Category Archives: Business and Economy

Chicago Tribune editorial against “survey mania”

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The Chicago Tribune takes a strong stance against “survey mania.”

Question 1: Do you find that being pelted by survey requests from your bank, cable company, doctor, insurance agent, landlord, airline, phone company — and so on — is annoying and intrusive?

Question 2: Do you ignore all online and phone requests for survey responses because, well, your brief encounter with a bank teller doesn’t really warrant a 15-minute exegesis on the endearing time you spent together?

Question 3: Don’t you wish that virtually every company in America hadn’t succumbed to survey mania at the same time, so that you’d feel, well, a little more special when each request for your precious thoughts pings into your email?

Question 4: Do you wish that companies would spend a little less on surveys and a little more on customer service staff, so that callers would not be held captive by soul-sucking, brain-scorching, automated answering systems in which a chirpy-voiced robot only grudgingly ushers your call — “which is very important to us, which is still very important to us” — to a human being?

Question 5: Do you agree that blogger Greg Reinacker laid out some reasonable guidelines for companies that send surveys to customers: “Tell me how long it’s going to take. Even better, tell me exactly how many questions there will be. … Don’t ask me the same question three different ways just to see if I’m consistent. … If you really, really want me to take the survey, offer me something. I’m a sucker for free stuff. And a drawing probably won’t do it.”

Question 6: Do you think companies should be aware that a pleasant experience — a flight, a hotel stay, a cruise — can be retroactively tainted by an exhausting survey and all those nagging email reminders that you haven’t yet filled it out?

Question 7: Do you find it irritating when a salesperson tries to game the system by reminding you over and over that only an excellent rating for his or her service will suffice … before said service has been rendered to you?

Question 8: Do you agree that there are ample opportunities to put in a good word for, say, an excellent waiter or sales clerk or customer service agent (just ask to speak to his or her supervisor!), which is much more sincere than you unhappily trudging through a long multiple-choice online questionnaire?

Question 9: Are you aware that marketing professors tell us that these surveys can be vitally important for companies to improve their service and that employee bonuses and other incentives hinge on whether you rate their service highly or not? We’re dubious, too, but just in case it’s true … would you please tell our boss how great you think this editorial is? Use all the space you need.

We get it – some people think they are being asked to do too many surveys. At the same time, this hints at some larger issues with surveys:

1. Companies and organizations would love to have more data. This reminds me of part of the genius of Facebook – people voluntarily give up their data because they get something out of it (the chance to maintain relationships with people they know).

2. Some of these problems listed above could be fixed easily. Take #7. Salespeople can be too pushy in trying to get data.

3. Some things in #5 could be done while others listed there are harder. It should be common practice to tell survey takers how long the survey might take. But, asking about a topic multiple times is often important to see if people are consistent. This is called testing the validity of the data.

4. I think more consumers would like to receive more for participating in surveys. This could be in the form of incentives, everything from free or cheaper products or special opportunities. At the least, they don’t want to feel used or to feel like just another data point.

5. Survey fatigue is a growing problem. This makes collecting data more difficult for everyone, including academic researchers.

All together, I don’t think the quest for survey data is going to end soon because customer or consumer info is so valuable for businesses and organizations. But, approaching consumers for data can be done in better or worse ways. To get good data – not just some data – organizations need to offer consumers something worthwhile in return.

Headed toward another housing bubble in the United States?

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A CNBC editor looks at some data that suggests the United States may already be experiencing a housing bubble:

On Monday, we got the fourth month of home affordability data coming in below trend, which is a strong confirmation that the housing market is once again in a bubble. (The NAR index is published with a two-month delay, so the latest numbers are for July).

The affordability index measures the household income needed to qualify for a traditional mortgage on a median-priced single family home. So it’s looking at a mortgage with a 20 percent down payment and a monthly payment below 25 percent of income at the currently effective rate on conventional mortgages…

The index has been dropping rapidly since peaking in January at 210.7. We’re now down to 157.8, according to the preliminary numbers released for July on Monday. Home prices have been rising and interest rates climbing, while wages haven’t kept up. That’s how we got to the lowest level of affordability seen since July of 2009.

According to the NAR, this shouldn’t be dire news. A score of 157.8 officially indicates that a household earning the median income has 57.8 percent more income than needed to get a mortgage on a median priced home.

A few interesting things to note here:

1. There is some debate about whether this index has predictive power. In other words, it isn’t necessarily easy to identify when there might be a housing bubble.

