• The drug company Valeant: Investing in acquisitions rather than investing in products


     
      photo of Michael Pearson, Reuters

    It looks like the drug company Valeant may turn out to be a classic business-seminar scandal...infamous for poor judgment and financial shenanigans rather than visionary products. The CEO, Michael Pearson, had stellar results for a while. Between when he took over in 2008 and 2015, the stock price of Valeant increased 4,000 percent.  That did not happen because Valeant's research and development (R&D) divisions came up with life-saving or otherwise desperately needed drugs. Pearson didn't want to bother with pesky, risky R&D--a potential money pit. Instead, he acquired companies that had ALREADY developed products. According to the article linked below there were more than 100 "sure thing" acquisition transactions during this period.

    Michael Pearson's model was:
    --buy a company that already has good drug products
    --slash costs
    --increase the price of the drugs
    --rake in the profits.

    If an investor in Valeant was focused on comparatively shorter term gains, this was great. 

    However, this was not so great for investors focused on long-term performance. (Valeant's stock price has fallen over 90% from its high, which means that 90% of that 4000% gain has been eroded). Usually, drug companies produce profits over the long term by developing products that people need...or at least products that people think they need. Drug companies typically spend 18% of their revenue on research and development. Valeant, on the other hand, spent 3% on R&D under Pearson's leadership. Not only that, Valeant used every tax dodge available (including moving their headquarters to Canada). Pearson also tied executive compensation to stock price--motivating senior executives to make decisions based on the appearance of short term profits rather than executing a long-term company vision. 

    As of today (March 31, 2016), things look even worse for Valeant. According to Reuters:

    "Valeant Pharmaceuticals International Inc's (VRX.TO) directors and key officers have received a cease-trade order by the securities regulator in the Canadian province of Quebec, on the company's request, Valeant said on Thursday."

    Source: "The Roll-up Racket," by James Suckeweiski, The New Yorker, online March 27, 2016 for the print edition of April 4, 2016. 

    Follow up:

    --Research the debacles at Enron, WorldCom, and HealthSouth. How did aggressive acquisitions strategies play into the financial downfalls of those companies? What was the primary rationalization used by the senior executives of those companies for using those strategies? 

    --In March 2008, the stock price of Valeant was $10.82 per share. By March 6, 2015, Valeant's stock price was $203.31 per share when the market opened. Let's say that you looked at Valeant's history, and you decided to buy 2000 shares of Valeant stock on March 6, 2015..
    The stock price on March 31, 2016 when the market closed was $26.30 per share.
    Do the math: How much money did you gain (I'm kidding) or lose? Step 1: 2000 shares times the share price on March 31, 2016.  Step 2: 2000 shares times the share price on March 31, 2016.  Step 3: Subtract.  

                                        $           $            $        

  • The minimum wage hike and the "delivered ingredient" food service option

       photo from newsday.com

    There is a movement in the legislatures at the federal several state levels to adjust the minimum wage to $15 per hour. This change would affect many workers, but it would have a varied effect on the restaurant industry. Kitchen workers, servers, and restaurant owners view the wage hike quite differently.

    Workers in the kitchen, who are currently making a lower minimum wage, and who need second jobs to make ends meet, view the wage hike as a necessity. Servers who make tips (which often amount to well over the wages paid by the employer) would experience a welcome but less needed increase. Restaurant owners, however, who often operate on slim profit margins, are faced with challenges in order to maintain a "living wage" for themselves. The fast-casual niche, which has grown markedly in recent years, might be particularly affected. Will the owners have to cut hours or staffing levels, placing workers back into the same below-living-wage situation they are in currently?

    A new business model, perhaps coincidentally, is surfacing in the food service business concurrently with the minimum wage movement. Delivered-ingredient services radically cut labor costs, and eliminate waiters entirely--while still delivering fresh cuisine. The food quality exceeds delivery pizza or Chinese food, and provides food options that border on the gourmet--without the added costs of Grub Hub and similar middleman-food-delivery services. There is also no pressure or opportunity to tip, as the meals are delivered by mail. This business model became very popular in Sweden, and now there are several businesses of this type in the United States. 

    One example is the business Plated. This service offers 3 dinner meals for two people each week (6 meals) for $72. That is $12 per person, per meal. It includes vegetables, carbs, and protein. A customer can adjust the schedule whenever they need to. Here is a sample meal:

    There are vegetarian options, and a customer can choose what meats or fish they are willing to eat. There are also multiple options per week so that the customer can swap out menu choices. The catch?  The purchaser needs to do the actual 20 to 30 minutes of food preparation themselves.

    The good news is that every single ingredient is included with each meal, measured out and chopped or otherwise prepared. Also included are detailed directions and online videos for the cooking neophyte. And the time to prepare the food is less than the time spent waiting for a take-out food delivery. The delivered-ingredient food service option is a new and intriguing choice.

    The service may catch on...or it may not. As someone who has shopped for and prepared over 10,000 dinners for myself and my family over the years, the service certainly appeals to me. But will the option make sense to millennials?

    Perhaps it will be a viable revenue stream for restauranteurs who want to maintain their profits in an era of rising wages--while still providing quality food. 

