The Art of the Gimmick

Thursday, November 8th, 2007

Diana Ransom looks at The Art of the Gimmick:

When a young couple getting married in Boston last November spotted rain, they weren’t upset a bit. That same day, Richard Berberian, owner of Elyse Fine Jewelers in Reading, Mass., where the couple purchased their engagement and wedding rings, was doing what he calls “the happy dance.”

Six months earlier, Berberian had started a sales promotion that called for a full refund of the price of a couple’s engagement and wedding rings if the National Weather Service at Boston’s Logan International Airport reported at least half an inch of precipitation on the couple’s wedding day.

To limit his risk, Berberian had sought out prize insurance, which took about six months to find. “It is very difficult to insure a program like this,” he says, largely because the payout hinges on nothing more than the weather. But from that one fateful day, the couple got back the $13,000 they paid for their rings and Berberian — who didn’t have to pay anything besides roughly $1,300 for the insurance premium — won an impressive amount of publicity, including a front-page story in the Boston Globe and numerous television reports. Thanks to the promotion, the four-year-old business now “sells three to four more engagement rings a month,” he says. “At about $11,000 to $14,000 a pop, that’s a lot of money.”

In SimCity, Carbon Counts

Thursday, November 8th, 2007

In SimCity, Carbon Counts:

Electronic Arts’ SimCity is one of the best-selling PC games of all time. Its obsessively detailed model of how urban centers evolve is so realistic that, along the way, it has become a teaching tool for urban planners. The latest version, SimCity Societies, due out on Nov. 15 for $49.95, includes global warming among the variables it uses to guide how players plan and manage cities.

For power, a player can opt for clean windmills or solar, which cost more and have limited output. Or they can go for coal plants, which are cheaper to build but pollute heavily and lower residents’ happiness. Having more cars and fewer buses boosts emissions, too.

Over time, rising CO2 levels can trigger big catastrophes, such as droughts or heat waves, as well as subtler shifts like increasing rates of illness.

None of that is too terribly different from older versions of the game, but this is a new twist:

Real-world oil giant BP sponsored the game’s energy systems. So when players build a renewable energy facility, these sport BP’s yellow-green sunflower logo. Coal plants do not.

Tangerines per Gallon

Thursday, November 8th, 2007

A few months back, Elizabeth Edwards talked about the importance of buying locally-produced foods and said that she would “probably never eat a tangerine again,” because of the carbon footprint of transporting the fruit to North Carolina.

I’ve discussed the localvore’s dilemma before, but David Foster goes so far as to calculate tangerines per gallon:

Tangerines weigh about 1/4 pound each. As near as I can tell, the tangerines consumed in the U.S. come mostly from Florida, California, and Spain. There are four possible ways for them to get to market: truck, train, ship, and air.

According to the Association of American Railroads, trains move freight with an average efficiency of 423 ton-miles per gallon. The AAR also puts railroad fuel efficiency at 3–4 times that of trucking. I’ll use 400 tmpg for rail, and 100 tmpg for truck.

The Edwards residence is near Chapel Hill, NC. Let’s move some tangerines to his local store — first, from Florida. For this simplistic analysis, assume the shipment originates in La Belle, FL, which is 763 miles away from Chapel Hill — I’ll round it up to 800. So we have 8 gallons of fuel used per ton of tangerines, or 1000 tangerines per gallon.

If the shipment goes by rail, the TPG number will be much higher. The rail haul will consume only 2 gallons of fuel per ton, but I’ll assume 100 miles of truck shipment to get the fruit to and from the railheads, adding 1 more gallon. We’re now up to more than 2600 tangerines per gallon.

For West Coast tangerines, I calculate 266 TPG by truck and 941 TPG by rail.

But what if the Edwards tangerines come from Spain? We’re now talking ship or plane, and the fuel consumption estimates for these modes are harder to pin down. Combining estimates from several sources, I feel we can conservatively estimate 500 ton-miles per gallon for sea transportation and 7 tmpg for air freight.

