Episode #94 - Free-rider Friday May 2016

Ron’s Topics

Artificially Intelligent Lawyer “Ross” Has Been Hired By Its First Official Law Firm

More evidence for the premise of the book by Richard and Daniel Susskind, The Future of the Professions. Ross is built on IBM’s cognitive computer Watson.

Tax transparency: When less is more, The Economist, April 16th, 2016

Norway, Sweden, Finland puts everyone’s tax return online. Creates a conflict between transparency and privacy. Argument for: reduces bad behavior. Sunshine is the best disinfectant. For example, business owners in Norway declared 3% more income in 2001 because of the policy. Argument against: nosiness (“tax porn”), bullying kids because of their parent’s income, rich become the target of thieves and kidnappers.

When Norway stripped anonymity of searches, the number of them fell by 90%. We hold politicians to a higher standard, making the top ones disclose their returns. The Economist doesn’t think the benefits of this transparency outweigh the costs. Neither do Ron and Ed.

Envy at 30,000 feet: Resentment of first-class passengers can be a cause of air rage, The Economist, May 11, 2016

Passengers are more prone to misbehavior if they see other passengers having a better experience (3.8 times more likely to be unruly, to be precise). Katherine DeCelles, University of Tornonto and Michael Norton, Harvard, published this junk science study in the Proceedings of the National Academy of Sciences. They suggest Boeing, Airbus install middle entrances so coach passengers don’t have to see first-class being pampered. Grow the hell up.

Too much of a good thing: Profits are too high. America needs a giant dose of competition, The Economist, March 26, 2016

• Profits are at near-record highs relative to GDP

• In 2014, the top 500 listed firms made 45% of global profits

• They’ve become more focused; and have achieved some pricing power

• Market the size of USA, prices should be lower than they are (how does The Economist know this? USA is also richer)

• Companies earn 40% higher returns in USA than abroad

• Profits are suspiciously persistent

• Today, 80% chance of still being profitable 10 years later; it was a 50% chance in the 1990s

• Tax system encourages companies to park profits abroad

• The article does mention how regulations keep competitors out

• Abusing monopoly positions; lobbying (rent-seeking), Alphabet among largest, $17m spent last year on governmental lobbying)

• Microsoft making double profits now than during its antitrust suit

• 900-odd industries more concentrated since 1997

• Rate of small-company creation is at the lowest levels since 1970s

Reforms Suggested

• Modernizing antitrust

• Copyright and patent laws loosened

• Occupational licensing reforms

Crony capitalism and the spigot of government subsidies, April 28, 2016, Veronique de Rugy, senior research fellow at George Mason University

Elon Musk is worth $14.3 billion. He’s also a Welfare Queen. He used his profits from the sale of Zip2 (first online yellow pages) to found X.com, which merged with Confinity to become PayPal. He has received $4.9 billion in government support and subsidies. None of his three companies are yet profitable:

Tesla Motors. $1.3 billion subsidy from Nevada, while the US Department of Energy provides a $7500 federal tax credit, $2500 from CA, for each Tesla sold. The Model S sells for $80,000 to $115,000. Do buyers at this level really need a tax credit?

SolarCity has received $300 million in federal grants and tax incentives.

SpaceX received $20 million from Texas to open a facility there, in addition to $5.5 billion in government contracts from NASA and the Air Force. The ultimate goal of SpaceX is “enabling people to live on other planets.” Should the government be paying for this?

Ed’s Topics

Professor at GA Institute of Technology uses IBM’s Watson as a teaching assistant.

Bitcoin has reached a 52 week high, at approximately $480. (Now over $500. Click for current price.)

Sean hits his first home run over the fence, and the story is written by an app.

The Royals seize victory thanks to late double, drop the NTX Eagles 10-5

The Royals outlasted the NTX Eagles on Tuesday after four lead changes, squeaking out a 10-5 win.

Sean K racked up two RBIs on two hits for the Royals. He singled in the third inning and homered in the fourth inning.

The Royals jumped out to an early 1-0 lead in the top of the first. A triple by Jackson J, scoring Hudson Z started the inning off.

