Episode #140: Free-rider Friday - April 2017

Ed’s Topics

Bitcoin

Reaches high of $1,300, surpassing gold. Market cap is over $21 billion.

United Airlines

Possible new slogans:

• “Not enough seating, prepare for a beating”

•  “Drag and Drop”

• “We put the hospital in hospitality”

• “Board as a doctor, leave as a patient”

• “Our prices can't be beaten, but our passengers can” 

• “We have First Class, Business Class and No Class” 

• “We treat you like we treat your luggage” 

• “We beat the customer, not the competition” 

• “And you thought leg room was an issue” 

• “Where voluntary is mandatory” 

• “Fight or flight - We decide” 

• “Now offering one free carry off” 

• “Beating random customers since 2017” 

• “If our staff needs a seat, we’ll drag you out by your feet” 

• “A bloody good airline”

Air travel is not a right, but a privilege, governed by “The contract of carriage,” which is the same for all airlines.

If a flight is overbooked, Department of Transportation rules say for involuntary removals:

1. The airline must ask for volunteers

2. They must spell out your rights

3. They must rebook you, and pay if significantly delayed ($1350 maximum if more than 2 hours delayed, 4 hours for international)

4. Must cut a check on-site if you ask

5. If you voluntarily give up your seat, you’re on your own

If they bump you for any other reason (weather, flight cancelled, change to a smaller plane, weight-and-balance issues, etc.) these protections don’t apply.

Supersonic Jets?

Boom Technology wants to take you from New York to London in three hours.

Robots and Job Loss

Robots may change the sex industry but could they replace intimacy? | Guardian Sustainable Business | The Guardian

Ron’s Topics

File Under: No Such Thing as a Commodity

“Liquid gold,” The Economist, March 25, 2017

Water brand Svalbardi sells for $99!

The bottled water industry has grown for 9% per year, for years, reaching a market of $147 billion. “Premiumisation” brands are the fastest growing (defined as priced at greater than $1.30 a litre). Flavored water is 4% of the volume, and 15% of  the revenue.

Bottled water consumption surpassed sugary soft drinks in the USA in 2016.

Big Tooth

NPR Podcast, Planet Money: The Economy Explained: Episode 759: What’s It Worth To You? March 17, 2017

In the Obama White House there was a Council of Economic Advisors meeting, and they were all waiting for Jack Lew, the US Treasury Secretary to arrive.

One of the economists, Betsy Stevenon, asked the other economists: What’s the tooth fairy paying these days?

Turns out that Delta Dental has conducted a poll for the last 20 years, and $4.66 is the average paid out for a lost tooth. (Ed is cheap. His kids get $10 for the first tooth and $1 thereafter, an average of $1.46 a tooth.)

The astounding thing is that the growth has been over 10% per year!

Economists use “Income Elasticity of Demand” to explain spending. In other words, if you earn 10% more income, do you spend 10% more on each category of spending?

The theory is parents love to splurge on their kids, especially if they are only children.

Facile Externalities?

“Friction Lovers,” The Economist, April 1, 2017

Too much of a good thing can be bad, like travel leading to congestion.

Academic economists in Scandinavian countries term this situation a “Facile externality”: where less efficiency would actually be more efficient.

They claim that innovations which eliminate too much hassle for consumers could inflict a net harm on society.

Jerry Seinfeld: “I love Amazon 1-click ordering. Because if it takes two clicks, I don’t even want it anymore.”

The foregone benefits of hassle (slygge in Danish):

• Frictionlessness encourages bad habits

• Dominoes zero-click pizza buying, open app and in 10 seconds it orders your pizza

• Three out of five Britons say spend they more with the wave of plastic than cash

IKEA effect: people place extra value when devote own labor.

Market can’t solve this problem on it’s own, according to Danilov P. Rossi of DONUT, the UN’s Don’t Nudge—Tell office.

Only government can properly defend the cause of inefficiency.

The Economist magazine will lead by example. From now on a paper knife will be needed in which to separate the pages of your copy.

Isn’t this just a version of the labor theory of value?

Robot or Human Competition for Jobs?

“In Defense of Robots,” by Robert D. Atkinson, National Review, April 17, 2017

Atkinson is president of the Information Technology and Innovation Foundation.