According to an analysis from 1998, virtually all U.S. tangerine imports from Spain come by sea. So let’s ship the Edwards tangerines from Valencia and bring them in at Wilmington, NC. This should be about 5000 miles, consuming 10 gallons per ton, and haul them 160 miles to Chapel Hill, for another 2 gallons. Result: 666 tangerines per gallon.

If the tangerines do go by air — which seems unlikely — then fuel consumption from Valencia to Charlotte will be about 714 gallons, with another gallon for trucking to Chapel Hill. Result: 11 tangerines per gallon,.

So, it seems likely to me that the Edwards family is getting somewhere between 400 and 1000 tangerines per gallon. (Truck from Florida, blended truck/rail from West Coast, or ship from Spain.) Worst case — air freight from Spain — they’re still using less than a tenth of a gallon per tangerine consumed.

It’s interesting to compare these results with the “local” case. Suppose that a miracle occurred and tangerines began to grow in North Carolina. Even then, though, it’s doubtful that there would be tangerine groves adjacent to the Edwards place. If the tangerines are raised by a farmer 60 miles away, and he brings 500 lb of them to market in a pickup truck getting 20 mpg, then he is using 3 gallons of fuel each way — 6 for the round trip — which equates to 333 tangerines per gallon. This is worse than truck from Florida, worse than rail from California, and worse than ship from Spain. Obviously, the numbers for the local alternative would improve — a lot — if we assume that the pickup truck is actually filled to capacity, or nearly so, but that’s not always easy to do under conditions of small-scale production and distribution.

Cloned Beef (and Pork and Milk): It’s What’s for Dinner

Tuesday, November 6th, 2007

Cloned Beef (and Pork and Milk): It’s What’s for Dinner:

The reason cloning makes economic sense isn’t that ranchers will sell the actual clones for food. The idea is to sell their offspring. Artificial insemination and semen-shipping have made breeding for optimum genetics a highly profitable business. The owner of a champion bull can charge top dollar for its breeding services or its descendants. Eventually, of course, that animal will get too old to reproduce. But if you clone it, you can keep that revenue stream open. Clones can be bred just like their progenitors, spreading those popular qualities further into the gene pool. “Part of the value of cloning is that you’re buying something with unique genetic potential. It’s almost like brand identity,” says John Lawrence, an extension livestock economist at Iowa State University. “In many regards it’s less risky, because you can say you have a proven animal.”

Today, it costs about $1,500 to raise a naturally conceived dairy heifer from conception to breeding age; it costs roughly $17,000 to clone a cow. The figures are about $200 versus $4,000 for hogs. (The price drops if you make multiple copies.) But with natural or assisted reproduction, roughly 5 to 10 percent of all females and 50 percent of all males bred for better genetics don’t inherit their parents’ best qualities and must be sold at a loss, as “salvage” animals. Cloning, on the other hand, almost guarantees the high- fidelity replication of desirable traits. So the clone of a champion bull has higher downstream breeding potential than, say, that bull’s brother. If the original bull was a good breeder, then the clone’s semen sells for more and its offspring are worth more. For hogs, the numbers add up fast: Through artificial insemination, one boar can impregnate 400 sows a year, yielding about 4,000 piglets. But if that boar was cloned from a proven superior male, its progeny will be worth about $6 more per piglet in “improved feed conversion, growth rate, survivability, and meat quality,” says Russell of ViaGen. “So a $3,000 investment in cloning can create $24,000 in added value per year.”

On Trusting Experts

Monday, November 5th, 2007

David Foster shares a story On Trusting Experts — and which experts to trust:

August 1, 1914. As Europe moved inexorably toward catastrophe, Kaiser Wilhelm II was getting cold feet at the prospect of a two-front war. When a telegram arrived suggesting that the war might be contained to a Germany-vs-Russia conflict, the Kaiser jumped at the opportunity.

