Bargaining Power in the Streaming Industry

Does Roku need WarnerMedia more than WarnerMedia needs Roku (WSJ, Dec. 2020). Also, who is buying and who is selling? "Roku initially paid media companies to license content for the channel. But lately, Roku has demanded programming from media companies as a toll for carrying their apps, people familiar with Roku negotiations said. If media companies provide enough compensation to Roku in other ways, such as ad or subscription money, the company relaxes its demands for Roku Channel programming."

Bargaining Power of Suppliers

"Peter Jackson’s Special-Effects Firm Looks to Become a Content Producer" is an example of forward integration (WSJ, Dec. 2020).

Are you willing to accept a lower interest rate to lend to green projects?

Borrowers get slightly lower interest rates when they sell "so-called green bonds" (WSJ, Dec. 2020). The difference, called the greemium, means that lenders receive a lower interest rate. I am confident that corporations will be more socially responsible when being responsible results in lower costs and higher prices.

Another dim view of stakeholder capitalism

"Since profits result from increasing revenue and cutting costs, businesses that put profits first have to work hard to give customers more while using less. In short, profits are an elegant and parsimonious way of promoting efficiency within a business as well as society at large.

Stakeholder capitalism ruptures this process" (WSJ, Dec. 2020).

The writer identifies four reasons that CEO's might sign on to the Great Reset.

1. Some people ... may simply prefer that firms take politically correct stances and don’t consider the cost. 
2. Others may think it looks good in a press release and will never go anywhere. 
3. A third group may aspire to jobs in government and see championing corporate social responsibility as a bridge.

4. Finally, there are those who think they can benefit personally from the reduced corporate efficiency. As businesses redirect cash flow from profit-directed uses to social priorities, lucrative positions of management, consulting, oversight and more will have to be created. They’ll fill them. This is rent-seeking, enabled by the growing confluence of business and government, and enhanced by contemporary social pieties.

Pricing during COVID

Here are great examples of firms using better pricing techniques during COVID (WSJ, Dec. 2020).

How to improve accountability for social responsibility

Edmansand and Gosling point out flaws with focusing on purpose rather than profit and offer a suggestion about how to increase accountability for corporations pursuing purpose (WSJ, Dec. 2020).

How to become a billionaire

Paul Graham says that the best way to secure YC funding is to convince the investors that "what you're making will ever be something a lot of people want" (Paul Graham, Dec. 2020). 

Here are some money quotes:

1. "So this is one thing the YC partners will almost certainly dig into during your interview. Who are your first users going to be, and how do you know they want this? If I had to decide whether to fund startups based on a single question, it would be "How do you know people want this?""
2. "The worst advice I ever heard about how to succeed in a YC interview is that you should take control of the interview and make sure to deliver the message you want to. In other words, turn the interview into a pitch. ⟨elaborate expletive⟩. It is so annoying when people try to do that."
3. "If professional billionaire scouts know that exploiting people is not the skill to look for, why do some politicians think this is the defining quality of billionaires?"
4. "The most reliable way to become a billionaire is to start a company that grows fast, and the way to grow fast is to make what users want. Newly started startups have no choice but to delight users, or they'll never even get rolling. But this never stops being the lodestar, and bigger companies take their eye off it at their peril. Stop delighting users, and eventually someone else will.

The case for having women on the board

 

WSJ Oct. 2020

Will money managers increase diversity?

"David Swensen is the veteran investment chief of Yale University’s $31.2 billion endowment. Earlier this month, he told the dozens of firms that manage Yale’s money they would be measured on their progress increasing the diversity of their investment staffs" (WSJ Oct. 2020).

Let's conduct a thought experiment. Suppose that the executives face incentives that encourage them to maximize returns on the money they manage. 

1. If executives know that diversity increases returns, would Yale need to measure progress on increasing diversity? Would the threat of moving to another company align the interests of Yale and the money managers?
2. Under what conditions would the threat compensation improve the alignment the interests between Yale and the money managers?
3. Under what conditions would the mandate and compensation misalign the interests?

Does having labor sit on the board increase wages?

  

This paper says that the answer is,"No".

I predict that Starbucks will report more diversity in its workforce by 2025

"Starbucks Corp. SBUX -0.68% said it would mandate antibias training for executives and tie their compensation to increasing minority representation in its workforce" (WSJ Oct 2020). 

Let's conduct a thought experiment. Suppose that the executives face incentives that encourage them to maximize profit (or value). 

1. If executives know that antibias training and minority representation increase profit, would Starbucks need to mandate antibias training and tie compensation to increasing minority representation? Would the mandate and compensation improve the alignment the interests of the executive and owners?
2. Under what conditions would the mandate and compensation improve the alignment of the interests of executives and owners?
3. Under what conditions would the mandate and compensation misalign the interests of executives and owners?