    Source: "News of a minimum wage hike deal in California is met with relief--and anxious arithmetic," by Ruben Vives, Victoria Kim, Shan Li, and Frank Shong, Los Angeles Times, March 28, 2016. 

    Follow up

    ---  What is the minimum wage in your state? What is the minimum wage (or salary expressed in hourly terms) that you personally would have to make to create an acceptable but not extravagant lifestyle for yourself? If the amounts are different, discuss the implications for individuals and for society as a whole.

    --- Do you think that a business that delivers complete, upscale, meal ingredients for home cooking will cut into restaurant dining? Would you use it? Why or why not? Do a cost/benefit analysis: What do you typically spend on a dinner out? What does it cost to cook a meal at home? Now factor in the time to shop, at a $15 minimum wage. Compare and contrast those costs with the $12 per meal Plated price. 

                        ---------------------------------   ---------------------------------

  • Using credit cards: "friction-free spending"


    Without the spending limits associated with carrying a certain amount of cash, research shows that most people are willing to spend more money using their credit cards than they would spend if they limited their purchases to cash. Maybe it is the possible "loss" felt when the cash physically leaves your wallet and is transferred to a retailer. Maybe it is the convenience of the credit card--fewer pesky trips to the ATM at the bank. Or maybe, as Scott Bilker, founder of debtsmart.com notes:

    “Paying $5 for a coffee might seem like a lot if you only have $10 in your wallet. But if your credit card has a $10,000 limit on it, it doesn’t seem like much.”

    This behavior pattern can help retailers increase sales. Also, the banks issuing the cards often have built-in incentives to get cardholders to use their card as well. The user can accrue frequent flyer miles or the (value-non-specific) "reward points" that can be applied to purchases of goods and services--or even "cash-back."

    The paper "Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay," (co-authored by Duncan Simester and Drazen Prelek) was based on research conducted with MBA students. The students were given the chance to bid in an auction on NBA basketball tickets. One group had to bid in cash; the other group could use a credit card.  The results? Credit card users were willing to bid twice as much--a 100% increase. M.I.T. professor Duncan Simester, co-author of the paper, had this to say about the research:

    “When you vary the payment method, people are willing to pay more. You’re not forking over a dollar bill, so there is less sensation of loss...The most surprising thing was the size of the effect. You don't see too many examples where people offer double what they would have otherwise.


    Other researchers have found that even looking at an image of a credit card can induce increases in what they term "friction-free spending."

    In any event, credit card interest rates are extremely high (especially in an era where bank savings accounts pay little more than 1% a year). And there are many opportunities to accrue related fees. The increasing credit limits over time encourage instant-gratification spending. Therefore, it is important, when using credit cards, to pay the balance in full each month. That way credit card users can ward off big money problems in the future. The transaction is not "friction free" when the bills come due.

    For those already in trouble, free organizations like Debtors Anonymous (info and meetings), or businesses like debtsmart.com (linked above) might help.

    Source: "Credit Cards Encourage Extra Spending as the Cash Habit Fades Away," by Nelson D. Schwartz, March 25, 2016.

    Follow up

    ** Discuss your personal habits: How many credit cards do you have? How much do you spend per month on them?  What is that amount as a percentage of your take-home pay? Do you pay off the credit cards every month, or do you pay the minimum? 

    ** Do you use your debit card as freely as you use your credit card? Why or why not? 

                     -----------------------------------$$$-------------------------------------

  • Massaging the data: stock buy-backs and opportunity cost


        Paddy Hirsch from Marketplace on Stock Buyback basics, via YouTube

    Yahoo "bought back" $6.6 billion worth of shares of stock from its stockholders from 2008 to 2014. What does this mean?

    To illustrate a buyback, let's start with the initial stock issuance. When a company SELLS stock, they receive money and stock purchasers get a share in the company (debit Cash and credit Common Stock, for those of you familiar with the accounting for this). This also means that they are allocated a pro-rata share of the earnings in the EPS calculation. Here is a very simplified analogy: A company has 100 shareholders, and each shareholder owns one share. The company earns $2,000 in a year. This means that the earnings per share (EPS) would be $2,000 divided by 100 shares, or $20 per share.

    If there was company stock buyback of 20 of those 100 shares, there would be only 80 shares outstanding. The EPS would be $2,000 divided by 80 shares or $25 per share. This sounds great, doesn't it? It probably means that the price of the stock on the open market would also increase. Nevertheless, the buyback does NOT increase the company's earnings--it is still $2,000 in each case. And company earnings are a better measure of financial value for comparative purposes. 

    Here is what makes the situation even possibly worse: It takes real company dollars to buy back those shares. The company could be using the money--instead of buying back stock--to invest in other assets that would be income-producing. Typically, the profit, or return on assets (ROA) for a company is much more than a money investment (like your savings account). In addition, the assets exist from year to year, generating a profit for much longer than the one-year effect that the stock buyback would have for the remaining stockholders.

    The income that could have been generated from the investment in assets rather than stock buyback is called an "opportunity cost." Because opportunity costs are revenue streams that DON'T occur when a different choice is made, they can be overlooked in an analysis of a business decision. 

    In short, a buyback only benefits short-term investors who plan to sell their stock within the year. Long-term investors don't benefit because they are in the market for long-term underlying profit rather than riskier short-term gains. 