There was a time in America when nearly all sectors—journalists, businesses, academics, etc.—advocated technologically powered productivity growth. Think Walt Disney.

Even socialists. Jack London said:

“Let us not destroy these wonderful machines that produce efficiently and cheaply. Let us control them. Let us profit by their efficiency and cheapness. Let us run them by ourselves. That, gentlemen, is socialism.”

Now theirs an inordinate fear of robots taking most of our jobs, leading Atkinson to coin this phenomenon Robophobia.

The three noteworthy studies predicting job losses:

1. Oxford: 47% jobs eliminated 20 years

2. McKinsey Global Institute: 45% jobs loss

3. PWC: 38% job losses by 2030

Atkinson demolishes these studies for faulty methodology.

It’s predicted, for example, that Long-haul truckers stand to lose 3.8 million jobs. But are these “great jobs”? Truckers have a seven times higher injury rate, and rank in the top five in suicide rates, earning an average annual income of $40,260, which is 17% below the national median.

Autonomous vehicles could save more than $1 trillion, and tens-of-thousands of lives. Do these benefits outweighs the costs imposed on truck drivers? Some good switch to becoming a truck mechanic, who make on average 15% more than drivers.

A lot of these fears suffer from the lump-of-labor fallacy, the idea that there are only so many jobs in the economy.

But there has always been a negative, not positive, relationship between productivity growth and unemployment. In other words, higher productivity growth meant lower unemployment.

Atkinson is against the Universal Basic Income, which he believes will lead to the very thing robophobes warn us technology will bring about: large-scale unemployment. He advocates tax-deferred Lifelong Learning Accounts, similar to the 401(k) retirement accounts.

Economist Donald Boudreaux recently wrote “Robots Substitute for Jobs, Not Human Creativity,” April 26, 2017, on the Foundation for Economic Education website.

He argues what’s more human-like than humans? From the 1950s, the USA workforce increased 160%, from 62 million to 160 million.

Yet the unemployment rate in 1950 was 5.3%; today it’s 4.5%. The labor force participation is 63% today but was 59.2% in 1950.

Believing robots take jobs is based on an incorrect presumption: that the number of productive tasks we can perform for each other is limited.

Boudreaux believes that number is practically unlimited.

So do we. As Ed added, "If your job gets taken over by a robot, it probably sucks!"

Episode #139: More VeraSage Laws

Our first show on VeraSage Laws, was Episode #53 on July 24, 2015. In that show, we discussed the five VeraSage Laws:

1. Baker’s Law: Bad customers drive out good customers

2. Kless’ First Law - He who liveth by the discount, shall ye also perish by the discount.

3. Kless’ Second Law - All measurements are judgments in disguise.

4. Baker’s Axiom: Ideas are always and everywhere more important than their execution.

5. VeraSage adoption of the Second Law of medicine—Prescription before diagnosis is malpractice.

Five More VeraSage Laws

Drucker’s Law of Inversion: Marketing and selling are not complementary, but adversarial. The book by William A. Cohen, A Class with Drucker, Peter Drucker’s first Ph.D. student, is the first place Ron read this thought from Drucker.

William’s Axiom: The default purpose of marketing is not to increase sales, but profits.

Ike’s First Law of Project Management: Plans are worthless, planning is essential.

Bowman’s Law: Hourly billing requires a calculator. Value Pricing requires courage.

Morris’ Postualte: What if Disney entered your industry? 

Episode #138: Das Intellectual Kapital

“The philosophers have only interpreted the world invarious ways. The point however is to change it.” –Inscription on Karl Marx’s tomb

“We were among the last to understand that in the age of information science the most valuable asset is knowledge, springing from human imagination and creativity. We will paying for our mistake for many years to come.” –Mikhail Gorbachev

Intellectual Capital: knowledge that can be converted into profits.

1. Human (80% of the developed world’s wealth, according to The World Bank)

2. Structural

3. Social (relationship)

At the societal level, knowledge can grow even when profits decline.

There’s no such thing as a natural resource—except the mind of man.

According to George Gilder, from his book Knowledge and Power:

• Wealth = Knowledge

• Learning = Growth

You could add to the middle of that syllogism: Entrepreneurship = Learning.

