Monday, March 30, 2009

A tidbit on China's pork consumption

a"50% of the world's pork is eaten by Chinese people.  The other 50% is eaten by Chinese people outside of China." -Me, tongue-in-cheek about my relatives love of pork


Per capita actually, China ranks only 7th.  But the countries ahead of it are far more developed.  In 2006, China actually ate 52.5 million metric tons of the 98.9 million tons consumed world wide.  Go to dim sum and you'll understand why...

According to Wikipedia:
2006 worldwide pork consumption
 RegionMetric tons (millions)Per capita (kg)
1People's Republic of China52.540.0
2EU2520.143.9
3United States9.029.0
4Russian Federation2.618.1
5Japan2.519.8
Others12.2n/a
Total98.9n/a
Source: USDA Foreign Agricultural Service, preliminary data for 2006.[8]

Friday, March 27, 2009

Making business education within reach to students in rural areas

Ted Chan with Vinay Rai in Delhi

We just wrapped up a great project here in India with the Rai Foundation. We did the launch strategy and developed the operational model working with the renowned social entrepreneur Vinay Rai to create 250(!) business schools in rural areas in the next five years. Sounds crazy, no? Well, Mr. Rai believes we should aim high. 

The idea is to create a combo distance learning program with live, in-person facilitator to create a quality education at a low cost.  Pure distance learning has proven to be a flop in India, providing very low quality of education at low cost.  What Mr. Rai thought was needed, and our market research bears this out, is a medium quality education at a low cost.  The key is that this is not so low that the quality is just terrible.     After all, the graduates must be of the caliber that they can be hired into meaningful jobs for the program to be sustainable.  

Each school will serve approximately 80 to 100 students. This program will help transform undergraduates in India who are often unemployable into skilled labor that can be the growth engine in areas of India that have lagged behind urban areas.   This type of education will be extremely important as India moves towards economies of scale in agricultural, something virtually all countries that become medium income nations must do.  People leaving the agricultural workforce will be trained to be effective business professionals and value creating entrepreneurs by these schools.   I hope they will be the ones who will build more efficient supply chains, and allow the introduction of new, quality of life improving goods into villages.

Will it work?  I think it will.  It may not be 250 in five years, but Mr. Rai has a smart and talented team, and perhaps most importantly, the capital and the entrepreneurial ambition to move ahead with the project.  In the last 10 years, they've launched 16 business schools.    This is a tricky operational model, but one I trust they can get right if it can be done at all.  Since I'll likely be on one of the governance boards they are establishing, I'll be tracking this one closely.

For me, it's a different type of entrepreneurship.  Other projects of mine, Moca, Olive Arbor, CBOConnect, Upward Mobility, CreativeLedge, and MassWrestling.com bring something to the table, but required almost no funding.  It was a fun and exciting experience to build a model with massive social impact and negative free cash flows of Rs. 500,000,000 (USD $10 million) over the first five years!





Village Business School business plan team stopping for roadside tea


Tuesday, March 24, 2009

More on Blackboard's patents on Internet-based education

I recently posted about Blackboard's patent on Internet-based education.  I've been learning more about this space since I'm evaluating course delivery models for my project with the Rai Foundation here in India.  They've built their own internal system for their 16 campuses, but we still need to figure out if it will fit this radical rural education model that myself and three of my MIT Sloan colleagues are helping them develop.  


It looks like Blackboard had all of the claims (44 of them) of Internet based education rejected in 2008. The India article I had originally cited dated back to 2006. Here's a summary of why the claims were rejected:

The patent in dispute involves a course-management system in which a single user with a single log-on could have multiple roles in multiple classes. For example, someone who was a student in one course and a teaching assistant in another could log on once and get different levels of access to all the course materials.

Desire2Learn and its supporters have argued that the patent should not have been granted because similar technology existed in 1999, when Blackboard applied for the patent.

The patent office awarded the patent in 2006, and within months, Blackboard sued Desire2Learn for infringement. However, the patent office, in its re-examination, cited several examples of "prior art," or previously available technology, that was similar to what Blackboard claimed to have invented.

I did some further reading, and found out that Blackboard agreed not to pursue patent cases against open source software providers.  Strategically, Blackboard has built up a strong position in this industry, and I don't have any doubt that using their lawyers and provisional patents have helped to push around smaller players.  In a services space with little competitive advantage otherwise, I suppose you have to play the game the way the rules are set.  Permitting free open source software to operate to provide a lower end, low cost option for organizations with limited budgets is fair, I suppose. 

Blackboard also describes some of their patent pledges here.  It's hard to blame a company when they're not enforcing against free and open source software options.  While I believe strongly in corporate social responsibility, a company like this also has an obligation to shareholders to compete.

3rd degree price discrimination at Humayun's Tomb in Delhi

In microeconomics, third degree price discrimination means that price of a good or service varies by location or by customer segment to extract surplus according to willingness or ability to pay.


As an example, tonight in Delhi we went to Humayun's Tomb.  The fee for locals Rs. 10 (20 cents).  The fee for "foreigners"?  Rs. 250!  $5 versus 20 cents!   25 to 1 is beyond discrimination, holy smokes.  