The Royals never surrendered the lead after the third inning, scoring four runs on a two-run double by Hudson and a groundout by Cody C.

The Royals increased their lead with four runs in the fourth. Nathan's single got things going, bringing home Pearson E. That was followed up by Colton W's single, plating Nathan F.

A one-run fifth inning helped bring the NTX Eagles within four. A steal of home by Jake sparked the NTX Eagles' rally. The Royals closed the game out when Nathan F got Cameron to strike out.

"Powered by Narrative Science and GameChanger Media. Copyright 2016. All rights reserved." Any reuse or republication of this story must include the preceding attribution. 

Apple is making a pivot in its R&D spending, project to reach $10 billion in 2016, a 30% increase over prior year (it spent $3 billion in 2012).

Virtual assistant at x.ai

Second Nexus website story: IBM researchers created a macro-molecule, could treat multiple types of viruses.

Episode #93 - Creating Customer Choices

A story

Parent A: “We are leaving 2 minutes

Parent B: “Would you rather leave now, or in 2 minutes?”

Humans are predisposed to idea of choices.

Why do car wash establishments have more sophisticated pricing than professional knowledge firms?

How you price more important than how much you price.

Sell insurance for things people don’t want, e.g., concierge medicine, dentists, termites, etc.

Sell Access-Level Agreements (Assurance) for things people want, e.g., hairstylists, lawyers (accessibility retainers), CPAs, IT firms—keep systems running.

Ed’s Sage white paper: Creating Access-Level Agreements. Download here.

Items to use to build pricing fences:

• Response time

• Meetings

• IRS Representation

“No Plan Level” puts a price on individual items, e.g., $500 per meeting, etc.

Black Card Level is by invitation only, and if your firm’s highest level of exclusivity.

The Seven Ts Model

1. Timing

2. Terms

3. Technology

4. Talent

5. Tailoring

6. Transference

7. Travel (out-of-pocket expenses)

Ad Agencies can use these additional fences

• Key elements of program

• Degree of customization

• Number of elements

• Number of revisions

• Degree of client help/involvement

• Data archiving

Example

CS3 Technology SERV Access Plan.

Episode #92 - Best Business Books - May 2016

Ron’s Books

Confessions of the Pricing Man: How Price Affects Everything, by Hermann Simon, 2015

Hermann Simon is the founder of pricing consulting firm Simon-Kucher & Partners in 1985, together with two of his doctoral students. With 30 offices in all major countries and revenue in excess of $250 million, his firm today is a global leader in price consulting.

Excerpts

“I confess that there may not always be a level playing field between the seller and the consumer. generally I think that the game is fair. The reason lies in one word: value. Customer satisfaction is the only way to maximize long-term profits.”

“Some people see 'profit' as the ugly side of capitalism. 'Maximize profit' is an inflammatory phrase which can send shivers down these people’s spines. The simple truth is that profit is the cost of survival. Making a sustainable profit is a matter of ‘to be or not to be.’ And price, whether you like it or not, is the most effective way to generate higher profits.”

“But I am not a fan of short-term profit maximization. My mission is to support companies in optimizing their prices to achieve sustainable long-term profitability.”

“Never run a business in which you have no influence on the prices you charge.”

“We received further support and inspiration Peter Drucker. ‘I am impressed by your emphasis on pricing,’ he told me during a visit to his home in Claremont, California, adding that it is the ‘most neglected area of marketing.'"

“Pricing intrigued Drucker from an economics and also from an ethical perspective. He understood profit to be the ‘cost of survival’ and sufficiently high prices to be a ‘means for survival.’

“Before his death in 2005, he provided a testimonial for Manage for Profit, Not for Market Share, a book which I co-wrote with two colleagues: ‘Market share and profitability have to be balanced and profitability has often been neglected. This book is therefore a greatly needed correction.’”

“Pricing is always a reflection of how people divide up value. We are constantly making decisions about whether something is worth our money, or trying to convince others to part with their money. That is the essence of pricing.”