    Sometimes an investor has to look beyond the initial sound bite of what looks like a good deal...so that they aren't misled by calculations that don't tell the whole story.

    Source"In Yahoo, Another Example of the Buyback Mirage," by Gretchen Morgenson, New York Times, March 25, 2016.

    Follow up
    -- Listen to the video podcast. What is a "tender offer"? What is another way of doing the same thing?

    -- What is the first thing Paddy Hirsch says is a primary motivation for stock buybacks? What are some of the other possible effects? Do you agree or disagree about Hirsch's first assertion? Why or why not?

    -- Let's say you are deciding to go to graduate school to get your MBA. You are calculating what it will cost. What are two major opportunity costs of going to business school rather than going into the workforce after getting your bachelor's degree? 

                 --------------------------------------------------------------------------------------

  • Limiting choices in the marketplace: Spotify's algorithms


       a spotify ad via YouTube

    Spotify is a way to listen to music...and get introduced to new music. There are Spotify listening plans to fit more than one budget, with an inverse relationship between the number of ads you listen to and the price you are willing to pay. 

    But ad content isn't the only way that your listening is shaped by Spotify. Software algorithms choose songs for listeners, based on what music they have listened to before, or that they have put on their playlists. Listeners can add their indie or other new music discoveries to their own playlists. Spotify's algorithms then determine which other users should be made aware of the music discovery. The algorithm deciding which customers get the addition is based on the similarities that already exist between different users' playlists. 

    Spotify is not the only company that does this. Amazon makes suggestions to customers based on customers' previous purchases. So does Audible. Is it helpful or is it limiting to the individual listener and to the music industry? Spotify leaders cause it "amplifying" information.

    The music world is changing. Choices made by software do not seem as ominous as they were once portrayed in science fiction:

       Daft Punk  and the original personification of Robot DJ Rock

    Source"Robot Tastemakers," by Sabri Ben-Achour, Marketplace and Quartz Actuality, March 23, 2016.

    Follow up
    >> How is Spotify's algorithm for your listening playlist the same and how is it different from old-school radio programming?

    >> Listen to the podcast. Describe the atmosphere of the company. What is the "Discover Weekly Playlist"? What is another (rather crafty) technique used by Spotify to encourage people to listen to their personal discover weekly playlist? 

    >>What is an "acceleration rate" in the marketing paradigm for Spotify?

                                                                                  

  • How to cut your tax bill if you are a gig worker


     Video clip featuring a broad range of business advice for independent contractors

    Gig workers are independent contractors rather than employees. Employees have their income tax and social security costs deducted from each paycheck. These amounts are paid into the federal and state governments by the company that hired them. The summary of income and taxes paid is mailed in January to each employee: Form W-2.

    Gig workers have to pay all of their taxes on their own, and they need to be making payments each quarter. A gig employee receives Form 1099-MISC (instead of a W-2). This form reports the gross amount paid as self-employment income to the gig worker. But what a gig worker can do that an employee usually cannot do is take deductions from the gross income and only pay taxes on the net income (gross income minus all of the deductions).

    Here are some of the costs that may be deductible for a gig worker: car mileage (at $0.575 per mile in 2015), OR the business percentage of all car costs (washes, maintenance, gas, depreciation); home office expenses if there is a percentage of living space that is devoted to running the business; phone and internet expenses for business, and health care premiums. 

    Two caveats: Gig workers have to be careful to report all income (even if they don't get a 1099-MISC), since intentionally leaving out income is a felony. Also, all records should be kept contemporaneously--written down at the time they are incurred--rather than guess-timated at the end of the year. 

    Source: "Tax Tips for those who make money in the gig economy," by Tara Bernard Siegel, New York Times, March 4, 2016.

    Follow up

    List the habits that an independent contractor or gig worker needs to have to maximize their tax benefits.

    Do a cost/benefit comparison between an employee and a gig worker:  Let's say that an employee is making $25 per hour, 30 hours a week. She is offered a more flexible position as a "gig worker" but it is the same job. The employee gets one paid sick day per month, 10 paid vacation days per year and a $150 per month allowance toward a health insurance plan.  How much should the non-employee "gig" worker be paid in order to "net" the same amount as the employee, taking these factors into account? 
    ---taxes deducted from an employee's check
    ---self-employment taxes that need to be paid by an independent contractor, and
    ---lower income taxes if $300 in deductions per month are typical.

                                                                         

  • Foreign Currency quiz


       image from The Guardian

    Today, in a New York Times article, the Chinese currency renminbi was mentioned. It is also known as the yuan. The article was following up on the attempted buyout of the Starwood Hotel chain by Chinese insurance company Anbang. One of the reasons being floated for the attempted buyout was to take advantage of an upcoming change in the valuation of the renminbi relative to the U.S. dollar. 

    Because many transactions occur across national borders, and because sales dates and payment dates are often different, "foreign exchange gains and losses" must be recognized due to the fluctuations in value. For example, if you are a U.S. company that buys something from an English company that costs 100 British pounds in January, you cannot record the purchase in pounds, you have to record it in dollars--about $150 in Accounts Payable. If you resolve that payable now, in March, you have to buy 100 British pounds to pay your debt. Today, that might cost you only $140. The $10 difference would be a foreign exchange gain. As you might imagine, this timing difference created opportunities for speculative investments in other currencies. 

