Logical Incrementalism in Product Development

This little exerpt from the NY Times explains well the concept of logical incrementalism in management.

Mr. Schmidt didn’t stop there. He acknowledged that “Google might not get it right the first time,” and said that Apple probably wouldn’t either, briefly alluding to some better features coming with the second generation of the iPad. But he said both companies would have “the next two to three years to figure it out.”

The Power of Infinity

Steven Strogatz explains beautifully how the concept of inifinity first tripped up philosophers but then provided them with a powerful tool to calculate things that could not be calculated without taking things to inifity. I wish I had had as good a math teacher as Strogatz. The lesson here is also that Strogatz does not provide a solution to Zeno’s paradox but that he shows that even without fully removing the puzzles around infinity one can use the concept to get more knowledge in other areas.
Read his column Take It to the Limit.

Evolutionary Economics Meets Business History at Trinity College in Dublin

I participated in a workshop bringing together Business Historians and Evolutionary Economists at Trinity College in Dublin.  Overview information on the workshop and the presentation slides have been posted in the Economic-Evolution.net discussion forum.

Apple with only 7% of Sales account today for 35% of Industry Profits

According to a Business Insider article, the banking giant has aggregated numbers from the top ten PC makers in the world and determined that, while Apple only commands 7 percent of overall revenues in the PC market, its products account for 35 percent of the operating profits. See Full Article.

Warren Buffet’s Symbolic Leadership

Watch this great advertisement staffed by employees of Geico. Warren Buffet, whose companey fully owns Geico, participates in the ad to demonstrate that he is one the many co-workers. It is funny to see the 80-year-old billionaire impersonate Axl Rose.

Problems with the Peer Review System in Science

Frank Furedi has written a very thoughtful essay on the problems with current peer review system in science. In my view, the issues are a lot more serious in the social sciences where is much harder to formulate non-trivial general laws and make precise predictions that can be proven or disproven. The natural sciences require replication before something is accepted. There is very little exact replication in management research for example. Theories are accepted on very tenous grounds and when you write a paper that contradicts existing paradigms your data is not going to persuade your peers who have a vested interested in the status quo.  Read Furedi’s Essay.

Update 28. June 2010:Interesting Problem Case in Economics:  Copy URL into your browser: http://www.handelsblatt.com/politik/nachrichten/no-comment-please;1446947

The New AGSM MBA (Executive) Strategic Management Year

As the director of the Strategic Management Year, I led of team of faculty to redesign the year-long program. We added many new features (live case studies, book reviews, learning diaries, self-refelection papers, peer coaching, peer evaluations, rewriting of strategy paper) and organized the year around the fundamental problems that a general manager and entrepreneur faces:

1. How do I detect and select business opportunities?
2. How do I develop business opportunities?
3. How do I grow a business?
4. How do I transform a business?

In this short video, I describe the changes that we have made.  Click on “More” to see a more detailed picture overview of all program.

More...

Blackboard Course Website

For all information and resources regarding the course, UNSW students should log into the Blackboard Course Website.

Couse Outline for Intellectual Foundation of Social Sciences now available

Here you can find the course outline. STRE 8005 More information for enrolled students is available at the UNSW course webpage.

Jeffrey Meyers on Writing Habits

CM: Having written 43 books, including more than 20 biographies, you’re nothing if not prolific. What’s your work routine?

JM: I work every day— it’s important to keep up momentum—from 9:30 to 1 in the morning and from 7:30 to 11 in the evening. In the afternoons I recharge by playing tennis (inexpensive psychotherapy), taking long walks, frequenting bookstores, going to the Cal library, and wandering around San Francisco. I do research and interviews with family and friends for six months. I then write by hand on yellow pads, type three pages a day and 100 pages a month on the computer, and finish a 400-page book in four months. Finally, I spend two more months revising.

When I’m done, I follow the example of my longtime friend, Iris Murdoch, who began her next novel the day after completing the previous one. (More momentum.) While the editor is reading my typescript, I do the research and write a ten-page proposal that secures the contract and advance for my next book.

From California Monthly.

Richard Branson’s Fundamental Objective

The Financial Times posed twenty questions to Richard Branson. Here are the two important ones that touch upon the idea of a fundamental objective.

How important is money?
My priority is learning and trying to improve the world – not being rich.

How do you want to be remembered?
That I have made a difference.

Read full interview.

Apple did not forsee the success of the application store

It is hard to forsee the future as the recent episode with Apple’s application store demonstrates.  The NY Times reports:

The App Store’s success — as much a surprise to Apple as it has been to competitors — has given rise to a new digital ecosystem. Today, hundreds of software aspirants, from individuals tinkering in their bedrooms late at night to established companies looking for lucrative new revenue streams, are jumping into the App Store fray.