The telegram was from Prince Lichnowsky, the German ambassador in London, reporting on a conversation with the British Foreign Secretary, Sir Edward Grey. As Lichnowsky interpreted Grey’s remarks, England would stay neutral — and promise to keep France neutral — if Germany would confine herself to attacking Russia and would promise not to attack France. (Which was a misinterpretation — but more on that later.)

Immediately, the Kaiser called in General von Moltke, the Chief of Staff, and gave him his new marching orders: turn around the troops destined for the attack in the west, and redirect them to the eastern front. Barbara Tuchman writes of Moltke’s reaction.

Aghast at the thought of his marvelous mobilization wrenched into reverse, Moltke refused point-blank. For ten years, first as assistant to Schlieffen, then as his successor, Moltke’s job had been planning for this day, The Day, Der Tag, for which all Germany’s energies were gathered, on which the march to final mastery of Europe would begin. It weighed upon him with an oppressive, almost unbearable responsibility…Now, on the climactic night of August 1, Moltke was in no mood for any more of the Kaiser’s meddling with serious military matters, or with meddling of any kind of the fixed arrangements. To turn around the deployment of a million men from west to east at the very moment of departure would have taken a more iron nerve than Moltke disposed of. He saw a vision of the deployment crumbling apart in confusion, supplies here, soldiers there, ammunition lost in the middle, companies without officers, divisions without staffs, and those 11,000 trains, each exquisitely scheduled to click over specified tacks at specified intervals of ten minutes, tangled in a grotesque ruin of the most perfectly planned military movement in history.

“Your majesty,” Moltke said to him now, “it cannot be done. The deployment of millions cannot be improvised…Those arrangements took a whole year of intricate labor to complete…and once settled, it cannot be altered.”

“Your uncle would have given me a different answer,” the Kaiser said to him bitterly.

It was not until after the war that General von Staab — Chief of the Railway Division and the man who would have actually been responsible for the logistics of the redirection — learned about this interchange between Moltke and the Kaiser. Incensed by the implied insult to the capabilities of his bureau, he wrote a book, including pages of detailed charts and graphs, proving that it could have been done.

So, what happened here? The Kaiser trusted his military expert, von Moltke — but the real expert in railway operations (and this was substantially a railway question) — disagreed. At the time of decision-making, von Staab’s personal opinion was never even solicited.

Clearly, what the Kaiser should have said when faced with Moltke’s opposition was “Tell von Staab to get his ass in here, and let’s talk about it.” (Or however a German Emperor would have phrased that thought.) Indeed, there was particular reason to do this, given that the Kaiser evidently had some serious concerns about Moltke — as evidenced by his passive-aggressive “your uncle would have given me a different answer” comment.

An executive, of course, must have confidence in his immediate subordinates, and trust them to have gotten the necessary information from their subordinates. Otherwise, it would be impossible to run anything. To continually demand information directly from people several layers down, using direct reports only as messenger boys rather than as evaluators and decision-makers, is destructive to any organization. But it is also bad to have an organizational culture in which any bypassing of the hierarchy — as in bringing von Staab directly into the conversation — is automatically viewed as undercutting someone’s authority (which is probably how Moltke would have viewed it.)

If you are an executive, then sooner or later you’re going to have to make decisions regarding matters about which you are not an expert, and indeed about which you may know very little. Make sure your decision-making process captures the knowledge of your von Staabs as well as your Moltkes. Be especially wary when dealing with plans that have been a long time in the making: their developers are unlikely to be very enthusiastic about changing them, however good the arguments for doing so.