The following is an excerpt from Ron Baker’s book, Measure What Matters to Customers: Using Key Predictive Indicators.

Human Capital

In a few hundred years, when the history of our time is written from a long-term perspective, it is likely that the most important event those historians will see is not technology, not the Internet, not e-commerce. It is an unprecedented change in the human condition. For the first time—literally—substantial and rapidly growing numbers of people have choices. For the first time, they will have to manage themselves.

And society is totally unprepared for it. —Peter Drucker, “Managing Knowledge Means Managing Oneself,” 2000

The term human capital was first used by Nobel Prize–winning economist Theodore W. Schultz in a 1961 article in American Economic Review.

Human capital is like the dark matter of the cosmos: we know it’s out there but we can’t measure it. Once again, Peter Drucker was at the forefront of thought when he coined both the terms knowledge society and knowledge worker, in 1961, and later expanded on this new phenomenon in his 1968 book, The Age of Discontinuity.

Today, knowledge workers themselves own the firm’s means of production—in their heads.

Knowledge Workers Are Volunteers

In today’s capitalist society, labor trumps capital as the chief source of all wealth. Your team members don’t just contribute work, but also knowledge to the firm—they are knowledge workers in the purest sense.

Knowledge workers own the means of production.

In a factory, the worker serves the system; in a knowledge environment, the system should serve the worker.

Knowledge work can only be designed by the knowledge worker, not for them. Unlike work on an assembly line, knowledge work is not defined by quantity but by quality.

It is also not defined by its costs, but by its results.

Thinking in terms of human capital investors lends dignity and respect to the value of each person. The word “human” comes from the Latin Hominem, for man, and the word “capital” from the Latin caput, meaning head.

All capital ultimately springs from the mind. In a strict sense, a company’s knowledge is created only by individuals—albeit some are outside of the firm’s employ—and thus no knowledge can be created without people.

Moreover, the average knowledge worker today will outlive his or her employer, with an average productive work life of approximately 50 years, compared to the average organizational life of 30.

This has tilted the balance of power to the knowledge worker, as Drucker pointed out:

In the knowledge society, the most probable assumption for organizations—and certainly the assumption on which they have to conduct their affairs—is that they need knowledge workers far more than knowledge workers need them.

Yet companies do not seem to understand the worth of their people. They treat them as if they were assets—or equally offensive, resources—rather than as investors of human capital who own their own—hence the firm’s—means of production.

And like most investors, they will go where they can earn a fair economic return—measured in wages, fringe benefits, and other pecuniary rewards—as well as where they are well treated and respected, the psychological return.

Labeling your people as assets is demeaning. Stalin used to say the same thing—and acted on it. People deserve more respect than a phone system or computer.

But labeling employees resources—from the Latin resurgere, “to rise again”—is even worse, as if people were oil or timber to be harvested when you run out.

There is a Chinese proverb that teaches the beginning of wisdom is to call things by their right names.

Mind Over Matter: Why Intellectual Capital is the Chief Source of Wealth

$60.01

By Ronald J. Baker

Buy on Amazon

Your people are actually volunteers, since whether or not they return to work on any given day is completely based on their own volition. Consider volunteer. It’s usually based on a desire to contribute to something larger than themselves. They work hard—some would say harder than at their jobs—for these organizations because they are dedicated to the cause and they have the passion, the desire, and the dream to make a difference in the lives of others. All for zero pay. Why?

I am not suggesting freedom for people “to do their own thing”; that is not freedom, it is license. The flip side of freedom is responsibility. Holding people accountable for the results they achieve, hardly a prescription for anarchy and chaos. When leaders feel they need to tightly control a knowledge worker, they have made a hiring mistake.

There is no better way to demoralize knowledge workers than to have them perform duties that interfere with the tasks they are qualified to do. In all probability, the best way to increase the effectiveness of most knowledge workers is by removing various tasks that distract them from their core specializations. We do not want surgeons piercing ears or nurses spending half of their time completing paperwork (a common complaint).

