P.S. You Should Read This

Do you know the difference between conventional logic and value innovation logic? I didn’t, at least until I read this article. The report proposes a very interesting framework to determine if your company focuses on value innovation or conventional logic, and notes how companies which focus on value innovation tend to perform better than ones which don’t.

The framework looks at 5 basic dimensions of strategy, and looks at what differentiates value innovators from conventional companies in these metrics. The dimensions are: industry assumptions, strategic focus, customers, assets & capabilities and product & service offerings. While you can read more about the differences in the article itself, the main difference highlighted is the fact that those who follow value innovation logic tend to focus less on their competitors, and more on themselves. They also do not allow themselves to be hindered by industry boundaries, but think out-of-the-box to maximize their growth.

While the framework seems to work in theory, I believe that it is a lot harder for it to be practically implemented. For starters, companies like to benchmark themselves by their competitors, especially as it gives them an idea of how well they are performing, or how they should be performing. Trying to completely ignore the competition would mean that the company would have no quantifiable measure to gauge their relative performance. Let’s take an example that a company has a growth rate of 10%, but its competition is growing at 12%. In absolute terms, it may be fine, especially if it is focusing on its own performance. The company might even consider this to be a “quantum leap in value” as proposed by the article. When compared to the competition, however, it is far less impressive. It should also be understood that competition matters in every industry, especially as all companies are going to be evaluated against their peers by clients and customers.

The study proposes that value innovators focus on the “mass” of buyers and willingly let some existing customers go. Apparently, it is bad to provide customization to serve different customer segments. I find such a strategy inherently flawed, as trying to serve a mass of customers will inevitably lead to a loss in focus. The company would be spreading its resources too thinly, and fall into the trap of the “Peanut Butter Manifesto”. While trying to meet all its potential customers’ needs, it just might end up meeting none of them. It would be far better for a company to focus and target a particular segment, and then work towards meeting all its needs.While the proposal is lacking in a few ways, it isn’t completely wrong. There are a few valid points which companies should keep in mind as they map out their strategy. Not being allowed to be bound by the industry conditions and thinking out-of-the-box are definitely goals that companies should strive for. Companies should try and source out markets and customer segments which haven’t been targeted, and become a leader in those areas. They should also keep thinking about new and innovative ways to capture a larger market segment, and unconventional means would be useful in doing so.

All in all, the concept of “value innovation logic” as proposed by the author has its pros and cons, and it definitely should be taken with a pinch of salt.

I recently read a very interesting write up on the link between entrepreneurs and criminals, and how criminals could be entrepreneurs if given the right type of opportunities.  This would seem like an alien concept to most, as how can entrepreneurs, who are lauded by our society, have any sort of a connection to criminals, who are vilified?

The arguments proposed are very valid and logical, but not something that is not intuitive.  Apparently, people who have shown characteristics such as a desire of independence and an aversion to rules can be criminals or entrepreneurs.  Just as criminals have an aversion to being bound by laws and social norms, entrepreneurs do not like being in a bureaucratic corporate environment that restricts their creativity and conflicts with their working style. The author even cites a statistical analysis that identifies a relationship between teenage crime and being self-employed once the other socioeconomic factors have been eliminated.

I concede that while both entrepreneurs and criminals might share similar character traits, it is quite a stretch to draw a link between them and conclude that criminals could become entrepreneurs under the right conditions.  There are plenty of differences between criminals and entrepreneurs as well, but these are not exposed in the article. To also propose a solution of using incentives to convert criminals to entrepreneurs is also a little too simplistic. Firstly, incentives could help any criminal become more productive, and not just the entrepreneurial ones. Secondly, criminals are not formed simply due to lack of incentives, but due to everything from upbringing to their environment. Society would have to change all these factors before criminals can be made more productive members of the community.

Even the best of intentions can be twisted. An article in the WSJ sheds light on how companies such as Rhodia have taken advantage of an UN rule, which was meant to curb pollution, and made money off it.