Now, a few notes and caveats. Prince Lichnowsky, in his desire to avoid a catastrophic war, had apparently misinterpreted Edward Grey’s comments — what the foreign secretary had actually said was that he could guarantee Germany against attack by France if Germany would promise to attack neither France nor Russia. Yet even given this reality, von Moltke himself apparently later came to the conclusion that it would have been better to send the larger part of the army to the East, leaving only covering forces in the West, in an attempt to knock Russia out of the war in its early stages. Finally, was von Staab’s after-the-fact analysis really correct? It’s one thing to develop hypothetical train schedules in the peace and quiet of one’s study; it’s something else entirely to develop real train schedules in a compressed time window during a crisis. (But, presumably, in his analysis he attempted to consider the inevitable frictions involved in crisis-mode replanning.)

In any event, the Kaiser allowed himself to be put in a position where he made one of the most critical decisions of his life without the benefit of the deepest available expertise. Decison-makers of all types should learn from his mistake.

When you’ve read about how much effort went into wargaming the Schlieffen Plan, you can see why von Moltke would feel the way he did — but the wrong plan, wonderfully executed, can still be the wrong plan.

I really need to read The Guns of August.

An Interesting Test

Friday, November 2nd, 2007

David Foster looks at An Interesting Test:

In an old Heinlein SF novel, applicants to the Space Academy are required to take a variety of aptitude tests. One of these tests involves dropping beans into a bottle…with the eyes closed. Applicants are told that the test measures “spatial perception” or something along those lines — but it’s actually a test of honesty.

I was reminded of this scenario by an article titled For Love of the Game, which appeared in the 3/12 issue of Forbes. There’s an old test that was originally used by the military to find people with an aptitude for clerical positions. All you have to do look in a table for a four-digit number and circle it where it appears. It seems like it would be difficult for any literate person to fail at this. Yet this simplistic test turns out to have predictive power for career success across a wide range of fields, including those that have little or nothing to do with clerical ability.

The Bureau of Labor Statistics surveyed 12,700 people (ages 14-22) and then follwed them to see how well they were doing. The subjects were paid $50 to take several tests, including a traditional Army intelligence test and the coding-speed test described above. They had no particular incentive to do well on any of the tests.

Recent research by Carmit Segal of Harvard indicates that performance on the coding-speed test has significant predictive power for the individual’s income 20 years later. This is true even when holding IQ score constant. And for participants who never earned a college degree, the coding-speed measurement has more predictive power than does IQ score.

The explanation suggested by Carmit is that what is really being measured by the coding speed test is intrinsic motivation: how much effort will someone put into the performance of a task when the only reward is the task itself? Just like Heinlein’s bean-in-the-bottle test measures what someone will do when no one is watching, the coding-speed test as performed by BLS measures what someone will do when no one is paying or otherwise rewarding good performance.

Oil from a stone

Thursday, November 1st, 2007

Shell has patented a new method for wringing oil from a stone — from oil shale, that is:

Problem was, the prevailing production process — known as surface retorting — was dirty and inefficient. Federal subsidies masked the problems, encouraging companies to build businesses they never would have created on shareholders’ dimes. When oil prices collapsed, so did the economic rationale for shale oil. The day Exxon left town in 1982, turning some communities into ghost towns, is still remembered in northwestern Colorado as “Black Sunday.”

The basic problem with surface retorting was that shale had to be mined, transported, crushed and then cooked at 1,000 degrees Fahrenheit. Not only were there toxic waste byproducts, but the oil thus produced had to be purified and infused with hydrogen before it could be refined into gasoline and other products. Vinegar may be a physicist by training, but he thinks like an MBA, and to him such a labor- and energy-intensive process reeked of bad economics.

Wouldn’t it be better, he thought, if Shell could extract a liquid that could be pumped and pipelined instead of a solid that had to be mined and trucked? Upon visiting a Shell surface-retorting site for the first time in 1979, he came to a quick, life-changing conclusion: “Wow, we’re going to have to do this in situ.”

The term “in situ” is Latin for “in place.” In an engineering context, it means liquefying the oil shale while it is still underground. That is what Vinegar set out to do. The Eureka moment came in 1981. During a field experiment in Colorado, Vinegar and his colleagues set up camp on a patch of Shell-owned land where the oil shale was close to the surface. Then they drilled seven 20-foot wells within a 36-square-foot zone.