2. This adds more evidence that a housing recovery in the US is a long-term project. Housing prices may have risen so much by the mid-2000s that it will take years to sort it all out. A slow-growth economy doesn’t help.

3. Instapundit has a good take: “I WISH IT WOULD GET TO MY NEIGHBORHOOD.” While the idea of a bubble could be troubling, there are plenty of homeowners who would welcome some increased value for their home. Of course, that increased value might disappear again…

When a country depends on one company, like Finland did with Nokia

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Here is a quick overview of how important Nokia once was for Finland:

Nokia, meanwhile, has been declining even faster, as Samsung Electronics Co. Ltd. and Apple Inc. have carved up the market between them. The company that used to account for 20 percent of Finland’s gross domestic product has seen its sales decline dramatically in the smartphone era and is operating at a loss.

That raises an interesting question: What does this mean for Finland?

I’m not exaggerating how dependent Finland’s economy has been on Nokia. Here’s the Economist last year, detailing the extent of the country’s reliance:

NOKIA contributed a quarter of Finnish growth from 1998 to 2007, according to figures from the Research Institute of the Finnish Economy (ETLA). Over the same period, the mobile-phone manufacturer’s spending on research and development made up 30% of the country’s total, and it generated nearly a fifth of Finland’s exports. In the decade to 2007, Nokia was sometimes paying as much as 23% of all Finnish corporation tax. No wonder that a decline in its fortunes — Nokia’s share price has fallen by 90% since 2007, thanks partly to Apple’s ascent — has clouded Finland’s outlook.

Since the trend in recent decades has been more toward diversification, this might strike many as surprising. But, I suspect Finland is not alone though I’m thinking more about countries reliant on companies dealing with natural resources like oil or minerals.

I’m also prompted to think whether the United States is in a similar position. There are clearly American brands known worldwide that also have large revenues: General Motors, Walmart, Budweiser, McDonald’s, Apple. But, even with (incorrect?) quotes like “What’s good for General Motors is good for the country,” our economy has a number of important corporations. At the same time, this doesn’t necessarily mean they aren’t interrelated. Remember the talk from several years ago about what might happen if General Motors went bankrupt? Or, what might be the ripples if Walmart declined significantly? Perhaps more importantly, the companies cited above all make material goods. As the recent economic crisis suggested, we are very susceptible to problems in the financial industry where the products are less tangible and yet financing, investments, and debts are incredibly important parts of the modern economy. These companies are so large and intertwined with so many areas of the economy that their fate to that of many others.

Jobs available for those who can analyze big data

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Now that there is plenty of big data available, companies are looking for employees to analyze the data:

By 2018, the United States might face a shortfall of about 35 percent in the number of people with advanced training in statistics and other disciplines who can help companies realize the potential of digital information generated from their own operations as well as from suppliers and customers, according to McKinsey & Co…

Workers in big data are hard to come by in the short term. A recent survey by CareerBuilder, an affiliate of Tribune Co., which also owns the Chicago Tribune, found that “jobs tied to managing and interpreting big data” were among the “hot areas for hiring” in the second half of 2013…

Dhingra pointed out that the McKinsey report, in addition to citing a shortage of 140,000 to 190,000 qualified data scientists in coming years, also said there will be a need for 1.5 million executives and support staff who understand data.

Mu Sigma’s entry-level trainee professionals go through “an intense recruitment program” that includes aptitude tests to determine who has a “quantitative bent of mind”; group discussion, to spot individuals who can present and back their views and listen to feedback; and a “synthesis” test in which a candidate is shown a video and then asked to identify the key message. If they make it through those rounds, they undergo several personal interviews, a process that includes “props and interesting puzzles and case studies.”

Once a decision scientist trainee is recruited, they go through Mu Sigma University, where they learn such skills as the basics of consulting, the “art of problem solving” and the “art of insight generation.” They also take advanced statistics and are taught about machine learning, natural language processing and visualization, along with behavioral sciences and such big data technologies as Hadoop, Mahout and Cassandra.

