business Archives - Page 16 of 20

Costs of Innovation

I was updating some of the contents of this personal website and ended up re-reading the paper I wrote during my wonderful course in US Business and Economic History at Stern Business school in the Summer of 2014, taught by Prof Richard Sylla. I realised that in the table of comparison on the intellectual property systems of UK and US, I failed to illustrate the magnitude of difference in costs of filing patents under each system!

In 1624 up till 1852, it could have costs 100 pounds sterling in order to file in England. To file across jurisdiction of Great Britain to include Ireland and Scotland would have set an inventor back by up to 380 pounds sterling! In contrast, the US system was set up in 1790, charging only 4-5 US dollars per patent, increasing up to 35 US dollars in 1836.

Now the comparison was completely moot without including the exchange rates at that point of time! Perhaps my way of describing the system kind of glossed over it without it being a problem for Prof Sylla but today, almost 6 years after writing that paper, I want to set that straight.

So as usual, FRED saves the day with its wonderful datasets – they actually had a monthly exchange rate dataset that went as far back as 1791! For full disclosure, I would like to point out that they constructed it from Bank of England’s data on Three Centuries of Macroeconomic Data – incredible undertaking by those folks I must say.

In any case, we could safely consider the exchange rates to be around 5 US dollar to 1 pounds sterling, save for the slight fall in value of pounds during the Napoleonic wars and the huge fall in value of US dollars starting 1861 when the American Civil War started.

With that exchange rate in mind, we now see that in 1791, we now know it would have cost 100 times more to file a patent covering England compared to one that covers Federal United States (then only 13 colonies, and bits of other territories one must recognise). And of course, this gap went down to around 16 times by 1836 but still, it was a huge difference! No wonder Charles Babbage who invented the Difference Engine was quoted by Dutton (1984, p.70) describing the system in this manner: ‘the most exalted officers of the State in the position of a legalized banditto’.

That aside however, today, companies’ management systems that puts managers and bosses as the supreme single ‘buyer’ of ideas (monopsony for ideas as Gary Hamel of London Business School pointed out in The Future of Management) is costing innovation more. Unlike the British patent system, which was repeatedly boycotted by inventors such as Charles Babbage, the traditional systems of management often could ‘hide away’ innovations and good ideas simply fail to get the resources or actions it needs to prove themselves or even be realised!

In my paper, I argued that the merits of the American system of intellectual property as it had evolved, was not so much the price for a patent, or the fact it operated by statutes rather than case laws (and therefore is effective even when it is not yet challenged in courts), it was the power by which it incentivised inventors and innovators to share and spread their ideas around. This allowed for the society to build more ideas upon them and even combine various ideas together to form new ones – each layers protected by the IP rights and allowing the system of agreements to form for the various inventors to share in the benefits of the resulting composite ideas. The corporation, in stifling ideas with its system of management, imposes huge costs on innovation and suffers for it. Often, it is not just good ideas which are lost but also idea-generators and good employees who leaves in frustration.

Doing the Tough Stuff

technology

Organic Growth for companies. Most of our Singapore’s small medium enterprises grow organically despite the introduction of much Merger & Acquisition support from the Singapore government such as M&A Tax Allowance (which was enhanced following the 2015 Budget) . In challenging times, even larger companies may still want to conserve cash to be invested internally rather than go on an M&A ‘spree’ – that is if they believe that they will be able to emerge larger after the temporary downturn.

To the end of doing the tough stuff called sticking to organic growth, McKinsey has a couple of pretty good questions to ask oneself when planning strategically for value creation along short to long-term timescale.