It felt unfair, but my best attempt to persuade the security guard I was Indian failed, so we decided to pay the fee.  It was well worth it - it's an amazing site.  Still, the 25:1 ratio left sort of a bad taste.  I kind of wish they just charged nothing for locals.  Always a lesson to keep in mind when doing price discrimination - you don't want to leave your customers feeling like they got a raw deal.  

Monday, March 23, 2009

Patenting turmeric?

I'm still here in India - spent this weekend in Goa where I had my first ever Ayurveda consultation, one of those things where they essentially tell you to meditate, get massages stop eating everything that you like eating to improve your health.  


I was reading up a bit more and thought I'd share this little gem of a fact of someone trying to patent the use of turmeric for healing that I found in Wikipedia, since we occasionally cover the most interesting items in patents:
In December 1993, the University of Mississippi Medical Center had a patent issued to them by United States Patent and Trademark Office on the use of turmeric for healing. The patent was contested by India's industrial research organization, Council for Scientific and Industrial Research (C.S.I.R), on the grounds that traditional Ayurvedic practitioners were already aware of the healing properties of the substance and have been for centuries, making this patent a case of bio-piracy. 
Just last week the Indians were trying to figure out how to get around a catch-all patent that Blackboard has on e-learning.  

Friday, March 20, 2009

You can have a patent on Internet-based education?!

Wow.  I'm researching courseware that we could potentially deploy in India as part of this project for the Rai Foundation trying to develop a distance learning program for villages.  I'm amazed at some of the things you can have a patent on that can be enforced. Apparently, Blackboard has patent on delivering Internet-based education and support. Talk about a valuable patent.  


From the Times of India (2006): 

US-based Blackboard, has been granted a patent for technology used to deliver Internet-based education and support.

The patent is already applicable in US, New Zealand, Australia and Singapore. Its sweep spans every little bit of online education including processes like how courses are offered and managed. The patent is now pending in other countries including India.

Signalling what it intends to do with the patent, on the day it was awarded, Blackboard sued Canadian company Desire2Learn, its main competitor in the market that caters to American students.
I wonder how much longer a patent like this is good for and how broad it is.  The Times seemed to think Indian companies would get around it.
Indian companies feel the patent can cover only specific systems and there are many avenues to deliver e-learning without infringing on Blackboard's patents. Since Blackboard's patent is specific to its methods, it won't affect popular tests like GRE and GMAT, they say.
In terms of length, 17 years is the life of a patent.  Courseware has been around for at least 12 years now.  I was a summer intern for Ling Chai's Bain funded Jenzabar in 1999 (LOL, the revenue model was affiliate sales of textbooks).  That company amazingly is still around.  

Monday, March 16, 2009

Day 2 in Delhi: Meeting with Industrialist and Education Entrepreneur Vinay Rai

Yesterday we met with the world-renowned education entrepreneur Vinay Rai.  Mr. Rai graduated from MIT in 1970 and went on to become a successful industrialist.  In the late 9s, he retired from his work and decided to use his riches to drive improving education in India through his organization, the Rai Foundation.  He now runs 16 schools with nearly 9,000 students.   


The following notes pertain to a discussion we had with him regarding a specific topic that we are working on with him, the creation of a professional education system catering to the needs of Indian villagers.  Please feel free to chime in with any ideas you ight have on how we can make this model work.  

Problem Statement: Mr. Rai believes there are 3.5 million plus people who are college graduates who are not employed or severely unemployed in villages. The undergraduate curriculum at the government-sponsored schools is 40 to 50 years old, and the faculty is not that strong. As a result, the employability of graduates from these lower tier programs is poor to none. The industry is crying that they don’t have good people to employ. Jobs are available here for people with basic skills – but many don’t have them. Many feel demotivated because they have studied a lot but really don’t have the skills to be employed.
One of the core goals of the program is to give them the first level basic skills and knowledge to make them employable. The existing curriculum does not link up with practical needs. Soft skills and personality development need to be provided as well. These are very underdeveloped in India.

We discussed this as a team and we will do a gap analysis of the current state potential village business school student and the needs of potential hirers as determined by our market research and interviews.  

Cost: 80,000 rupee in the village, 6x that minimum would be the cost in the city, and that’s not including the city. Low-cost online MBA can be 30,000 to 40,000 rupees with almost no contact. The industry knows the difference. Between these and pay accordingly. Starting salaries after graduation can range from $1,000 to $40,000.

Loans: Students would be able to get a full loan. We need to work with banks, but it is not a problem to do loans fewer than 400,000 rupees. No collateral is necessary. The rates would be 9 to 10%. Just a few years ago they were 20%. Mr. Rai reiterated that Indians are very risk averse.

Facilitator Model: The village business school will use facilitator model – people who speak the local language who can translate the curriculum when necessary. Even if we transmit the classroom live, they will not be able to understand all of it so the facilitator is necessary.
Corporate Interface: The village business school is considered a Corporate Social Responsibility initiative. Just spoke to MD of Microsoft India’s CSR. Microsoft will be willing to support them if the project is right. The concept needs to be good and relevant. CSR budgets are large but companies don’t know what to do with it. Multinationals are interested because they want to get trained manpower in the villages to capture market share.  