Far Fewer Knowledge Workers Than We Think

Dan Morris has not let me down. He thinks I’m wrong about most professional firms being filled with knowledge workers; he believes the majority of them are more akin to factory workers in the days of Taylor. Now I know this is a heretical view, but Dan has assembled a very powerful argument to support his assertion. He does not deny professionals have the potential to be knowledge workers. His argument is they are not largely because of the incentives and structures of the firms in which they operate, which function more like sweatshops of yore.

Stephen Covey writes about exactly this in his latest book, The 8th Habit: From Effectiveness to Greatness: “… It’s the leadership beliefs and style of the manager, not the nature of the job or economic era, that defines whether a person is a knowledge worker or not. If he is not perceived as a knowledge worker, that is, if a janitor is not seen as the local expert on janitorial work, then he is a manual worker and not a knowledge worker.”

I do not agree with this definition in its entirety. The major determinant of knowledge workers is that they own the means of production, and they apply knowledge to knowledge to create value. Covey’s requirement of the leadership beliefs and style of management may be necessary conditions, but they are not sufficient, in and of themselves, to define knowledge work.

In the old days, one took their coffee to the office. With Starbucks and knowledge workers, we now take our office to the coffee.

Most professional service firms to measure their team members, they all come from the Industrial Revolution’s command-and-control hierarchies (realization and utilization rates, billable hour quotas, etc).

Dan further supports his argument by stating that leaders of knowledge workers:

• Don’t impose billable hour quotas.

• Understand knowledge workers are paid for ideas, not hours, like union employees.

• Allow at least 15 percent of team member time for innovation and creating better ways to add value to customers. (This certainly destroys productivity under the old metrics.)

• Understand that judgments and discernment are far more important than measurements in assessing performance.

• Are focused on outputs, results, and value, not inputs, efforts, activities, and costs.

• Don’t require timesheets that account for every 10 minutes of their day.

• Trust their workers to do the right thing for the firm and its customers.

• Recognize that individuals have value, not jobs.

• Allow their workers to monetize the value of their output, through stock options or other incentives that share the wealth created by minds, not machines.

• Conduct AARs and other ways to bank their IC

• Select workers who are passionate and self-motivated and don’t need constant supervision.

The purchase of Pixar by Disney, on January 24, 2006, for $7.4 billion in Disney stock. Disney will have to respect Pixar’s culture and continue to let it make quality movies at its own pace, in its own way.

Otherwise, if Pixar’s creative talent leaves, “Disney just purchased the most expensive computers ever sold,” according to Lawrence Haverty, a fund manager at Gabelli Asset Management.

It remains to be seen whether Disney can learn from Steve Jobs’ philosophy: “You cannot mandate productivity, you must provide the tools to let people become their best.”

Knowledge workers cannot be told how to do their job, since many understand the job at hand better than their bosses. They cannot be held accountable for results if their methods are micromanaged.

It is obvious executives who are responsible for knowledge workers are going to have to become much more comfortable with intuition, judgment, and discernment over measurements. You simply cannot manage people by numbers.

Knowledge Workers of the World Unite!

It is time for the firms of the future to remove the sword of Damocles—objective measurements hanging over the head of their workers—and unleash them from a theory no longer applicable to the modern intellectual capital economy.

It requires leadership and vision. It requires knowing you are doing the right thing, not just doing things right. It requires focusing the company on the external results it creates for customers and simultaneously building the type of organization people are proud to be a part of and invest their intellectual capital in. It requires an attitude of experimentation, not simply doing things because that is the way it has always been done. It requires less measurement and more trust.

To paraphrase from the last lines in Karl Marx’s The Communist Manifesto: “Knowledge workers of all countries, unite! You have nothing to lose but your timesheets.”

Why Knowledge Grows

Why Information Grows: The Evolution of Order, from Atoms to Economies

$11.23

By Cesar Hidalgo

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We highly recommend the 2015 book by statistical physicist Cesar Hidalgo, Why Information Grows: The Evolution of Order, from Atoms to Economies.

Economists describe the economy by factors of production, such as land, labor, and capital

Natural scientists use: energy, matter, and information. These two visions are not incompatible

Hidalgo writes that information is physical, in that it’s always physically embodied; it’s not a thing; it’s an arrangement of physical things.

