I’ve often warned people about this risk, but I often wished I had a simple example to illustrate the problem.  Thanks to Tim Harford I’ve now got one.  Britain’s Daily Mail shouted this headline:

Cracked it! Woman finds six double yolk eggs in one box beating trillion-to-one odds

The Daily Mail reported a woman’s astonishment at cracking six eggs to find them all double-yolked.  If the odds of a hen laying an egg with a double yolk is 1 in 1000, the Mail argues, superficially correct, then the chance of two consecutive eggs being double-yolked is 1 in a thousand thousand, and so on, meaning the odds of all six eggs in the carton being double-yoked is 1 in 1 trillion in traditional British nomenclature (quintillion if you use the more prevalent American scale).  The report sparked a flurry of paid media and social media comment on the phenomenon.  Some people argued that the statistics must be wrong, because they’d also, and more than once, bought cartons full of double-yolk eggs.  This kicked off speculation on a variety of causes, eg. flock genetics - extremely unlikely given the way the egg industry operates (high volume hatcheries are separate from production farms).

The answer is more prosaic.  Egg industry workers can spot double-yolk eggs by handling, and put them aside for themselves.  If, due to normal statistical variation, they collect too many, the excess eggs tend to be put back into the packing process together.

Good designers don’t just rely on statistics.  They observe what really goes on.  Toyota uses a technique called “standing in the circle” - literally drawing a circle on the ground and standing in it for hours, silently observing what goes on during a production process and then asking the workers why they did what they did. (That requires mutual trust and  shared desire for knowledge and improvement).  Before and after designing a new visitor experience, Click Suite’s interactive media designers watch what people do without comment, and then seek explanations.

Too many people use superficial statistics without knowledge of the underlying situation.  They make business decisions based on false premises.  As Alexander Pope once wrote in “An Essay on Criticism” (1709):

“A little learning is a dangerous thing; drink deep, or taste not the Pierian spring: there shallow draughts intoxicate the brain, and drinking largely sobers us again.”

But remember, in business as in life, you can’t make an omelette without cracking some eggs!

Unpacking and putting everything in a sensible (at least for now) place is a chore, lightened by good and bad surprises - “I’d forgotten we had that,” and ” Why on earth did we bother to pack this?”  However, one thing was no surprise.  As we unpacked our clothes  from the storage boxes and hung them with our clothes we had kept or acquired since, the pile of unneeded cheap wire and plastic clothes-hangers grew and grew.

Now I know we had a purge of such things before we put everything into storage, so how come we’d acquired so many since, and in such a short time?  The answer is of course that virtually every garment you buy comes on a hanger, and every time you send something to the dry-cleaners or laundry, it comes back on a hanger. It’s a wonder we ever need to buy hangers at all. Inevitably you end up with far more hangers than you can possibly need. So where do all the surplus hangers go?

There’s much comment about unnecessary plastic and paper packaging, but at least there’s a recycling industry which can use it again.  So what about all these metal and plastic hangers.  Opportunity for some smart thinking, perhaps?

After the Great Depression of the 1930s, the world’s economists and central bankers thought they had the financial system under control.  Yes, there would still be dramas, but they wouldn’t break the system because the system’s managers knew what interventions to make.  Yet, time and time again, well-meaning  interventions often had unintended consequences. For example, Krugman explains how currency boards (currently advocated in some quarters here in NZ) seem to solve one problem but create the seeds of other, far more damaging problems.  He also shows how regulatory and intervention mechanisms failed to keep up with the rapidly evolving nature of sophisticated financial mechanisms, the increased linkages within the system, and the hazardous distancing between risk and reward. The term “moral hazard” is explained by example, and occurs frequently. And Krugman argues that, contrary to popular opinion, the system is not as predictable and manageable as many people believe. Perhaps the biggest factor is the mood of the market (that’s you and me), which frequently defies logic and common sense, both on the way up and the way down.

Krugman finishes off with some broad-brush suggestions for financial system reform; in summary, anything “too big to fail” or likely to cause the system to fail should be regulated.  Beyond keeping main-street banking separate from investment banking, I’m sceptical.  If markets had been allowed to operate properly in the 1990s and 2000s, the system would probably have had some shocks but not as bad as those consequent to well-meaning interventions. Also, more regulation implies a degree of foresight and political/regulatory strong-mindedness noticeably absent in recent years.  Krugman also doesn’t address any alternatives, eg. whether anything too big to fail should be broken up.  However, I do agree  that risk and reward (eg. borrower and ultimate lender) need to be closely coupled.  The iterative repackaging of housing loans that enabled the sub-prime crisis broke that coupling.

My only other serious criticism of this very interesting book is that the updated version was written a year (or two) too early.  Originally published in 1999 in the aftermath of the Asian and Latin American financial crises, the new edition brings in the most recent cataclysm affecting the world financial system, and explains how multiple linked failures brought the world’s financial system close to collapse, but the $700 billion US TARP package was only just being implemented at the time of writing.  Krugman really needs to bring into account the events and interventions  of 2009 (such as the auto industry bailout), and the way the world system coped. No doubt a further edition will address this problem.

Despite that, it’s well worth the time to read it. The Economist described Krugman’s book as “essential reading”.  I agree.

