Teri Bernstein, MBA, CPA has been teaching full time in the Business Department of Santa Monica College since 1985. Prior to that, she worked in Internal Audit and Special Financial Projects for the 1984 Los Angeles Olympics, CBS, Inc., and Coopers & Lybrand. She attended the University of Michigan and Wayne State University.
Why is it so hard to predict whether a movie will do well? Because the Memorial Day box office take was not good, the film industry is worried that the summer blockbuster season is off to a slow start. But the real issue is that there doesn't seem to be a good correlation between investment and reward. A few films that are doing poorly this season:
Why can't Hollywood make good decisions about what will play well with the public? Why is there such a large swing in box office popularity for movies of a given budget amount? What are the drivers of production budgets that are "green-lighted"?
Steven Ettinger from MIT's Sloan School of Management says that the best ideas (for all products) need many iterations to really be good. Not many chances for testing are available to movies, which are a creative product.
If you are testing hamburgers, you can control the input variables (type of meat, with or without pickles, seasonings and sauces). The input variables to a creative process are not controllable. Hollywood ends up "betting" on those that have performed well in the past.
But businesspeople know that "Past performance is no guarantee of future results," so the gamble in the movie business is big.
Source: "Why Making Movies Is Not Like Making Hamburgers," by Adrienne Hill, Marketplace, American Public Media. May 29, 2015.
Decision-making is an important part of doing business. But sometimes even big decisions don't make sense. Some are based on tangible cultural differences--for example, the marketing of the Chevy Nova in Spanish-speaking countries (where "no va" means it doesn't go). This seeming gaffe fortunately did not negatively affect sales, but it did cause some laughs at Chevy's expense.
Other decision are baffling because, in hindsight, they seem to be based on alarmingly poor predictions. This one about the lack of a future for TV was mentioned in BUSN (page 209): A new book, "Feeling Smart: Why Our Emotions Are More Rational Than We Think," by Eyal Winter, talks about decisions that we might not understand at first glance:
Understanding how and why others make decisions are an important factor in planning and leadership.
Sources: "What were they thinking? The Logic Behind Emotional Decisions," by Rawn Shah, Forbes, April 9, 2015.
Chapter 14 of BUSN, 3rd edition by Marce Kelly and Jim McGowan, 2011. "Feeling Smart: Why Our Emotions Are More Rational Than We Think," by Eyal Winter, PublicAffairs, December, 2014.
more "oops" predictions like the TV prediction can be found at this link: predictions about modern technology
photo by Simon Dawson/Bloomberg/Getty Images...at an auto plant "If we pay these robots a "living wage," will they buy some of our products?"
The caption above is meant as a joke, but job loss--especially when lost to a machine--is not funny to those who are no longer employed. After each recession, economic recovery produces fewer jobs than those that were lost. After the last Great Recession, which began in 2008, the jobs that have come back have often been part time and low-end service jobs--not full time unionized production jobs that can now be done by robots.
Still, people have been worrying about machines taking over for a long time, and we've always done well. The inventiveness and creativity of entrepreneurs has created employment and new products time and time again. Ironically, my students keep asking for test questions that are EXACTLY like the questions they have seen before. I try to tell them that robots are the ideal employees to do a job that is exactly the same as a previous problem. What I try to get them to really want are challenges that only a human can solve.
Unfortunately, some of the jobs that are tough for robots are minimum wage jobs like house cleaning and restaurant service jobs. Even sports coaching can partly be taken over by a robot. Planet Money looked at both sides of this debate--Will machines take over all the jobs or not? and got the perspectives of two MIT professors:
What do you think?
Source: "Episode 626: This is The End," by David Kestenbaum and Jacob Goldstein, Planet Money, NPR, May 22, 2015.
Ready for some summer reading? Make good use of your time by reading one of the popular business titles from the NYT best-seller list.
