Differentiating Using Strategy and Technology

The Academy Awards were a few weeks back and the popular movie The Social Network was nominated for Best Picture. It didn’t win the award, but it did elevate Facebook into a cultural phenomenon. It’s no longer another website – it’s Facebook. People care about it like their Nike running shoes, Apple iPod, and Starbucks coffee.

Each of these brands has used slight advantages in their products to become the dominate company in the space. How or why does this happen? Well, first I’ll mention luck. It always plays a role. In addition to luck, it’s the people.

Individuals and teams within these companies differentiate their offerings. They do so within a cost structure that maintains competitiveness and they do so with an eye toward value. Most people think of value as what Wal-Mart offers. One product 10 cents cheaper than a competitor and that is true in a commodities evaluation. Paper towels are paper towels. Value becomes much more abstract when the offering – product or service – has an association related to it. Starbucks originally pulled people in because the coffee was stronger. The association was that it woke up better than other options. And Apple combats technophobia because they create electronic devices that are easy to use.

This value is marginal at first, but then it snow balls. Getting it to snow ball is the key and then building on that is paramount. Facebook used exclusivity as the differentiator and then opened up the site to ride the network effect. Now it can exploit it’s pure numbers for monetary gain.

Earlier this year Goldman Sachs in a backroom deal valued Facebook at $50 billion dollars. Valuations like this have some to speculate that there is another tech bubble. Groupon, Google, Facebook, and others are the poster children.

In the world of the internet, small differences in your products can be the difference in sinking or swimming. Because of that Silicon Valley is leading the way in an escalating war for tech talent. Google is offering $20,000 more than average to the people they’ve targeted. Some firms are teaching their employees how to be entrepreneurs. In Silicon Valley it’s an inevitability, might as well make it a perk.

Do I think its a new tech bubble? I don’t. How engineers are using the internet now is very different than 15 years ago. Now it’s used to implement strategies that were inconceivable just three years ago. New approaches can separate and new technology can accelerate. What goes into the making of a Best Picture? It’s more than just film, it’s artistry.

Teacher Pay and Motivation: What is Fair?

There are a lot of people hurting as this recession drags on. At least six million people have been without a job for more than six months. There’s anger.

And there’s resentment. Currently teachers are the target and it means a review of their total compensation. Pay, health benefits, pension, time off, and tenure are all seen as unfair in the face of the constant rhetoric of how US students are falling behind on international test scores. Logic says: poor test scores = poor performance = a loss of jobs. If you’re one of the six million people without a job that’s the bitter pill you’ve swallowed.

Although the focus is often on teacher pay, I don’t think that’s the case. The real angst is for tenure. And teaching is one profession that I don’t feel like pay is as important as it is in other industries. The sparkle in a kid’s eye as they figure out multiplication is the seminal motivator of most good teacher.

I’ve stated in other posts that I feel tests are over utilized as a measurement for teachers. Tests should be used to reinforce weak areas for kids development, but it should be coupled with something that kids produce. Creating something involves many more levels of learning, whether it’s creativity and problem solving or math and engineering, and that should be used to judge teachers.

Below is an interesting 60 Minutes report that highlights pay as a performance element for teachers:


February 2011 Jobs Report and Wages

Here are the job market and compensation numbers for February 2011 (based on the job report):

Net gain
of 192,000 jobs in the month
(Revised in March to a gain of 194,000)

  • Analysts expected an overall gain of 190,000
  • Private sector payrolls increased by 220,000
    • Private service producing industries added 152,000
    • Goods producing industries gained 70,000

  • December was revised to a gain of 152,000 from a revision of 121,000 and an original reading of 103,000
  • January was revised to a gain of 68,000 from a revision of 63,000 and an original reading of 36,000 gain
  • Payroll processor ADP reported an employment gain of 217,000 jobs
    • 46% of the 217,000 came from small business (firms with less than 50 employees)

  • 6.0 million people have been jobless for more than 6 months (long term
    unemployed) – down from 6.2 million last month
    and 6.4 two months ago

    • 43.9% of the unemployed are long term unemployed – up from 43.8% last month (the overall population count has changed resulting in one number improving positively, but another appearing to be negative compared to last month)
  • Employers
    announced plans to cut 50,702 jobs in February, a subdued number but a year over year increase (42,090 in Feb 2010)

Unemployment rate dropped to 8.9%

  • Analysts predicted it would rise to 9.1%
  • The unemployment rate dipped below 9.0% for the first time 21 months
  • Last month there was an oddity of a low increase in jobs but a large drop in unemployment rate. After further inspection this is the result of an unusual squeeze of the components to this equation Number of people in the workforce (civilian labor force) – number of people with jobs (employed) = number of unemployed people.
    • The civilian labor force shrunk a little more than a normal drop with people dropping out of the labor force and the number of people with jobs increased a touch resulting in a significant drop in the unemployment rate
    • The “Not in Labor Force” number rose by 2.4 million people from February 2010 to February 2011

