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  • Lessons on How Not to Drown in the 'Data Deluge'

    The expansion of the mobile marketplace over the last decade has brought companies access to exponentially more data than they previously had on consumer behaviors and desires. Too much data, as it turns out. Collecting meaningful data has become a major challenge. The old tools simply may not work. In a new paper, George Day , Co-Director of the Mack Center for Technological Innovation and Professor of Marketing at the Wharton School , says there is a dangerous gap between the potential value of all the data and the capacity of companies to adequately analyze that data: The hypothesis that organizations are not keeping pace with market velocity and complexity is more difficult to test. Suggestive evidence comes from several sources. The first is the vast literature on information overload, which describes how an excess of information has resulted in the loss of the ability to make decisions, process information, and prioritize tasks (Eppler and Mengis 2004; Klingberg 2009; Meyer 1998). The second is the equally large literature on organizational adaptation in the face of environmental change (ranging from Miles and Snow [1978] to Hamel [2007]). Still, there is no longitudinal measure of the size of the gap. Some evidence comes from recent estimates that the amount of data available expanded at an exponential rate from 100 billion gigabytes in 2005 to 1000 billion gigabytes in 2010 (IDC 2007). This suggests an even greater rate of growth than Davenport and Harris’s (2007) claim that unique information per person is growing at 50% per year. In contrast, they estimate that information consumption per person is only growing at 2% a year. Taken together, a reasonable case can be made that the deluge of data has run up against the barrier of the limited ability of people and organizations to process it. The evidence sug- gests that the volume of inbound data and the proliferation of channels is going to continue for the foreseeable future. Absent any breakthroughs in human beings’ ability to process data, unless new tools and approaches are adopted, the gap will continue to grow. There are other reasons to suggest that the gap is growing and that new approaches are needed to begin closing it. During periods of technological disruption, most organiza- tions have trouble keeping pace. This is true of the effect of the Internet and cheap, ubiquitous communication technologies on the habits and behaviors of consumers and the creation of new business models for reaching these markets. The tendencies toward inertia and sclerotic decision making are fed by lag effects and organizational rigidities. Read the full paper here . And watch Day and colleague David Reibstein discuss the "data deluge" problem in this Knowledge@Wharton interview:

  • Wharton's Wachter on the Shaky Housing Market

    The housing market in the US continues to take its lumps. Prices are down, but buyers have not responded. Susan Wachter , real estate professor at the Wharton School , recently spoke about the state of the housing market in a Knowledge@Wharton interview. Wachter doesn't think we're going to see prices drop even more, but she does expect the slump to continue. She uses the phrase "bouncing along the bottom" to describe what she expects for housing as long as the recovery continues at its current slow pace.

  • Wharton Business Plan Competition Sees Big Jump in Entries

    Could the number of entries in an annual business plan competition be an economic indicator of some sort? 230 teams entered the Wharton Business Plan Competition this year. That's up from 162 last year and 145 in 2008, according to Forbes. The competition is open to all students at the University of Pennsylvania , and $75,000 in prizes is at stake. Health care was big in this year's competition--five of the seven finalists are business plans that are in or related to the health sector. You can read about the finalists, and learn the winner, at Forbes . Click here .

  • Toyota's Recall and 'Expansion of Complexity'

    Automakers ended March on a high note , with US sales up 24.3% from March, 2009, the Detroit Free Press reports . Toyota was among the companies with a big lift, with March sales up 40.7%. The company welcomed the good news after months of dealing with recalls and the ongoing investigation into problems with some if its most popular cars. A month of good sales does not get Toyota out of the woods, of course. And it doesn't mean the problems are solved. Takahiro Fujimoto , professor of economics at the University of Tokyo, is a leading expert on the company. And he says the challenge for Toyota is that its growth has brought an "expansion of complexity." And in that regard, all growth companies need to watch Toyota closely, as they are vulnerable to some of the same problems (not faulty accelerator pedals, exactly, but workflow mistakes that become company wide problems). Here is Fujimoto discussing Toyota with John Paul MacDuffie of the Wharton School :

