Monday, August 29, 2011

Decline and fall of Western Manufacturing - a pessimistic reading of Pisano and Shih (2009)

Those who don't know history are condemned to repeat it.

Unfortunately those of us who do know history get dragged right along with the others, because we live in a world where everything is connected to everything else.

Evolution Of Capabilities – Image for a blog post

Above is my visualization of Pisano and Shih's 2009 Harvard Business Review article "Restoring American Competitiveness." This is a stylized version of a story that has happened in several industries.

Step 1: Companies start outsourcing their manufacturing operations to companies (or countries) which can perform them in a more cost-effective manner. Perhaps these companies/countries have cheaper labor, fewer costly regulations, or less overhead.

Step 2: Isolated from their manufacture, companies lose the skills for process engineering. After all, improving manufacturing processes is a task that depends on continuous experimentation and feedback from the manufacturing process. If the manufacturing process is outsourced, the necessary interaction between manufacturing and process engineers happens progressively more inside the contractor, not the original manufacturer.

Step 3: Without process engineering to motivate it, the original manufacturer (and the companies supporting it in the original country, in the diagram the US) stops investing in process technology development. For example, the companies that developed machine tools for US manufacturers in conjunction with US process engineers now have to so do with Taiwanese engineers in Taiwan, which leads to relocation of these companies and eventually of the skilled professionals.

Step 4: Because of spillovers in technological development between process technologies and product technologies (including the development of an engineering class and engineering support infrastructure), more and more product technology development is outsourced. For example, as fewer engineering jobs are available in the original country, fewer people go to engineering school; the opposite happens in the outsourced-to country, where an engineering class grows. That growth is a spillover that is seldom accounted for.

Step 5: As more and more technology development happens in the outsourced-to country, it captures more and more of the product innovation process, eventually substituting for the innovators in the original manufacturer's country. Part of this innovation may still be under contract with the original manufacturer, but the development of innovation skills in the outsourced-to country means that at some point it will have its own independent manufacturers (who will compete with the original manufacturer).

Pisano and Shih are optimists, as their article proposes solutions to slow, stop, and reverse this process of technological decline of the West (in their case, the US). It's worth a read (it's not free but it's cheaper than a day worth of lattes, m'kay?) and ends in an upbeat note.

I'm less optimistic than Pisano and Shih. Behold:

Problem 1: Too many people and too much effort dedicated to non-wealth-creating activities and too many people and too much effort aimed at stopping wealth-creating activities.

Problem 2: Lack of emphasis in useful skills (particularly STEM, entrepreneurship, and "maker" culture) in education. Sadly accompanied by a sense of entitlement and self-confidence which is inversely proportional to the actual skills.

Problem 3: Too much public discourse (politicians of both parties, news media, entertainment) which vilifies the creation of wealth and applauds the forcible redistribution of whatever wealth is created.

Problem 4: A generalized confusion between wealth and pieces of fancy green paper with pictures of dead presidents (or Ben Franklin) on them.

Problem 5: A lack of priorities or perspective beyond the immediate sectorial interests.

We are doomed!

Monday, August 22, 2011

Preparing instruction is different from preparing presentations

The title bears repeating, as many people confuse instruction and presentation preparation skills and criteria for success: Preparing instruction is different from preparing presentations.

My 3500-word post on preparing presentations is exactly for that purpose, preparing presentations. I could try to write a post for preparing instruction, but it would quickly get to book size. In fact, I recommend several books in this post describing the evolution of information design in my teaching approach. (The most relevant books for teaching are at the addendum to this post.)

I made a diagram depicting my process of preparing for a instruction event (the diagram was for my personal use, but there's no reason not to share it; click for larger):

Preparing Instruction (diagram for blog post)

And, for comparison, the process for preparing presentations:

My presentation preparation approach

Because they look similar, I need to point out that the tools used in each phase of the process are different for presentations and for instruction.

I'm a big fan of participant-centered learning (though not necessarily the HBS cases that people always associate with PCL); the idea is simple: students learn from doing, not from watching the instructor do. So, many of the "materials" (more precisely, most of the time in the "plan with timing" part of the diagram) in an instruction event are audience work: discussions, examples brought by the audience (to complement those brought by the instructor) and exercises. These are not materials that can be used in a speech or a presentation to a large audience.