When making a decision, managers often make the mistakes of only considering the potential upsides, but not the cost of downsides. Positive surprises don’t kill firms. It is the negative surprises that bring you down. 

Benefits of the Knwoledge Economy

Figure 1 from the ETH Strategy Report: Knowledge is the main engine of economic growth. A strong correlation can be observed between the Knowledge Economy Index (KEI) and GDP per capita. The KEI is calculated by the World Bank and is based on the four pillars of the Knowledge Economy framework: 1. An economic and institutional regime to provide incentives for the efficient use of existing and new knowledge and the flourishing of entrepreneurship; 2. An
educated and skilled population to create, share, and use knowledge well. Click on More to see a powerful picture.

More...

The Economist on Annoying Bussiness Guru and the Problems with MBA Curricula

The Economist has a wonderful new column called Schumpeter. The October 22 issue revists the shortcomings of management gurus that I highlight in my classes. The Sepember 24 column encourages business schools to teach people to be more sceptical. 

The three habits…of highly irritating management gurus

Business schools have done too little to reform themselves in the light of the credit crunch

Phil Tetlock Critically Reviews Three Books on Forecasting the Future

Tetlock does us the service of giving a close reading of three books that what to overcome the obstacle that Yogi Berra identified in his qib: “Prediction is very hard, especially about the future.”

The Fat Tail: The Power of Political Knowledge for Strategic Investing by Ian Bremmer and Preston Keat.

The Predictioneer’s Game: Using the Logic of Brazen Self-Interest to See and Shape the Future by Bruce Bueno de Mesquita

The Next 100 Years: A Forecast for the 21st Century by George Friedman

Read Tetlock’s excellent review at National Interest.

Debate: Do Women Make Better Managers

The jury is still out. But read this interesting exchange on NYTimes.com. Rember that just because on average women may be different than men, this does not mean that it is true for the person in front of you.

Susan Pinker: Whether we’re talking about mentoring, managing or office politics, the research is clear: “Men and women together are the best.”

Sharon Meers: Women often take an alternative approach to leading teams — encouraging more open discussion, cultivating talent and sharing credit. Feedback is the place where women bosses may add the most value.

Three Books on the Origins of the Financial Crisis and its Lessons

John Lanchester reviews three books on the origins of the financial crisis and its lessons in the New Yorker.  Two of them are useful for the general reader.

Gillian Tett, “Fool’s Gold” (Free Press)

Richard A. Posner, “A Failure of Capitalism” (Harvard)

I personally personally found Fools Gold the most rewarding of all the books and a higly recommend it to anyone who works in the finance industy or simply wants to understand what caused the recent financial crisis.

Read full review here.

Duplicity

Rarely is a Hollywood movie such a great teaching instrument. Duplicity gives a wonderful picture of how far large companies go in figuring out what their competition is up to. What’s more, the principles of game theory are very well illustrated by Julia Roberts and Clive Owen, who make a wonderful pair. I recommend that every Strategic Management student watch this film.

CEO Q&A: Bernie Brooks

Chief executive, Meyer (Australia)

What is your number-one tip for managing people?

You never get in trouble for over-communicating with them.

What is your number-one tip for managing a business?

Give the team more responsibility than they expect and measure everything in the business that can be measured.

A lesson you have never forgotten?

How the mighty have fallen. Some six of the top 10 retailers in 1987 don’t exist today and that is a sign that you can never be complacent in retailing.

Excerpted from BRW, Vol. 31, No. 12, FYI.

GE’ s Jeff Immelt refuses bonus for 2008

Very few executives have taken the step to cut their own bonuses when stockholder make big losses. Reading the national mood and the outcry over Wall Street bonus payments when the bank are bailed out by taxpayers, Jeffrey Immelt demonstrated leadership by refusing a bonus for 2008.

General Electric Co. Chairman and CEO Jeffrey Immelt passed up a $12 million bonus in 2008, a year that saw company’s stock price slide 56% amid a global economic crisis and declining profits at GE. “Earnings came in below where we expected,” Mr. Immelt wrote in a note Wednesday, citing declining equity markets and a sliding GE stock price in 2008. “In these circumstances, I recommend to GE’s Board of Directors that I would not receive a bonus in 2008.” He also said he declined a special three-year cash payout that goes to senior executives and which the board’s compensation committee said he earned.

Lessons for Entrepreneurs

Ryan Trainor

1. Articulate and sell your vision and build strong teams with skilled people who offset your weaknesses and excel at implementation.
2. Foster good relationships with your bank, clients, staff and other stakeholders.
3. Create processes and systems to get the best out of employees. People want to be part of a company where they can have input and be recognised for it.

