Business Signs

Does Technology Trump Regulation ?

2009-03-26T22:32:00.001-07:00

I originally wrote this entry on September 1, 2004, and published it on blogs.sun.com.

The short answer is "No," and the slightly longer answer is "No, not in the short term," where "short term" depends.

A post on EconLog (edited by Arnold Kling) about "Telephone Fees", ends with the following question:

Why aren't we able to kill regulations when they become technologically obsolete?

That the main mission of the regulation is to keep up with technology remains a point to be settled. (See my notes on the "unbundled network element" aspects of the 1996 telecom act: 1, 2, 3. Also see my telecommunications category for more on related issues.)

The arguments that blame the slow rate of regulatory change on inherent bureaucratic intertia have their own place and validity. However, . . .

Regulations define the rules of the game.

If you change the rules of the game more than is warranted, people will go play some other game with more stable rules or they will refuse to play the game. If people stop playing there won't be any game, and in commerce and economics, we know what happens when people refuse to play !

So, even when we have a more efficient and perfect bureaucracy (if one could ever exist), "validity" of regulation (which cannot be determined based only on technological criteria) needs to be balanced against its "stability" (which is required as a minimal insurance for protecting investment in assets that take advantage of it).

The Functions of the Executive: Chester Barnard and Organization Theory

2009-03-22T13:28:00.001-07:00

I originally wrote this entry on August 18, 2004 and published it on blogs.sun.com.

Earlier, I quoted the summary of Chester Barnard's views on the individual and on why we cooperate with each other in organizations.

Here, I'll quote the summary of his views on the total context of organized cooperation and on how cooperation changes the very context of organizations.

Cooperation is the social aspect of the total situation and social factors arise form it. These factors may be in turn the limiting factors of any situation. This arises from two considerations: (a) The process of interaction must be discovered or intervened, just as a physical operation may be discovered and intervened (b) the interaction changes the motives and interest of those participating in the cooperation. (The Functions of the Executive, p. 60.)

From my own experience, item (a) in the above is primarily about change and strategy. If you want to remove a limiting factor, you may organize yourself in a band or a group. On the other hand, item (b) is about the dialectics that follows, making strategic behavior a cause of its own demise. More importantly, item (b) is about changes in motivation and interest which affect the participant in an organization simply through their participation.

Why we cooperate and adopt group purposes?

2009-03-22T13:15:00.005-07:00

I originally wrote this entry on August 11, 2004 and published it on blogs.sun.com.

Chester Barnard provides the following summary answer to this question:

Among the most important limiting factors in the situation of each individual are his own biological limitations. The most effective method of overcoming these limitations has been that of cooperation. This requires the adoption of a group, or non-personal, purpose. The situation with reference to such a purpose is composed of innumerable factors, which must be discriminated as limiting and non-limiting factors. The Functions of the Executive

Individuals in Organizations

2009-03-22T13:15:00.003-07:00

I originally wrote this entry on August 10, 2004 and published it on blogs.sun.com.

Chester Barnard provides the following account of the "individual" in organizations:

The individual human being possesses a limited power of choice. At the same time he is a resultant of, and is narrowly limited by, the factors of the total situation. He has motives, arrives at purposes, and wills to accomplish them. His method is to select a particular factor or set of factors in the total situation and to change the situation by operations on these factors. These are, from the viewpoint of purpose, the limiting factors; and are the strategic points of attack. The Functions of the Executive (1938)

Barnard starts by noting our limited power of choice. Earlier in his book he amplifies on this theme connecting choice to context (i.e. "factors of the total situation") one is acting in. The structure of action is then decomposed into motives, purposes and will. In terms of actual practice of acting, he notes that individuals usually select a factor or a set of factors in the "total situation" to affect. For example, say you don't like your career path. It could be because of where you are, what you're doing, who you're reporting to, the goals or the team. One can change one or a set of these factors. Which actual factor is selected depends on one's total situation. Next Barnard discusses purpose. Purpose determines one's goal. From the point of view of one's goals, some factors may be limiting. Those factors are exactly the ones that will be selected for change.

That's a brief summary of Barnard's views on "individual" actors in an orgniazation.

In the next post, I'll summarize his views on what moves individuals in an organization to adopt group purposes.

