August 2010 - Global Economic Watch

McKinsey Report on Innovation Shows Companies Come Up Short in Managing New Ideas

08-31-2010 9:44 AM with no comments

In their assessment of a recent McKinsey Global survey on innovation in comparison to surveys from years past, McKinsey researchers Marla M. Capozzi, Brian Gregg, and Amy Howe find that, while more and more companies embrace the need for innovation, "core barriers to successful innovation haven’t changed, and companies have made little progress in surmounting them."

While 55% of the 2010 survey's respondents say their company is better than the competition at being innovative, many companies appear to fall short in managing innovation.  

Fundamentally, the biggest challenge is organization: 42 percent of respondents say improvement in this area alone would make the most profound difference in innovation performance. This figure falls between the shares of respondents to a 2007 survey who selected allocating resources and aligning talent as their companies’ top challenges to successful innovation. For this year’s respondents, organization is closely followed in importance by developing a climate that fosters innovation; commercializing new businesses, products, or services; and selecting the right ideas and managing a portfolio.

Respondents also indicate that their companies don’t make good use of many specific tactics (Exhibit 2). For example, only 27 percent say their companies are very or extremely effective at making business leaders formally accountable for innovation. Notably, even among respondents at early-growth companies, where innovation is likely to be a particularly high priority, only 34 percent say their business leaders are effectively held accountable.

Here is exhibit 2:

Read the full report here.  

Posted by Graham Griffith

Big Changes Must Feel Urgent

08-31-2010 9:29 AM with no comments

Looking to make a big change in your organization?  John Kotter, Chief Research Officer of Kotter International and Professor Emeritus at Harvard Business School, says that you must create a sense of urgency.  And if you don't have enough employees who feel that sense of urgency, you won't be able to accomplish the task:

Watch the full interview with Kotter at Big Think, here.  

Posted by Graham Griffith

SF Fed Economic Letter: Effects of Immigration on US Employment

08-31-2010 9:07 AM with no comments

In a new Economic Letter from the Federal Reserve Bank of San Francisco, Giovanni Peri--a visiting scholar at the San Francisco Fed--explores the impact of immigration on US workers and employment.  His is a general analysis, as he acknowledges that the impact of immigration can vary widely from industry to industry.  But in looking at the aggregate economic impact, Peri sees the "average impact per worker" as a positive.  That is, immigration shows a net growth in income per worker.

Peri writes:

First, there is no evidence that immigrants crowd out U.S.-born workers in either the short or long run. Data on U.S.-born worker employment imply small effects, with estimates never statistically different from zero. The impact on hours per worker is similar. We observe insignificant effects in the short run and a small but significant positive effect in the long run. At the same time, immigration reduces somewhat the skill intensity of workers in the short and long run because immigrants have a slightly lower average education level than U.S.-born workers.

Second, the positive long-run effect on income per U.S.-born worker accrues over some time. In the short run, small insignificant effects are observed. Over the long run, however, a net inflow of immigrants equal to 1% of employment increases income per worker by 0.6% to 0.9%. This implies that total immigration to the United States from 1990 to 2007 was associated with a 6.6% to 9.9% increase in real income per worker. That equals an increase of about $5,100 in the yearly income of the average U.S. worker in constant 2005 dollars. Such a gain equals 20% to 25% of the total real increase in average yearly income per worker registered in the United States between 1990 and 2007.

Read The Effect of Immigrants on U.S. Employment and Productivity here.

Posted by Graham Griffith

Where Physics and Marketing Meet

08-30-2010 8:41 AM with no comments

You might remember some basic Physics.  Like Newton's second law: force = mass X acceleration.  But do you ever think about that law as an important marketing principle?  Or how about Heisenberg's uncertainty principle?  Okay, you probably don't remember that one, but Dan Cobley, marketing director at Google, does.  He says that Physics was his first love, and that it helps him be successful as a marketer.  Here is Cobley giving a very accessible Physics lesson for marketers at the TedGlobal conference:

Posted by Graham Griffith

A Call for More Active Monetary Policy: Clive Crook Puts the Onus on Bernanke and the Fed

08-30-2010 8:29 AM with no comments

In his speech opening the Jackson Hole Conference, Ben Bernanke stated that "the Federal Reserve remains committed to playing its part to help the U.S. economy return to sustained, noninflationary growth."  And he outlined a series of tools available to him and the Fed in countering further economic decline.  (Read the speech here). But Financial Times columnist Clive Crook argues that a "divided Fed" is "letting the country down" and needs to take additional monetary policy steps now:

Mr Bernanke and his colleagues are understandably nervous about extending the radical measures they have already taken. Divided on the point, they have taken a modest further step by preventing the maturing of debt they hold from tightening monetary conditions, as it otherwise would have. They are right to worry about their exit strategy; they are also right to be nervous about being in uncharted terrain. But the balance of risks has moved. They need to go further.