They inserted heating rods into six of the holes and positioned the seventh as a production well. “It was a very low-budget operation,” Vinegar chuckles. “The oil would drain into the production well, and every morning we used a fishing pole with a little bailer on the bottom to get it out.”

Most of the oil Vinegar and his colleagues collected was, in his estimation, “gunky.” However, Vinegar noticed that when temperatures in the ground were still comparatively low, the oil recovered was light and pure. “It was almost optically clear, and that fascinated me,” he says. “What was it that allowed us to make this beautiful-quality product early on but not later on?”
[...]
Vinegar and the Shell team of chemists, engineers and physicists eventually figured out why the oil they collected early in that 1981 field test was so light and clean and the later samples so dark and dirty. They found that a slower, lower-temperature process — 650 degrees Fahrenheit, versus the 1,000 degrees required in the retorting process — allows more of the hydrogen molecules that are liberated from the kerogen during heating to react with carbon compounds and form a better oil.

This was a crucial discovery, because one of the hallmarks of a light oil — the most valuable kind because it costs less to refine — is its elevated hydrogen content.

Best of all, Shell was able to replicate the lab results in several field tests; the most recent one, in 2005, yielded 1,700 barrels of light oil. In that test, carefully engineered heating rods were inserted several hundred feet into the ground in order to gradually raise the temperature of the oil shale to 650 degrees Fahrenheit. Now Shell had a proven technology that it believed could produce a barrel of oil for $30.

It also knew it could recover a lot more oil than surface retorting did, since the heating rods and wells reach the entire deposit, not just the oil shale close enough to the surface to be mined.

Education for Business

Thursday, November 1st, 2007

What is the proper education for business?

Michael Hammer, the renowned management consultant, says this: I often recall advice once offered to me by a senior executive at a major pharmaceutical firm, an Englishman with the advantage of a traditional public school education. “All one need learn,” he said, “is Latin and computer programming — Latin for communication and programming for thinking.” He wasn’t far off

It’s very unlikely that this executive ever writes any computer programs at work, and it’s even more unlikely that he uses any Latin in his job. So why did he say what he did, and why does Hammer agree with him?

Hammer argues that learning programming is a good way to develop thinking skills of a particular kind. “…computer programming is nothing but an exercise in systems thinking. Each line of software that you write will interact with each and every other line of software. Unless you develop some big-picture thinking capability, your program will never work. The marvelous thing about a cognitive capability is that it operates across domains; the thinking style that one needs to write and debug a substantial computer program is the same one needed for solving problems in a business process. Once the synapses are put in play, they’ll snap on anything.” Exposure to other kinds of engineering can also help develop these cognitive skills, in Hammer’s opinion: “The heart of an enginering education is not learning and applying equations but learning how to create large systems built from small components…once again, I am not concerned with the content of the discipline but with the cognitive style it requires and engenders. I like the old definition of education: what remains when you forget what you have been taught.”

Hammer goes on to argue that the conceptual skills developed by programming/engineering are only part of the mental set needed by today’s businesspeople; ‘They must know how to ask why…Once again, I would submit that critical thinking operates across domains. Once learned in one area it can be applied to virtually any other. To this end, I maintain there is no better preparation for our technological age than a classical education…It might seem odd to suggest that the works of Plato and Madison and Joyce prepare one for the twenty-first century, but they are constants in a world of change…Wrestling with questions of good and evil, of democracy and justice, of personal and communal responsibilities is a quest without end. But, having engaged in this struggle, one is better prepared to deal with the more mundane, but nonetheless challenging, issues of the workplace.”

Hammer’s (rather contrarian) recommendation for aspiring businesspeople is this–a double major in computer science and classics. For those who don’t find this combination particularly appealing, he suggests alternative double-major possibilities:

  • electrical engineering and philosophy
  • mechanical engineering and medieval history
  • aeronautics and theology

The general idea is one “hard” and one “soft” discipline. (I’m sure, though, that Hammer would be looking for humanities disciplines/programs which, while “soft” in the conventional sense, are taught in a highly-rigorous manner.)