The Functions of the Executive: Chester Barnard and the Theory of Organization

2009-03-22T13:15:00.001-07:00

I originally wrote this entry on August 10, 2004 and published it on blogs.sun.com.

In my last semester at the Haas School of Business, I had the good fortunate of studying transaction cost economics (TCE) with the master: Oliver Williamson. He was a wonderful advisor, and although I had already read many of his essays, he guided my more extended readings and helped me gain a better understanding of the fundamental concepts of TCE. I started several ideas with him and finally settled on writing a paper that gave a transaction cost economics account of the bullwhip effect in supply chains. It was a fascinating exercise and learning experience. (Earlier on this weblog, I have written a brief account of the bullwhip effect, investigating it as a consequence of technological specialization and within the context of North's theories on the structual evolution of economic institutions.)

There was one book whose reading Williamson highly recommended to me: The Functions of the Executive by Chester Barnard. That book was first published in December of 1938. I have a copy of its 2002, 39th printing in my hands.

I've written about Chester Barnard and Oliver Williamson earlier, including a brief mention in a piece on Douglass North.

Today and possibly tomorrow, I'm going to extract a short summary of the first part of Barnard's book on The Functions of the Executive.

I think the material is important to anyone who works within a cooperative system, a business organization or any other kind of association.

Market Perception

2008-03-15T01:27:00.001-07:00

Tehran Bazaar (August, 2006)
Originally uploaded by M.Mortazavi

Display your wares well, in a coordinated fashion and in a way that relates them to each other and to the customers' needs.

How you display your wares will be how your business will be perceived.

Display them well.

Focus and Brand are Key

2008-03-15T01:24:00.001-07:00

Tehran Bazaar (August, 2006)
Originally uploaded by M.Mortazavi

In business focus and brand are key.

You need to focus on a few things, a few outcomes, a few products.

Yes, you can sell different products but your products must be identifiably yours.

Artificial

2008-01-21T01:38:00.001-08:00

Tehran Bazar (2005)
Originally uploaded by M.Mortazavi

Even artificial flowers can be good business, and do more than just feed a family, and provide for vacations in Malaysia, China and Germany.

Business is Commerce

2008-01-20T17:56:00.001-08:00

Friday Bazar, Tehran (2005)
Originally uploaded by M.Mortazavi

Business is commerce and the one who gains through commerce is dear and near to Allah: Al-Kasib Habibullah.

He buys and sells.

He connects people and people, and products. He talks and bargains and negotiates, through prices and people. He brings what he has, all he has for you to see.

He does not deal in arms.

He deals in saris and scarves ....

... because business is commerce and the one who gains through commerce is dear and near to Allah: Al-Kasib Habibullah.

Fair Disclosures Come to the Web

2007-07-29T20:52:00.001-07:00

Jonathan Schwartz, the chief executive officer of Sun Microsystems Inc., explains how Sun intends to publish its FY'07 financial results on Monday, July 30. (Note his comments about the use of web for fair disclosure.)

The Labels, The Internet and The Musician

2007-05-21T16:22:00.000-07:00

Internet, as a giant copy and distribution machine, may and should continue to afford artists with greater autonomy well into the future. Reports of musicians' success in using this copy-and-distribution tool continue to pour in.

For example, Wall Street Journal's John Jurgensen writes about how musicians use the Internet to promote their work ("Singers Bypass Lables for Prime-Time Exposure," May 17, 2007, WSJ, B1). The report focuses on the case of singer and musician Ingrid Michaelson, "a 26-year-old Staten Island native who ... was discovered on MySpace by a management company that specializes in finding little-known acts and placing their works in soundtracks for TV shows, commercials, movies and videogames."