    Some of the world currencies in the quiz linked below include:

    • Rial
    • Euro
    • Kwacha
    • Tenge
    • Som
    • Ringgit
    • Peso
    • Yen
    • Dollar (four or more countries)
    • Yuan (also known as the renminbi)
    • Baht
    • Rupee
    • Zloty
    • Kroner
    • Pound
    • Rand

    Take the quiz linked below to see how many countries' currencies you know.

    Source: "World Currency Match Quiz," Sporkle.com, March 4, 2016.

    Follow up:

    • How did you do on the quiz? Which currencies had you never heard of? Is it easier to start with the currency and guess the country...or to start with the country and name the currency?
    • Look up and list the current value of all of the currencies above, relative to the U.S. dollar. If you are familiar with the currencies from other countries, list them, too. 
    • Read and summarize the NYT article about Anbang. Be sure to include the speculations about currency fluctuations and describe how the purchase would help Anbang.

                   --------------------------------------------------------------------------------------------

  • Kraft Mac & Cheese ingredients changed but they didn't want to tell you

    "We'd invite you to try it, but you already have."

         

         Image (and quote above) from a new ad campaign, via article linked below


    Kraft Macaroni and Cheese is an iconic processed food, famous for being a staple food of college students, young adults on a tight budget, and kids in the United States. In middle-class and lower-middle class America, almost everyone has eaten this inexpensive and satisfying food (except for lifelong vegans and those with celiac disease).  Most consumers feel they know this processed food well, and often have a love-hate relationship with it. But they keep a box on hand "just in case."

    Kraft product developers wanted to change the product for the better...but they didn't want to mess with the relationship consumers had with their familiar boxed comfort food. They feared that any change--even one that did not affect product taste--would be met with some degree of public outrage. So Kraft Heinz made the interesting decision to change the product...without rolling out a marketing campaign simultaneously. Artificial dyes were removed and replaced as of December 2015. The dyes were replaced with turmeric and annatto, so as not to mess with the familiar bright orange color. 

    Fifty million boxes have been sold in the meantime--but few consumers have noticed the change. Have you? When was the last time you tried this product? Do you have an old box on the shelf so that you can conduct your own taste-test?

    Source: "Kraft Reveals Revamped Mac and Cheese, 50 million boxes later," by Martha C. White, New York Times, March 20, 2016. 

    Follow up:

    • What other undisclosed ingredient changes have you noticed in products over the years, if you pay attention to labels? [One example, in my lifetime, has been the replacement of sugar in products like Coca Cola with high fructose corn syrup.  No advertising campaign about that.] What can be an unintended consequence of changing ingredients in a product without bringing this to peoples' attention? Why or why aren't those issues a high risk for a product like this?
    • Read the article. What are other marketing professionals saying about this campaign?
    • What is your personal experience with Kraft Macaroni and Cheese? What influence do ingredients and marketing have on your perception of the product and your purchase decisions?

                         ---------------------------------------------------------------------------------------------------         

  • Jessica Alba's Honest Company: Not as Honest as we'd hoped?


         From Entrepreneur on You Tube

    Just last month I wrote about how Jessica Alba had taken her natural products vision from a start up--The Honest Company--to larger quarters and an anticipated IPO in 2016. Nevertheless, the company, which has been sued before regarding its "natural" claims, is facing another accusation. The Wall Street Journal (WSJ) disclosed in an article published on March 10, 2016 that The Honest Company's liquid laundry detergent contains sodium laurel sulfate (SLS). This is a surfactant used in many products produced by other companies (Procter & Gamble, Tom's of Maine). It is in most toothpastes, liquid soaps and detergents and shampoos. But SLS can be irritating, and the Honest Company's website claimed that SLS was on the list of ingredients banned from their products:


            from the Honest Company website

    This presents a problem for a company whose market niche is based on ensuring that their products have no harmful or irritating ingredients found in competing products. Not to mention that the company is named "The Honest Company." 

    The WSJ had the laundry soap tested by two different chemical testing companies: Impact Analytical  and Chemir. Representatives from both testing companies said that significant (not trace) amounts of SLS were detected. 

    On the other hand, the Honest Company produced affidavits from their supplier, Earth Friendly Products, and the testing company used by Earth Friendly Products, Trichromatic West, Inc., which appears to primarily be a supplier of dyes. Trichromatic West told the WSJ that they had not actually tested that product for SLS, but instead had told Earth Friend Product that there must have been a misunderstanding.

    Something seems sketchy. Let's see how The Honest Company deals with this problem over the next few weeks and months. 

    Source: "Laundry detergent from Jessica Alba's Honest Co. contains ingredient it pledged to avoid," by Serena Ng, Wall Street Journal, March 10, 2016. 

    Follow up

    • Can a company (or a person) claim to be "honest" when they are honest only some of the time? What implications might this have for marketing communication effectiveness? Or The Honest Company's market niche?
    • Research the companies involved in the product testing. What are your thoughts about the claims made by the WSJ and the Honest Company? How would you respond if you were the Public Relations Officer of The Honest Company?