There is currently a major disconnect between industry and students. But companies need  talented employees in the villages to execute their business plans. 

Operating Model: Mr. Rai felt that e-learning has not worked in India. It has to be hands-on, hence the facilitator. You must have a physical space. How do we bring some sense of quality here? Good faculty will not go into the rural area to teach. The operating model must balance engagement with faculty with cost. Creating credibility will be a major issue with a partially virtual model.  

There is already a lot of cynicism about the quality of the program. We must make sure we do not overpromise and under deliver.

Do we provide them with a laptop? That can go into the bank loan. We must consider this.
There is no formal accreditation facility in India other than the government assessment.
Internet and electricity are major issues. Generators? Landline or wireless? These are among the decisions that must be made. Computer skills are generally quite low, no Internet cafes. Computer literacy is a paper thing. It’s not happening in the village, according to Mr. Rai. The laptop might be expensive, but it will help build computer skills, which is likely to be a pre-requisite of hiring companies. The lack of computer skills will also mean that a higher level of IT support will need to be provided.  

Women: Villages won’t sent daughters if they have men around. There is a lot of conservatism in the villages. Must be convinced that they are safe and secure. Differential pricing for the women is a possibility. 

Biography of Mr. Vinay Rai

Vinay Rai is an extraordinarily successful businessman who put the business world behind him and has moved on to become a prime-mover in higher-level education, a philosopher, and a philanthropist. After receiving a Bachelor of Science in Physics, with honors, from Delhi University, he attended MIT, where he earned a second bachelor s degree and a master s, both in engineering. At MIT he became an elected member of Eta Kappa Nu and Sigma Xi two of the most prestigious honorary societies for engineers.  While at MIT, he also took courses at the Harvard Business School. 

Vinay Rai comes from a business family. His father had built several businesses to a million-dollar enterprise by the late sixties. When he joined the family business after his years at MIT, he took over part of the family business, expanding and diversifying into steel production, computers and IT, mobile telecommunications, engineering, financial services, hotels, and more. By 1999 he was listed among the five richest people in India and appeared in the Forbes magazine listing of the 200 wealthiest people in the world. Of those years, he says, God was kind. During this period, he was active as a business leader, being elected by his peers as president of the Cellular Operators Association of India, the Indian Electrical & Electronics Manufacturers Association, and the Electronics Components Industries Association, as well as serving as Chairman or Executive Committee member of the most important national trade and commerce organizations- FICCI, CII & Assocham. 

In 2001, he moved on from business to where his true heart was: into education, working with young minds and changing and guiding them as they move forward to take on the world. He set up the Rai Foundation and under that umbrella launched an educational institution that now has some 8,000 students on 14 campuses across India, and soon opening in the Middle East and Africa. With the encouragement of his wife, he created a unique effort to improve the education of young women through a program called Girl Genius and Gifted Girl, which provides that any number of orphan girls and 300 girls from the poorest families are accepted every year to receive totally free higher education, including housing and food, and an ample clothing allowance, continuing, for those qualified, to a PhD. These are the potential stars of tomorrow, he says, and to see them flower is pure joy. He is in addition the founder and chairman of the Rai Foundation and several philanthropic trusts, dedicated to empowering rural women, promoting ancient arts and culture, promoting applied research for rural areas, supporting health-related issues, and encouraging the aspirations of young people. His previous book, Rethinking India Towards an Indo-US Partnership Concord, was published for an Indian readership. This year his latest book, Think India - The Rise of The Worlds Next Super Power and What It Means to Every American" was published by Penguin-Dutton USA. Vinay Rai s journey has taken him from scientist and engineer, to business leader, to academician, to philanthropist and philosopher, and finally, he says, to an understanding of self.

Sunday, March 15, 2009

Day 1 in India: Village Business School Information Gathering in Uttar Pradesh

Day 1 was a community organizing effort to gather information in the state of Uttar Pradesh, two hours from our home base in New Delhi. Our teammates from thee Rai Business School went door-to-door with loudspeakers to recruit people for the focus group. 


We are here in Delhi advising the Rai Foundation on how to set up MBA programs based in rural villages.

I had an interesting conversation with my colleague Aftab beforehand about the agriculture out here. It is almost all small-scale agriculture (12 acre or so plots). At this meeting, there were many young men who were college graduates, but tied up working on farms. One key for countries to move from a developing economy into a middle-income nation is to move from small-scale agriculture to mass production in larger lots. Not only does this increase GDP and food security, it also frees up intelligent people like this stuck tending irrigation ditches to become industrial managers and entrepreneurs. The village business school idea can be a way to drive that.

We had a very good turnout, approximately 20 students, at least 8 or 10 other onlookers. All male. Literally not one female. Some locals came and advised us there are not more than 20 to 25 of the right students in this village, students with undergraduate degrees who are underemployed. This village may not be the right target at this size. They are targeting to have 15 or so people in the program in each village initially, and grow the number. This village would have to be included in a pool strategy with several other villages nearby to work. Additionally, Rai will have to work hard to develop awareness and demand.