Why is the information flow so bad?

The search for space beds in nearby hospitals when a hospital is overrun with COVID-19 patients is difficult because the information flow is poor (WSJ, Sept. 2020). The piece highlights the importance of good information flows. It also raises the question, "Why is the flow so bad?" I suspect that Rational Actor Paradigm illuminates. I suspect that decision rights to determine how the information is collected and disseminated are ambiguous and that the incentives facing the (potential) deciders are weak.

Is selling electricity to yourself below the market price part of a good business model?

Nikola's business model involves producing electricity cheaply and then selling the electricity to itself for less than it would pay to purchase electricity from other producers (WSJ, Sept. 2020). Critics might wonder if the firm has the ability to produce electricity cheaper than current producers. A more fundamental question is, "Does the firm maximize profit by selling electricity to itself at below-market prices. The market price is the optimal transfer price when a competitive market exists for the input. Nikola intends to violate this rule. Nikola could increase profit by selling electricity in the market at the market price rather than subsidizing costs of its trucks.

Is GM responding to economies of scale or scope?

"For years, the mantra in the capital-intensive car business has been that bigger is better. But in nearly seven years running GM, Ms. Barra has found success with an unlikely strategy: shrinking a company that for much of the 20th century was the nation’s biggest corporation by revenue and profit."

"GM now makes cars or parts in just nine countries, down from 25 before Ms. Barra took over, and employs 164,000 workers today, 25% fewer than before. Her get-smaller approach is especially unusual because it came at a time of prosperity in the car business.

Global industrywide auto sales have risen 9% since the year Ms. Barra became CEO. GM’s sales fell 25%."

"The moves have, until recently, helped GM notch record operating income and profit margins."

WSJ, Sept. 2020

The article also discusses GM's attempts to position itself to prosper as consumers move to electric vehicles.

What CEOs think about WFH

Quotes from WSJ, Sept 2020.

Is the future of work a blend of working @ "work" and WFH?

Tech companies are finding ways to bring people physically together to create "opportunities for collaboration and focus workers can’t get at home" (WSJ, Sept 2020).

Advantages of working @ work

One company thinks that Zoom meetings are poor substitutes for putting folks together in a room (WSJ, Sept 2020).

Does serving stakeholders also serve shareholders?

This opinion seems to say that the answer is, "Yes" (WSJ, 2020).

Reasons to hire management consultants

Here are reasons to outsource management consulting (Marginal Revolution, Aug. 2020).

Jordon Peterson on how to negotiate a raise

He advises you to not to be too agreeable and to point out your options.

Virtue Signaling or Real Change?

This editorial argues that the recent statement by CEOs at the Business Roundtable is more show than real (WSJ, August 2020).

Lessons firms are learning about WFH

"Perhaps the biggest lesson is that we’re in the middle of a gigantic, unplanned experiment, and companies need to continue to try new things while rapidly discarding what doesn’t work" (WSJ, July 2020). Read the article for 5 more lessons.

Cracks in WFH

Working from home is not a panacea (WSJ, July 2020).

Who produces Kirkland products for Cosco?

In many cases, the same folks who produce the brand name product. (Napkin Math, July 2020). Except, Kirkland product must be 1% better.

Posts from an old blog on Organizational Architecture

https://e610vcu.blogspot.com/search/label/Organizational%20architecture?fbclid=IwAR2_9sDNY2FxjorjBmGxCwr_sW2DU-ZKVz7tdBr-dbrP3ljgzRJkt_9qGhI

Lenders should worry about both adverse selection and moral hazard

This piece argues that Income Contingent Lending reduces adverse selection and moral hazard relative to Income Sharing Agreeements (RealClearEducation, July 2020).

Apple integrates vertically

Apple has decided to produce its own chips instead of buying them from Intel (WSJ, June 2020 and WSJ, June 2020). I wonder if specialized investments or contracting costs increased?

An intelligent piece on the future of WFH

Big tech and universal telecommuting

by  Tyler Cowen June 20, 2020 at 2:12 am in 

• Economics
 
• Web/Tech

It has gone great so far, but I don’t think it is socially optimal to be doing this forever.  Here is my latest Bloomberg column on that topic, 2x the usual length, excerpt:

If Twitter, Facebook and other tech companies shift toward everyone working from home, it will mean less reliance on esprit de corps and morale to ensure performance, and more management using direct financial incentives and project- and output-based monitoring. Virtual tools can help organize teams, but they simply can’t replicate the intellectual frisson of “gathering the smart people” together, and this could damage performance and innovation.

And:

There is some evidence that when employees work at a distance, they don’t put in extra hours or extend themselves for the benefit of co-workers. That probably means a better work-life balance for many people, but perhaps also inferior performance from a lot of companies over the longer haul.