  • Today's 'Freelance Economy'

    Jobless claims keep going up, according to the latest reports from the Labor Department. And Peter Cappelli , director of the Center for Human Resources at Wharton , says workers may need to accept that the best job in today's economy may be a temporary job. And while these types of jobs tend to cost employers more than hiring people full time (as much as 25-30% more, Cappelli estimates), the uncertainty of the business climate today means employers take on less risk with temporary hires. Here's Cappelli speaking about how the recession has changed the job market (from Knowledge@Wharton):

  • Rethinking the iTunes Pricing Model

    Here's an interesting case study for examining pricing models. There's no disputing Apple's success with its iTunes music store (unless, perhaps, you are an old-school record company executive). But Wharton School economists Ben Shiller and Joel Waldfogel have a new paper in which they argue both Apple and consumers would be better off if the the iTunes store shifted away from the "common practice of uniform pricing." If you are a subscriber to the National Bureau of Economic Research , you can read the paper here . If not, then here's an excerpt from The Economist magazine's article on the paper: In January 2008 the researchers presented nearly 500 undergraduate students at Wharton with clips of the 50 most popular songs on iTunes earlier that month. Having listened to each clip, the students were then asked to write down the most they would be willing to pay to download the song in question. Data on more than 23,000 song valuations resulted, allowing the professors to get a sense of the actual demand curves for popular songs. Similar data were also collected in January this year, though this time some older and less popular tracks were also included. The exercises showed that even a uniform price per song that maximised revenue among the students was quite high—$2.30 in 2008 and $1.46 in 2009. Wharton students may be particularly fond of music, but it is also possible that the market would sustain a higher uniform price than 99 cents. More important, knowing the uniform price that maximised revenue also allowed the authors to evaluate other ways to price online music. One alternative is song-specific pricing, much favoured by record companies. (Apple has already moved a bit in this direction with its multi-tier system.) But the research suggested that this would increase profits by a mere 3%. Part of the problem was that people who valued one song highly also tended to place a high value on others. This implies that person-specific, rather than song-specific, pricing would be more efficient. But sellers’ data are not refined enough to set different prices for different people. People may resent such pricing anyway, so it could harm sellers’ brands. Crude profiling—by race or sex, say—would be illegal. In any case, the authors found that basic demographic information did not tell them much about musical tastes. Read the full article here . (H/t Planet Money ).

  • Carlos Ghosn on Implementing Short Term Responses During Crisis to Set Up Long Term Vision

    Speaking at the Wharton School , Carlos Ghosn , CEO of Renault-Nissan , listed reasons why automakers were hit the hardest--along with banks--by the global economic crisis. They "are big consumer(s) of cash," "big employers," "invest a lot of money," and "have a big supply chain." So the immediate challenge for car manufacturers, Ghosn says, is to get through the crisis. Managing through the crisis depends on maintaining a "positive free cash flow." But the long term survival of these companies depends on long term vision, and, he says, managers have to be careful not to sell out the long term vision in fighting the short term problems. In this video, he outlines Renault-Nissan's approach in responding to the immediate challenges in such a way that the company also moves toward goals for the future. For Renault-Nissan, that appears to mean developing zero emissions vehicles:

  • John Mack on Morgan Stanley On The Brink After Lehman Collapse

    A year ago, John Mack , CEO of Morgan Stanley , was under under pressure to sell the investment bank. The bank survived, and, unlike several of his peers, he survived. He also says he saved thousands of jobs by keeping Morgan Stanley going. He spoke recently at The Wharton School in Philadelphia, and talked about his experience at the height of the crisis:

  • Reducing Friction and Connecting Better with Customers

    Successful retail businesses find ways to make it as easy as possible to connect with buyers. This, according to Olivier Chatain , professor at the Wharton School of Business at the University of Pennsylvania, means eliminating "friction": You can access an abstract for the working paper to which Chatain refers here .