How balanced is our portfolio? If we take our portfolio of growth and innovation initiatives and plot them against NOW NEW NEXT, how balanced does the distribution look? Do we have a perspective on which of the six “growth plays” would be successful in our business?
Who is thinking about disruption? Are we as systematic in NEXT as we are in NOW? Is anyone tasked with disrupting our core business—or are we leaving it up to competitors? What are we doing to explore additive business models?
Are we limiting our horizons? In exploring NEW opportunities, do we impose limiting mind-sets on how we define consumers, our category, or the addressable channels?
Do we use advantaged insights? Do we rely on the same data and insights as our competitors—or do we have a source of distinctiveness?
Are we agile enough? Have we been able to accelerate our time-to-consumer and time-to-market? Or are we still stuck with cumbersome and slow innovation processes?

Source: Now, New, Next: How growth champions create new value.

Ultimately, these questions may also start leading companies to consider acquisition in the mid to long term horizon where threat of disruption may force even very niche companies to place some hedging bets through incubation of related peripheral technologies.

Coercion of Free Markets

Inequality is a market failure. We do pick this up in A Levels but then there’s little discourse on that. Not only do we dwell little on the solutions – which ranges from progressive taxation to welfare handouts – we ultimately ignore how inequality undermines the ultimate roles of markets, which is the efficient allocation of resources. I’ve always grasp the idea rather intuitively but then fail to deliver it in a philosophical and economics framework. I’ve pointed out the lack of philosophical musings in today’s study of Economics when I introduced Michael Sandel’s lecture on Markets and Morals.

I’ve always pose the question to my Economics student, if a person earns $1000 a month and another who earns $1 a month both needs a glass of water. The rich guy is willing to pay $10 for the water while the poor one is willing to pay $1. The market thus allocates the water to the rich man. We all know that this allocation is problematic and it doesn’t seem efficient; how is it that, in terms of willingness to pay, a person who is only willing to part with 1% of his monthly income gets the good when another is willing to part with 100% of his monthly income for it? So what exactly is the problem of inequality?

Once again, Michael Sandel points this out in the second lecture presented in this video. You don’t exactly have to watch the lecture in order to grasp the point but the idea is that when inequality (in terms of unequal distribution of income) exists, effective demand cannot properly reflect the ideal sort of demand signal transmission that would allow the market to allocate resources efficiently. In extreme cases, free markets becomes not entirely free. In other words, people are not transacting out of their free will but coerced by their own economic circumstances. We see this very often in the case of poor people in developing countries who are forced to sell organs, resort to prostitution, act as surrogate mothers, become a runner for crack.

Gary Becker is not wrong about the rationality of these people. They’re making rational choices but it is often that their choices is very much limited. That unfeeling market processes coerce us into certain decisions is something close to the hearts of all of us. Often, however, we can’t quite work out what is so unjust about that because we believe that to a large extent, we determine our riches. Somehow, deep in our hearts we know that some other decisions that we made caused us to be in the state we are in such that we are coerced into making that next decision. The fact that this argument comes back to us shows how each and every decision made in the marketplace by us are not independent. This makes for a determinism argument in a market setting where free will is supposed to reign.

There are much wider implications of all these arguments and I shall explore them if I get the chance.

Governing Economics

Many have attributed the housing bubble that eventually resulted in the Subprime Mortgage Crisis to the previous, one of the longest serving Federal Reserve Chairman, Alan Greenspan. We are pretty familiar with Greenspan, who have written Age of Turbulence. In his book, he highlighted his general argument against anyone who would finger-point him as allowing a bubble to inflate. He pronounce that it is impossible for anyone, whether the regulatory body or not, to accurately identify a bubble.

As for the Subprime Mortgage Crisis, politicians in the United States still blames it somewhat on Alan Greenspan and now that everything is cooling down, Greenspan offers his own defence. Although Greenspan was nicknamed ‘the Maestro’, he subtly attributes the period of great prosperity and low inflation to the globalization forces and technological advancement more than his skills at handling the monetary policy of US. In any case, he outlines his job at the Federal Reserve as an observer trying his best to keep to fundamentals of the economy and the crisis therefore comes as a surprise both because of how the economic agents have basically defied market assumptions namely on the issue of counter-party surveillance. Essentially the government cannot possibly provide the ‘self-interest’ that is supposed to drive the free market.