Hammer goes so far as to say “If you aspire to a career in the business world, avoid an undergraduate major in business at all costs. You may learn some superficially useful skills, but not the fundamental capabilities needed for the long haul…There is plenty of time to develop expertise on the job or in a professional school.” This experise must include “An appreciation of the basics of business — the concepts of strategy, cost structure, market economics, cash flow, and capital utilization..”

I think Hammer’s argument is fundamentally sound: the student who pursues (for example) both an aeronautical engineering program and an intellectually-rigorous theology program is likely to develop conceptual skills that will serve him well in industries and jobs having nothing to do with either aviation or religion. When pursuing his first job out of school, however, he may well face a challenge in explaining to the hiring manager (and the HR people) why he is a better choice for the position than is the garden-variety undergraduate marketing major.

How Not To Do Market Research

Thursday, November 1st, 2007

David Foster explains How Not To Do Market Research:

At a used bookstore, I picked up a book called Rethinking Systems Analysis and Design, by Gerald Weinberg. It’s a pretty old book — 1982 — but contains much that is still of value — a lot of it with applicability beyond the information technology field.

In his discussion of how to analyze situations, Weinberg tells the story of a suburban commuter railroad. Several suburbanites had written the railroad asking for a minor change in the train schedule. They wanted to be able to go into town in mid-afternoon to spend the evening with spouses or friends. There was a train that already passed the station at 2:30 but did not stop — all they wanted was to have a scheduled stop added for their station. Here is the response they got:

Dear Committee: Than you for your interest in Central Railroad operations. We take seriously our commitment to providing responsive service…

In response to your petition, our customer service representative visited the Suburbantown station on three separate days, each time at 2:30 in the afternoon. Although he observed with great care, on none of the three occasions were there any passengers waiting for a southbound train.

We can only conclude that there is no real demand for a southbound stop at 2:30, and must therefore regretfully decline your petition.

This seems unbelievable, but Weinberg claims that it is actually true. And he has more stories along the same lines:

  1. A systems analyst in a consumer products company heard that some marketing reps in another building might need terminals to access the marketing database (this was before the days of readily-available PCs). He circulated a questionnaire with the question:
    How much use do you presently make of the marketing database?

    Since making use of the marketing database required a 6-block walk to another building, the usage was zero. The analyst concluded that no terminals for the reps was needed.

  2. Engineers at a computer manufacturing company were asked to improve a new version of the company’s CPU by adding an efficient method for subroutine calls. After two months, the engineers responded that they had studied a sample of existing programs, and hardly any of them used subroutines in situations where efficiency really mattered. The request was declined as “frivolous.”

Women in Science

Wednesday, October 31st, 2007

On the topic of Women in Science, Phil Greenspun notes that “Adjusted for IQ, quantitative skills, and working hours, jobs in science are the lowest paid in the United States.” Perhaps there are few women in academic science because they found better jobs:

The average trajectory for a successful scientist is the following:
  1. age 18-22: paying high tuition fees at an undergraduate college
  2. age 22-30: graduate school, possibly with a bit of work, living on a stipend of $1800 per month
  3. age 30-35: working as a post-doc for $30,000 to $35,000 per year
  4. age 36-43: professor at a good, but not great, university for $65,000 per year
  5. age 44: with young children at home (if lucky), fired by the university (“denied tenure” is the more polite term for the folks that universities discard), begins searching for a job in a market where employers primarily wish to hire folks in their early 30s

This is how things are likely to go for the smartest kid you sat next to in college. He got into Stanford for graduate school. He got a postdoc at MIT. His experiment worked out and he was therefore fortunate to land a job at University of California, Irvine. But at the end of the day, his research wasn’t quite interesting or topical enough that the university wanted to commit to paying him a salary for the rest of his life. He is now 44 years old, with a family to feed, and looking for job with a “second rate has-been” label on his forehead.