A social worker here said that he believed that the motivation was very low in this village as well, and people would have very little money to pay. Skilled worker, engineers, doctors, lawyers and others have already departed for more urban areas where they can make more. There is a need to somehow develop the initial motivation here by providing a seed.
Financing will be another issue. When Indians deploy their capital, they want big upside. But they want you to guarantee them on any risk! This may be necessary early on in the life of this project – handing out lots of scholarships and “money back guarantees” for those who the Rai Foundation can’t get better jobs.

Since I was sitting there on my laptop in a chair, apparently one of the villagers with a microphone thought I was important enough to ask a direct question to. The question was questioning the role and fit of MIT curriculum in the village. He was saying that MIT as a research school didn’t fit with the agricultural learning needs of the locals. It was actually a good question, although they guy who was asking it seemed upset at us for some reason. Maybe he was just trying to show he wasn’t terribly impressed by the MIT brand.

I almost said, “Hey man, I just got here!” I really had JUST gotten there, about 10 hours earlier, with less than 2 hours of sleep.

But in the spirit of openness, I said that this initiative is about building something that fits the needs of the people in the villages, not about pushing a MIT MBA curriculum that would be full of information that might be useless in village India. I said that we wanted to hear what they were interested. That seemed to change the tone of the talk towards being more open. I think that they didn’t want people looking at them and seeing them as backwards and proselytizing this new program to them. That's a line we'll have to tread carefully.

Many in the villages seem to be more interested in public sector jobs. These jobs are substantially easier than working on the farm and it is almost impossible to lose the jobs. Those who are interested in these types of jobs don’t seem to think a MBA will help them.

Loan rates are very high. 9 to 12% is typically on collateralized loans. What collateral would be offered for the village schools program? Those are details that need to be worked out.

One last thing is that a key part of the MBA experience is networking and the shared culture. How will we build that here? Perhaps if it is people coming together from the local villages, this will unite communities.

Thursday, March 12, 2009

Obama’s housing plan needs to stop homeowner walkaways – but will it?

Barack Obama’s housing plan takes some steps towards stemming the housing crisis but has several major issues.   Overall however, the plan will not completely stop people from walking away from their homes when they are under water, and thus may not fully end the housing crisis.   The crisis is self-reinforcing until housing price declines end.  George Soros predicted that this us what it would come to, and perhaps said it best in his book, a point that he reinforced at his talk at MIT.  His quote:

“Eventually, the US government will have to use taxpayer’s money to arrest the decline in house prices.  Until it does, the declining will be self-reinforcing, with people walking away from homes in which they have negative equity and more and more financial institutions becoming insolvent, thus reinforcing both the recession and the flight from the dollar.”  (George Soros, Economist 10/23/2008)

Soros predicted that this housing bailout would be necessary, and that it is integral towards stemming the problems of the economy as a whole and helping the financial sector.  The Obama plan has three parts.  One helps homeowners who are current on their payments, but they are paying high interest rates and do not have any equity.  These people are on the verge of falling off the cliff.  An illness or losing their job would push them off the edge.  Obama’s plan will provide incentives for mortgage servicers to modify these loans to reduce the % of income.  Another part of the plan helps those who are really at risk of being foreclosed on.   Another pushes up the amount of credit available for mortgages by giving $200 billion to Fannie Mae and Freddie Mac.   (New York Times, 2/19/09)

America's Walkaway Problem

Obama’s plan improves the health of the overall system with this injection of capital, but ultimately, the US mortgage system has a major flaw that Lester Thurow pointed out to me during our time together at MIT.  In other countries, collateral for mortgages does not include only the home, but also future streams of income.  This prevents people from walking away from their homes when they are underwater.  So long as people can walk away from a home that is under water, they will, and housing costs will fall.  That means that systematically, there will be more foreclosures as prices fall.  

If Obama can stop walkaways, then an injection into reviving the credit market should stimulate buyers to re-enter the market.  It must be noted that the demand for housing has not truly fallen off a cliff.  While incomes have fallen somewhat, Americans have not decided that they do not want quality housing.  In many tight housing markets like Boston, rents have risen significantly.  The renter/owner dynamic has shifted towards rentals because potential homebuyers have stayed out of the market rather than “trying to catch a falling knife”.  The environment creates a sense of fear for these buyers – it may be that their rents are more than what their mortgage payments would be (if they could get credit), but it is easier to get out of rental than a mortgage and in this environment, that is enough to keep them out of the market.  When they are sure that prices will not fall anymore, they will re-enter the buying market so long as they can get credit and their economic circumstances permit it.  

How effective are mortgage mods at stopping walkaways?