  • Muhammad Yunus on Microcredit and Battling Rural Poverty

    When he couldn't persuade bankers to lend to impoverished people in his native Bangladesh, Muhammad Yunus started Grameen Bank . Grameen Bank pioneered the practice of giving very small loans to very poor people without requiring collateral (or lawyers)--what we now call microcredit. Microcredit grew rapidly as a practice--as both an antipoverty strategy, and as a business strategy for bnaks like Grameen. And Yunus and Grameen Bank were recognized in 2006 with the Nobel Peace Prize . The Wharton School invited Yunus to give its commencement address this year, and according to the New York Times , he told graduates that the global economic crisis provides an opportunity to reshape the underlying financial structure and "shake things up in a positive way that will lead to permanent social change." He spoke with Knowledge@Wharton and talked about founding Grameen, the future of microcredit, and how his for-profit bank was able to make an impact where so many aid groups were unsuccessful:

  • Wharton Profs Weigh in on the Threat of Deflation

    Fed Chair Ben Bernanke said earlier this week that the threat of deflation is receding . But some economists remain concerned that deflation could be a problem, if not in the US, then in Japan and possibly Europe. This has been one of many issue on which economists have struggled to be on the same page. Colleagues at the Wharton School , for example, have a range of opinions about the likelihood of deflation. Few see deflation as a major danger. Forbes.com has a roundup of opinions from Wharton professors: "The economy is starting to turn around," says Wharton finance professor Marshall E. Blume, who cites the slowing pace of new unemployment claims as evidence that deflation is not a serious threat. The recent drop in gross domestic product was primarily due to a cutback in production as suppliers drew on inventories instead of new production, he asserts. With inventories down, demand should push prices back up. Others think deflation is more likely. "I'd be very surprised if Japan didn't have a deflation problem," says Franklin Allen, professor of finance and economics at Wharton. "I think it's quite likely in Europe and the U.S.," he added, citing the rapid fall in inflation. He interprets the decline in gross domestic product to be a signal that manufacturers have "huge excess capacity," which equates to an excess of supply that can help drive prices down...Coupled with falling demand due to rising unemployment, these factors could make deflation a serious problem in the U.S. and Europe, Allen contends. Mauro F. Guillén, professor of international management at Wharton, expects deflation to spread but does not think it will be serious. Most price declines have been mild, he notes, and the huge levels of government spending in the U.S. and elsewhere should eventually trigger enough demand to drive prices up. Read the full article here .

  • GEC Impact on the Housing Market

    Yesterday we saw the grim numbers on housing starts and construction: a near 50 percent drop in new construction from March 2008 to March 2009. The problem with housing now in the US is twofold, according to Wharton School professor Joseph Gyourko : we built too much, and having negative demand shock. Or to put it another way, "we overbuilt it, and then we had a big recession." In this excerpt of his lecture before a new course at Wharton, The Economic & Financial Crisis: Causes, Consequences, and Policy Options , Gyourko discusses the supply and demand imbalance in the housing market, and how that is likely going to get worse in a recession:

  • 'When Losing Leads to Winning'...In Basketball and Business

    March Madness is in its second weekend. By the end of Sunday, we will know which four college basketball teams will emerge for the Final Four in Detroit next week. If you are watching games over the next few days, pay close attention to the halftime score. Naturally, you want the team for which you are rooting to have a comfortable lead (whether you are a true fan or simply selected that team to win when you filled out your brackets). But if the game is close, you might prefer to be the team slightly behind. Wharton professor Jonah Berger explains: Berger and Wharton colleague Devin Pope have put out a paper titled When Losing Leads to Winning , showing that it is preferable to be slightly behind than slightly ahead in college basketball. And they explain how this phenomenon can be applied to business. Read the paper here .