Mario Salva

1. Know your market. Research who your target customers are, what they can afford and how you can deliver your product at a more competitive price than your opposition.

From BRW, Feb 12-18, 2008

More...

Rolls-Royce: Transforming its Jet-Engine Business Model

The Economist reports how Rolls-Royse figured out a different way to make money in the jet engine business:
The big pay-off from getting engines under more wings comes from selling spares and servicing them. This is because selling aircraft engines is like selling razors. The razor and engine make little if any profit; that comes later, from blades or spare parts and servicing (see chart 3). Gross margins from rebuilding engines are thought to be about 35%; analysts at Credit Suisse, an investment bank, estimate that some makers of jet engines get about seven times as much revenue from servicing and selling spare parts as they do from selling engines. Many analysts suspect that Rolls-Royce (and others) sell engines at a loss. Judging this is hard, though, because of the way Rolls-Royce accounts for long-term contracts, often by booking a profit on the sale for income that will be received only over many years. Rolls-Royce says that, on average, engines are sold at a profit. The trouble with selling razors at a loss is that someone else may make the blades to fit them. And the juicy margins in engine maintenance have indeed attracted a swarm of independent servicing firms (and engine-makers after each other’s business).

More...

What the Financial Crisis Taught us about Human Decision Making

David Brooks writes in the NY Times:
Once there was just Newtonian physics and the world seemed neat and mechanical. Then quantum physics came along and revealed that deep down things are much weirder than they seem. Something similar is now happening with public policy.Once, classical economics dominated policy thinking. The classical models presumed a certain sort of orderly human makeup. Inside each person, reason rides the passions the way a rider sits atop a horse. Sometimes people do stupid things, but generally the rider makes deliberative decisions, and the market rewards rational behavior. Markets tend toward efficiency. People respond in pretty straightforward ways to incentives. The invisible hand forms a spontaneous, dynamic order. Economic behavior can be accurately predicted through elegant models. This view explains a lot, but not the current financial crisis — how so many people could be so stupid, incompetent and self-destructive all at once. The crisis has delivered a blow to classical economics and taken a body of psychological work that was at the edge of public policy thought and brought it front and center. In this new body of thought, you get a very different picture of human nature. Reason is not like a rider atop a horse. Instead, each person’s mind contains a panoply of instincts, strategies, intuitions, emotions, memories and habits, which vie for supremacy. An irregular, idiosyncratic and largely unconscious process determines which of these internal players gets to control behavior at any instant.

More...

Economics: Is the discipline in crisis?

Drake Bennett of the Boston Globe is reporting on the soul searching that is going on the field of economics and finance after the professions inability to foresee the crisis. 

THE DEEPENING ECONOMIC downturn has been hard on a lot of people, but it has been hard in a particular way for economists. For most of us, pain and apprehension have been mixed with a sense of grim amazement at the complexity of what has unfolded: the dense, invisible lattice connecting house prices to insurance companies to job losses to car sales, the inscrutability of the financial instruments that helped to spread the poison, the sense that the ratings agencies and regulatory bodies were overmatched by events, the wild gyrations of the stock market in the past few months. It’s hard enough to understand what’s happening, and it seems absurd to think we could have seen it coming beforehand. The vast majority of us, after all, are not experts. But academic economists are. And with very few exceptions, they did not predict the crisis, either. Some warned of a housing bubble, but almost none foresaw the resulting cataclysm. An entire field of experts dedicated to studying the behavior of markets failed to anticipate what may prove to be the biggest economic collapse of our lifetime. And, now that we’re in the middle of it, many frankly admit that they’re not sure how to prevent things from getting worse.

Read Full Story “Paradigm lost: Economists missed the brewing crisis. Now many are asking: How can we do better” on Boston.com

Radical Rethinking of Cash Management

The Economist summarizes the profound implications of the financial crisis for the management of cash in firms.

SELDOM has corporate strategy been turned on its head so quickly. Barely a year ago, cash was a dangerous thing to accumulate: activist investors stalked companies, urging boards to return it to investors, to pay special dividends or to buy back shares. Ever since the 1980s the fashion had been to make companies as lean as possible, outsourcing all but your core competencies, expanding your just-in-time supplier system around the globe, loading up with debt to “leverage” your balance-sheet. Old-style defensive conglomerates, such as Arnold Weinstock’s General Electric Company, were dismantled. Companies that hoarded cash—even ones as good as Toyota and Microsoft—were viewed with suspicion.

More...