Experts differ on how much mortgage modifications will help in terms of stopping walkaways.  In any case, it is never a 100% success rate.  In other country’s system, the debt follows you to your next job, so you ride out the housing market storm.  In a sense, this stimulus package is an entirely new experiment on giving modifications to different types of homeowners who are struggling.   We don’t know exactly what the rates of success of modifying these loans will be, especially if the overall economic downturn continues and people lose their jobs.  In 2008, with the economy struggling, the nations 14 largest banks had more than half the loans they modified delinquent again after six months.  That seems to point to a major flaw in Obama’s housing plan.  However, other evidence says that if you do the modification properly, less than 25% of loans become delinquent again.  (New York Times, 2/19/09)  The percentage difference there is massive.  There are 3 to 4 million at-risk homeowners, and a 25% difference is a million homes.  That is the difference between the plan successfully stemming the tide or having a minimal impact on reversing the home price decline.

It is probably illegal in the US to change the law to tie existing mortgages to future streams of revenue.  It would also probably be political suicide.  Furthermore, requiring it would probably keep even more people out of the credit markets.  So like social security, we’d probably like to have another system, but we’re stuck with the one we have.   

Conclusion

Obama’s plan is as Soros predicted, a US taxpayer funded attempt to stop the self-reinforcing decline in housing prices that is keeping the US from escaping this economic downturn.  The only question is whether it goes far enough.  This is already seen as a large package; however, it probably needed to be larger to full stop the cycle of decline.  Time and surrounding economic circumstances will only tell if it sufficient to fully stop people from walking away from their homes, and thus reinforcing the cycle.



For those who are interested, Soros' talk from the MITWorld channel:

Wednesday, March 11, 2009

“Too Big to Fail” or “Too Big to Save”? - Obama must bail out the US automakers

I was asked to write a position paper on whether to save the automakers or not. Generally, I'm not in favor of bailing any companies out, but our analysis revealed that President Barack Obama doesn't really have an alternative.  

“Too Big to Fail” or “Too Big to Save”? 
Obama must bail out the US automakers
By Ted Chan, Pooja Goradia and Sharon Cong Geng
MIT Sloan School of Management

President Barack Obama has no choice but to bail out the carmakers.  Allowing automakers to fail would be disastrous for the millions of people employed by the automakers, their suppliers and communities that service these makers.  According to 2005 federal reports, nearly 1.1 million Americans were directly employed in the auto making industry.  This does not include dealers and those who live in the communities who would likely lose their businesses as a result of the death of a Big 3 automaker.  In an unprecedented economic downturn, this move would be a mistake economically and politically for Mr. Obama.   Additionally, it was not that long ago these were competitive companies.  Their current struggles are due to the handicap of deferred compensation, lack of leverage with the unions and questionable management decisions over the past 10 years.  (Trade.gov, 2005)

Furthermore, cars can be made anywhere. The economic circumstances have not favored US manufacturing in recent years, however, that dynamic may change in the near future with the dollar likely to depreciate in the near future.

We advocate the new stimulus bill to only rescue US based automakers.  Firstly, workers hired by US based automakers outnumber those hired by foreign automakers. Secondly, foreign auto companies are in better shape because they not only have more efficient methods of production but also have lower costs by avoiding huge the burden of pension and health care obligations imposed by United Auto Workers (“UAW”).

The structure of bailout matters

There are several major issues that must be addressed in any automaker bailout.  Solving these problems will require multi-lateral compromise from all the stakeholders involved – automakers, employees and the government.  Any bailout must accomplish the following:

Build consumer confidence that these companies will not fail: An automaker bailout package should assure potential car buyers that none of the Big 3 will fail.  If a Big 3 automaker falls into bankruptcy, then it should be disbanded and sold for its assets because consumers will not buy from a company that may or may not be able to meet its service and warranty requirements.  

Avoiding moral hazard while providing brand reassurances: The bailout deal must assure that automakers do not act as if there is more funding again if they do not succeed.  Structure the bailout as debt that will be repaid but is not onerous to the company’s ongoing operations.  Setting milestones and operational goals on each company’s path to economic stability will ensure full transparency to the auto industry’s employees and serve to further build consumer trust.

Reduce labor costs: A limit on deferred retirement benefits such as health care is necessary – this transfers responsibility to future CEOs which eventually becomes unsustainable.  The UAW must be prepared to make sacrifices.  Decisions must be made on the present value of compensation packages.  The $73 average pay rate per hour is much higher compared to other carmakers.  (New York Times, 12/10/2008)  Also check out Greg Mankiw's post about the burden of health benefits on American companies.  

Consider merging or selling: The automakers are worth bailing out if they can become sustainable again.  It may be worth it to swallow the bitter medicine now if they cannot be saved.  As such, business strategies such as a Chrysler/GM merger, Chapter 11 reorganization, or helping GM consolidate its overlapping brands must be considered.  

Not just cheaper, but more flexible: The bailout package should include provisions from the union and government which make it easier for the automakers to reduce workforce and production to sustainable levels.  However, labor costs represent only about 10% of the cost of making a car, so this cannot be the only area of cost reduction.  In addition to some poor strategies and product development choices, American automakers suffered because it is difficult to reduce production and cost in a downturn with a unionized labor force and heavy capital investments into production infrastructure. 