He says the act of giving birth is, in essence, time travel: from the ancientness of her mother’s womb (100,000 years ago babies experienced the same environment) to the modernity of 21st century society.

The difference between the worlds not in the physicality of matter but in the way in which matter is arranged.

Hildalgo distinguishes between knowledge and knowhow:

Knowledge involves relationships between entities, which allows us to predict outcomes of events without having to act them out (tobacco use is bad without having to use it ourselves).

Knowhow is the capacity to perform actions, which is tacit (walk, ride a bike, etc.).

Both are highly constrained, as they are each embodied in human beings.

If you crash a car into a wall: the value lost is not in the car’s atoms but in the way they were arranged.

Eating apples: they existed first in the world, then in our heads.

Apple (computers): they existed first in someone’s head, then in the world.

Both embody info, but Apple is crystals of imagination.

Making crystals of imagination requires enormous amount of knowledge and knowhow.

The maximum amount of knowledge and knowhow a human can accumulate Hidalgo’s calls a personbyte.

When products require more personbytes than any one person can possess, teams and organizations are formed, and they’re limited to a firmbyte.

Cesar did an interview with Russ Roberts on EconTalk, which you can listen to here.

Episode #137: Earning Our Mouse Ears: Disney’s Approach to Customer Loyalty

In September 1997, Ron attended the Disney Institute’s Professional Development program, The Disney Approach to Customer Loyalty: Creating Service that Keeps Your Customers Coming Back.

He wrote a three-part series of articles on his experience, and what he learned, which can be accessed on his LinkedIn Influencer blog page, at:

• Earning My Mouse Ears, Part I

• Earning My Mouse Ears, Part II

• Earning My Mouse Ears, Part III

Disney U: How Disney University Develops the World's Most Engaged, Loyal, and Customer-Centric Employees (Business Books)

$15.61

By Doug Lipp

Buy on Amazon

For historical information on Disney University, we drew from the book by Doug Lipp, Disney University: How Disney University Develops the World’sMost Engaged, Loyal, and Customer-Centric Employees (2013).

Van France founded Disney University, which is part of the HR division of Disney, in 1962, seven years after opening Disneyland (the Disney Institute was launched in 1986 and open to the public).

Disney U is the “conscience of the organizational culture,” and Van was instrumental in changing the language: On stage/backstage, Costumes (not uniforms), Audience (not crowds), Theme (not amusement) park, good/bad show.

He wrote a memorandum on September 21, 1962 that challenged Disney’s executives and Cast Members to up their games:

Disneyland will never be completed. We’ve certainly lived up to that promise.

But what about the people who operate it? Are we growing with the show or just getting older?

The trouble with people is that we get hardening of the  mental arteries, cirrhosis of the enthusiasm, and arthritis of the imagination, along with chronic and sometimes acute allergies to supervision, subordinates, the whole darned system.

Is it possible that what we have gained through experience, we have lost through habit, and that what we have gained through organization, we have lost in enthusiasm?

He believed “training is not a car wash” that you simply process employees through.

Ed and I prefer the word “education” instead of “training,” mostly because animals are trained while human beings are educated.

Our late colleague, Paul O’Byrne, used to drive the distinction between these two words home by using a question that you’ll never forget: Would you rather your 13-year-old daughter receive sex training or sex education?

Disney’s Park Operation Priorities are as follows:

1. Safety

2. Courtesy

3. Show

4. Capacity/Efficiency—the first 3 ensure this one is sustainable

Notice that efficiency is last, while the first three all deal with effectiveness.

Van also believed that it was as much about attitude as budgets; money may be tight, but creativity is free; and that budgets are the coward’s way out of any problem.

Van’s Model for educational programs: Make it simple, not simplistic; make it enjoyable; design experiential activities that make it memorable.

Be sure to check out our show (#49) with former Disney Executive Lee Cockerell, who was Executive Vice President of Operations for the Walt Disney World Resort for 10 years.

Other books recommend’s on Disney:

Window on Main Street: 35 Years of Creating Happiness at Disneyland, Van Arsdale France, founder of Disney University

Disney University, Doug Lipp

Think Out of the Box, Mike Vance, former Dean of Disney University

Imagineering Way, The Imagineers