Many shows will only pay unsigned artists about $1,000 for the use of their music on TV, while artists on major labels might garner more than $30,000. Since she has been signed to Secret Road [Music Services, not a label], Ms. Michaelson has been paid up to $15,000 each time her music has been featured on a show or commercial, according to someone familiar with the deals. Secret Road says its cut of Ms. Michaelson's income is in keeping with industry standards of between 15% and 20%.
TV, of course, has become an increasingly powerful force for driving music sales. Apart from "American Idol" and "Saturday Night Live," possibly the most coveted TV slots for musicians are on "Grey's Anatomy," which has helped make songs like "How to Save a Life" by the Fray into top sellers on iTunes. A finale spot on "Grey's" is considered a particularly plum slot. Last year, the finale allowed Scottish band Snow Patrol to break through to a broad audience and played a role in making its featured song, "Chasing Cars," a hit.
Because Ms. Michaelson doesn't have a record-label contract, she stands to make substantially more from online sales of her music. For each 99-cent sale on iTunes, Ms. Michaelson grosses 63 cents, compared with perhaps 10 or 15 cents that typical major-label artists receives via their label. So far she has sold about 60,000 copies of her songs on iTunes and other digital stores. Ms. Michaelson is pouring most of her profits into pressing her own CDs and T-shirts, hiring a marketing company to produce promotional podcasts and setting up distribution for her CDS.

The fact that much good music today is discovered on the Internet before it ever makes it to the labels demonstrates that the labels need to reconsider their full "supply chain" and continue to review their policies and rules governing the protection and distribution of cultural content they come to license ("for a limited time").

On the same day as the report above, The Wall Street Journal also reported a significant move away from DRM which indicates the labels are recognizing the role of the Internet as a means to build networks of fans for artists through low-cost copy-and-distribution of content:

EMI Group PLC, the world's third-largest recorded-music company by sales (and the fourth-largest in the U.S. market) announced yesterday it would license its catalog to Amazon's DRM-free service. The three other major music companies haven't said publicly whether they expect to play ball with Amazon, but people close to all three companies said they don't expect to license content to Amazon in the near future. That means consumers shopping for downloads on Amazon will be able to buy tracks from EMI artists like Norah Jones and Coldplay, but are unlikely to be able to find music by most other major artists, including, for instance, each of the top-10 selling albums last week. Another complication: Apple's iTunes is moving toward offering music without copy protection, and also plans to release EMI's catalog in that format.

Much of the early use of DRM technologies has focused on limiting the power of digital copy and distribution of content.

The business of software

2007-05-07T21:53:00.000-07:00

After the usual foreword, Michael Cusumano opens his book, The Business of Software, by outlining the main chracteristics of that business:

In how many businesses does making one copy or one million copies of your product cost about the same? How many businesses have up to 99 percent gross profit margins for their product sales? In how many businesses do many products companies eventually become services or hybrid companies (that is, providing some customization of product features and technical services such as system integration and maintenance), whether they like it or not? In how many businesses is there frequently a ten- or twentyfold difference in productivity between your best employee and your worst one? How many businesses tolerate some 75 to 80 percent of their product-development projects routinely being late and over budget, with "best practice" considered to be 20 percent on time? How about a company where people who build products often consider themselves artists rather than scientists or engineers and have the mercurial temperament to go with it? In how many businesses are customers "locked in" to a particular vendor because of product decisions someone made a decade or two ago that can't easily be reversed?
…[G]et the strategy and the management side right, and the software business can be like having a license to print money…But get the business model wrong, and—to borrow a metapor from Frederick Brooks's The Mythical Man-Month—software companies can resemble dinosaurs futilely trying to escape the death grip of an ancient tar pit. The more you struggle—that is, the more time, money, and people you pour into product development, sales, and marketing in the hope of a turnaround—the deeper you sink and the quicker you die. In the software business, this is not only because the more people you add to a late software project, the later the project can become—a rule of thumb now described as "Brook's law" (and not always true). But the broader downward spiral can accelerate for a whole company and become self-fulfilling as present and potential customers flee from software producers unlikely to survive long enough to deliver, support, and upgrade their products.

Cusumano's summary strikes all the important chords when it comes to describing the characteristics of commercially produced software. It misses some important characteristics of open-source software communities and economic networks dependent on them.

In an open-source, community project, which (company or private) participant is the producer? Who is paying the production cost? Who is reaping the benefits?

However, when it comes to a business built on bundling of open-source software or on applying such software to solve specific problems through various kinds of software extensions and customizations, we return to the general laws described by Cusumano.

Then, there are a whole set of companies that may appear to some as software companies, say Google, but they are in fact not software companies at all even if they may produce a great deal of software.