“Managers tend to have fear of prices, especially when they need to increase them. Managers will keep their hands off the pricing lever if they have doubt, turning their attention to something more tangible and more certain: cost management.”

“Most important aspect of pricing. I answer with one word: ‘value.’ Only the subjective (perceived) value of the customer matters. The objective value of the product or other measures of value, such as the Marxian theory that value is defined by the human labor time invested, do not matter intrinsically. They matter only to the degree that the customer thinks they matter and is willing to a pay a price in return.”

“In Latin the word pretium means both price and value. Literally speaking, price and value are one and the same.”

“Behavioral economics does not yet offer a complete, unified theory. Test results which support behavioral economics have begun to face increasingly critical challenges. Most of the findings come from laboratory settings, should serve as a warning against throwing the idea of the ‘rational human’ completely overboard. Human beings are not as rational as classical economics claims, nor are they as irrational as some behavioral economists claim. This means that you should take both of these research traditions into account, but proceed with caution.”

Richard Wagoner, the former CEO of General Motors , said: “Fixed costs are extremely high in our industry. We realized that in a crisis we fare better with low prices than by reducing volume . After all, in contrast to some competitors, we still make money with this strategy.”

“Former Porsche CEO Wendelin Wiedeking represented the exact opposite end of the spectrum with this statement: “We have a policy of keeping prices stable to protect our brand and to prevent a drop in prices for used cars. When demand goes down, we reduce production volume but don’t lower our prices.” We always want to produce one car less than the market demands.”

“In a war, the atomic bomb and price are subject to the same limitation: both can only be used once. Overcapacity is the most frequent trigger for a price war.”

“Pricing belongs on the CEO ’s desk.”

“A 2012 study, which included 2,713 managers from over 50 countries and a large cross section of industries found for companies with strong CEO involvement: The pricing power was 35% higher.

"The success rate for implementing price increases was 18% higher. 26% more achieved higher margins after the price increases, which means that they were not just passing on higher costs to their customers. 30% had a special pricing department, which in turn had an additional positive effect on profits.”

One Disagreement

When Hermann writes: “Tighter antitrust regulation contributes to better price competition. It is one of the rare examples of government intervention which actually allows pricing mechanisms in markets to function more freely.”

I think this is highly contestable, based on the evidence of the damage that anti-trust laws have on enterprise, including the uncertainty the laws create.

Honorary Mention

Two other Simon-Kucher partners just published Monetizing Innovation: How Smart Companies Design the Product Around the Price, by Madhavan Ramanujam, Georg Tacke, 2016.

“Choose the right pricing and revenue models, because how you charge is often more important than how much you charge.”

“A bad monetization model can be worse than a bad price.” 

“72% of new products/services miss revenue/profit goals.”

Drucker’s Lost Art of Management: Peter Drucker’s Timeless Vision for Building Effective Organizations, by Joseph A. Maciariello and Karen E. Linkletter, 2011.

Maciariello is a professor of management, Karen is a historian.

Drukcer called management a “liberal art,” linking it to the humanities.

He called himself a social ecologist—creates and maintains a society of functioning organizations, anticipates discontinuities, provides for both continuity and change.

“Management is a practice rather than a science or a profession, though containing elements of both.”

Management’s only hope to be a moral force for right and good   is to ally itself with the liberal arts. The early business schools recognized that…they required education in the liberal arts.

This book sets out to explain what he meant—he didn’t define it clearly.

Management cannot be concerned solely with results and   performance

Management: “The art of getting things accomplished throug people”

Four topics putting management as a liberal art into practice:

1.    Federalism (Federalist Papers, USA’s lasting contribution to Western thought)

2.   The human dimension (natural rights theory; dignity)

3.   Leadership (responsibility, not rank or privilege) “assuming responsibility for getting the right things done.” Integrity of character is its essence. Also, succession.

4.   Social ecology

Organizations must provide: status, function, sense of community and purpose.

Liberal education instilled standards of conduct and character, knowledge, and mastery of a body of texts, a respect for societal values and standards, and an appreciation for knowledge and truth. It can be defined by what it’s not: vocational training.