Don’t be fooled by sample bias, he notes, if you’re a young student at MIT, surrounded by Nobel-winning science professors.

For whom does academic science as a career make sense?

The picture so far is pretty bleak. The American academic scientist earns less than an airplane mechanic, has less job security than a drummer in a boy band, and works longer hours than a Bolivian silver miner. Roger W. Bowen, general secretary of the American Association of University Professors, in a March 2, 2006 discussion run by the Chronicle of Higher Education summarized the situation of the tenure lottery winners:
“The average full professor, someone who has been teaching for, say, fifteen years or longer, is making five times less than the average president at most institutions; works 60 – 70 hour weeks, uses holidays to do research, and tries desperately to find time to be a good spouse, father, mother, or partner. The life of the mind may seem cushy, but it is not.”

Does this make sense as a career for anyone? Absolutely! Just get out your atlas.

Imagine that you are a smart, but impoverished, young person in China. Your high IQ and hard work got you into one of the best undergraduate programs in China. The $1800 per month graduate stipend at University of Nebraska or University of Wisconsin will afford you a much higher standard of living than any job you could hope for in China. The desperate need for graduate student labor and lack of Americans who are interested in PhD programs in science and engineering means that you’ll have no trouble getting a visa. When you finish your degree, a small amount of paperwork will suffice to ensure your continued place in the legal American work force. Science may be one of the lowest paid fields for high IQ people in the U.S., but it pays a lot better than most jobs in China or India.

Read the whole thing.

The Harvard Indicator

Wednesday, October 31st, 2007

Investors are always looking for new, useful indicators to predict market performance. Behold The Harvard Indicator:

Many different indicators have been used in an effort to project future stock market directions — everything from interest rates to transportation volumes to the length of women’s skirts. Here’s a new one. Roy Soifer suggests that the collective career decisions of Harvard MBA graduates are a contrarian market indicator…that when the graduates are heading for Wall Street in droves, then the market is likely headed for a fall — whereas, when they are choosing jobs that aren’t stock-market-oriented, then the future of the market will be bright. Specifically, Soifer (who is himself a Harvard MBA) says his data implies that: when the percentage of Harvard MBA grads going into market-related jobs is under 10%, it’s a signal that stocks are a long-term buy…and when the number is over 30%, it’s a sign that the markets are overvalued and due for a fall. (The most recent number is 26 percent, at the very high end of “neutral” territory.)

Ask “Why” Five Times

Wednesday, October 31st, 2007

The Toyota Way by Jeffrey LikerOne tactic of The Toyota Way is to Ask “Why” Five Times:

The Japanese mantra “ask why five times” is by now pretty well known, I believe, in U.S. manufacturing companies. But “ask why five times” has value outside manufacturing, and indeed in nonbusiness organizations as well as businesses. For those who are interested, a brief summary of the concept, taking the form of a manufacturing example:

There’s a puddle of oil on the shop floor. One of the machines is leaking.

ACTION: Clean up the oil. But then ask…
WHY is there oil on the floor?

The machine has a bad gasket.

ACTION: Replace the gasket. But then ask..
WHY was the gasket bad?

Check out the condition of the gaskets on some other machines.
Looks like we’ve been buying inferior gaskets.

ACTION: Change the specifications so we don’t get any more of these. But also ask..
WHY did we decide to buy the gaskets that we did?

Uhh…they were cheap? Turns out the purchasing policy for supplies like this says “always buy the low bid.”

ACTION: Change the policy to give more weight to quality as well as price. But also ask…
WHY did the head of Purchasing ever approve a policy like this in the first place?

Maybe because his *incentive program* includes a big component for year-over-year reductions in supplies cost, with no measurement for downtime impact of bad items?

ACTION: Change the incentive program.
WHY did a one-sided incentive program like this get created and approved?

