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Archive for the 'Business and Economics' category

The Management Myth: Are Consultants Ruining Business?

August 6, 2009 5:29 pm

The Wall Street Journal reviews The Management Myth:

The business world, according to Mr. Stewart, has become so obsessed with its own perverse value ­system and view of human nature that it is ­undermining the “commons” of society. Workers, for instance, are regarded as dehumanized labor, tools for businesses to use and dispose of at will. Management “science” also fails to take into account the broader ­context in which businesses function, choosing to focus on the ­interests of individual businesses at the expense of the rest of society. Mr. Stewart blames the enablers and peddlers of management science, including the consultants who seem to be everywhere.

From the review, I can’t tell if the book is a useful critique of consultants and management science, or just another hippie diatribe about how businesses are exploitative and our crass capitalist consumer culture has lost all meaning.  I did, however, love this quote:

The consultant co-workers he describes are a ­collection of intelligent nut-jobs devoted to corporate in-fighting, client-gouging, psychological humiliation and sexual harassment. Mr. Stewart does not name his employers, but he implies that their conduct is ­symptomatic of the profession.

That’s something I can vouch for.

Interview with Ford CEO Alan Mulally

August 4, 2009 11:56 am

James Surowiecki has a great New Yorker interview with Ford CEO Alan Mulally:

Are consumers more rational than we thought?

July 1, 2009 9:45 am

An article in Monday’s New York Times questions the real world applicability of many behavioral economics experiments:

The researchers don’t deny that consumers can be swayed by variations in sticker prices in laboratory experiments. But they question how significant that factor is in real-world settings where prices can’t be inflated so extremely, like the Tel Aviv restaurant. “Size is everything,” Dr. Heffetz says. “Our findings remind us that knowing that ‘A has a positive effect on B’ is not enough. The effect may simply be too small to matter.”

Middle Class vs. Universe

April 24, 2009 4:24 pm

Megan McArdle writes:

The real problem with investment bankers goes deeper, and is the problem of the entire upper middle class: we have come to believe that complying with the rules produces excellent results as by some natural law. In school, if you do your work, teacher gives you an A. It comes to seem like a sort of a natural law: if you have a good education and work hard, the universe is supposed to reward you. After school, the upper middle class gravitates towards careers with very well defined advancement hierarchies: medicine, law, finance, consulting, where this subtle belief is constantly reinforced.

Ditch the Mortgage Interest Tax Deduction

February 25, 2009 4:56 pm

Ed Glaeser lists five great reasons for getting rid of the Mortgage Interest Tax Deduction.

As a renter, I openly resent the homeowners who I continue to subsidize and now have to bail out.

Econopocalypse Update: Lobbying is the New Investment Banking

February 23, 2009 1:40 am

I’ve been advising my colleagues in DC to watch out for a sudden influx of former investment bankers getting jobs as lobbyists and consultants. After all, someone has to help Uncle Sam figure out how to spend the money they’re borrowing. Now, BusinessWeek has put some numbers to it: while the rest of the economy shrinks, the economy of the DC metro area is expected to grow 2.4%.

Just what Washington needs, more hard working, well dressed people running around with no real world skills:

Boiler Room 2.0

January 4, 2009 4:30 pm

Why does this guy…

remind me of this guy…

Currency Collapse and the Nobel Prize

December 9, 2008 12:55 am

The Swedish Kronor (SEK) has taken a steep slide against the U.S. Dollar since it was announced that Paul Krugman won the Nobel Prize in Economics in October.  So much so that an article linked to by Greg Mankiw was off by over $200k in estimating the price of the prize in dollars.  Makes me wish I had taken my vacation a few months later.

Three month chart of Swedish Kronor against US Dollar

Three month chart of Swedish Kronor against US Dollar

Risks in Pirate Ransom Transactions

December 3, 2008 11:33 pm

Arranging to deliver the ransom for the Ukranian ship captured by Somali pirates, and to receive the ship and hostage crew in return is a delicate matter without a legal framework to reduce the counterparty risk (sort of like a drug buy):

More from market-design guru Al Roth’s new blog.

Behavioral Economics: Big Deal or Big Hype?

September 9, 2008 7:13 pm

You began by saying that it is an exciting time to be an economist. I agree—not because economics is about to be replaced by psychology, but because of the big questions we are now struggling to answer. What are the fundamental causes of poverty? Are there solutions? How do ideas, habits and information spread across social networks? What makes innovation happen? Can governments help? Can anything improve the awful record of economic forecasting? How do economic clusters develop? What kills them off? How does competition work in the face of fallible consumers?

Behavioural economics is already making the running on the subject of consumer decision-making, but in other areas it has little to offer. That is no surprise, because there is so much more to economics than a theory of individual decisions.

Read the debate over behavioral economics that spawned this conclusion from Tim Harford.

It also contains an interesting sub-discussion on the literature around pay performance schemes which may be of interest to some of the management or info-econ wonks out there.

On Being a Successful Lawyer (or Professional)

June 12, 2008 12:13 pm

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.

 

American Express Vacation Auction

May 30, 2008 3:15 pm

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.

Anytime Minutes?

March 13, 2008 1:38 am

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.

It’s Official: Blogging is Mainstream

December 6, 2007 3:27 pm

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.

The Customer and Corporate IT

December 5, 2007 3:57 pm

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.

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