No cap on executive pay, but a move towards incentives: These automakers need innovative leaders to guide them into the future.  They must be able to attract and compensate these leaders as any other American company would.  It would be preferable to pay these executives based on their ability to turn the ship around.  

Conclusion

In summary, a bailout package for the Big 3 involves a fundamental restructuring of each company’s current business models in order to become sustainable in the long term.  The underlying question remains as to whether the financial crisis sent these companies in a downward spiral or if their business practices would have eventually led to their current state. 

Sources

David Leonhardt,  “$73 an Hour: Adding It Up”, December 9, 2008, nytimes.com
http://www.nytimes.com/2008/12/10/business/economy/10leonhardt.html?_r=2&hp

Dave McCurdy, “Why the health of the auto industry matters to you”, November 12, 2008, grist.com  http://gristmill.grist.org/story/2008/11/11/125224/29

U.S. Department of Commerce, “U.S. Automotive Industry Employment Trends”, March 30, 2005 www.trade.gov/static/auto_reports_jobloss.pdf

“US Autos”, March 4, 2009, FT.com
http://www.ft.com/cms/s/1/65da5efa-085b-11de-8a33-0000779fd2ac.html


Sunday, March 8, 2009

A-Rod's injury can't be written off as unrelated to steroids

Staying on a sports theme, I do believe that the hip injury that Alex Rodriguez has at least a partial root in steroid usage.  Having been an athlete who has been around teammates who used performance enhancing substances, I have noticed an increased likelihood of injuries caused by torque.  That is exactly what the labrum injury is, a stressed induced injury from high torque from a powerful swing.  


Part of the reason why these injuries happen is the added muscle mass and explosiveness added by performance enhancing drugs results in added power and torque.  That's good for performance, but can cause more injuires of this type.  I've also seen athletes lose flexibility, and this doesn't help.

Apparently, there is also a cyst/steroid link as well.  I wonder how common hip cysts are in 33 year olds.  

Just my two cents on this issue.  


MIT Sports Analytics Conference

Had a great time yesterday at the MIT Sloan Sports Analytics conference, which ESPN.com writer Bill Simmons dubbed Dorkapalooza.  As a guy who spends hours looking at John Hollinger's PER Ratings, this was the event for me.  As some of you may know, I had a brief stint as an ESPN writer, and a longer one covering fantasy football for various e-zines.  But I went to this event purely as a fan.


Highlights:

Meeting the aforementioned Bill Simmons right when we walked into the Stata Center.  He seemed pretty disoriented by the ridiculous building design.

Brian Windhorst wrote up one of the best talks of the day where Mark Cuban and John Hollinger ended up in a good back and forth over the Devin Harris/Jason Kidd trade.  I really enjoyed hearing Cuban's case for why they made the trade and the thought process makes a lot more sense to me now.  I think Harris is still the more valuable asset, but Cuban argued that he believed his team had a limited window with Dirk Nowitzki getting into his 30s and wanted to take a risk similar to what the Celtics did.  The Mavericks also had plus/minus type system that rated Kidd as the 2nd best player in the league.   Like him or hate him, you have to like an owner who is willing to take risks.  His actual quote in the talk was "No balls, no babies!" 

Kidd's numbers for the Nets at the time he was trade d(11 ppg, 8 rpg, 10 apg) 51 games through the 2007-2008 season were pretty attractive.  I have the feeling that if the Josh Howard played a little bit more defense, and the Mavericks had signed a decent 2 instead of playing Gerald Green, Antoine Wright and Jose Barea, we'd be talking differently about the trade.  But as Cuban said, "You get to start over every year in the NBA."  The Mavs have Erick Dampier's expiring contract next year and I don't doubt Cuban will make one last run at this thing before Kidd's contract comes up and Nowitzki's decline years set in.  At the point, a lot of the Mavs salaries will start coming off the book and the team can rebuild any way they please.  

Apparently, Cuban also thought they had the Kevin Garnett trade wrapped up, and that they offered the best package.  Mike Zarren from the Celtics refuted that.  It sounded like there's a whole detailed back story with KG's agent working teams for an extension.  

The best quote of the day was from Daryl Morey.  When he asked Shane Battier about whether he should discuss the results of some statistical analysis about how Ron Artest was playing, he said that Battier replied "You can't cage a pitbull!"  Morey justified his trade for Artest in a similar manner to Cuban.

Brian Burke, the GM of the Maple Leafs is hilarious.  I love his attitude towards hockey.  He is constantly thinking about the fan experience.  He discussed how he builds teams with stars and wants his team to play a physical exciting style.  Burke's argument is that over time, teams tend to average out to be .500.  While it's not necessarily the case since there are so many haves and have nots, his point is that as a manager, you still have to get fans in the door during down times.  

Yao Ming's agent, John Huizinga, who is also a esteemed University of Chicago professor has totally debunked the hot hand myth with his statistical analysis.  Actually, by feeding the hot hand, teams are hurting themselves.  Players who think they are hot hands tend to make worse shot selection, hurting their team with lower percentage chances.  Huizinga's analysis technique is fantastic - parsing play by play data to estimate shot clock and quality of a "chance" to isolate out variables.  