Turns out no one in Human Resources has any experience in incentive program design.

ACTION: Assign someone in HR to take some courses and do some reading in the field of incentive programs, how they go right, and how they can go wrong.

It may seem like common sense, but it’s not that easy to implement:

As you go up the levels of successive “why”s, the nature of the problems changes, and hence, the set of people who must be involved in resolving them changes. You can expect a machine operator to notice the oil on the floor, and perhaps to assess and replace the gasket, but it would be unreasonable to expect him to identify the problems in the incentive plan for the director of Purchasing. Hence, handoffs in some form need to occur between the successive levels, and it is at these handoff points that the thread of the problem is likely to be lost.

Quantity Has A Quality All Its Own

Wednesday, October 31st, 2007

Quantity Has A Quality All Its Own:

The ceramics teacher announced on opening day that he was dividing the class into two groups. All those on the left side of the studio, he said, would be graded solely on the quantity of work they produced, all those on the right solely on its quality. His procedure was simple: on the final day of class he would bring in his bathroom scales and weigh the work of the “quantity” group: fifty pound of pots rated an “A”, forty pounds a “B”, and so on. Those being graded on “quality”, however, needed to produce only one pot — albeit a perfect one — to get an “A”. Well, came grading time and a curious fact emerged: the works of highest quality were all produced by the group being graded for quantity. It seems that while the “quantity” group was busily churning out piles of work — and learning from their mistakes — the “quality” group had sat theorizing about perfection, and in the end had little more to show for their efforts than grandiose theories and a pile of dead clay.

The Innovator’s Solution

Tuesday, October 30th, 2007

David Foster reviews The Innovator’s Solution, which develops four major themes, “which are amplified using examples ranging from semiconductors to automobiles to milkshakes”:

  1. Disruptive innovations — those destined to change the structure of an industry — tend to attack from below. They usually first appear in a form that is in some ways inferior to the existing dominant technologies, and hence are unlikely to get the attention or respect of industry incumbents.
  2. In a venture dedicated to the introduction of a disruptive technology — whether a start-up business or a division of a larger company — early profitability is more important than early rapid growth. (This is a very contrarian opinion in some quarters.)
  3. When attractive profits disappear in a market as a result of commoditization, the opportunity to earn attractive profits will usually emerge at an adjacent stage of the value chain.
  4. In segmenting a market, the purpose for which the product is being bought (“circumstance,” in the terminology of the authors) is a more useful dimension than the attributes typically used, such as customer demographics or product features.

Read the whole review. The summary points only hint at what he has to say.

After Succeeding, Young Tycoons Try, Try Again

Tuesday, October 30th, 2007

After Succeeding, Young Tycoons Try, Try Again:

The Internet, a low-overhead medium with a global reach, has greatly accelerated the wealth creation phenomenon, producing a larger breed of multimillionaires even younger and richer than in the past.

They are happy to be wealthy, of course, but many of these baby-faced technology tycoons often seem indifferent to the buying power of their money, at least at this stage of their lives. Instead, nearly all of them have chosen to throw themselves back into a start-up, not so much because they want a spectacular new home or a personal jet — though many of them do — but because they are in a competition with themselves and one another.
[...]
Maximillian Rafael Levchin was born and raised in Kiev, Ukraine, a Jew living under Soviet rule for 16 years. As the Soviet Union was crumbling, the family moved to the United States and settled in Chicago. But the worst year of his life, he said, was not when he was growing up but after eBay bought PayPal.

He thought he would spend the time after the sale “exploring my inner self.” Instead, he spent the better part of 12 months “feeling worthless and stupid” and baffled by what he might do with the remainder of his life. He felt too young to retire or downshift a gear or two — and too restless to become a philanthropist.

“I enjoy sitting on nice beaches and hanging out with my girlfriend and playing with my dog, but that’s three hours a day,” Mr. Levchin said. “What about the remaining 18 hours I’m awake?”