This move away from workplace morale as a motivator will help self-starter employees, but it may not be good for tech labor overall. In essence, without a local workplace ethos, it is easier to commoditize labor, view workers as interchangeable and fire people. The distinction between protected full-time employees and outsourced, freelance and contract workers weakens. A company can make the offer of, “If you hand in your project, we pay you,” to virtually any worker around the world, many of whom might accept lower wages for remote roles.

Bringing new workers on board is an especially difficult problem for this model.  In the short run, of course, that is a minor concern but over time it grows.

GE’s use of goodwill is puzzling

This piece discusses that GE’s puzzling use of goodwill. (WSJ, March 2019). The article reminds me of the case in the book where OVI inflated estimates of oil reserves. I think the decision was bad. “Increasing goodwill had the effect of enabling GE to avoid costs that would have reduced its earnings. Not writing it down delayed investors’ realization of how deep the conglomerate’s problems ran.” Three questions:

1. Who made the decision to inflate goodwill?
2. What information did they have?
3. What incentives did they face?

The process Boeing used to design 737 MAX

Here is a description of the The describes the process Boeing used to design 737 MAX (WSJ, March 2019).

1. What bad decisions did Boeing make?
2. Who make each decision?
3. What information did they have?
4. What incentives did they face?

Managers who apply the rational actor paradigm help their firms perform better

VoxDev reports that firms “that [set] sensible targets, [provide] proper incentives, and credibly [monitor]i performance”  and “boast rigorous performance monitoring, systems geared to optimize the flow of information across and within functions, motivational short- and long-run targets, and a performance system that rewards and promotes great employees while helping underperformers to turn around or move on” “are more productive, grow at a faster pace, and are less likely to die” (Vox, Jan. 2018).

How to ask for a raise or promotion

Here is a money quote: “Learning how to convince other people to give you what you want requires that you first figure out what scratches their itch. This means figuring out how to frame your raise as a win for your boss. The more closely your promotion is tied to fulfilling the boss’s needs, the more successful you will be” (WSJ, June 2020).

Olly has died

This obituary of Oliver Williamson describes the focus of his work and some of his main conclusions (WSJ, June 2020).

"All feasible forms of organization are flawed. We need to understand the trade-offs that are going on, the factors that are responsible for using one form of governance rather than another, the strengths and weaknesses that are associated with each of them.”

Post-coronavirus office space

How will office space be different when people return to work there (WSJ, May 2020)? Will it even be there?

Investment bankers WFH

This article describes how investment bankers are working from home during the coronavirus pandemic and discusses the reasons that they may or may not continue doing so after the pandemic (WSJ, May 2020).

Why Remote Work Sucks, According To Science

Planet Money explains. Here is a key paragraph.

"Now, with COVID-19, about a third of the workforce is working remotely, and this transition hasn't been easy. At Planet Money, we're facing issues like how to replicate studio-quality sound at home and how to maintain team comradery through cameras on our computers. We're not alone. According to a recent survey by the Society of Human Resource Management, over 70 percent of employers report struggles with shifting to remote work. Another survey by PricewaterhouseCoopers finds that about half of companies believe they are witnessing a dip in productivity with this shift."

The report also mentions the study that formed the basis for an earlier post, "Does Working from Home Work?"

This opinion discusses ways that employers can protect workers from coronavirus (WSJ, April 2020). The list is long.

Does working from home work

This article illustrates some of the questions that economists ask about working from home (WFH). It reports some answers. It appears in the Quarterly Journal of Economics, one of the most prestigious journals in the field. Here is a summary, courtesy of Marginal Revolution:

A rising share of employees now regularly engage in working from home (WFH), but there are concerns this can lead to ‘‘shirking from home.’’ We report the results of a WFH experiment at Ctrip, a 16,000-employee, NASDAQ-listed Chinese travel agency. Call center employees who volunteered to WFH were randomly assigned either to work from home or in the office for nine months. Home working led to a 13% performance increase, of which 9% was from working more minutes per shift (fewer breaks and sick days) and 4% from more calls per minute (attributed to a quieter and more convenient working environment). Home workers also reported improved work satisfaction, and their attrition rate halved, but their promotion rate conditional on performance fell. Due to the success of the experiment, Ctrip rolled out the option to WFH to the whole firm and allowed the experimental employees to reselect between the home and office. Interestingly, over half of them switched, which led to the gains from WFH almost doubling to 22%. This highlights the benefits of learning and selection effects when adopting modern management practices like WFH.

Big Brother is Watching

Firms are using software to monitor employees as more of them work from home (WSJ, April 2020). The piece reports several advantages and disadvantages. Here is a money quote.