In 1959, Ford and Carnegie foundation report: Higher Education for Business, concluded:

Business education lacked any cohesive curriculum, failed instill sense of professionalism and accountability, suffered a   serious absence of academic quality and content. 

E’ffing Debate!

Effectiveness is not a “batting average,” the number of successes over the number of attempts. Rather, effectiveness is a “slugging average,” actual contribution to the mission of the organization over potential contribution.

Ed’s Books

The Future of Management, by Gary Hamel, 2007. I know Ron profiled this a while back, but I wanted to have my say on it as well. 

Hamel's Innovation Stack

Some great questions

What's the "tomorrow problem" that you need to start working on today?

What is the frustrating "either/or" you'd like to turn into an "and"?

What is the espoused ideal you'd like to turn into an embedded capability?

What's the "can't do" that needs to become a "can do"?

Quotes

"If you wring all the slack out of a company, you'll wring out all the innovation as well."

"If you can't find enough people to work on your project, maybe it's not a good idea."

"At Gore, tasks can't be assigned, they can only be accepted."

From David Weinberger, "Our biggest undertaking as a species [the Internet] is working out splendidly, but only because we forgot to apply the theory that has guided us ever since the pyramids were built."

Follow-up book by Gary Hamel: What Matters Now: How to Win in a World of Relentless Change, Ferocious Competition, and Unstoppable Innovation, 2012.

Sterling’s Gold: Wit and Wisdom of an Ad Man, by Roger Sterling, 2010.

Quotes (as only Roger Sterling, aka John Slattery, can deliver them)

"I'll tell you what brilliance in advertising is: ninety-nine cents. Somebody thought of that."

"I don't know if anyone ever told you that half the time this business comes down to: 'I don't like that guy.'"

"It probably didn't help things that our billings crept up for no apparent reason. Eventually an accountant is going to read the mail."

"I'm being punished for making my job look easy."

"Big talent attracts big clients."

"4:30? Close enough."

"I told him to be himself. That was pretty mean, I guess."

"Mona had a dream once where I hit the dog with the car. She was mad at me all day, and I never hit the dog. We don't even have a dog."

"Believe me, somewhere in this business, this has happened before."

Book Recommendations from TSOE Listeners

Special thanks to Caleb and Lauri for the following book suggestions.

Caleb L. Jenkins (@CalebLJenkins): It’s Not Your Business: Kingdom-Centered Business in a Self-Centered World, by Gary Miller, 2015.

Lauri Jutila (@ljuti): Effective Apology: Mending Fences, Building Bridges, and Restoring Trust, by John Kador, 2009.

The Business of Belief: How the World’s Best Marketers,   Designers, Salespeople, Coaches, Fundraisers, Educators, Entrepreneurs and Other Leaders Get Us to Believe, by Tom Asacker, 2013.

The Prime Solution: Close the Value Gap, Increase Margins, and Win the Complex Sale, by Jeff Thull, 2016.

Infinite Possibility: Creating Customer Value on the Digital Frontier, by B. Joseph Pine and Kim C. Korn, 2011.

Other resources

Ed's session on strategy at Accountex in the UK.

Episode #91 - Interview with Colonel Rick Searfoss, Astronaut and Space Shuttle Commander

About Colonel Richard A. Searfoss

Expert speaker, consultant, and author of LIFTOFF: An Astronaut Commander’s Countdown for Purpose-Powered Leadership, Rick Searfoss speaks with authority and expertise born of exercising leadership in the most dynamic, challenging, and dangerous of settings. Coupling that real-world experience with a powerful and exciting stage presence, he has for over a decade been inspiring and enlightening audiences worldwide.  His speaking mission: “to share the leadership, execution excellence, teamwork, and innovation lessons of human space flight to empower organizations to achieve out-of-this-world results!” Colonel Searfoss is one of only a handful of people out of many thousands of hopefuls ever selected to be an astronaut. He piloted two space flights and commanded a third, the most complex space life sciences mission ever flown, STS-90 on space shuttle Columbia. Prior to becoming an astronaut Rick was a fighter pilot and test pilot in the U.S. Air Force, with over 6100 hours flying time in 84 different types of aircraft.  A distinguished graduate of the U.S. Air Force Fighter Weapons (Top Gun) School and the U.S. Naval Test Pilot School, he’s also held executive level positions in the aerospace industry. 