No one says that managing the economy is an easy job. Sound economics decisions by governments often turns out to be political disasters anyways so sometimes politicians stop heeding economists altogether. The recent issues that confront Tim Geithner is essentially similar; the economy is picking up thanks to his plans but people are unhappy with him. Figures on employment are not helping him anyways since the recovery is ‘jobless’ so to speak. Management of the economy is a huge balancing act for the government.

The idea of government has gone really far since the days of Locke’s conception of the social contract. The philosophy of governance in the modern world is just getting more complicated.

Stealth Marketing

I frequently go on to Apple Trailers to look out for interesting movies that are upcoming or that I’ve been missing out. They offer a good mix of films from Hollywood as well as some independent film makers. Recently, The Joneses caught my attention. Their own movie site is not exactly ready yet but here’s the synopsis from IMDb:

“The Joneses”, a social commentary on our consumerist society. Perfect couple Steve and Kate Jones, and their gorgeous teen-aged children Jenn and Mick, are the envy of their posh, suburban neighborhood filled with McMansions and all the trappings of the upper middle class. Kate is the ultimate trend setter – beautiful, sexy, dressed head-to-toe in designer labels. Steve is the admired successful businessman who has it all: a gorgeous wife, big house and an endless supply of high-tech toys. Jenn and Mick rule their new school as they embody all that is hip and trendy – cool clothes, fast cars and the latest gadgets. But as the neighbors try to keep up with the Joneses, none are prepared for the truth about this all- too perfect family.

Obviously, the title comes from the English catchphrase, Keeping up with the Joneses but the idea is interesting. The Joneses is a perfect family made up to market goods to the upscale gated community by a stealth marketing organization. I do suspect that big companies does this sort of things at times but probably more through viral marketing than to consciously employ people to befriend potential customers and introduce goods to them. Whether this is considered ethical, is perhaps what the movie is exploring.

In a sense, the movie calls for a reflection on how social forces are increasingly shaping our economic lives, and at the same time questioning the value of relationships.

Dot.con

I’ve recently finished John Cassidy’s Dot.con I got from library many days back. John Cassidy is a staff writer at The New Yorker and I always liked his writings about Economics. I’ll probably find a chance to lay my hands on his latest book, How Markets Fail: The Logic of Economic Calamities soon.

Meanwhile, Dot.con have been an interesting read. It’s an old book, no doubt. I believe reading about the Internet Bubble now seem rather weird given that it has happened a while back and don’t appear to have any immediate relation with what I’ve been working on. Still, I think that events like this have lessons to offer that are often missed out and I was looking to read something a little further back given that I’ve been updating myself with The Economist all the time. John Cassidy didn’t fail me, starting his story from the time when the technology was developing for the rise of modern Internet, describing the roles that the US military and government played in its conception, research funding and even implementation. He combines the events leading up to year 2000 with interesting comparisons of speculative manias of the past and talks about retrospective telltale signs of irrationality.

He introduced me to Charles Mackay and his writing, Extraordinary Popular Delusions and the Madness of Crowds. I subsequently realised I had the sections of Charles Mackay’s book in my 4-inch tome, The Real Price of Everything by Michael Lewis. Those pieces have just been added into my reading queue.

Cory Johnson reveals that John Cassidy was a rare skeptical voice with regards to the Internet Boom, but failed to live up to the promise of the title of the book:

Indeed, he is unable to dismiss the most fundamental notion (a mantra among the true believers) that the Internet changes everything. Despite the stock market meltdown, almost any reading of the evolving business practice wrought by the Internet suggests that more dramatic changes are yet to come.

In a sense, the Internet is not quite exactly an illusion so to speak. But I don’t think that was what John Cassidy was driving at. His idea is that business fundamentals have been abandoned during the period and it shouldn’t have been. The numbers he cites about businesses losing money even as stock prices climb is startling. He might have been against the arguments of the New Economy though, and he could have supported his argument with the fact that falling prices (with economic expansion) isn’t entirely an internal affair of US but a result of the external forces as well.