Also, while a story works as a motivator for both presentations and instruction, I tend to use exercises or problems as motivators for instruction. For example, I start a class on promotion metrics by asking "how do you measure the lift" of some promotional activity, and proceed from there. By making it a management task that they have to do as part of their jobs, I get some extra attention from the audience. Plus, they can immediately see how the class will help them with their jobs.*

There are presentations that are mostly for instruction purposes, and there are parts of instruction events that are presentations. But never mistake one for the other: preparing instruction is different from preparing presentations.

Though so much instruction is so poorly prepared that even the basics of presentation preparation will help make instruction less of a disaster, that's just a step towards instruction-specific preparation.

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*I have a large variety of exercises for each knowledge unit I teach, and they are not all of the form "here's a problem, what's the solution?" Some are of the forms "here's what a company is doing, what are they trying to achieve?" and "here's a problem, here's what the company is doing, what is wrong with that?"

Addendum: Two books on preparation (and delivery) of instruction, from the post describing the evolution of information design in my teaching approach:

Tools for teaching, by Barbara Gross Davis covers every element of course design, class design, class management, and evaluation. It is rather focussed on institutional learning (like university courses), but many of the issues, techniques, and checklists are applicable in other instruction environments.

Designing effective instruction, by Gary Morrison, Steven Ross, and Jerrold Kemp, complements Tools for teaching. While TfT has the underlying model of a class, this book tackles the issues of training and instruction from a professional service point of view. (In short: TfT is geared towards university classes, DEI is geared towards firm-specific Exec-Ed.)

Thursday, August 11, 2011

Why can't copyright "reformers" understand minor business points?

Copyright "reformers," or better yet copyright warriors (they're at war with copyright a lot more than they want to reform it) fail to understand some basic business points; that gets in the way of meaningful discussions about copyright. Which turns all discussions of copyright into politics.

My evidence of the copyright warriors' blind spot is this convenient video of Cory Doctorow giving the keynote address at SIGGRAPH 2011:

I agree that there have been some abuses of copyright law, but the whole address is marred by his failure to see value in anything other than content creation.

Here are some points that anyone with a minimal interest in the business of content would make:

1. Distribution is a value-added activity. This point needs hammering in, because there's a large subset of otherwise intelligent people who believe that distribution is some sort of parasite on the creatives. Because they don't understand the various functions of distribution beyond the physical movement of materials (or bits), they fail to see that financing, promoting, and filtering/bundling have a value of their own.

2. Revenue models are built with many elements. Another point that seems to escape the copyright warriors is that the hardware, the services of the brick-and-mortar bookstore, and customer support are cheap (or free) because the provider funds those services out of the revenues collected otherwise. When deciding whether to launch a new product (and at what price), companies take into account the costs and investments required and all the sources of revenue.

That's why restaurants charge a corkage fee. Yes, you can buy the same Chateau d'Proglos at Safeway for half the price, but the restaurant's markup on the wine is how it subsidizes the price of the meal. Yes, the very expensive meal is still subsidized by the drinks. Copyright warriors want to pay the subsidized price for the hardware and then escape paying the content prices that support that subsidy.* (Economists call this an horizontal externality.)

3. Ecosystems and their components don't fall from the sky. Apple had to develop the iTunes/iPhone/iPad ecosystems by actually paying money to engineers, designers, patent holders, and business consultants. Much of that money went into blind alleys, under the rubric of "acceptable business risk" and "cancelled project." The components of the ecosystem may be cheap to reproduce, but they were expensive to produce. (This problem is much larger in pharmaceuticals.)

When deciding on these investments, spending billions to develop their own chips and millions to design their interfaces, Apple and other companies look at total revenue projections, not just the small markup on hardware (yes, it looks big – to people who have no notion of the cost of capital or the failure rate for internal projects).

4. Corporations are not college bull sessions writ large. A corporation like Apple, Amazon, Microsoft, or Google is bound by a very large body of law and regulation. If a corporation fails to protect its intellectual property, for example, it soon loses its right to control it. Therefore, it's a fiduciary obligation of that corporation's management to use legal means to protect it. It's true that many companies manipulate the legal -- and sometimes the political -- process to their advantage. But failing to protect their copyrights would be a failure of the fiduciary obligation; a dereliction of duty.