  • The labor force
    participation rate is 64.2% (66.5% is average to good) – unchanged
  • The employment to population ratio is 58.4% – unchanged
  • The
    report, which is a broader group to count (workers who are part
    time but want to be full time and discouraged worker), dropped to 15.9% from 16.1%.
  • PMI,
    a measure of manufacturing pace, is 61.4% and the 21th consecutive
    month of readings over 50 percent. Anything above 50% means the
    machines are running
  • Service
    sector activity rose to 59.7%, up from 59.4% last month. It was the
    15th straight month of growth

Specific Segment Job numbers:

  • Manufacturing gained 33,000 jobs
  • Construction gained 33,000 jobs (lost 32,000 so an even start to the year)
  • Retailers lost 8,100 jobs
  • Leisure and Hospitality Services gained 21,000 jobs
  • Government sector lost 30,000, all state or local
  • Education and Health Services grew by 40,000 jobs
    • Health Care and Social Assistance grew by 36,200

  • Professional and Business Services grew by 47,000
    • 15,500 jobs gained in Temporary Help (lost jobs last month after several months of gains)

Wage (can be revised):

  • The average weekly paycheck (seasonally adjusted) is $647.56 – an increase of $1.94 and a $3.35 positive change from December, 2010. $19.08 gain in the last year (there’s been low inflation so this is good)
  • The average hourly earning (seasonally adjusted) is $19.33 – flat from last month
  • Average
    weekly hours and overtime of production and nonsupervisory employees on
    private nonfarm payrolls by industry sector, seasonally adjusted is
    33.5 hours, up slightly from 33.4

Bureau of Labor Statistics

An Economic Transition – Negotiate It

    Jurgis talked lightly about work, because he was young. They told him stories about the breaking down of men, there in the stockyards of Chicago, and of what had happened to them afterwwards – stories to make your flesh creep, but Jurgis would only laugh. He had only been there four months, and he was young, and a giant besides. There was too much health in him. He could not even imagine how it would feel to be beaten. “That is well enough for men like you,” he would say, “silpnas, puny fellows – but my back is broad.”
    Jurgis was like a boy, a boy from the country. He was the sort of man the bosses like to get hold of, the sort they make it a grievance they cannot get hold of. When he was told to go to a certain place, he would go there on the run. When he had nothing to do for the moment, he would stand round fidgeting, dancing, with the overflow of energy that was in him. If he were working in a line of men, the line always moved too slowly for him, and you could pick him out by his impatience and restlessness. That was why he had been picked out on one important occasion; for Jurgis had stood outside of Brown and Company’s “Central Time Station” not more than half an hour, the second day of his arrival in Chicago, before he had been beckoned by on of the bosses. Of this he was very proud, and it made him more disposed than ever to laugh at the pessimists. In vain would they all tell him that there were men in that crowd from which he had been chosen who had stood there a month – yes, many months – and not been chosen yet. “Yes,” he would say, “but what sort of men? Broken-down tramps and good-for-nothings, fellows who have spent all their money drinking, and want to get more for it. Do you want me to believe that with these arms” – and he would clench his fists and hold them up in the air, so that you might see the rolling muscles – “that with these arms people will ever let me starve?”

This is the beginning of Chapter 2 of Upton Sinclair’s The Jungle. Jurgis Rudkus, an immigrant looking for the American Dream – opportunity, is confident in his physical strength. He has an ability for stockyard work.

The Jungle is often cited as the catalyst for work reform in the US. It was published in 1905 and the industrial revolution was picking up steam; the transition from an agricultural capitalism into a manufacturing one was well underway.

Here we are a little over a 100 years later and another transition is under way. The economy is moving from being goods producing to services and intellectual based. And we are experiencing a fundamental change in the relationship between employer and employee. For instance unions were an off shoot of what Sinclair set in motion. Unions, or collective bargaining, raised the standards for total compensation for all workers. Health care, vacation, and pay levels all improved.

But in today’s age, unions have a dramatically smaller participation rate and there seems to be a general animosity towards them. I can reason for the low participation rate: they’ve served their purpose and are not seen as needed. But the animosity is sort of bewildering to me. I suppose it’s because of the handling of terminations. There’s a notion that someone in a union can’t be fired. For the most part that isn’t true. But I understand it portrays an unfair situation. We, as Americans, believe the best should be rewarded. And the opposite is true too: those that don’t perform are let go.

As I mentioned before, we are transitioning to a different nature of our economy. In a goods producing economy, unions play an important role because the difference in work performed is small. But in a intellectual economy the difference between someone who designs a new microprocessor chip and someone who monitors the ripeness of apples at the grocery store is vast. Should the two jobs only be differentiated by pay grades? Are health care, vacation, and other benefits a given? At one point they were, but with competition being so tough, they are all up for review.

In the long run, it’s tough to review cuts to benefits without the inclusion of the employee. The job structure of the economy assumes certain consistencies. Skills are acquired based on those consistencies – Wall Street pays well, so Harvard graduates go to work there and teaching doesn’t pay well, but it affords flexibility and continued learning opportunities.

From a business perspective, it’s always better to negotiate. Whether it’s with your suppliers or your  workforce. It’s the American Dream.