"'We realized we didn’t know what was going on.' he says. 'We were just worried that we were losing productivity.'”

Bad information flows and its consequences

A psychologist
describes why people lie at work and the damage it does (WSJ, April 2020).

This opinion has good advice for firms who want to have employees work remotely (WSJ, March 2020). Here is a money quote.

"In a world we anticipate, a world where work never really returns to the office, the most important factors for success will be ample trust, mutually agreed-upon norms, good communication and a strong and validating work culture.

"Technical collaboration tools are important too, but not nearly as vital as a good foundation. It might seem daunting to build that foundation on the fly, as we are (sometimes literally) changing the way we work overnight. But a great deal of it is transferable. Every office, physical or otherwise, runs more smoothly when lines of communication are open, when guidelines and rules are clear. Now, we will need to be that much more explicit about articulating those norms."

Use A/B testing to learn about your consumers

A review of two books touts the benefits of A/B testing (WSJ, March 2020). The focus of the books is on the best way to design the consumer's online experience. A/B testing can also be used to test product features and pricing.

Auto manufactures are integrating vertically to produce electric cars

"In a slick investor presentation Wednesday, Ms. Barra made the case why investing in batteries made financial sense: More control over the supply chain would give GM leverage to push battery costs down to a level that would make electric vehicles both attractive to consumers and profitable.

"As Tesla’s market value has rocketed, the question of whether consumers are ready to buy electric cars has given way to whether manufacturers are ready to make them. More industry leaders are concluding that the only way is to embrace a form of vertical integration that has been out of fashion for decades" (WSJ, March 2020).

Several questions come to mind.

1. Would investing in tires give GM leverage to push tire costs down? If so, should GM invest in tire production? In rubber plantations? 
2. GM must think that the answers to Q1 are "No". GM does not produce tires and has not announced plans to do so. What makes batteries a good investment but not tires?  

The Internet is a scary place

"Price customization" is common on the Internet (FindLaw, June 2005).

Here is a short history of pricing and how the internet is opening up new avenues for firms to follow to increase price discrimination and profit (The Atlantic, May 2017).

Paying everyone at least $70,000

A boss in Seattle has increased profit by taking a pay cut and paying employees at least $70,000 per year (BBC, March 2020). He says that his life is better.

Jack Welch on motivating employees

Jack Welch on motivating employees (WSJ, March 2020).

(Mis-) Alignment of Interests @ AmEx

Salespeople for AmEx earned large bonuses but used "questionable sales tactics" (WSJ, March 2020). How would you improve the organizational design?

How to start a grant application: BLUF

Bill Wadge says the best way to start a grant application is with, "I have an idea, here it is, and here’s why it’s good." He laments that too often the opening is, "I have an idea but first let me give you some background..

Maybe Screening is Overrated

This firm hires the first person who can answer "yes" to three simple questions (Fast Company, Feb. 2020).

Adverse Selection, Moral Hazard, and Hidden Costs in the Self-Checking Line

Self-checking makes theft easier (WSJ, Feb. 2020).

1. Who is more likely to self-check, an honest person or someone who is inclined to minor theft if the chance of detection is low?
2. When is an honest person more likely to engage in minor theft: when a self-check machine goofs or when they are in front of a cashier?
3. Do you think that stores accurately anticipated the additional shrinkage created by self-checking?

The Demand for E-Cigarettes is Elastic

"We then calculate an e-cigarette own-price elasticity of -2.6 and a positive cross-price elasticity of demand between e-cigarettes and traditional cigarettes of 1.1, suggesting that e-cigarettes and traditional cigarettes are economic substitutes" (Cotti, Chad D. and Courtemanche, Charles and Maclean, Catherine and Nesson, Erik and Pesko, Michael and Tefft, Nathan, The Effects of E-Cigarette Taxes on E-Cigarette Prices and Tobacco Product Sales: Evidence from Retail Panel Data (January 2020). NBER Working Paper No. w26724. Available at SSRN: https://ssrn.com/abstract=3535316). 

Two questions.

1. If the government increases the tax on e-cigarettes by $1, what happens to the optimal price and unit sales?
2. Given your answer to (1) and presuming that the price of traditional cigarettes remains constant, what happens to unit sales of traditional cigarettes?
3. What is the quick estimate of the price elasticity facing an individual seller if the market contains 4 sellers? "We calculate a Herfindahl–Hirschman Index of 0.251 for e-cigarette retail purchases".

A Tale of Two Cultures

Netflix has a corporate culture. I think that the culture is consistent with its mission and compensation scheme.

George Washington University is trying to create / impose a corporate culture. The blogger is critical.

How do All-You-Can Eat Buffets Minimize Moral Hazard?

This story describes tricks all-you-can-eat buffets use to keep diners from eating all the profits.