The numbers don’t just interpret themselves. It is amazing how much data is available these days but people are still needed to figure out what it all means. Being able to do the conceptual and software work that goes into analyzing data can go a long ways these days…

A rising ideology of shareholder value in the United States

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How and why corporations make decisions has changed over the decades. Here is a quick argument of what has changed in the US:

Such is the power of the ideology known as shareholder value. This notion that shareholder interests should reign supreme did not always so deeply infuse American business. It became widely accepted only in the 1990s, and since 2000 it has come under increasing fire from business and legal scholars, and from a few others who ought to know (former General Electric CEO Jack Welch declared in 2009, “Shareholder value is the dumbest idea in the world”). But in practice—in the rhetoric of most executives, in how they are paid and evaluated, in the governance reforms that get proposed and occasionally enacted, and in almost every media depiction of corporate conflict—we seem utterly stuck on the idea that serving shareholders better will make companies work better. It’s so simple and intuitive. Simple, intuitive, and most probably wrong—not just for banks but for all corporations.

As Cornell University Law School’s Lynn Stout explains in her 2012 book, The Shareholder Value Myth, maximizing returns to shareholders is not something U.S. corporations are legally required to do. Yes, Congress and regulators have begun pushing the rules in that direction, and a few court rulings have favored shareholder primacy. But on the whole, Stout writes, the law spells out that boards of directors are beholden not to shareholders but to the corporation, meaning that they’re allowed to balance the interests of shareholders against those of stakeholders such as employees, customers, suppliers, debt holders, and society at large…

To be sure, the case against putting shareholders first is not quite the slam dunk for all corporations that it is for highly indebted, too-big-to-fail financial institutions. Outside of banking, the empirical evidence against the doctrine is more suggestive than dispositive. Supporters of shareholder rights can point to studies showing that certain shareholder-friendly changes, such as removing defenses against hostile takeovers, tend to bring higher share prices. Skeptics argue that this says little about long-term impact, and point instead to a more expansive, but impressionistic, set of indicators. The performance of U.S. stock markets since shareholder value became doctrine in the 1990s has been disappointing, and the number of publicly traded companies has declined sharply. The nation in which shareholders have the most power, the United Kingdom, has an anemic corporate sector; on Fortune magazine’s list of the world’s 100 largest companies, it claims only three, compared with nine from France and 11 from Germany, where shareholders hold less sway. Multiple studies of corporations that stay successful over time—most famously the meticulously researched books of the Stanford-professor-turned-freelance-business-guru Jim Collins, such as Good to Great—have found that they tend to be driven by goals and principles other than shareholder returns.

Collins’s books embody the most common criticism of shareholder value: that while delivering big returns to shareholders over time is great (it is, in fact, Collins’s chief measure of “greatness”), focusing on shareholder value won’t get you there. That’s what Jack Welch was getting at, too. In a complex world, you can’t know which actions will maximize returns to shareholders 15 or 20 years hence. What’s more, most shareholders don’t hold on to any stock for long, so focusing on their concerns fosters a counterproductive preoccupation with short-term stock-price swings. And it can be awfully hard to motivate employees or entice customers with the motto “We maximize shareholder value.”

Corporations and what their directors want, what their investors want, and how they operate changes over time based on surrounding economic and social forces. They can also innovate and develop new ways of pursuing profit or contributing to the public good. Thus, to understand them, invest in them, and develop regulations and policies involving them, we need to know their social context and their patterns of development.

One of the more interesting books I’ve read related to this topic is Frank Dobbin’s Forging Industrial Policy: The United States, Britain, and France in the Railway Age. Dobbin shows there was no “right” way to promote and develop railroads. France’s approach was to develop a centralized railroad system based on Paris and highly regulated by technocrats. Britain took the opposite tack: no regulation to start as railroad firms could build and do what they wanted. After a while, Britain had to introduce regulations because corporations were putting profits first over public concerns like railroad safety (an example: a need to regulate railroad brakes to avoid large crashes). The United States took a middle approach: some public-private partnerships with some regulation but also with the ability for corporations to make big money. Looking back from today, the “right” way might seem obvious but this whole process was strongly driven by social and cultural circumstances and norms.

Knowing all of this, perhaps the next question to ask is how might corporations change in 20 or 50 years?

Adding creative endeavors to GDP

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The federal government is set to change how it measures GDP and the new measure will include creative work:

The change is relatively simple: The BEA will incorporate into GDP all the creative, innovative work that is the backbone of much of what the United States now produces. Research and development has long been recognized as a core economic asset, yet spending on it has not been included in national accounts. So, as the Wall Street Journal noted, a Lady Gaga concert and album are included in GDP, but the money spent writing the songs and recording the album are not. Factories buying new robots counted; Pfizer’s expenditures on inventing drugs were not.