Rhodia is a chemical manufacturing company which destroys nitrous oxide, a greenhouse gas. Under the UN rule, it can therefore receive pollution “credits” which it can sell to polluters in countries for revenue. The original plan was for money to flow from the richer countries to the poorer countries, thus incentivizing the poor countries to develop green technology. Companies such as Rhodia, however, take advantage of it and make enough money to de-incentivize their own countries from being green.

Although Rhodia claims that it is “committed’ to protecting the environment, figure make it is clear that the pollution credit business is profitable, far more than even their primary product, adipic acid. The UN also defends the rule, by saying that greenhouse gas cutting obligations are being fulfilled, even to the developed countries. Yet the fact remains that the primary purpose of the program is being undermined by Rhodia.

I guess the main takeaway from this situation would be that the UN will probably have to place tighter controls on the companies that it issues “credits” too. It definitely did have the right idea by trying to automate the process and using the markets, as it would require far too much work to deal with each organization individually. Sanctioning who they give credits to, and putting a cap on the number of the credits awarded per company, would go a long way in fixing this problem.

The importance of a formal education in entrepreneurial success is something which generates much debate. There are some who believe that an education is not required, and that the ability to be an entrepreneur is something people are born with. Others, such as Matthew Bandyk with the U.S. News, believe that an education can be extremely valuable. I believe that an education has both merits and flaws, but is nonetheless crucial to any budding entrepreneur.

In addition to the benefits already proposed in the article, I feel that an education can have another major advantage: credibility. Entrepreneurs who start working on their idea immediately upon graduating from high school often find it hard to market it to potential venture capital firms and investors. Sure, there may be the occasional idea which could completely blow them out of the water, but often, it takes a lot more to convince these firms to invest in the idea. The credibility gained from a college education, especially one which is top tier, can instill confidence in the investors, and make them a lot more open to new ideas. An education would also help entrepreneurs in the event that their venture fails, and they decide to seek a more stable job.

Despite its many benefits, having an education has its costs as well. A four year course in a top university is a sizable amount, not considering the opportunity cost of lost income. Within college itself, there can be a lot of pigeon holing in form of majors and courses which could restrict the type of classes an entrepreneur could take. This in turn could affect and control his thought process, possibly hindering his ability to generate innovative ideas. Peers influences can also play a huge role in college, where the potential entrepreneur could be made more risk averse than he initially was. He might even end up dropping his ideas completely to go for a more mainstream job.  

By no means is college a free lunch, as there are costs to go with the benefits that it brings. Picking the college which adds the most value is therefore crucial for any entrepreneur’s success.

Corporate Social Responsibility is a much talked about subject these days. Every company seems to be adopting it, and generating press about their efforts at being a good citizen. Well according to one study in Business Week, philanthropic efforts by corporations have actually dropped in comparison to those 25 years ago.

The study used a much more quantitative measure to conduct this study, rather than basing it off the popular press. It notes that in contrast to 25 years ago, when corporations donated 2% of their pre-tax earnings for philanthropic causes, companies nowadays only allocate 0.7% of their earnings. I guess that companies have started finding it easier (and cheaper) to publicize good actions than to actually do them. After all, the only thing that matters to their business is what the public thinks of them, rather than how much good they are actually doing. However, I agree that just looking at a single figure is not reflective of all the efforts, but it is definitely better than a purely qualitative measure.

The study could be improved by looking at a number of factors, ranging from conducting surveys of employee happiness to having a detailed analysis of each of the company’s efforts (and “crimes”). It should also be noted that the simple action of donating a significant portion of a company’s revenue does not make it a socially responsible one, as it could be causing damage (like undercutting employees or pollution) or having poor practices in so many other ways. Similarly, a company does not need to donate to be responsible. It could just prevent pollution, increase expenses (by offering higher wages) or even generate awareness.