             ----------------------------------------------------------------------------------------------       

  • Zuckerberg on "All Lives Matter" as a poor substitution for "Black Lives Matter"

    It has been several months since the #BlackLivesMatter movement brought white privilege into the public consciousness in the United States. A few days ago, Amy Newman, another KnowNOW! blogger writing in the Business Communication section, highlighted a recent memo on this same topic sent by Mark Zuckerberg. Check out her blog for the full text of Zuckerberg's memo.

    Zuckerberg expressed his disappointment that any employee at Facebook would still misunderstand that the substitution of #AllLivesMatter for #BlackLivesMatter is hurtful. The word Zuckerberg used was "malicious."  But, perhaps it is not malicious so much as it is ignorant. As I mentioned in a previous blog, I did not understand the issue at first, either. Nevertheless, I was willing to learn by accessing several sources. One particularly good resource was Laci Green's vlog "Is Racism Over Yet?". It represents a millennial perspective that explains Zuckerberg's position in an accessible way.

    A viewpoint ridiculing Zuckerberg's memo--and attacking the Black Lives Matter movement--is expressed by a blog post on Breitbart News Network. There are several instances in the Breitbart post where principles of standard business communication are not met, but the post may (or may not) give some insight into the limited perspective of the individual who crossed out "Black Lives Matter" on the Facebook whiteboard. [more on Breitbart

    Open-mindedness and empathy are pre-requisites for understanding the Black Lives Matter movement. These qualities are important for managers and those working in an increasingly diverse business environment. 

    Sources: "Mark Zuckerberg Calls Out 'Malicious' Facebook Employees For Crossing Out Black Lives Matter Slogans," by Kathleen Chaykowski, Forbes Magazine, February 25, 2016.

    "Zuckerberg Calls Out Employee for #AllLivesMatter" by Amy Newman, Business Communications KnowNOW! blog (Cengage), March 12, 2016.

    Follow up

    • What does "white privilege" mean to someone who is of another race or ethnicity and living in the United States?
    • What do you think crossing out the phrase "Black Lives Matter" meant to the person who did it? What can you infer about the intended meaning of the substitution of "All Lives Matter" for the original phrase?
    • Do you think that leaving the phrase as it was, but adding other phrases such as "Latino Lives Matter" or "Transgender Lives Matter" or "Muslim Lives Matter" would have produced the same reaction from Zuckerberg? Explain your thoughts on this. 
    • Read one of the blogs I previously wrote about this issue [ October 8, 2015 ].  Describe the evolution of your own thoughts on this topic.
    • Discuss the business communications issues in the Breitbart blog post linked above.

           ----------------------------------------------------------------------------------------------            

  • Chinese company seeking huge hotel chain buyout


            Video clip from CNBC

    In the middle of merger talks between Marriott Hotels and Starwood Hotels, another entity is trying to thwart the merger by purchasing the Starwood Hotels outright. Anbang Insurance, a Chinese company that bought the Waldorf Astoria in 2014, leads a consortium that has made an all-cash stock purchase offer of $12.8 billion. 

    Starwood Hotels includes the brands Sheraton, W, and Westin.

    According to the article linked below, this purchase offer is only one instance of what seems like a foreign buying spree by Chinese companies totaling $81.9 billion so far in 2016. 

    Source: "Marriott-Starwood Deal Is Interrupted by a Chinese Suitor," by Chad Bray and Leslie Picker, New York Times, March 14, 2016.

    Follow up:

    • Describe the comparison made in this article to the purchase of Rockefeller Center in New York city by a Japanese company in the late 1980's. Do you think this comparison is apt? Read between the lines: what do you think is the subtext of the reference? (It could also be the subtext of the entire NYT article linked above.) Also read the previous blog about a similar film industry purchase by a Chinese company. What are your thoughts?
    • What is the primary mission of a corporation? Do global borders have any bearing on this mission? What are the plusses and minuses of large multi-national conglomerates? Does it make a difference if the parent company is based in the United States? Explain your position. 

              ----------------------------------------------------------------------------------------------

  • Travel insurance limitation: No coverage for avoiding the Zika virus


     
      Graphic from The Economist--blue circles show travelers, not Zika cases

    People buy travel insurance in case they have to cancel their trips for some emergency reason--a sudden debilitating illness, a death in the family, or an airline cancellation, for example. It is reasonable to expect that pregnant travelers will make a travel insurance claims for trips booked months ago to locations where there is now a high risk of Zika virus infection. The Zika virus has been correlated with extreme birth defects--primarily microcephaly--in children whose mothers were infected while pregnant. 

    However, even though the World Health Organization has declared a public emergency and has urged pregnant women to avoid travel to the affected countries, insurance companies have been not been issuing refunds when trips are being cancelled by pregnant women and their travel companions. 

    It is easy to understand the insurance industry stance on this. Technically, avoidance of a disease that existed when the trip was booked does not fall under the "emergency" guidelines that travel insurance is supposed to cover. But the link to birth defects--as well as many of the pregnancies--were not factors at the time the trip was booked and the insurance was purchased. The Zika danger to unborn children does represent a subsequent and unforeseeable event. On the other hand, insurance companies are not in the business of seeking out claims to pay in legally nebulous areas. 

    Not all of the facts are in yet. With public awareness--and perhaps an effect on sales due to the publicity generated on this issue--we will see whether trip cancellations related to the Zika virus end up being honored by insurance companies.

