David Maister has posted a commencement address delivered by Stephen C. Ellis, the managing partner of a successful mid-sized law firm.  While he’s focused on the law (the address was at Case Western’s law school), it’s great advice for any professional, and I’m circulating it within my own firm and clients.  He has some great nuggets in there, including this interesting assessment of why the law can be such a miserable profession today:

The fact is our profession has become increasingly unhappy over the past couple of decades. I am convinced the vast majority of that unhappiness derives from a singleseemingly innocuous event in the late 1980’s: The American Lawyer magazine began publishing the AM LAW 100, and listed the profits per partner of the 100 largest firms. Virtually all of the firms in this country immediately bought in to that statistic as the only credible measure of success. The game was on - we lawyers would now take our measure almost entirely from money, at least in terms of what was publicly discussed. Without question, integrity, service and professionalism were important, but how we measured ourselves was money.

There’s also this great advice for aspiring lawyers:

If you’ve decided to become a lawyer solely to make money if to you it’s simply a job I fear you’ll hate it. As a career and a calling it’s great, and unbelievably interesting, but as simply a job, it’s way too hard and stressful. It’s the people, the pace and the endless puzzles of the law that make being a lawyer fulfilling. If you want tons of money for working twenty hours a day and nausea-inducing stress, Wall Street investment banking may be just the thing . In that business the grand old men are burnt out at 45.

I’ll frequently refer to investment banking as selling your youth - they pay you a fortune, but you spend the time in you have in your 20s and 30s working, and for many, large law firms have taken on the same climate.  But the people who don’t love it and just want the money won’t be able to work as hard or effectively as those who are passionate about their field, and subsequently, will never grasp the same rewards.

Categories: Business and Economics, Careers, Law
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American Express recently sent me an e-mail with this offer:

From June 2-12, 2008, there will be one U.S. destination on sale each weekday, with some packages retailing below $3,500. Once on sale, the price of each package drops every 20 minutes. So when the price seems right, you better grab yours before it’s gone. Visit the website now to check out in-depth trip details and photos, and to sign up to receive an e-mail reminder for when the trips you want go on sale.

It looks like they’re selling the vacation packages using an Open Descending Bid Auction, also known as a Dutch Auction.  If we think back to our Auction Theory, this should give us the same result as a Sealed-Bid First Price auction, but American Express has an excellent opportunity to test whether or not that holds in a real world environment.  From a behavioral perspective, in the real world and not a laboratory, will bidders react the same way in both situations?  My hunch is no, but I don’t have data to back it up - could my readers who still have unfettered access to academic journals find some?

Dutch Auctions are currently used by the Federal Reserve Bank of New York, Dutch Flower Merchants, and a variant was used for Google’s original IPO.

Categories: Behavioral Economics, Business and Economics, Incentive Centered Design, Information Economics, Matching Mechanisms, Travel
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If you offer free nights and weekends, and then you offer anytime minutes, aren’t those just daytime minutes with a different name?  Just a thought.

Categories: Behavioral Economics, Business and Economics, Technology
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The blogosphere is no longer the cool and edgy place to publish, where maverick innovators shatter the world with their out of the box thinking.  The establishment has joined the party, with the director of the Congressional Budget Office - the Bureaucrats Bureaucracy - starting his official blog.

Via MR.

Categories: Business and Economics, Social Software, Technology
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Joel Spolsky just posted three parts (1,2,3) of a speech he gave at Yale in which he warns students to avoid corporate IT:

Now, at a product company, for example, if you’re a software developer working on a software product or even an online product like Google or Facebook, the better you make the product, the better it sells. The key point about in-house development is that once it’s “good enough,” you stop.

Spolsky is 100% right about corporate IT organizations - they are crappy places to work. You don’t get to work on fun projects, you’re disconnected from the business, you’re stuck making things quickly rather than high-quality, and everyone on the business-line hates you, to the point where they keep farming out your job to consultants like Accenture, Deloitte, and IBM.

But the reason IT is miserable is it’s own fault - in house IT is, for the most part, a monopoly, and it’s going to be just as miserable as working at any other monopoly. You don’t have to worry about what your internal customer needs, because they can’t go someplace else (you don’t run competing IT shops). You don’t have to run efficiently because there aren’t market pressures. For every complaint from someone in IT that their creative freedom is restricted, there’s a complaint on the business side for the problems that crop up when developers decide they want to play - for instance every business application needs to have it’s own authentication, with it’s own look and feel, and it’s own user database. Kerberos was invented how long ago? If you’re developing a product and you make your users sign-in a different way to use different areas of your product, creative destruction will take care of you pretty quickly, but when you’re in the monopoly that is corporate IT, the users don’t have anywhere else to go.