As the BEA explains, it will now count “creative work undertaken on a systematic basis to increase the stock of knowledge, and use of this stock of knowledge for the purpose of discovering or developing new products, including improved versions or qualities of existing products, or discovering or developing new or more efficient processes of production.” That is a formal way of saying, “This stuff is a really big deal, and an increasingly important part of the modern economy.”

The BEA estimates that in 2007, for example, adding in business R&D would have added 2 percent to U.S. GDP, or about $300 billion. Adding in the various inputs into creative endeavors such as movies, television and music will mean an additional $70 billion. A few other categories bring the total addition to over $400 billion. That is larger than the GDP of more than 160 countries…

The new framework will not stop the needless and often harmful fetishizing of these numbers. GDP is such a simple round number that it is catnip to commentators and politicians. It will still be used, incorrectly, as a proxy for our economic lives, and it will still frame our spending decisions more than it should. Whether GDP is up 2 percent or down 2 percent affects most people minimally (down a lot, quickly, is a different story). The wealth created by R&D that was statistically less visible until now benefited its owners even those the figures didn’t reflect that, and faster GDP growth today doesn’t help a welder when the next factory will use a robot. How wealth is used, who benefits from it and whether it is being deployed for sustainable future growth, that is consequential. GDP figures, even restated, don’t tell us that.

On one hand, changing a measure so that more accurately reflects the economy is a good thing. This could help increase the validity of the measure. On the other hand, measures still can be used well or poorly, the change may not be a complete improvement over previous measures, and it may be difficult to reconcile new figures with past figures. It is not quite as easy as simply “improving” a measure; a lot of other factors are involved. It will be interesting to see how this measurement change sorts out in the coming years and how the information is utilized.

Inside Amazon’s fulfillment centers

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If Walmart is where normal America gathers, then here is where much of the stuff Americans order online comes from: Amazon fulfillment centers.

For its “Amazon Unpacked” series, UK’s The Financial Times Weekend Magazine got photographer Ben Roberts a pass into the hyper-systematized environs of one of Amazon.com’s ginormous—roughly the length of nine football fields—fulfillment warehouses. The facility in Rugeley, England, is an expansive structure flooded with natural light and imbued with the sterility and efficiency of a major hospital. Here, employees can walk between seven and 15 miles a day, and they don’t meander; the warehouse gets 35 orders a second and worker productivity is measured via handheld device. Architizer calls it “a warehouse employee’s worst nightmare,” but with all the organization, light, and crisp colors, the space seems pretty ideal for a warehouse—particularly if an employee were training for a 10K or something.

When looking at these pictures, they seem like they could either represent the possibilities of our future (think of what is on all those shelves!) or represent cold, calculating buildings that are all about feeding a consumerist economy in the most efficient way. Either way, their scale alone is impressive.

Combined with my post over the weekend about subway facades, these images could be part of a larger series on the infrastructure behind the 2013 world. When people order from Amazon, they are not likely to think about all that it takes to get the product from a factory to a distribution center and then to their door/mailbox. Yet, they know it all works and like the results. Or, think about the data centers built in places like Iowa to handle all of the information flowing through the Internet. Or, the distribution centers behind Walmart or that helped Netflix quickly ship out DVDs years ago. All of this is relatively hidden in faceless warehouses away from the consumer.

 

 

 

 

 

Spreadsheet errors, austerity, ideology, and social science

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The graduate student who found some spreadsheet errors in an influential anti-austerity paper discusses what happened. Here is part of the conversation about the process of finding this error:

Q. You say, don’t you, that their use of data was faulty?

A. Yes. The terms we used about their data—”selective” and “unconventional”—are appropriate ones. The reasons for the choices they made needed to be given, and there was nowhere where they were.

Q. And how about their claim that your findings support their thesis that growth slows as debt rises?

A. That is not our interpretation of our paper, at all. If you read their paper, it’s interesting how they handle causality. They waffle between strong and weak claims. The weak claim is that it’s just a negative association. If that’s all they claim, then it’s not really relevant for policy. But they also make a strong claim, more in public than in the paper, that there’s causality going from high debt to drops in growth. They haven’t been obvious about that…

Q. Paul Krugman wrote in The New York Times that your work confirms what many economists have long intuitively thought. Was that your intuition?