Ray Allen talking about Lebron driving around New York and seeing a hypothetical David Lee billboard.  Ray is a classy and funny guy.  Pretty smooth guy too, he was buttering up Greg Via from Gillette pretty good.  Actually, I think Ray would be a great spokesman for Gillette.  Whoever is doing his razor work is doing a great job.  My compliments to his tailor as well. 

The buzz over  Michael Lewis' article on Shane Battier.  Finally got me to read the thing.  If there's one speaker I wish they'd have at this thing in the future, it would be Lewis.

I'll post a few more links about the conference later on.    I think every major media outlet on earth was there, so no need for me to do a big write-up when the best in the business will.

Hollinger's Per Diem on ESPN.com - if you're reading my blog post, you probably already read this.
Brian Windhorst from the Cleveland Plain Dealer - one of my favorite non-local sports writers.

Friday, March 6, 2009

Reflection on six weeks spent in Tanzania


This is obviously a couple months after my trip, but I finally got around to doing this reflection and I wanted to share these ideas with anyone who is interested.

Having never been to Africa, my understanding of the continent and the global health dilemma came mainly from my prolific reading of The Economist.  Our trip was a little bit different.  It was really more about poverty than it was about health.  Yet these are intrinsically tied.  I was struck by what the Temeke Bustani Ward Chairman, a local politician said the first day.  When we asked about health, he argued that poverty was at the root of all problems, not just poor health.  My view is that is more systemic than that.  My six weeks in Tanzania with MAdeA provided a lot of context for what appears to be a systemic failure.  I say systemic because it’s clear there’s no single root cause.  Poverty is pervasive.  Poor health keeps people poor.  Corrupt or ineffective government keeps people poor.  Lack of access to education and resources limits social mobility.  And so on and so forth.  There are no easy solutions, but systematic thinking is required at each level, and management/leadership skills play an essential role in that.  

In my pre-trip reflection on what I expected to see and the role management would play, I wrote that I thought leadership and management were necessities towards building a more just and equitable world with social mobility for those who worked hard.  My time in Africa made me see how that vacuum has created poverty, inefficiency and despair.  Only with a very large influx of common sense management skills, transformative leadership and opportunity at all levels can Africa break its cycle.  

Understanding the root causes in Tanzania and Africa at large

Burden of disease

The burden of disease in Africa is borne by all.  First, there are those who are sick with HIV/AIDS, tuberculosis, malaria, etc.  But then there are also their family members.  Some must take economic time away from productive work to care for them.  In other cases, families are broken up, because of death, or the seemingly inevitable family breakup that comes with the HIV positive diagnosis.  That means children become orphans or can no longer afford to pay for school.  This doesn’t just affect them for that day, week or year – it affects the trajectory they will take for the rest of their lives.  

It’s clear that the health problem must be solved in Africa somehow, someway.  There is a lot of global foundation money in Africa working on this.  However, we must ask what would happen if that money dried up.  Would African economies and governments be able to support decent health care systems?  That requires stability and economic development.  We can only keep our fingers crossed on that.  It also requires sustainable business models.  That means revenue generating models, or organizations structured so that they can eventually switch to those models.  That requires strategic organizational design and a certain skill set beyond just medical skills.  It means building logistics, improved data and record management and leaders with vision.  

The Economics of Poverty

As someone who is interested in a future in government and policymaking, I can’t help but observe some of the economic factors that keep Tanzania impoverished. 

This first seems to be an incredibly inefficient government that is known to be corrupt and ineffective at collecting on taxes.  One number that was cited was that Tanzania only collects 3% of revenue from mining.  These companies are owned by foreigners (Chinese and South African seem to be the most common).   Tanzanian companies don’t seem to own anything or mine anything.  This is probably because none of them have the skill to do so.  In other locales, the foreigners might be required to provide training or hire a certain number of locals to work alongside, earn some wages and gain the competencies.  But in Tanzania, none of that seems to be going on. 

I think if Tanzania could get tax collection to the point where it is more efficient, they could shoot for an import substitution strategy in a few markets.  They have decent infrastructure around Dar es Salaam with a big port.  They also have a large enough internal market for a number of products to support multiple companies, which is key, because you don’t want monopolies.  However, I’m not confident in the government’s ability to properly administer this.
At a more micro level, there are some other interesting things that I noticed:

1) Tanzanians don’t seem especially entrepreneurial as whole.   Folks I worked with who had been in other African countries, particularly Nigeria and Kenya remarked on this.
2) Businesses are completely undifferentiated and lack economies of scale.  You see ten people selling the same oranges or fabrics right next to each other.  They buy separately.  
3) One of the most interesting interactions during our time in Tanzania was working with two 23 year old University of Dar es Salaam graduates in the MAdeA office.  I was struck by several things.  First was that they had almost no prospects for a decent job more than six months after their graduation.  
4) NGOs provide the best jobs.  The college graduates at MAdeA that we worked with were desperate to get in.  They hire the top graduates and pay them a lot.  But what happens when they leave eventually?  It also drains talent out of other sectors.  Corporations and governments just can’t compete.  I think in an emerging economy you want your best learning business skills and starting companies.   However, these NGOs are providing good training and solid jobs.  
5) Management and leadership skill is seriously needed.  I’m not sure how this can possibly happen though.
6) Perhaps before management, what is needed are systematic and analytics thinkers.   This is probably due to the education system.