Despite the study being flawed, I still feel that it does hold truth. The only way to inculcate the concept of CSR is to bring out the truth about companies, both the good as well as the bad ones. Society in itself will need to make a more of an effort to ingrain these concepts, and prevent itself from being swayed by simple press releases and media articles.

I found an article on BusinessWeek which talks about how college graduates are turning away from jobs on Wall Street. As I am currently studying in a top-tier business school myself, I am able to appreciate many of the ideas brought up in the article.

Call me cynical, but I believe that the media has sensationalized students who have chosen alternative careers to either financial services or consulting. I applaud those who had the option of choosing a profitable career path but chose a more humanitarian cause, especially if there was a huge difference in the salaries and stability. That is an extremely hard decision to make, and one which few would attempt to do. For others who say that they are looking at alternate career fields because they became ‘philanthropic’, I’m a lot more skeptical of their actions. I believe that the primary reason why they would switch out of the traditional career paths is when these fields are no longer as optimal, such as in these currently depressed markets. Should you offer these recent college graduates a top job, I am positive that many, if not most, would drop their philanthropic interests in a hurry.

This brings me to my next point. If given the choice, should recent grads be choosing the more charitable job? Don’t pelt me with stones, but I’m going to have to answer: not necessarily. I’m a firm believer that every person has their own niche, and that their goal should be to maximize their marginal utility to society. For example, if you are a much better banker/consultant than a NGO worker, don’t drop everything you have to try and save the world. Both you and society would be a lot better off if you did what you were best at. Should you continue to have humanitarian inklings after working in your career for years, you should then take the leap and do what you desire. You’d have a much larger say in the world by then, and therefore, you could make that much more of a difference.

Something else that would make me reconsider working in philanthropy upon graduation is the fact that many of the organizations (such as the World Bank or the United Nations) are very bureaucratic. Starting off your career by working there could mean that you would have to spend years trying to rise up the ladder before you can make a significant impact in your projects.

I recently read an article that looks at the clash between choosing a business idea as being a business and being a hobby. The author proposes that no successful idea can be both a business and a hobby, and that the originator of the idea has to choose between either of the two. Although I believe that there will be many who would disagree with such an opinion, I think it is important that people should go into implementing any business idea with a clear picture of what they want it to be. Some might say that it is impossible to truly succeed at something that isn’t enjoyed, and therefore any business should also be a hobby. On the other hand, I believe that once the business becomes too much of a hobby, it becomes harder and harder for business decisions to be made objectively. For example, you could be a manager with numerous employees under your watch. Just because you become good friends with your subordinate does not mean that you can turn a blind eye to his performance. Should there be a need to replace him with a better performing individual, emotions shouldn’t be allowed to cloud your judgment.

There might be individuals who take pleasure in making money, forming cordial non-personal relationships, and being completely objective in all their decisions. I believe that in such scenarios, there really isn’t much of a difference between their hobbies and business interests, and that only in such a scenario can a business also become a hobby.

What I find to be a far trickier situation is when a business turns into a hobby or vice-versa during the course of running it. Person X might initially enjoy his car-washing business, in which he leisurely mingles with his regular customers as he washes the car. Clearly this qualifies as a “hobby”. Over time, his customer base might get larger and larger, and he may realize that the opportunities he now faced were endless should he turn his “hobby” into a business. So what does he do now? Stick to keeping the washing service as a hobby and limit himself or take the leap and convert into a business? What about those relationships that he formed —- Is he willing to sacrifice them?

It is often extremely hard for someone to realign his or her goals midway through the implementation of the business idea. The business environment might also change during the process, requiring a reevaluation of whether the right choice had been made. I therefore propose that such a “biz vs. hobby” evaluation be conducted throughout the implementation process, and even during the running of the business.