    Source: "Zika Risk? Probably Not Covered by Your Travel Policy," by Mike Tierney, New York Times, March 7, 2016. 

    Follow up

    • Do you buy travel insurance? Why or why not? Do you understand what it is supposed to cover? Have you or anyone you know made a travel insurance claim? What was the outcome?
    • Research the topic of insurance--general liability business insurance, umbrella insurance, workmen's compensation insurance, property insurance, and auto insurance. Make a three-column table. List the types of insurance in the first column. In the second column, describe what this insurance covers. In the third column, describe typical exclusions. 

          


         

  • Uber drivers could collectively bargain if new law passes

         

    A bill in the California legislature--the 1099 Self-Organizing Act--has been introduced by Lorena S. Gonzales (D-San Diego) to allow independent contractors who work for "hosting platforms" to organize for collective bargaining. Examples of "hosting platforms" are Uber and Lyft. These sites link drivers with those who need rides, and provide a web platform for payment, but do not "employ" or control the working hours of drivers. under the proposed law, groups of 10 or more independent contractors could band together to form a collective bargaining unit to negotiate for benefits and higher pay. 

    The article linked below sums up the law in this way:

    "The California bill seeks to level the playing field between workers and employers--but it does not seek to classify gig workers as employees.  Rather, it would create a hybrid type of worker who is granted some of the legal protections afforded to employees."

    A "gig worker" is defined as a "staff worker in an on-demand company."

    Source: "California bill would let gig workers organize for collective bargaining," by Jennifer Van Grove, Los Angeles Times, March 11, 2016. 

    Follow up

    • What are the plusses and minuses of collective bargaining (short and long term) for businesses?
    • What are the plusses and minuses of being a gig worker? What are the plusses and minuses of collective bargaining (short and long term) for "gig" workers like Uber and Lyft drivers?  How is the proposed  law different from other collective bargaining laws?
    • What is a "1099"? Why is it part of the name for this new law?

                              

                ----------------------------------------------------------------------------------------------           

  • "Daigou": buying on behalf of someone else, for profit


    Filling a need is a time-honored business strategy. Chinese consumers' needs to buy American goods at a bargain price have given rise to online, under-the-radar, not-quite-export businesses.  One example is Jia Jia Buys It For You, a business owned by Jennifer Zhong, a USC student living in Los Angeles. 

    Here's how the purchasing-intermediary business, known as "daigou," works:

    • A Chinese consumer sees a luxury item for sale online from a U.S seller.
    • The price quoted to them from the product seller includes import taxes (10%-50%, depending on the product), handling fees, and probably a higher international-sales profit.
    • The Chinese consumer then contacts--often through a personal referral--a business like Jia Jia Buys It For You, Taobao (surprise! a subsidiary of Alibaba!), or LLP Global.
    • This intermediary buys the item at a U.S. consumer's price, adds a smaller mark-up, then ships it to their new "friend" in China, avoiding import/export fees and hassles. 

    The buying-intermediary business is a $7.6 billion per year business, according to consumer-trend consultants at Bain & Co. By the way, Jennifer Zhong makes $3,000 to $10,000 a month from Jia Jia Buys It For You

    Similar buying intermediaries operate in Macau for Chinese consumers, on a smaller scale.

    Source: "When Chinese consumers want Western goods, they turn to these U.S. intermediaries," by Frank Shyong, Los Angeles Times, March 7, 2016.

    Follow up

    • According to the article (and your own thinking), who loses out because of these intermediary businesses? Should regulators crack down? If so, which regulators?
    • I couldn't find the website--or any internet presence--for Jia Jia Buys It For You.  I also could not find a business license in public records. Can you locate either of those items? Also see if you can find a DBA in Los Angeles County. 

             ----------------------------------------------------------------------------------------------

  • Oh, no! I've made a mistake!


                        image from comerecommended.com

    Making a mistake at work can be very stressful. But there are different types of mistakes. Some are sudden, one-time, "surprise" mistakes. For example, you send out an email as "reply all" instead of just sending it to one person. Sometimes these mistakes cause no permanent damage--they are fixable. Some, like the email mistake, cannot be undone. Others have financial consequences that may complicate trying to set things right again. The Forbes article linked below offers some advice about how to deal with these sudden types of mistakes:

    • Take a step back (it is not the end of the world)
    • Own up to it (the sooner the better)
    • Turn it into a learning experience

    Sometimes when we make a mistake, we feel embarrassment and shame. These feelings are contagious, and others try to separate themselves from the incident--sometimes by denying their complicity and often by assigning pointed blame. However, if the mistake-maker has a degree of self-acceptance, and is responsive rather than reactive, it helps put others at ease--even if there is a problem to rectify.

    There are other mistakes that employees make in the work place that are more habitual. These may be more apparent to others than to the person making them. But they can cause damage because the mistake-maker is oblivious and therefore there is no obvious opportunity to make amends. These mistakes include:

    • Gossiping about co-workers
    • Talking bad about your job--to everyone on social media
    • Doing your job, but only your job
    • Becoming a multi-tasking nightmare
    • Taking credit for someone else's work

    Check out the articles linked below for details.

    Sources: "3 ways to recover from making a workplace mistake," by Sarah Schott, Forbes Magazine, January13, 2016.

