Today just after 2PM, Procter & Gamble’s stock dropped from $61 to $39 and in a matter of minutes bounced back. Most pundits believe there was erroneous trades that led to the drop. The video shows the down and up of P&G, “called” by the CNBC team much like you would watch an unbelievable play at a sporting event. http://plus.cnbc.com/rssvideosearch/action/player/id/1487022682/code/cnbcplayershare PS Several stocks including Apple and GE had similar drops.
Category Archives: Economics
Links For The Week Ahead
Here are three links that you must find time for this week:
- Can Ge Still Manage? by Diane Brady (Business Week, 4/15/2010)
It is important to disclose upfront that I am a GE alum. It’s been almost ten years since my departure, but I still watch the company I grew up in professionally.
Brady’s thesis is that earnings and stock price have been under pressure for most of CEO Jeff Immelt’s tenure. With a quick acknowledgement of the dismal economics over the last decade, Brady wonders if GE’s storied management can no longer cope with the times.
Immelt describes the successful managers at GE as overachievers, working-class roots, resilience, the ability to be challenged and to learn, a tendency to be self-reflective, and a desire to grow. But then he adds the most important line from in the piece:
“[T]here’s always this impediment of ‘Why do we have to change if we’re good?'”
- Inside Job from This American Life
The folks from This American Life teamed up with ProPublica to dig into the subprime mortgage mess. This epsiode rivals their Peabody award winner episode The Giant Pool of Money. This is also important journalism given the suit filed on Friday by the SEC against Goldman Sachs for the same thing that these reporters found hedge fund Magnetar doing: building questionable financial instruments and then betting against them.
- Michael Lewis’ Big Short and Our Appetite for Apocalypse – An Interview with Christopher Lydon
This is one of the most interesting interviews I have listened that Lewis has given on his new book. Lydon is animated and asks insightful questions, but at times, tries to turn the discussion political with using the Iraq War as a comparable metaphor for the economic collapse. The Charlie Rose interview with Michael Lewis is also good.
Idea Arena Podcast – The Power of Pull Interview with John Hagel
In this interview, I talk with John Hagel about The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion, a book he co-authored with John Seely Brown and Lang Davison.
Hagel and his cohorts at Deloitte’s Center For the Edge, a research center based in Silicon Valley, have being doing research to understand what they call The Big Shift. Their work has uncovered a variety of insights, but the most telling is the reduced profitability of today’s corporations versus their counterparts forty years ago. We talk about how information, networks, and execution are changing the way individuals and institutions compete.
Pull is a very different approach, one that works at three primary levels, each of which builds on the others. At the most basic level, pull helps us to find and access people and resources when we need them. At a second level, pull is the ability to attract people and resources to you that are relevant and valuable, even if you were not even aware before that they existed. Think here of serendipity rather than search.
Finally, in a world of mounting pressure and unforeseen opportunities, we need to cultivate a third level of pull—the ability to pull from within ourselves the insight and performance required to more effectively achieve our potential. We can use pull to learn faster and translate that learning into rapidly improving performance, not just for ourselves, but for the people we connect with—a virtuous cycle that we can participate in.
Download Idea Arena Podcast – The Power of Pull Interview
The idea of sharing is deeply routed in our early hominid brains. French anthropologist Marcel Mauss in describing the gifting process in human culture said “There is an obligation to give, and obligation to receive, and an obligation to repay."1
Our ancestors’ roaming existence in small bands required a set of behaviors that facilitated trusting relationships. Our willingness to cooperate with strangers could mean the difference between survival and extinction. Trade and commerce are only possible with the behavioral trifecta that Mauss describes.
Herbert Ginitis , Emeritus Professor of Economics at the University of Massachusetts, adds another important nuance. His research suggests our cooperation is conditional. We’ll work with others as long as they treat us fairly and if we are wronged we will punish those who have behaved unfairly, even if we incur costs by doing so. The cycle of giving and receiving only work when the threat of punishment for unpaid debt looms.2
1 – The Gift by Marcel Mauss
2 – The Origin of Wealth by Eric Beinhocker and Ginitis 2000
Costs Go Down Everywhere
Companies that grow achieve greater economies of scale. New, more efficient technologies are introduced. Lower-costs substitutes are found and integrated into the supply chain.
We can find similar examples in the non-profit world:
"We are much better at starting treatment projects for TB and HIV on the ground than we have ever been,” says Jim Yong Kim, a cofounder of the Bostin-based organization Partners in Health. “every time we do it, we’re more efficient and use resources much more effectively.” When Kim, Paul Farmer, and their colleguess at PIH’s Peruvian partner, Socios En Salud, began their first program attacking multi-drug resistant tuberculosis in Peru, the cost for just the medicines was roughly $25,000 per patient. By 2006, the organization had been able to cut the per-patient cost of medicines to as little as $1,500."1
The power of the experience curve comes in all shapes and size.
1 – page 30 of The Breakthrough Imperative by Mark Gottfredson & Steve Schaubert
“So certain is the plummet of prices that economists have mapped the curve of their fall. The cost of making something–whether it is steel, light bulbs, airplanes, flower pots, insurance policies, or bread–will drop over time as a function of the cumulative number of units produced. The more an industry makes, the better it learns how to make them, the more the cost drops. The downward price curve, propelled by organizational learning, is sometimes called the learning curve. Although it varies slightly in each industry, generally doubling the total output of something will reduce the unit cost on average by 20%.
Smart companies will anticipate this learning curve. Very smart companies will accelerate it by increasing volumes, one way or another. Since increasing returns can exponentially expand the demand of items–doubling their totals in months–network effects speed the steep fall of prices.”
-In Follow The Free from Kevin Kelly’s New Rules for the New Economy (available for free at kk.org)
“Costs Go Down” is the first section of the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.
People Love Free
On January 7th, 2010, Sparkfun, a Boulder, Colorado based electronics supplier, decided to give away free merchandise. Each customer who placed an order that day received $100 in free goods. No minimum order. No code needed at checkout.
Ten minute before the web store opened, Sparkfun’s servers were already buckling under the load. Their company name was appearing in four of the top ten search terms on Google Trends. It took one hour and 44 minutes for the company to pass their pre-announced limit and give away $100,587.
This extravaganza was originally announced on November 23rd, just ahead of the Thanksgiving holiday weekend. Founder Nate Seidle said in a blog post that he was inspired by Chris Andersen’s book Free and wanted to give back to his customers. I found out about this incredible offer from Chris Andersen himself that morning via his Twitter feed. In response to the offer Andersen said:
“Yikes, what have I done?”
You might be interested in the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.
In the U.S. today, we see the incredible power of price on consumer behavior as millions of people storm retail stores around the country in search of bargain.
One price point being used frequently is Free. The Apple Store will give you Free shipping and $21 off the retail price of a new iPod Touch if you order it today. Best Buy will give you a Free $30 gift card and Free shipping today and tomorrow. And ToysRUs was offering a Free $50 gift card with the purchase of an iPod Touch if you got to the store today before 1PM.
I have been fascinated with Free since the July release of Chris Anderson’s book. The concept is constantly seeping into conversations about newspapers, books, music, movies, and television. And with all of the talk, we seem no better prepared to discuss Free with intelligence. The dialogue gets bogged down in incongruent comparisons of apples, oranges, and antelopes with the collision of economic theory, legal precedent, and moral consequence.
On January 7th, the six month anniversary of Free, I am going to release an ebook about the concept of Free–my attempt at clarifying the salient points around Free and provide some paths we can all use to move forward.