Time recently published an article called “Your Laptop’s Dirty Little Secret”, and it brought up a number of issues. It focuses on the fact that electronic waste gets shipped off from western regions such as the U.S. to emerging countries, and explores the impact of this on those countries. I found the article truly eye-opening, as it isn’t one which gets a lot of press or media coverage, in contrast to other forms of pollution. More traditional industries such as the heavy metal industry have been sensationalized whenever they raise any environmental issues.

The fact that it does not get as much press has also meant that the electronics industry has been thought of as a “clean” by much of the public. This in turn has resulted in the average consumer feeling a lot more comfortable buying from the electronics industry, armed with the knowledge they aren’t doing too much bad in the world. The article also noted that the U.S had refused to join a convention to ban such an export of toxic waste, and that it was the primary reason why the dumping has continued. I found that especially surprising, considering that the U.S. has taken such prominent steps to be Green. Looking at the other side, it is quite saddening to see that developing nations are willing to take on such waste for money, but altogether not very surprising. Often, there is a cost to economic growth and developing, and the environment usually bears that cost. I guess that the only way such a dumping will stop is if greater awareness is raised, countries start developing a conscience, and we as individuals start taking the initiative in curtailing our purchases of electronic products.

Looks like not everything that gets outsourced is good.

I recently read a fascinating article on Business Week which focused on the use of biomaterials in consumer electronics. One of the devices featured is Morph, by Nokia. It truly is a remarkable invention, as it is a cell phone which is flexible enough to wrap around your wrist, can self-clean, have its own source of energy, as well as be able to analyze the air around it. What’s more, it isn’t even entirely made from your traditional electronics materials such as silicon and metal. The proteins found in insulin are melded together like spider silk, which is both and tough. Nokia recently released a video for the phone, outlining its potential.

Although there have been numerous innovative gadgets which have been invented recently, I was particularly struck by use of biomaterials. Morph isn’t the only one which uses it, as bioplastics have been invented to cope with rising fuel costs and DNA is being used to create extremely dense memory chips. Biomaterials and nanotechnology are the way of the future, and I find it ironical that we are no longer trying to shift away from our reliance on Nature. The globe’s current focus on being “green” and on “sustainable development” is a sign that we are finally coming to terms with the fact that we need nature, and will be dependent on it for years to come.

One of my college professors once told me that the one most important thing one should know about monetary economics is the word: expectations. Expectations apparently drives everything and countries can rise (or crumble) based on people’s opinion. Sounds implausible? Think again.

I guess that it is really during this tremulous period that the true effect of market expectations can be seen. The Dow, S&P 500 and NASDAQ plunged again today, just like as they have for the past few months. According to the WSJ , the drop was due to “worries about economic growth.” While I’m no genius, I’ve known for quite some time that the U.S. economy hasn’t been in the best the shape. So what was the reason for the drop? The simple concept of “Expectations”. People (investors in this case) fear that the economy is in tatters and expect it to remain that way. They then trigger a sell-off by selling the stocks they own, driving the stock prices down, and effectively, cause the major indices to drop. This drop then affects other people, who start panicking and selling, effectively causing the light drop to become a free fall There you have it: a self-fulfilling prophecy. It really is a fascinating concept, but one which most people would be unable to appreciate in these dire circumstances

Expectations can be seen everywhere, and not just the macro level. Take a small bank for example. Imagine that a rumor gets started that the bank was in a crisis (even if it actually wasn’t), and that people would lose all their savings. What happens next is a bank run, in which everyone “runs” to the bank to try to recover as much of their savings. The bank, facing a sudden escalation in demand for cash, finds itself short of cash as it had given out loans. It is then forced to close simply because customers “expected” it to, rather than due to any actual problems of its own. This is just another example of the role expectations can play in people’s lives.

So the next time you see someone believing that he was meant to do great things, don’t rebuke him. For all you know, he really could become great. I think it’s about time that we all started believing in something and expecting the best out of any situation. I’m sure that it would do us a world of good.