The first title on this list might make a good Father's Day gift...but the other titles are pretty compelling for young businesspeople starting out in their careers. Henry M.Paulson, Jr (of Too Big To Fail fame) weighs in with advice on dealing with the growing economic force of China. An in-depth biography, Becoming Steve Jobs, (that many have compared favorably to Walter Isaacson's book) is a great story as well as an inspiration to stick with the long road to success. And Tony Robbins book, Money: Master the Game, was certainly written by someone who walks the walk. At over 600 pages, it might last you all summer. Other books on the best-seller list are:
Source: Business Best Sellers, New York Times, May 2015. (the "Buy" links above do not work)
Gantt Charts may be considered by some to be "old school" but they remain a clear way to communicate project needs and project progress to a wide range of project participants. As you can see from the color-coding and bar-coded critical path organization of the above Gantt chart, there is no question about what has been done and what needs to be done. It is also clear what projects can be done at the same time, and what needs to be done sequentially.
Gantt Chart formatting is available in several programs. These include:
The pros and cons of each are discussed in detail in the article linked below.
Source: "A Project Manager's Guide to Gantt Charts," by Rachel Burger, Capterra Blogs, March 15, 2015.
Motivating men of color to succeed in school and in business is a priority for President Obama. Intentional focus on increasing opportunities is one way to address the types of serious social problems that have come to light because of incidents in Baltimore and Ferguson. Empowering youth to have the grit to persevere in spite of institutionalized barriers is idealistic but an important legacy for the Obama presidency.
Private money from a company affiliated with the My Brother's Keeper initiative was the focus of a recent talk in the Bronx given by the President. Companies including American Express and News Corp fund the initiative to provide education, job training and mentoring for young men of color to ensure that equality of opportunity is a reality. The money is needed partly because Congress has gutted policies that help alleviate poverty. These private funds target communities where unemployment is 30-50% and there there few positive male role models in business.
The practical aspect of the My Brother's Keeper program includes "sustained effort to focus on policies that work," including:
Source: "'My Brother's Keeper' to Expand Opportunities for Young Men Of Color," by Mara Liasson, National Public Radio, May 5, 2015.
All businesses have a life cycle, and need to periodically re-invent themselves if they are to maintain their revenue streams. Casinos are one business that is trying to appeal to the younger generation. But much of the younger generation is bored by slot machines that cover the floors of many casinos.One problem with making a change is that casino owners really liked the old revenue model. According to David Kestenbaum of NPR's Planet Money, "If you run a casino, slot machines must seem like one of the greatest inventions of all time. You line them up on your casino floor. They vacuum up money all day long - nickel here, quarter there, dollars. The players, though, tend to be older. As one young guy at a casino told me recently, slots, he said, slot machines are for zombies."
Part of the problem is that so many people now have fun games that depend on luck and skill entertaining them in the palm of their hands--Angry Birds and Candy Crush are on many people's cell phones. According to Kestenbaum, "People spend an extraordinary amount of time playing games on their phones. The most popular ones are games of skill - games you can practice at, get better at. By comparison, slot machines can seem truly mindless. Meyerhofer is now CEO of a company called Gamblit. Gamblit is one of several companies trying to develop replacements for slot machines. They're making video games, but with one key difference. If you're good, you can win real money."
One game in development for slot machines is "Police Pooches Versus Zombie Cats." According to Kestenbaum, "It's basically "Angry Birds" but with police dogs. We launched the dogs from a catapult at cats that are holed up in some kind of fortification. The better you are at the whole zombie cat thing, the better chance you have at winning money...for a $20 wager, if you hit the jackpot, you could get 2,000 bucks."
Source: "Casinos Bet On Change After Younger Players Ignore 'Boring' Slot Machines," by David Kestenbaum, National Public Radio, May 8, 2015.
Ever since December, 2012, Cerberus Capital Management has been trying to sell Remington, the company that infamously manufactured the rifle used to murder 26 children and adults at Sandy Hook Elementary in Newtown, Connecticut. Some of the pressure to sell has come from its public pension investors, including the California State Teachers’ Retirement System (CalSTRS), which owns a 2.5% stake.