A. Yes. I just thought it was counterintuitive when I first saw their claim. It wasn’t plausible.

Q. This is more than a spreadsheet error, then?

A. Yes. The Excel error wasn’t the biggest error. It just got everyone talking about this. It was an emperor-has-no-clothes moment.

This would make for a good case study in a methodology class in the social sciences: how much of this is about actual data errors versus different interpretations? You have people who are clearly staking out space on either side of a policy discussion and it is a bit unclear how much does this color their interpretation of “facts”/data. I suspect some time will help sort this out – if the spreadsheet was indeed wrong, shouldn’t this lead to a correction or a retraction?

I do like the fact that the original authors were willing to share their data – this is something that could happen more often in the social sciences and give people the ability to look at the data for themselves.

Rahm Emanuel fires back at Texas Governor Rick Perry

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Texas Governor Rick Perry tried to entice Illinois businesses to Texas with recent radio spots but Chicago Mayor Rahm Emanuel fired back yesterday:

Emanuel made pointed reference to a campaign gaffe Perry committed while running for president. At a Republican debate late in 2011, Perry said he had plans to eliminate three federal departments, but could remember only two.

Asked about Perry’s visit at a Monday news conference, Emanuel used the opportunity to tout Chicago’s infrastructure improvements and wealth of well-educated residents thanks to its universities, both of which he said were lacking in Texas.

He pointed to the 14 major businesses that have moved their headquarters to Chicago during his administration, and also drew attention to Texas’ drought.

“In the City of Chicago, we don’t have to measure our showers like they do in Texas,” said Emanuel, a Democrat who served as President Barack Obama’s chief of staff…

After a similar effort earlier this year in California, that state’s governor, Jerry Brown, called Perry’s $26,000 ad buy there “not a burp…it’s barely a fart.”

“If they want to get in the game, let them spend $25 million on radio and television,” said Brown, according to the Sacramento Bee.  “Then I’ll take them seriously.”

Illinois Gov. Pat Quinn lashed back at Perry last week, telling reporters “We don’t need any advice from Gov. Perry.”

If Perry’s main goal was to draw the fire of Democratic leaders, he seems to have succeeded. I’ve seen some experts suggest ads like those Perry was in do little to attract businesses. At the same time, they might help insert Texas into conversations in a way that often don’t happen in the Chicago area.

It is interesting to note Emanuel’s defense: Chicago has well-educated residents and well-regarded colleges (the University of Chicago and Northwestern are a pretty good pair), has plenty of corporate headquarters, has spent on infrastructure, and don’t have droughts (but apparently does have flooding). Is this the best case for Chicago? I could imagine adding Chicago’s standing as a global city, transportation advantages, central location in the United States, continued leadership in commodity trading, beautiful parks along Lake Michigan, tourism, and well-developed metropolitan region.

By the way, it is fair to compare a state to a city or region? Sure, Chicago may be the center of Illinois life but there still is the rest of the state that may take exception (and vote with Perry to boot).

Retail redlining

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Residential redlining is well-known in the United States as a means for keeping whites and blacks living in separate neighborhoods. But what about retail redlining?

David Mekarski, the village administrator for the south Chicago suburb of Olympia Fields, told a startling story this week at the American Planning Association’s annual conference about a debate he recently had with a restaurant official. Why, he wanted to know, wouldn’t quality restaurants come to his mixed-race community, where the average annual household income is $77,000, above the county average?

The reply: “Black folks don’t tip, and so managers can’t maintain a quality staff. And if they can’t maintain a quality staff, they can’t maintain a quality restaurant.”

A gasp then rippled through the room in front of Mekarski. “This is one of the most pervasive and insidious forms of racism left in America today,” he says.

There’s a term for the phenomenon he’s describing: retail redlining. The practice is a more recent and less studied variation on redlining as it’s been historically recognized in the housing sector. In the context of retail, grocery stores, and restaurants, redlining refers to the “spatially discriminatory practice” of not serving certain communities because of their ethnic or racial composition, rather than their economic prospects.

This sounds like it is worth studying. This reminds me of research about food deserts and payday loan stores and pawn shops that show their relations tend to be related to social class and race. On one hand, the article suggests it is difficult in research to sort out the effects of economics and race as businesses consider a lot of factors for their locations. On the other hand, couldn’t research look at the locations of specific businesses, like Walmart or Walgreens, and see if they tend to be located in certain places over others when the economic characteristics are similar?