In addition to piloting two space flights, and commanding a third, he consults and is a test pilot on leading-edge aerospace projects, including serving as the Chief Judge for the $10 million Ansari X Prize for the first private reusable human spacecraft and test flying the world’s only liquid-fueled experimental rocket plane. Rick completed a bachelor of science degree in aeronautical engineering from the USAF Academy, a master of science degree in aeronautics from the California Institute of Technology on a National Science Foundation Fellowship, and USAF Squadron Officer School, Air Command and Staff College, and Air War College. His numerous awards include the Tactical Air Command F-111 Instructor Pilot of the Year, Air Force Meritorious Service Medal, Defense Superior Service Medal, NASA Exceptional Service Medal, NASA Outstanding Leadership Medal, Distinguished Flying Cross, and the Legion of Merit.

He was in a Volkwagen commercial, consulted on the Tom Cruise Sci-Fi movie, Oblivion. He also consulted and had a cameo appearance on the movie Green Lantern.

Colonel Rick Searfoss was the 301st person to go into space (out of 500), and the third from New Hampshire. His initial training began in 1990, 2yrs after the Challenger tragedy. He piloted STS-58 (Space Transportation System), Columbia and STS-76, Columbia, and was Commander of STS-90, Columbia. He’s flown 39 days in space, and as a test pilot has flown 84 different types of aircraft.

You can learn more about Rick at: www.Ricksearfoss.com, www.liftofftoleadership.com and www.astronautspeaker.com.

Questions from Segment 1

You were in a Volkswagen commercial. What was that like?

What’s the difference between a Pilot and a Commander on the Space Shuttle?

You’re a test pilot who’s flown 84 different types of aircraft. Did you fly any when you thought, “This is really not a good idea”?

Segment 2

Your book is Liftoff: An Astronaut Commander’s Countdown for Purpose-Powered Leadership, published in 2016, which is the first business book authored by an astronaut.

What was your primary motivation for writing the book?

You were inspired by Dr. Stephen Covey to write the book?

How do you distinguish between management and leadership?

I love your definition. “At its core: leadership simply influencing others for good,” and how it’s rooted in trust.

There’s a military saying: “The soldier is entitled to competent command.”

You have a model, the 4P Leadership Performance Balance based on 12 Key principles within four categories: Purpose, People, Perspective, and Program. We love how you start with Purpose. Why?

You write, “All airspeed and no direction just gets you lost!”

You’re 12th Principal is: Choose the Hard! When JFK issued his challenge to land a man on the moon, and return safely, by end of decade, our experience in space consisted of four flights, six orbits, and barely 10 people-hours.

The lesson for business is all profits are derived from risk.

Ed and I think After Action Reviews are the best learning tool ever devised. You write:

Mistakes are forgivable. Hiding them is not. The only way to enable learning from mistakes is to present them for dissection and correction.

The debriefing for a Space Shuttle flight was two weeks long, 8-10 hour days? The flight’s not over until after the debriefing.

Very few business use AARs. Why do you think?

Segment 3

You were Commander on STS-90 (Neurolab), which was the fourth longest STS mission. What was that like?

How well do you sleep in space?

What have you been doing since you left NASA?

Are you in favor of civilians in space?

Who do you think will make it to Mars first?

Segment 4

When you landed the Space Shuttle, you turned off AutoLand. What’s your view of autonomous cars and aviation? Will we ever completely replace the human involvement?

You paint a poignant picture in the book that during the pre-Launch preparations, you took five minutes to just pause and take in the enormity of the upcoming Mission. I know you did this as a Pilot on two prior Missions, but what was it like to do it as the Commander?

You flew F-111s in the Air Force during the early 1980s, during the Cold War, stationed in England. Then you ended up working with Russian Cosmonauts at the Mir Space after docking Atlantis. What was it like to work with former enemies?