This class of companies are indeed more like modern-day AT&Ts or Sprints. Modern day equivalents are web service (e.g. Google Search) or content (e.g. YouTube, Orkut, etc.) or Internet communications (e.g. Skype) concerns. Cusumano's description does not really apply to these companies either. These companies are not in the business of selling software but rather in the business of selling service for a fee (subscription or advertisement). They do software to the extent it helps them to render their services useful and appealing.

Narrow Strategy

2007-05-07T21:52:00.000-07:00

Narrow strategy understands the world in terms of conflicts and opponents.

In this narrow view of the world, relationships are rarely built. They are more often broken or leveraged against each other.

Broad strategy understands the world as communications and commerce among interdependent parties in relationships that can always be conceived to exist for mutual benefit.

In this broad view of the world, relationships are not only sought but also fostered. They are nurtured with care to be embedded in networks of value for all.

English and Business

2007-04-10T22:38:00.001-07:00

English may be the language of business today but many know that there are no guarantees it will remain the language of business tomorrow. In fact, more business was conducted among nations (per capita) prior to World War I, when there was no uniform business language, than around the late 1990s, at the height of the .com boom and when English was the lingua franca of business. (See Robert Barro's Getting It Right: Markets and Choices in a Free Society.)

Google and Growth

2007-04-09T11:38:00.000-07:00

Chris Zook of Bain & Company, argues, in a WSJ opinion piece, that Google should focus, instead of acquisitions, on combining its existing capabilities and assets towards growth.

He gives several historical examples from other businesses and ends thus:

Recovering from a crisis in the core may well be the hardest act in business. Since 1994, more than 50% of the companies in the Global 500 have seen their world changed by threats to their core business models. About half of this group have gone bankrupt or been acquired, and the other half have had to make risky and fundamental changes in strategy. What's the best response to this challenge? A few will buy their way to success, and Google may be among them. But for most companies, the answer is actually right in front of them, hidden from view.

Unfortunately, few of the historical examples are form the fast-paced world of technology and Internet companies where capabilities come and go!

What's Going on At Dell

2007-03-29T23:41:00.001-07:00

What's going on at Dell Computers?

Testing Through Tehran

2007-02-11T22:16:00.000-08:00

Many international brands did a robust business in metropolitan Tehran (population of 12 million) before breaking into the international scene. With a large middle class population and under sanctions by the U.S., when shunned by major companies, market entrants like Nokia, LG and Kia tried the Tehran waters before breaking into the world scene. Nokia was selling phone in Tehran in early 90s. LG Electronics has sold phones in Iran for some 10 years and consumer electronics for much longer, and Kia Motors has successfully sold cars in Iran for about a dozen years now.

E-Commerce is Expected to Continue Growth

2007-02-04T00:24:00.000-08:00

Financial Times' James Altucher reports:

Last year, internet retail sales were up 24 per cent year-over-year and we had our first $100bn-plus year in e-commerce with overall online retail sales at $102bn for 2006. Next year, online advertising is expected to rise from $18bn to $24bn and still be a single-digit percentage of overall advertising, implying there is heavy growth ahead.

In the same report, we read that many profitable e-Commerce companies have decided to remain private. (Several examples are given in the report.)

Altucher summarizes his observations this way:

[F]irst, there are many internet companies that are generating enormous profits and revenues and have decided for now to stay private. They will go public eventually. Maybe this year, maybe next, maybe in 2009. Expect about $10bn-$20bn worth (or more) of profitable dotcom companies to go public within the next two years.

Second, because of the value being created, and because none of these companies has yet gone public, expect demand to go up for the shares of the companies that do so. What happens when demand goes up but supply doesn’t increase? Stocks go up.

The Content Business

2007-02-01T16:27:00.000-08:00

Financial Times's mutli-media program View from the Top provides an intelligent collection of business interviews. For example, there is a recent interview with Robert A. Iger, President and CEO of Walt Disney focused on new digital platforms for content generation and distribution, including comments on "user-generated content," locally-generated content (with the Disney name) and content consumption in general. Here's Igor's prediction:

I predict that the internet-enabled computer media experience will be the primary media experience for our children’s generation as they grow up.