And what of the consultants that IT hates so much, who can charge $300 an hour to have a 22 year-old with an English degree and a crash course in .Net write applications for you? They do something corporate IT isn’t very good at - they spend most of their time figuring out what the biggest problem is, and then they develop an application that solves it. In the meantime, corporate IT has an amorphous idea of what the business is and starts developing applications that they think might be relevant. That’s how monopolies work - they push products onto the market as they develop them, without regards to customer needs. Customers, who don’t have a choice, take what they can get.

There are other structural forces that make corporate IT miserable. For instance, maintenance and new development usually come out of separate budgets, so developers have little incentive to make an efficient product that is cost effective to maintain - that’s somebody else’s problem. Because once a project ends they either have to find a new one or move into maintaining the code they wrote, they actually have a perverse incentive to write bad code that’s difficult to maintain, modify, and interact with. The best way to build job security is to invent a role nobody else can do. If you’re looking for anecdotal evidence, just look at the way the owners of legacy applications fight any attempt to modernize.

If you’re developing a product, any new feature you add provides value to the customer, that’s why it’s valued. Great companies value IT (and other support functions like HR) because they drive value to the bottom line. In fact, great companies are usually built on great people and great technology. When done right, IT contributes straight to the bottom line, and IT professionals are valuable parts of the business team.

In the end, the problems with corporate IT are based around the same issue - there is no accountability to the customer. That’s the root of line-managers’ complaints about IT and it drives into most of the problems programmers feel when working in corporate IT. Solve it, and all of a sudden IT becomes a great place to work, and a valued part of the team.

Categories: Business and Economics, Customer Engagement, Incentive Centered Design, Information Economics, Managing, Technology
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I’m a consultant, which means I consultant, then I count my benjamins, and then I network with the CEOs

From the first webisode of Dell’s web-series The IT Room.

Categories: Business and Economics, Managing, Technology
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The Wall Street Journal has a front page article on transplant matching mechanisms along with this cool diagram. It also covers the debate between economists over whether markets or trading cycles are the most efficient and morally palatable method to get the right kidneys to the right people.

Via MR

Categories: Behavioral Economics, Business and Economics, Distribution, Incentive Centered Design, Matching Mechanisms
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It used to be macho to go for it on the 4th down, now it’s what scientists tell you to do:

You don’t have to be particularly interested in sports to find Romer’s conclusion intriguing: His hunch about human behavior in general was that although people say they have a certain goal and are willing to do everything they can to achieve it, their actual behavior regularly departs from the optimal path to reach that goal.

From this Washington Post article.

Categories: Behavioral Economics, Business and Economics, Strategy
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Other answers to the question “What is your formula? Your Equation? Your Algorithm?” From the Edge World Question Center.

Categories: Business and Economics, Careers, Equation of the Week
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My American Express card has chronic trouble with its magnetic stripe, especially at Walgreens stores. The other day, while making a purchase at a busy Walgreens, my card was having the same trouble. I expected the cashier to ask if I had a different card, or cash, or to manually enter the number on the card. Instead, she took a plastic bag, wrapped it around the card, and slid it through the machine. The card ran right through. I told the clerk it was a pretty cool trick, and she replied that a customer taught it to them.

The plastic bag around the credit card is a great trick, but Walgreens didn’t think of it. It’s not in their employee handbook, and it likely won’t come up at a staff meeting. Nobody at the Walgreens I went to is going to tell it to people at other stores, and Walgreens corporate isn’t going to submit a flier about it. It’s likely that nobody at a manager meeting is going to bring it up, and nobody will tell it to a district manager to spread to other stores. It’s just a trick that the clerks in this store know. Except that the clerks didn’t think of it themselves - they found it from a customer. And customers are the people who will spread it, because despite all the hype around knowledge-management and information sharing, in industries with separated business units with high customer touch points (i.e. retail, hospitality), your customers are still your best communication tool.

Whenever my American Express card won’t scan again, I’m not going to reach for another card. I’m going to ask for a plastic bag, and I’m going to teach a new store the same trick. Customers share information for you all the time. Store managers get suggestions about what another store is doing well, or something they’ve tried somewhere. Customers create a network outside your organization that you have no control over, that you never see, and that you interact with at random times. But by proactively communicating with your customers, you don’t just engage them, you create a human network that continuously improves your business.

Categories: Business and Economics, Customer Engagement, Social Software, Users as Partners
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The best way to land a job or promotion is to work for free. It seems counter-intuitive, because we usually try to find new jobs or earn promotions to make more money, and working for free means not making any money (and has an opportunity cost), but working for free solves one of the biggest problem in the employment process: determining whether or not a candidate really is a good fit for the new role.

Most job seekers say the same thing “I’m a hard worker, I’m talented, and I’m motivated.” Of course, since everybody is saying it, managers have no way of knowing if it’s really the case. For most jobs, they can look at your past history and see if you’ve done the job successfully someplace else, but if you’re new to the job market, new to the industry, or looking for a promotion, you don’t have a history there. The manager is left with nothing but your word, and quite frankly, that isn’t worth much.

