite the fall of Italy’s political reign in the times of the Roman Empire.

In the same way could it be that some of the American Empire’s institutions of the turn of the twentieth century shall outlive the country’s Superpower reign way into the future? It’s a fact most of the management gurus would hate to admit because it negates much of their philosophy, but no matter what seemingly suicidal manoeuvres certain institutions make, if there’s always a crowd of followers, these institutions are always going to be around to house them, as Coca Cola proved in the 80’s with its introduction and subsequently quick withdraw of “New Coke”.

Perhaps the current apathy towards large organizations from both consultants and academics alike is in their realization that for these institutions of gargantuan dimensions, just as the followers of the Christian faith have always maintained, there may be such a thing as eternal life.

The Lonely Planet Guide to the Organisation

Ask most people in an organisation what they think of the salespeople, and the response it likely to be mute and/or confused. The best salespeople are, after all, a bizarre hybrid between the charming and arrogant, generous and selfish, calm and diplomatic extremely emotional and extremely aggressive. Unfortunately, the organisations which these salespeople represent tend to see most of the negative traits, in large part perhaps because all the positive ones are reserved exclusively for clients. Such unpredictable schizophrenia can alienate more sober members of the organisation, and lead many to believe that salespeople are just a necessary evil in any organisation.

This reputation has lead most firms over the past two decades to label their salespeople with distinctly neutral titles, such as “Account Executive” or “Client Services Representative”. Organisations claim that the titles detract from the negative ‘sales’ image prospective buyers might naturally associate with someone knocking repeatedly on their door for a deal, but ask any salesperson and you know this is fallacy. Most salespeople only too readily admit at the first prospective client engagement that “I am the sales guy/girl” or “What I’m trying to sell you is” … For a salesman there is no shame in the process of selling, and nor for the prospect: we’re all interested in being presented with offers, after all.

Ask most MD’s what they think of their salespeople and the response is likely to vary in accordance with the bottom-line performance of the company. This is unfortunate, because what such uncertainty signals is the inability of organisations to understand the value of their salespeople and fully utilise them for a whole spectrum of activities. Perhaps because people do not naturally empathise with these obscure egomaniacs, in most firms the salespeople tend to be left on the fringes of the organisation, with the clear instruction that their job is to create revenue. This emphasis only makes the situation worse, and the salespeople more arrogant and alienated, which in turn leads to further feelings of detachment from the rest of the firm. And ultimately, all this negative sentiment impacts the all-important bottom-line. (How many sales people usually end up leaving organisations, burned out or just plain pissed off?) But the smart organisation sees what motivates its sales people and what added value they offer the firm.

Untapped Knowledge Resource

The sales force is perhaps the largest untapped knowledge resource in an organisation. In large part this is because of the above, but organisations are also sceptical about the agendas salespeople hold in presenting any kind of unbiased analysis. To some degree the scepticism is justified; most of these individuals are, after all, in some way or another rewarded directly for quantity of delivery. But equally, these are the people who are talking to the organisation’s customers every day. They usually have a far better grasp of what customers want than any marketing survey (a real pet hate of mine) or even worse, demographic projections chart can offer. Even in more complex value chains, the salespeople are talking to the suppliers who are talking to the end consumers every day: it follows logically that they are the ones in the organisation who damn well should know the customer better than everyone else.

Salespeople usually end up with a broader knowledge of the product/service specifications in an organisation, too, because of the requirement implicit in their job descriptions to know such things. Add these two things together and as a manager you get the best part: your salespeople are nearly always the ones in an organisation that know what the customers like about your products and what your customers don’t like about them, what features they derive massive benefit out of, and which ones they don’t use at all.

What’s more, salespeople are, contrary to popular scepticism, usually only too happy to help out. A salesperson likes nothing more than to be called in to help out with something other than bottom-line issues. OK, so there are some organisations that use their salespeople in applications other than pure revenue-generation, but I have yet to see one that really “gets” the value of these individuals at every stage and process of the firm’s strategic analysis. What company, for example, pulls the top sales guy into a meeting on accounting in order to asses whether a certain cost is really necessary at all or to come up with ideas as to what other functionalities the cost represents? Maybe R&D departments in organisations work more closely with salespeople these days, but it’s still uncommon to see a sales girl from the front desk attending meetings on product design and specification and contributing usefully.

Organisations might save fortunes on hiring overpriced consultants just by asking these nomads a few simple questions. They are usually the lonely plane guidebooks to an organisation, because to succeed at what they do they have to be.