George Magnus of UBS argued on this page last week that deflation poses a greater risk for the US than inflation. That seems right: inflation expectations, as revealed by rates on index-linked US debt, are very low. Mr Magnus was surely correct to say this points to the need for further monetary easing – but wrong, I think, to say that “unreconstructed monetarists will not be persuaded”. His point was that monetarists would see the policy rate at zero and banks holding enormous reserves at the Fed and conclude that money was already too loose.

As the monetary economist Scott Sumner has pointed out, Milton Friedman – name me a less reconstructed monetarist – talked of “the fallacy of identifying tight money with high interest rates and easy money with low interest rates”. When long-term nominal interest rates are very low, and inflation expectations are therefore also very low, money is tight in the sense that matters. When money is loose, inflation expectations rise, and so do long-term interest rates. Unreconstructed monetarists ought therefore to agree with Mr Magnus’s main point: under current circumstances, better to print money and be damned.

Read It falls to the Fed to fuel recovery here.  

Posted by Graham Griffith

Real GDP Estimates Revised Downward for 2nd Quarter

08-27-2010 9:34 AM with no comments

The Commerce Department announced this morning that GDP growth during the second quarter was smaller than previously estimated.  The increase in real GDP from the first quarter to the second quarter was 1.6%.  Here's what the Bureau of Economic Analysis tells us were the key factors:

The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, personal consumption expenditures, exports, federal government spending, private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the second quarter primarily reflected a sharp acceleration in imports and a sharp deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending.

Read the BEA release here. 

Posted by Graham Griffith

Conditions May Be Ripe for More M&A

08-27-2010 9:16 AM with 1 comment(s)

M&A activity is picking up.  Seeking Alpha contributor Charles Rotblut reports that "last week saw the largest dollar amount of announced global mergers ($93 billion) since November 2, 2009."  (Data is from Dealogic).  Acquisitions were not following the same trajectory, and in fact, had a down week. 

William Tyson, head of BB&T's investment banking division, believes conditions are ripe for more M&A activity, especially among "middle-market companies."  He explains what he sees as the key variables that will drive M&A in the Dow Jones video:

Posted by Graham Griffith

Employee Loyalty Begets Customer Loyalty Begets Profitability

08-26-2010 9:26 AM with no comments

Over at MarketingProfs, Dianne Durkin writes that "employee loyalty builds customer loyalty, which builds brand loyalty."  So it is logical that her list of key steps to "building loyalty and corporate profitability" is centered on strategic management of a company's workers.  Here is the list:

1. Clearly define the purpose and values of the company, and share them with everyone

2. Align and communicate

3. Listen to employees

4. Engage people in solutions

5. Invest in training

6. Celebrate successes

7. Invest in your managers and leaders

8. Create a responsibility-based culture

Read Durkin's detailed descriptions of each of these steps here.  

Posted by Graham Griffith

Cleveland Fed's Drawing Board: The Dangers of Debt Overhang

08-26-2010 9:11 AM with no comments

Too much debt can cripple a person, or a company.  That seems an obvious statement, especially two-three years into a global economic crisis.  But taking on debt has many advantages, so it is always helpful to have some basic reminders.  Cleveland Fed researchers have put out  a paper on the effect of "debt overhang distortion" on business activity and, in turn, the economy as a whole.  And that paper also prompted this Drawing Board video, which is a nice primer on debt.

You can read more about Filippo Occhino and Andrea Pescatori's research here. 

Posted by Graham Griffith

Adopting Social Media Practices May Mean Giving Up Some Control

08-25-2010 9:05 AM with no comments

Charlene Li, founder of Altimeter Group, says it is past time for companies to recognize that social media is now a central part of consumers' lives, and their employees lives.  And successful managers need to give up "control" over how workers use social media, and develop policies that match behavior with larger goals:

Watch the full interview with Li at BigThink here. 