When you work for free, you show two things. First, you build a record of doing the job successfully. Second, you demonstrate that you’ve got a passion for what you’re doing. If you’re willing to work hard for no money, imagine what you’d do if you got paid for it. Employers are desperate for people passionate people who can do the job, and when they hire you, they’re usually taking a risk on whether or not you’re really as great as you say you are. The more you can prove it, the more likely an employer is to hire you and pay you a lot.

So how does this work for promotions? If you’re already in a job and you want a promotion, you could go up to your boss and explain that you’ve been a very successful worker, how you’ve been at the company a long time, and blabber about how great you are at your job. If your boss is smart, they’ll shoot right back and say “I know you’re great at this job, but that doesn’t mean you’d be great at the job we’re promoting you to.” A promotion usually requires added responsibility, and if it’s to management, a different set of skills. Instead, just start taking on extra responsibility. Take on leadership roles on projects, succeed, and then take on more. Don’t do it so much they start to take advantage of you, because at some point, you’re going to go to your boss and say “I’ve been doing the work of a manger for the past few months, and doing a great job, I think I’m ready to become one.” Even if they disagree, you now have proof that you can take to another company that you can do the work.

This isn’t just speculation that flies in the face of conventional wisdom. Every job that I’ve ever held, whether as a computer programmer, consultant, or web designer, was tied to some activity I had previously done free of charge for friends, family, non-profits, and myself.

While at a conference in Seattle last year, I saw a presentation by a woman who handled marketing and promotions for video games - a dream job.  While in high school, she started writing a music newsletter, with opinions about the industry, stories about local bands, and reviews of CDs.  She’d print off copies, take them to music stores, and leave them there for shoppers to look at.  Eventually, someone in the music industry found it, liked what she saw, and hired the presenter for a dream job in the music biz, from which she transitioned later to video games.  Through the newsletter, she demonstrated not only that she could write, but that she had a passion for the work.  It’s something that employers love, but that’s hard to screen for in interviews.  If you do the work for free, you prove both right off the bat.

If you only do exactly the work you get paid to do, you’re never going to grow.  Nobody is going to take on your risk for you, you need to do it yourself.  As long as you think of it as an investment in your future, and manage it accordingly, working for free can bring massive returns.

Categories: Business and Economics, Careers, Information Asymmetries
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Arnold Kling, writing about Electronic Medical Records, says:

I spent much of my career in business, and much of my focus was on use of information technology (IT). Among the lessons I learned were.

1. Within a company, every business area gets the IT it deserves. Chaotic, haphazard business areas get lousy IT (and blame the IT department). Organized, well-run business areas get great IT.

2. Data cannot be maintained unless there is clarity of ownership. It must be clear who is responsible for creating, maintaining, updating, and deleting the data.

The best IT organizations are run like a great store (complete with consultative sales). In order for them to be affective, they need to be attached to a well managed company that knows what it wants. It’s not IT’s job to champion projects, to drive change, or to come up with ideas. It’s their job to understand what the business needs, come up with products that support it, and work with the business to implement them. If your technology department keeps turning out crap, you need to stop complaining and start thinking about what exactly you asked them for. Odds are, it was either nothing or crap, and either way, it’s not really their fault.

Note, however, that undisciplined software projects that are poorly executed are the fault of IT. That’s where they stop running a great store, and it makes the business side want to shop someplace else. Business leaders need to intervene there and take a look at how they can shake up the IT organization, most likely through some sort of change in leadership.

Categories: Business and Economics, Managing, Technology
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Looks like Warren Buffet is picking a successor. Too bad an expert in Incentive Design didn’t help him come up with his selection criteria:

When I heard about this, the romance died. For all of Mr. Buffett’s reputation as the ultimate nonmutual fund, he may have just fallen into one of the biggest mutual fund traps of all — forgetting how incentives affect fund managers’ behavior.

Winner take all stock market games don’t reward the best investors, they reward the luckiest. It’s a spin-of-the-wheel that determines just which high-risk high-return investment hits pay dirt. Long term success doesn’t matter. The article also discusses the inventives investment managers face to screw their clients.

Categories: Business and Economics, Careers, Incentive Centered Design, Information Economics, Managing
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Gruntled Employees has a two word corporate blogging policy:

“Be professional.”

If your employee-bloggers are posting the secret-sauce recipe, bad-mouthing customers, or distributing NSFW (not safe for work) art, fire them. And if you’re concerned that your employees won’t understand what you mean by “be professional,” then you have a management problem or an employee problem. Or both

Categories: Business and Economics, Governance, Managing, Social Software
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The NYTimes Magazine teaches you about the farm bill, agricultural subsidies, and obesity:

The reason the least healthful calories in the supermarket are the cheapest is that those are the ones the farm bill encourages farmers to grow.

Via Tyler Cowen

Categories: America, Business and Economics, Food, Incentive Centered Design
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