• The highest wages in the world (thanks to the Black Death and its effects on British society).
• An abundance of cheap energy from coal (albeit not very useful initially, but developed to supply growing city populations).
• Ample supplies of iron ore close to that coal.

Those factor conditions did not come together anywhere else, and so there were not the incentives and rewards for creating the wave of technological and business innovation that transformed Britain (and later the world). Allen also shows that the state played very little distinctive role in the British transformation.  It was the cumulative efforts of individual entrepreneurs, engineers and other innovators addressing real business problems and opportunities which, because they were common in Britain, also generated classic cluster effects.

While interesting in its own right, Allen’s book reinforced for me much of what is wrong with current economic development thinking.  All we seem to hear is more education, more science, more infrastructure, less regulation, less tax, and so on.  All well and good (at least up to a point) but these are me-too strategies.  Everyone else is following them, more or less.  Me-too economies can’t make the step-change that Britain achieved in the 18th century (and sustained for 200 years).

The questions I think business innovators should examine are not only “What do we do to sustain and grow the industries we already have?” but also “What unique un-addressed problems and opportunities do we have which, if resolved, will enable us to build new unique and sustainable global competitive advantage?” And for policy-makers, “Will you adjust your economic development mechanisms to support those new initiatives?”

I can think of at least a couple of significant problem/opportunity combinations where New Zealand could build global leadership.  Know anyone with some serious spare investment dollars?

*For those wanting data and/or academic references, Allen provides plenty, but they don’t get in the way.

On the awful side, I expect to still be involved in helping companies cope with the continuing economic downturn. Globally, things are definitely looking up, but the usual post-Christmas cashflow stress will have to be survived in 2010 without  a 2009 cash cushion. While good companies have done well to survive 2009, some will struggle to make it through to the upturn, and I expect more company failures.

On the other hand, I’ve already seen several promising new businesses - too many to be involved in personally, but still great to see. And some existing businesses have survived in very good shape, ready to take full advantage of the upturn when it arrives.

What’s the difference between the failures, the strugglers and the fliers? Putting aside differences in  market sector, scale, and life cycle stage, not a lot. The businesses I worked with in 2009 all typically have smart market offers, with good systems, people and leadership.   But some will still fall by the wayside in 2010. While I usually say you make your own luck, sometimes you’re just in the wrong place at the wrong time. This recession is one such wrong time.

Tough times are an opportunity for buyers to get a good deal - I certainly expect to get some bargains this year. But you ultimately lose if you squeeze your key suppliers out of business, whether it be through overly-aggressive bargaining, slow payments, delayed decision-making or unthinking internal sloppiness. As a customer, you may want to be kinder to vendors this year.  You’ll want good suppliers to survive this recession, to be ready to support you in the upturn.

So why not make 2010 the year that you look after your key suppliers? I don’t mean go soft, I mean get smart.

Eusebio Scornavacca from the School of Information Management,  Victoria University of Wellington  is conducting a research project on New Zealanders’ use of mobile information systems in the workplace.

If you are currently using a mobile device enabled with data capability (e.g. mobile e-mail, mobile Internet, mobile business applications etc) for work purposes, he invites you to complete a survey questionnaire. It should take you approximately 12 minutes to complete the survey, which is anonymous and will be available until the 25th of December 2009.  By completing the questionnaire you will be entered in draw to win a prize of $200. Please use the following link to access the survey: http://vuw.qualtrics.com/SE?SID=SV_cBko9uZySNCz9Zi&SVID=Prod

Your participation is important and will help to improve the understanding of the adoption and use of mobile technology.  Should you require any further information about this project, please contact Eusebio Scornavacca at +64 4 463 6697 or e-mail eusebio.scornavacca@vuw.ac.nz  or Professor Sid Huff at +64 4 463 5819 or e-mail sid.huff@vuw.ac.nz.

Thank you.

Naysayers of these assertions will likely have the same retort – quality is key. They will argue that Google’s turn-by-turn apps are inferior to their well honed market leading products. With regard to Android, Google will lack the user interface or embedded software expertise necessary and will deliver a subpar product. Plus, because the Android OS will be so splintered, QA testing will be difficult and incompatibility issues will abound. In the short run, these issues will exist.

Despite these challenges, it would be a dangerous strategy for any of the many threatened players in these markets to hang on to this “quality” rationalization for very long. First, Google’s products will get better over time. The sheer volume of the Android phones in the market will give them new data feeds to complement their own mapping effort. Also, they can create UGC hooks for users to embellish their own maps (like in Google Earth), offering themselves further differentiation. With regard to Android, version 3 will be better than version 2 will be better than version 1. Microsoft knows this game well.

Another perhaps even more important factor is that when a product is completely free, consumer expectations are low and consumer patience is high. Customers seem to really like free as a price point. I suspect they will love “less than free.”

I suggest you read the whole article before bursting into comment mode. This isn’t so much about the changes for the end-user. This is more about the impact on makers and purveyors of products and services, and the platforms upon which those products and services are built. Google’s growing dominance will make Microsoft’s near-monopoly look trivial. I can hear the anti-trust lawyers sharpening their knives already.

PS. MS still has very powerful offerings in other areas (eg. .Net), not to mention huge familiarity and comfort within its installed customer base, so don’t write it off yet.

Disclosure: My family trust owns Google and Microsoft shares.