Jimena Fernandez brings up important points when she exposes the value of respect in maintaining great employees and succeeding as a result. I agree that incentives are fantastic at letting employees know that you value them. However, I diverge just a little when she emphasizes the use of money as incentives.

“Behavioural Economics” is an absolutely fascinating new area of business that is emerging quickly as the solution to human irrationality in business and economics. It addresses topics just like incentives. Here’s how it works:

1. People naturally expect that if you pay more, you’ll receive better returns.
2. A Behavioural Economist looks at that problem and says “hmm… something’s fishy here.”
3. Using scientific experiments, behavioural economics concludes that as the amount of the pay incentive rises within a certain bracket, people actually perform worse.

In short, Behavioural Economics is intended to identify the disastrous mistakes that we make. It’s unwise to not consider behavioural economics – see how Bank of America just put themselves between a rock and a hard place.

I hope that Sauder provides a BE class in the next few years. I strongly believe it will revolutionize business in the next ten years. It’s incredibly useful and very practical – simply because it bridges the gap between complex systems and relatively simple people.

Note: I have been enamoured with Behavioural Economics after reading Dan Ariely’s game-changing book a year and a half ago. Seriously, go read it. Then the sequel. They will blow your mind.

 

There has been a lot of talk about the coming “age of green technology.” The popular notion is that green technology (in particular solar panel technology) is getting far cheaper – by 7% every year – as fossil fuels and natural gas become more expensive and less attractive.

Source: Renewable Energy Index

Source: Renewable Energy Index

However, even as prices tumble and companies flock to renewable energy, we might not find ourselves in the fantastical world of solar very soon. Why? Basic business is slowly killing solar.

As explained by Adam Smith Institute blogger Tim Worstall, profits from solar are diving because there’s an improper mix of competitive economics and private property. Solar is hard to patent and protect, and so it is very easy to get into. Thus, prices are being driven down by an influx of companies. The only way those companies can stay alive is by continually refining production methods and making every aspect that bit more efficient and inexpensive.

It’s fantastic for the consumer to see such drastic increase is solar power accessibility. It’s fantastic for the supplier that can compete in this price and production war. But it’s terrible for those companies in what I believe to be a “green energy” bubble. Investment is pouring in, but for how long can profits be pouring out?

Alison Buchanan is very right: it is remarkable that Groupon has stayed afloat. It’s only 2 weeks public and the stock has already dipped 15% in the first three days, has soared 6% in one day, only to dip 3% another day. Good and bad, Groupon is outperforming the markets.

Groupon’s volatility is just too much for me.

Source: Cartoon Stock

When Murray Carlson presented to us, markets closed 2% higher. We discussed just how incredible that was. It was all based on the financial security of an entire continent. Not a new tech business.

I disagree with Alison, because I can’t see Groupon succeeding under such volatility. Such highs and lows suggest that Groupon’s price is determined by speculators “just wanting to ride the newest wave of technology.” Its market performance isn’t driven by financial status and possibility.

Besides, what does Groupon really have that makes it secure? For starters, it’s got fake assets. But that’s all figured out now.

Instead, Groupon destroys businesses, and profits immensely. Once business realize they are being cheated – and that with so many other Groupon knock-offs, they could do better elsewhere – they will move away. And Groupon will suffer, stock price and company worth alike.

This is in response to Alison Buchanan’s post praising Groupon’s IPO.

In my 30-minute break today, I decided that I wanted to learn about currency trading. I turned to my self-education resource, Khan Academy. KA is an incredible exemplar of innovation. It has guaranteed schooling for impoverished youth in remote areas, revolutionized education in certain American districts, and received backing from very influential parties – most notably Google and Bill Gates.

[youtube=https://www.youtube.com/watch?v=UuMTSU9DcqQ]

Most incredible, however, is that Khan Academy is completely free. One 33 year-old Harvard MBA runs it all from inside his closet.

Khan Academy is a non-profit organization. I know, a non-profit isn’t technically a “company” (actually, in the UK it could be) but for all purposes, Khan Academy really is a company: it manages an inwards flow of money (donations = investments, with “social” returns¹), provides a product, creates demand, and maintains “customers.” Despite not being a formal company, Khan Academy is making millions.

Khan Academy has transformed over the years from simple video clips about few subjects to a comprehensive library of knowledge. The next step for the creator, Salman Khan, has been to develop online education systems (also free) that not only provide more detailed and useful information about a student’s capability, but also allow for the rapid learning that is promoted in Khan Academy’s motto. The new education systems are being hailed as truly game-changing programs.

According to Schumpeter, Khan Academy has 3 of the 4 entrepreneurial characteristics: it has expanded its catalogue of products; it’s hitting new markets; it’s using new methods of organization.