Companies have some flexibility given the trade-off between the obligation and public relations, but the only cases that are visible are the ones where the trade-off comes on the side of the obligation; that many companies ignore violations of DMCA is obvious by the number of copies of Handbrake found in macs, for example.

5. There are good reasons for keeping one's ecosystem controlled (as much as possible) beyond revenue creation. For example, Apple's vetting of apps for iPhone/iTouch/iPad is in part a protection of Apple's brand equity, the part of which that says "apple is a safer product to use than others." (See also the footnote about the iOS payment system.)

6. Recent history shows the need for some copy protection. Not that it is very hard to defeat, but without it – consider the free distribution of music in the early days of file sharing – making a living out of content becomes very difficult. In other words, copy protection is necessary to have a consistent revenue model that can fund creative industries. Yes, you can write a book very cheaply, but what about TV shows, blockbuster movies, professionally recorded music, art photographs with professional models or in remote locales?

All these observations stem from the same point, the inability to see value created by other parts of the process involved in the consumption of content. Yes, there are abuses of copyright protection, made for simple revenue enhancement; but treating content as carrying all the value and the rest of the ecosystem as being somehow irrelevant – or as something that exists for the benefit of content creators only – is unbelievably myopic.

A first step towards a rational discussion of copyright is to accept that actions other than content creation have value. Cory still hasn't taken that step.

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* Here's the response to the "evil Apple wants 30% of all money spent through their platform," which is the corkage fee-equivalent: this can be avoided simply by having the customers make their purchases through the web site of the provider, even from the iOS product itself.

What that 30% fee is capturing is not just the price of convenience; what iOS is giving to the app is the credibility of "transaction via Apple," as opposed to "transaction via the web page of a company that makes the app." Is it hard to understand where the value comes from in this difference?

Yes, Amazon can complain, but they can easily use the Kindle app to tell their servers what sample the reader just ended, and to put the book sampled at the top of the recommendation list; Apple would probably get into serious trouble legally if it gave Amazon privileged treatment.

NOTE: I'm a fan of Cory's fiction and I agree that there are clear cases of abuse and even political use of copyright for nefarious ends. But to reform copyright we need to accept that businesses exist for the creation and capture of value and that includes businesses built around content. Pretending that the content business is somehow insulated from the rules of economics is myopic and ultimately self-defeating.

Monday, August 8, 2011

A problem with some analytics practices

I like Analytics, but it complements, doesn't replace, technical business knowledge.

Consider the task of loading sand onto a truck. A solution-focussed person sees a worker with a shovel, then optimizes that and creates a robot that shovels better than any human.

This is solving the wrong problem with advanced technology: a better solution is to have a conveyor belt, a vacuum-cleaner like appliance, or better yet put the sand in a funnel with a servo-controlled spout. (These are all technological solutions borne of a problem-focussed rather than solution-focussed way to look at the world.)

And this is the problem with some current Analytics approaches: they apply a lot of brain power to solve problems using an amateur approach (i.e. make a robot to shovel sand), as opposed to actually learning from the field that has studied the problem for a long time. (By some I mean a minority, though a noisy one; in my opinion – never humble ☺ – the rise of Analytics is one of the three best things to happen to management in the last ten years.)

When a principal from a Analytics startup proudly tweets the equivalent of "now we no longer have to shovel sand by hand" as if this was a great discovery, it's clear that there's a need for professionals who understand technical business material.*

(Some people think that business material is "common sense," at which point I ask them for their common sense way to value a complex derivative, to figure out the core resources of a competitor, to brief an advertising agency, to determine the appropriately-loaded cost for a decision, to reorganize a continuous flow production process given a change in preventative maintenance schedule, or to program a full media-supported staggered promotion through multiple distribution channels.)

For some reason a sizable fraction of people working in Analytics have an acute case of Dunning-Kruger's. Smart people, acting dumb.

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* To avoid embarrassing the person in question, I don't link to the tweet, but it was epic in its ignorance; it suggested that now we could stop doing something that hasn't been done by anyone with minimal marketing skills since the 70s. And anyone who had read a intro marketing textbook would have known that.

Observation: Serendipitously, when I was editing this post, iTunes chose to play Pink Floyd's Another Brick in the Wall (Part 2), the chorus of which is "We don't need no education!"