Posted by Graham Griffith

Online Funding Model for Startups Relies on Kindness, or Buy-in, of Strangers

08-25-2010 8:50 AM with no comments

A couple of web businesses are trying to facilitate crowd-sourcing as a means of funding startups.  Kate Lister profiles one of those companies at Entrepreneur.com, IndieGoGo:

Project owners from 120 countries have participated in more than 5,000 projects on IndieGoGo.com.

Here's how it works: Once you've created an IndieGoGo account, the website walks you through setting up a project description, fundraising goals and perks. Perks entice people to contribute at various levels (Ringelmann says there are three sweet spots in contribution levels--$10 to $25, $50 to $100 and around $500). The average project goal posted on the site is about $7,500, but they range from $500 to $50,000.

IndieGoGo earns its perks in the more traditional manner--taking 9 percent of whatever you raise. If you meet your fundraising goal in the time you've set, you'll earn a 5 percent bonus from the site. If you don't meet your goal, you still keep the money you raised (less the 9 percent). Contributions can be paid directly to you via Amazon, PayPal, credit card or check.

Not all projects are funded, but Ringelmann points out that the process offers valuable lessons regardless. "Sooner or later, you're going have to engage customers and get them to pay money for what you do," she says. "Careful selection of your perks can help you gauge interest in your product or service. It's basically free test marketing."

Read From Friending to Funding here.  

Posted by Graham Griffith

Housing Data From Bad to Worse

08-25-2010 8:09 AM with no comments

The National Association of Realtors' report on July home sales was expected to show a big drop in sales, but this big?  

Existing-home sales¹, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009.

Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995.

Though we may not see month-to-month percentage drops like that in coming reports, Calculated Risk looks more closely at the data and predicts that a lot of unsold houses will be on the market for a long, long time.  And that means prices will have to fall. One reason: inventory.  A lot of houses have been on the market for a long time.  Here's a look at how long houses have been on the market, from Calculated Risk:

Read the full post here.  

Posted by Graham Griffith

Old Spice Campaign Provides 'Back to Basics' Lesson in Marketing

08-24-2010 8:09 AM with no comments

Old Spice has put together one of the most popular ad campaigns of recent memory, especially for a campaign that utilizes the web to spread its message.  The Old Spice Man has become a popular figure on television and online.  This ad, for example, has been viewed nearly 19 million times (and counting) on YouTube:

And yet, the popularity in viewing has yet to turn into a rise in sales, according to marketing consultant Stephen Denny.  Denny writes that those who expected big sales numbers from the highly entertaining campaign forgot some basic rules of marketing, and he believes Old Spice's stumble provides some good lessons for small business owners.  He writes at Small Business Trends that the basic rules of marketing remain in place, even in a world where entertaining ads spread in new, faster ways:

Read Old Spice Revisited: Lessons and Cautions for Small Business here.

Posted by Graham Griffith

Hanesbrand CEO Outlines M&A Standards

08-24-2010 7:50 AM with no comments

Earlier this month, Hanesbrands acquired Gear for Sports, a maker of licensed apparel that earned $225 million last year.  The two companies have worked together, with Gear for Sports selling some of its products with the Hanesbrand Champion label.  But the acquisition makes for an interesting case study.  It comes at a time when Hanesbrand has some debt to pay down, but instead is spending $55 million to buy Gear for Sports, and taking on the latter company's $170 million debt.  Hanesbrand CEO Richard Noll explains why, and outlines his company's M&A criteria in this short interview with the Wall Street Journal:

Posted by Graham Griffith

Planet Money: Better Toilet Training Through Economic Incentives?

08-23-2010 3:40 PM with no comments

If you want to understand consumer behavior, you might be able to learn a lot by just watching your family.  For example, do your children work harder if they get an allowance?  Are they likely to do what you want them to if you provide some sort of incentive?  Australian economist Joshua Gans, who teaches at the University of Melbourne, wrote the book on family economics.  Parentonomics tells the story of what happened when Gans tried some interesting experiments out on his children.  Gans, and his daughter were guests on the Planet Money podcast, where they discussed their experiences with a "toilet-training economy."  Take a listen:

Posted by Graham Griffith