 
The Hope and the Danger of Microfinance

MAdeA wanted to use a microfinance model (really charity couched as a “revolving fund” that had little chance of “revolving”.)  Governments and NGOs are selling microfinance as if it can cure all ails in the developing world.  I have some real concern about this.  First off, economically there are some microfinance just cannot help.   Very few microfinance models can help those who do not already have access to capital to start a business, since the most successful models manage risk in such a way that prevents those who do not have businesses.

Unfortunately, this is a dangerous thought to have.  These organizations like the required ability to run a program and do not have appropriate financing.  Furthermore, MAdeA’s goal is to help the poorest of the poor.  This includes people with HIV who can work only intermittently or not at all, and people in areas where there is simply no local economy to start viable business that will survive the time it takes to pay back a loan.  In order to offer these people a loan from a revolving fund, interest rates would have to be in the hundreds of percent.  Remember, it is not the case that any credit is better than no credit.  Give someone a really high interest loan and you are hurting them.   Either that or you are giving them a cash grant since there is no way they will pay it back.  

Local NGOs in Africa are in the strange position in that they have to deal with almost everything.  MAdeA’s focus was women victims of domestic violence and sexual assault.  However, working in this poor area of Dar meant that they also had to deal with AIDS, lack of education, lack of jobs, tuberculosis, malaria and drug/alcohol abuse.  However, these can all be linked to one overarching problem – poverty.  Thus the microfinance thrust.  However, the very bottom of the pyramid – the sick, the truly marginalized, cannot be empowered in this way without some very specific circumstances.  A deep well of resources, a new market and resourceful management is needed at a minimum.  MadeA as a small CBO simply could not offer this.
 
Closing Thoughts

Six months in Tanzania challenged my eternal optimism.  This was a real, gritty experience of Africa at its worst (and at its best, since I went to Kilimanjaro and Zanzibar).  It seemed at times that the cycle of poverty of suffering was unbreakable.  At times, it seemed like we weren’t getting through to MAdeA leadership, and that our bounty of deliverables (marketing materials, website, revised strategy, project description, so on and so forth) would go unused.  
It was incredibly rewarding to hear over the past three weeks from our client (and our American friend who is a volunteer there and reports back to us regularly) that the impact has been noticeable in significant.  


Thursday, March 5, 2009

Basic fundraising for small NGOs in the developing world

During our time in Africa training a community based organization, this document written by Jayne Cravens was one of the most useful docs for helping communicate fundraising fundamentals to them.  Since Jayne has openly encouraged sharing of this document, I'm posting it out here for all the social entrepreneurs who read this blog to utilize.  


Basic NGO Funding Final-JCravens

Sunday, March 1, 2009

Should we bail out the automakers?

I could go either way on whether to bail out the automakers  I don't think it's worth a bailout unless the firms can some day be independently competitive again, but in that case some sort of transitional plan is need for the auto economies and workers.  If there's a bailout, that money needs to be re-paid and it has to make those companies competitive again by downsizing and seeking out efficiencies.  

Personally, if it were possible, I'd say that GM should be sold to the unions, who can work out their own fate.  It would properly align incentives and worker motivation - a completely worker owned company.  Either that or it should be forced to merge with GM, with redundant brands and costs cut out to create operational efficiencies.  Ford's doing fine relative to the other two, partially because they have the best CEO in Alan Mulally (Sloan Fellow).

Can they be competitive again?  A key driver is obviously labor cost.  Check out this article in the New York Times comparing labor costs.  That $73 an hour number is thrown out there, but the article breaks it down in a more nuanced way:

The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isn’t made up. But it is the combination of three very different categories.
The first category is simply cash payments, which is what many people imagine when they hear the word “compensation.” It includes wages, overtime and vacation pay, and comes to about $40 an hour. (The numbers vary a bit by company and year. That’s why $73 is sometimes $70 or $77.)
The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they don’t show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so.
Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. It’s a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda’s or Toyota’s (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.
The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix — dividing those costs by the total hours of the current work force, to get a figure of $15 or so — and end up at roughly $70 an hour.


But labor costs actually only make up 10% of the total cost of making an automobile.  Innovation, brand and strategic focus are also essential.  Americans are usually pretty darn good at these things, but for some reason, the automakers have missed the ball in most of these areas.  

There's been a major erosion of brand equity over the past years.  A bankruptcy would completely destroy any left.  It's questionable without a major change as to whether the image of American automakers can ever really be fully rehabilitated.

We also shouldn't overplay that, since just a few years ago the American automakers were doing okay.  They made a strategic bet to focus on SUVs and trucks and were doing okay while people were buying those up.  Then high gas prices and the recession hit.