    "Five costly common workplace mistakes to avoid making," by Emily Matras, Ploymint.com, February 15, 2016. 

    Follow up

    • What mistakes have you made at the workplace that make you cringe to even think about? Describe at least one, and explore different ways that you might have handled the situation--both before and after the mistake, in hindsight.
    • I was once given a surprising but excellent piece of advice:  "Make three deliberate mistakes per day...and practice recovering from those mistakes with grace and dignity." The easiest intentional mistakes to create were calling someone by the wrong name, or dropping or spilling something in public. Because I was really paying attention--and not in the throes of an adrenaline rush of shock and panic--I was able to practice some of the skills described in the Forbes article.  Those skills have helped me take more (appropriate) risks and have improved my business and personal life.  Try it. 

                     ----------------------------------------------------------------------------------------------

  • Custom production: Patek Philippe $2.6 million 175th anniversary watch


         The making of the Patek Philippe "175"

    The two major ways to account for production are product costing for mass production (breakfast cereal), and job order costing for custom goods and services (law and accounting firms, dry cleaners, airplane manufacturers or little league team t-shirts). An extreme example of a job order manufacturing process is the 175th anniversary Patek Philippe watch. The production process is condensed in the time-lapse and edited ten-minute video above. Some facts about the real-time production of this watch and other related statistics:

    • the watch was seven years in product development
    • the watch takes two years to make
    • only seven watches were produced, one of which was retained by the company
    • 1,366 components make up the watch
    • it takes over 100,000 person-hours of manufacturing time to make one watch

    How did a person get lucky enough to own such a watch? Watch this Bloomberg video interviewing Thierry Stern, the president of Patek Philippe, to find out:

    Sources: "Luxury watchmaker unveils $2.6 million watch," by Erica Wright, CNBC, October 14, 2014.

    "Shinola has perfect timing in Detroit," by Kai Ryssdal, Marketplace, American Public Media, January 21, 2016.

    Follow up

    • Do you wear a watch? What did you spend on it? If money and access were no object, would you rather have this Patek Philippe watch or a top-of-the-line Apple watch? Or a Shinola watch (see link below)? Explain your position.
    • What does Thierry Stern say is the reason for making this watch? Do you think that is a valid reason? Why or why not?
    • Do you own any piece of clothing or any object that is custom made (for example--a sweater knit by your grandmother)? Who made it? What significance (if any) does it have for you?
    • Have you seen or heard of the Shinola watches being made in Detroit? Check them out and assess their place in the watches marketplace.

             --------------------------------------------------------------

  • "Native Advertising": a euphemism for "content with an agenda"


      H & R Block-sponsored clip from The Onion News

    "Native advertising" is sponsored material that is patterned to look like the surrounding content, or otherwise blend in.  A person reading articles in a magazine, for instance, might read an article about skin care that was actually sponsored by a skin care manufacturer. They might not know it was an advertisement unless they looked at the fine print.

    Another way native advertising works is by creating positive associations with a product and surrounding content. Most people read The Onion for humor, but the positive associations are linked to H & R Block not only in the video above, but in The Onion print content:

    McDonald's is also getting native advertising placement in The Onion

    Native advertising goes by other names: "product placement" in films, for example. It is also called "brand integration" or "embedded marketing." It includes sponsorship of athletes and sports teams. Even the placement of ads in certain theme-related television shows is a more subtle form of the same idea.

    The practice is a little more problematic when a financial advisor is pushing a product--not because it is a good investment for you, but because he or she is getting a higher commission for selling it than for selling other products. But the investment is embedded in the list of possibilities, as though it was just like the other financial products. 

    And the article linked below is also an example. How meta is that? 

    Caveat emptor.  May the buyer beware, as always.

    Source: "4 Native Advertising Formats for Interstellar Revenue," by Sinead McIntyre,  Imonony, March 8, 2016.

    Follow up

    • Read The Onion, Parade Magazine, Forbes and Men's Health -- or consider other sources.  Can you find any native advertising examples? What products are being advertised, and in what context? If you weren't looking for examples of native advertising, would you have identified these placements as sponsored?
    • What are the pros and cons of native advertising? Can you think of an instance (in a film or in sports, for instance) where it may have had a negative effect?

           ------------------------------------------------------------

  • The dark cloud underneath the sunny February 2016 jobs report


        Jobs report analysis from The Street

    The employment news this past week seemed great: the number of jobs increased by 242,000 in February 2016. But in both the video above and the article linked below, that number doesn't seem so rosy once one explores beneath the surface.  

    First, two thirds of the new jobs were low-wage. And the number of hours worked per week fell. As a consequence, the average weekly wage fell. These factors have been the norm since the Great Recession of 2008. Job recovery has not been robust in full-time, higher paid employment.

    True, the situation has improved since then. But much of the improvement has been a result of government fiscal policies and government investment in infrastructure, which many believe needs to continue:

    "...it is no wonder that the economy still needs more government spending. At the recent meeting of the Group of Twenty leading industrialized nations, the International Monetary Fund and the O.E.C.D. warned of faltering global growth and strongly urged governments to boost demand with more fiscal spending, generally on infrastructure." [NYT]

    Source: "The Road Not Taken to Better Jobs and Higher Pay," by Teresa Tritch, New York Times: Taking Note, March 4, 2016.