After the incident, guns sales briefly surged, as many feared there would be new legislation limiting gun sales and ownership. But the laws did not materialize, and demand has fallen dramatically in 2014 for many gun manufacturers.
According to the New York Times, Cerberus indicated it would "take Remington out of its main private equity funds and put it into a separate financial entity. Cerberus will then let its investors sell their individual stakes in the gun maker back to the company...Investors have 30 days to decide if they want to take up the offer, though many are expected to do so."
Source: "Cerberus, Unable to Sell Remington, Will Let Investors Cash Out," by Michael J. de la Merced, New York Times, May 15, 2015.
According to Bloomberg Business, the battery arm of Elon Musk's Tesla has taken about $800 million in advance sales orders for their Powerwall and Powerpack power storage units, since the project was announced on April 30th. But, as every first-year Accounting student knows, advance orders for products cannot be booked as Sales Revenue. It remains to be seen whether Musk can create a production schedule that satisfies his potential customers, and whether all of those customers will materialize when it comes time to pay up. No downpayment was necessary for online reservations.
Bloomberg Business "crunched the numbers" with this combination of facts and assumptions:
In addition to that, there might be others like me-- a chomping-at-the-bit potential customer who just hasn't gotten my order in yet. So, maybe sales will exceed even the orders placed during this staggering first week. Perhaps Tesla's 5 million square foot factory really won't be big enough...
Source: "Tesla's Battery grabbed $800 million In Its First Week," by Tom Randall, Bloomberg Business, May 8, 2015.
Medical care costs are rising faster than other costs, and there are several aspects of the medical business model in the United States which make it unresponsive to pricing norms and subvert the feedback loop with respect to getting value for dollars spent. One reason for this is the existence of insurance companies as profit-making intermediaries, and profit-making medical conglomerates--both of which have longer term business interests than patients or legislators. Another issue is that patients are under-informed with respect to medical issues (and doctors and hospitals tend to like to keep it that way). "Purchase" decisions are also made under duress--sometimes even life and death duress--and are also frames not as decisions with choices, but as rubber-stamping a decision made by a medical professional.
How can the system be improved to work better for patients, for the payers of medical care (ultimately all patients, insured individuals, and taxpayers) and for medical institutions over the long term? One solution addresses the issues of over-testing and over-treatment, which result in "no-value care" or "low-value care."
Examples of this include:
Because our medical business model is built on the number of procedures, and the rarity or complexity of procedures, all the financial incentives for doctors and hospitals are in the direction of over treatment. This creates high costs for insurers, for employers (time off for employees and higher premiums), and for patients (absorbing the deductibles and enduring the pain of unnecessary and unhelpful procedures).
Eliminating unnecessary care has to be supplemented with inserting the proper care, and a model for such a system is being tested out by a few large corporations whose aim is to cut their own costs. Such a system would be hard to implement without regulation and national buy-in. But this type of regulation might provide the same kind of reassurance to patients that the housing inspector from the city provides to the homeowner during a remodel. The regulator insures that the contractor is doing the right thing--and only the right thing. Our medical care could use the same kind of oversight--but it may take large corporations focusing on cost savings to pave the way to implement it.
Source: "Overkill" by Atul Gawande, the New Yorker, May 11, 2015.
Video From Bloomberg News
Elon Musk is certainly a visionary thinker...PayPal, Space X, Tesla Motors, SolarCity... Now he wants to build and sell batteries to help people get totally "off the grid." Those with solar energy cells on their roof generating electricity can use these batteries to store the excess power accrued mid-day to use at night and in adverse weather conditions. Having this back-up battery under one's own control rather than using the electrical power company as a back-up will allow individual energy users real energy freedom--especially if they are also driving an electric car.
These batteries can also be used by utility companies to stack and store energy from renewable sources.