I’ve enjoyed the little stories told by Dot.con surrounding the whole boom and crash of the Internet, especially those about individuals trapped in those industries contributing and taking part of the boom. Besides that, Dot.con serves as a good look at human behaviours during a speculative mania.

Imperfect Information (Processing)

The Economist ran a special report on Managing Data, which is really about how to Data have become really abundant in our world today and how it might help us at all.

It is interesting how I have got a friend who once commented that all forms of market failure is a result of imperfect information. He says that people are consuming too much or too little of a product because they don’t have perfect information about the impact of the products, and so basically all the inability to analyse cost and benefit is a result of imperfect information. Likewise, to this friend of mine, technological advancement is basically slowly discovering information, truths that we previously know nothing of. Of course, that’s a little extreme and basically demanding perfect knowledge as well. For him, perfect knowledge would naturally be attained from having sufficient information.

The digital age ushered in lots of information; so much that we don’t have enough time to process them. In fact, even cataloguing them might be troublesome enough and the process generates meta-data, which in fact is information about information. They would prove useful though they actually add to the information heap. Say for example I give you a quote:

The setting sun, and music at the close,
As the last taste of sweets, is sweetest last,
Writ in remembrance more than things long past:

If I don’t provide the source, it’s not particularly helpful unless you’re able to identify it from just the content. It’s from Shakespeare’s The Tragedy of King Richard the Second. But then that’s just a little bit of metadata; there’s more: it comes from Act II Scene I. And even more: it’s from Line 14-16. The ability to manipulate all these data themselves would create more information too. And they all might just prove to be way too much.

Economics have definitely become more complex thanks to the flood of information. Technology has allowed suppliers to maintain tighter inventory and reduce idle capacity but reality seem to drift further away from classical economics even as the economic agent are becoming more equipped with the information necessary to create a more perfect market. It appears, the next big assumption of Economics about the real world that needs toppling is in fact the idea of independence.

Printing Stuff

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Imagine you need a square meter of light, perhaps for a single ’tile’ on the ceiling that emits lights at your building. You’d probably get contractors to make a box with circuits inside that connects to a couple of fluorescent tubes (or if you’re quite rich, a couple of LEDs) and then cover the thing with a translucent white piece of acrylic. The entire structure is bulky and probably quite energy consuming. Now, scientists have found a way to make a ‘sheet’ of LED that would allow you to make that ‘lighted tile’ much more easily and is also much more compact. Essentially, the technology allows you to print a circuit that is wired in a way that acts as a diode, and one that emits light.

And since we’re at the issue of printing stuff; we mentioned previously about industrial prototyping machines that churns out 3D structures/models. I was quite intrigued by the idea of being able to print out a peg for your clothes or even design a shoe that fits you perfectly. But perhaps even more amazing would be the ability to print out cells, tissues and even organs as reported by The Economist.

The article mentioned about growing organs from scratch and raised the example of bladders being grown from original cells of patients. Essentially the patients are donating organs to themselves; the same applies for the printing of organs. The idea is appealing because there’s nothing artificial about them beside the involvement of doctors in the process of growing the cells and putting them together – ultimately the organ is still organic and from the patients. Perhaps then, Iran’s model for kidney donation won’t be so appealing anymore.

Biz Connect

Just recently, The Economist was tabulating the impacts of social networks and featured significant discussion on their impact on the business. The Big Money has a list of top 50 brand names (they call them ‘companies’) that has been doing well on Facebook as a social media vehicle for their brands. It appears that Facebook have become some sort of brand management tool that is carefully balanced with fans/consumer followings and interactions. As applications proliferate on these social networking platforms, there is a risk that all these commercial stuff are crowding out the actual social messages that are being sent over it. While

Google recently produced Buzz as I’ve highlighted previously, and The Economist thinks that it’ll hardly do much to dent the influence of Facebook and Twitter.