The only thing Khan Academy isn’t changing is its production methods. Sal still operates out of his closet.

Source: CNN Money

Note 1: I made up “social returns” to mean when someone invests, or donates, and expects in return — for themselves or for others –the ability to continue using the product/service. In other words, the value that they get from the service is the return on their investment.

 

[youtube=https://www.youtube.com/watch?v=itoNb1lb5hY]

Source: Economist.com

It seems like common sense that smartphones and tablets will out-sell personal computers in the next year. Ten years ago, the PC was the end-all of business technology needs; why would anyone need or bother to deal with something new? Well, we see the outcome being played out in real time.

The Economist’s Special Report on Personal Computers affirms that technology is indeed heading towards an ultimate goal: smart mobility.

The Impact

Mobility is an asset. Mobility can give detailed, accurate, and timely information, thus simplifying supply chains; mobility can increase job flexibility and thus satisfaction; mobility can be an access point for your customer.

Some even predict this explosion in tech can “win the jobs war.”

So What?

As a business student, I am truly lucky to have grown up beside rapid technological improvement. Taking from our lesson on MIS and BTM, a company gives itself security and opportunity if it can “ride the waves” of fads. Seeing the expansion of the internet, PC’s, cell-phones, and now mobile “smart devices” has taught me an important business principle: prepare for change and structure for flexibility, because nothing ever stays the same.

I suspect that technological mobility will become a staple in business. I wouldn’t be surprised if Sauder offers an “Efficient Technology in Business” course in the next few years.

Wise future businesspeople, take note. Here’s a fad for you.

Purina, a Nestlé company that sells dog food, has taken a brilliant step by marketing dog food… to dogs. Purina’s new TV ad will feature different noises that capture the attention of both owner and pet: toy-like squeaks, and high-pitched tones will alert dogs during the commercial, and Purina hopes that having pets run to the television screen will coerce owners to buy the Purina brand of dog food.

[youtube=https://www.youtube.com/watch?v=aA_lKnBm3M0&NR=1]

Rightfully, many see the ad as ingenious marketing. I see it differently. Purina’s simple ad sets a precedent by going beyond the limitations of commercials. The commercial takes flashing pixels and a message, and translates both into the physical world of your living room. Purina is engaging the average person (and dog) where they are remarkable unengaged.

It has happened in the past: touchscreen transformed the computer, video games transformed the TV, and augmented reality transformed mobile devices. These all share a common goal: interactivity.

To make something interactive, when it has usually not been interactive, is a complex achievement. Purina does it very simply and effectively. In 6 months, I strongly believe that this will be a marketing staple, thought of as “it’s so easy, why wasn’t it thought of earlier?”

Source: Blur Marketing

Prêt À Manger is a fast-food establishment based in the UK. It is now expanding to the US. Turnover is only 60% in an industry where the average is 300-400%. Prêt’s sales increased 40% in the past year. Further expansion is imminent. Customers are always served in 60 seconds or less; there is never a line. The food is always fresh.

So what’s the miracle formula? Good, great, fantastic HR.

Prêt believes that to make a great customer experience, you have to have great workers. Prêt accomplishes this through tested and unorthodox methods: mystery shoppers rate employees; rewards are many and diverse; opportunity for growth is endless; existing employees hire new employees through a vote.

I sincerely hope that businesses will take a lesson from Prêt À Manger. Prêt teaches three key principles:

1. The customer is the most important part of a business;
2. The employee is a top influential factor in customer experience;
3. Thus, hire great employees and keep them motivated and satisfied.

Often overlooked (especially in the food industry) is the quality of employees. Even more ignored is effective motivators. In this field, Prêt is a true innovator.

(The article is lengthy but very good!)

Note: When I was in England last year I visited a Prêt location. It was fast, easy, and pleasant; it was the best fast-food experience I’ve had.

In my last blog post, I showed how Groupon can destroy a business, if misused. After that blog post, I had one recurring question: why, if Groupon is so harmful, is it so popular? After examining different cases, I’ve concluded that the success of your Groupon depends on what you are selling.

Posie’s Café sold items with very clear costs and inflexible profit margins. Selling a tangible good can be very lucrative, but rarely does it yield a high profit margin. So, the key to a profitable Groupon is to sell a mostly intangible good – a service is ideal – with a high profit margin with low variable costs. 

Take this example of a spa that made $33,000 using Groupon. The spa offered a half-price deal and made a profit. The only costs were labour and relatively cheap supplies. A spa has few variable costs, and it largely uses already existing materials. The spa could almost be considered a service. (Note that the example below the spa is a material good distributor and that it might experience a loss.)

A message to business owners: before you consider a Groupon, it’s imperative to know whether you can afford it. If you’re selling a tangible good, there are probably better ways.