Personally, this is very exciting--as the investment we made in solar energy in our home has paid off faster than we anticipated (we bought our panels before many of the leasing programs went into effect...but after the federal government took the cap off their tax rebates for solar installation). Also, because I drive a Volt, all of my in-town driving is done on electric (therefore solar) power--and I don't have "range anxiety" about running out of fuel because of the gas engine back-up (also useful for out-of-town trips). Anyway, Musk priced these batteries at $3,500, but my guess is that there will be a lot of hidden costs in terms of installation and maintenance. Plus, I am still uneasy about the sourcing of the lithium for these batteries--that might be its own eco-nightmare...Nevertheless, Musk is still offering a solution that doesn't cramp anyone's energy-use style, and still addresses the big problem with renewable energy sources: storage.
Source: "Elon Musk, Climate Hero?" by Dana Goodyear, the New Yorker, May 11, 2015.
Re-using water is an important topic in states such as California, which are experiencing record droughts. The re-use of "greywater" is not controversial, since it contains nutrients that are beneficial to plants but that can be a pollutant if dumped untreated into rivers and streams. But because the used water has to be diverted from being dumped into municipal water treatment facilities before being dumped into the ocean, it requires re-piping and mindful (and sometimes manual) re-use in many of its applications, such as watering backyard plants.
The pilot program at California rest stops that is described in the Huffington Post article is different. It uses very little energy to reuse "blackwater"--water from toilet flushes. In a "closed-loop recycling system" it purifies the water and recycles it back to flush toilets again...and again...and again. The purification takes place on-site. It has the added advantage of utilizing recycled plastic in the pipes it required. It economical, efficient, ecological, safe--and marketable, since it does not involve drinking water.
Water purification systems for recycling all water for ANY use--even drinking--has been available for at least 4 years in systems that could realistically be implemented into our water systems. These new purification systems (demonstrated in the video above) can even remove contamination by hormones and prescription drugs (which cannot be removed by municipal treatment systems).
Still, many people hesitate to accept water purified for re-use. Where do people think water comes from, anyway? How does it get clean enough to become tap water? How are astronauts getting water on space stations? We may all have to change our assumptions about water in a future that will include more droughts and water scarcity.
Meanwhile, there will be business opportunities for those who can implement systems in a cost effective way, and market the technology in a way that is acceptable to consumers.
Source: "Poop + Plastic: Good News for H2O Parched California," by Belinda Waymouth, Huffington Post, April 24, 2015.
Sewage to Drinking Water in 10 minutes
Last week in Santa Monica, California, the city council banned the short term rental of housing units rented as a whole, which is how many of the units were listed through AirBnB. Still allowed are the sublet of individual rooms or portions of the property if the primary owner or tenant remains on the premises, and the renter is a paying guest. This second arrangement is the "sharing economy" situation that AirBnB uses as a public image. However, increasingly, bigger businesses--rental management companies and banks--were posting the units for rent on AirBnB, driving up the cost per night per unit and indirectly leading to increases in rental prices overall.
This is an example of "big business" versus entrepreneurial businesses. Small business owners may bristle at regulations in principle, but in this case the regulations may help the individual renter help make his or her rent payment (as well as participating in a cultural exchange).
Source: "Vacationers Sent Packing As City Bans Short-Term Rental Listings," by Jennifer Egan, Santa Monica Mirror, May 1, 2015, via The Brewing Geographer. Related story from YouTube
Two years ago, the EU banned the use of a pesticide type called neonicotinoids because of their effect on honeybees and the likelihood of their involvement in the increase in bee and beehive deaths over the last ten years. Neonicotinoids, or "neo-nicks", are produced and manufactured as coatings on genetically-modified seeds. This pesticide becomes a permanent part of the plant, including the flowers and pollen--having a prolonged effect on pesky insects. Also, they affect the beneficial insects like bees.
The business use of these pesticides may be beneficial in the short term to corn producers, for example, but harmful to not only private and industrial bee-keepers, but also to farmers of all sorts--particularly fruit growers--who rely on bees for fruit production.
Source: "Pesticides Linked to Honeybee Deaths Pose More Risks, European Group Says," by David Jolly, New York Times, April 8, 2015.