    Follow up:

    • Why don't quarterly employment statistics tell the whole story? For example, the video refers to a slight decline in the hourly wage in February. To what dollar amount exactly did the average hourly wage decline to?
    • Define the "Group of Twenty", the "International Monetary Fund" (IMF), and the "O.E.C.D."  Explain why they are important. 
    • On a "mini-micro" economic scale--your life and the lives of your friends--what is the employment status and job outlook in the near future?  

                   ----------------------------------------------------------------------------

  • Job safety here and abroad

     

    A contractor in Connecticut was recently charged with severe workplace safety violations:

    "OSHA inspectors found four employees working without fall protection, three on a roof and one on a scaffold, leaving them vulnerable to falls of more than 20 feet, according to the release. Employees also faced electrocution hazards while working too close to energized power lines. The agency had previously cited the contractor for similar hazards at worksites in New Haven and Danbury, Connecticut."

    Now review the video that I posted on March 4, 2016 . It is a promotional video made by a plywood manufacturing company, and shows several workers. What safety equipment are they wearing? What dangers to workers can you see in the video?

    Regulators in the United States take workplace safety seriously. This can increase costs for businesses. It may be one of the reasons that many manufacturing operations have been moved overseas.

    Source: "OSHA cites construction contractor as severe workplace safety violator," by Gloria Gonzales, Business Insurance, February 3, 2016.

    Follow up:

    • Research safety regulations in China and Bangladesh. Compare them to conditions in manufacturing operations under OSHA guidelines in the United States. What makes the difference?
    • Look at the video from March 4th. What safety equipment do you see in place? What safety equipment is needed? Make note of any signs that might be warning signs you see in the facility.

      -----------------------------------------------------------------------------------

  • Plywood manufacturing...just one part of Alibaba

    Do you live in a house? Do you use a desk or dresser that cost less than $300? Then you are probably using plywood or particleboard, much of which is manufactured overseas. I was curious about the manufacture of these products when I ran across the video above. When I looked up the company that produced the video, I was led to the Shandong Senmao Machinery Co., Ltd.

    It turns out that it is part of Alibaba.com. Alibaba made the news with its IPO in the United States in September 2014 (see KnowNow Blog). The share price on the day of the IPO was $94. As of March 3, 2016, the price was $71.02...a decline of over 24%. As a comparison, Amazon (a comparable retail conglomerate) was trading at $327.76  in mid-September 2014, and was trading at $577.49 at the close of business on March 3, 2016, a 76% increase.

    It seems as though Alibaba may have a broad reach into many products and markets, but its stock performance has not matched expectations. 

    Source: Plywood plant/Plywood production process from Senmao machinery, by Senmao Machinery, via YouTube,  February 2, 2016.

    Follow up

    • Watch the video. List the steps in the manufacturing process as presented in the video. How much of the process is handled by human labor, and by machine labor? 
    • Can you think of ways to streamline the manufacturing process? What factors would be considered in making the decision to automate further?

                                     $$$$$$$$$$    

  • Fighting "Hotel Gloom" while on a business trip

      
             drawing by Nathan Fox for the NYT article linked below


    There isn't a college class on how to take a business trip--but maybe there should be. From one day to the next--everything is new. It is not easy to manage corporate expectations, travel logistics, belongings, food & drink, jet lag, unfamiliar bedding and even adult-onset homesickness. Steven Kurutz uses the terms "amorphous melancholy" and "oppressive functionality" to describe the expense-account-approved
     hotel rooms "of the $200-a-night-and-under variety."

    Long-term business travelers advise against fixating on what can get you down:

    • "faux Mexican decor"
    • "nauseating pastels"
    • "the Edward Hopper-esque loneliness"
    • room service

    Frequent travelers also recommend booking a room near restaurants, malls or cultural centers. Find a place other than your (perhaps stuffy) room to work--maybe in a well-appointed common space with comfortable chairs and good air circulation. One frequent traveler uses the Open Table app to book meals. 

    Another traveler notes that when she occasionally finds herself at a luxury $500/night hotel, most of the "hotel gloom" can't be seen reflected in the marble floors. 

    Source: "How to Stay Sane On a Business Trip," by Steven Kurutz, New York Times, March 1, 2016. 

    Follow up

    • Role Play: Write an advice memo for your subordinates going on their first business trip. (Get info from the linked NYT article and other sources.)
    • For some cultural reflections on--and emotional insight into--the business-trip experience, read "Hotels of North America" by Rick Moody, or see the film Anomalisa. Write a review. 
    • The next time you are on a business trip in a big city (like Chicago), check out the museums if you have a few hours. Maybe you will see one of the Edward Hopper paintings miniaturized below.

            

  • Cruel criticism: the "360 review"

                                 

    graphic from fluidsurveys.com

    360 reviews are performance evaluations that are gathered from everyone in every arena with which an employee interfaces. Included are co-workers, administrative help, managers, customers, and suppliers. If you have never done or been the recipient of this type of review, check out the Survey Gizmo template linked below. 360 review information gathering documents are anonymous--an aspect which can have both positive and negative consequences. Honest and constructive feedback is sometimes a plus of anonymous reviews. But "snarky comments and ad hominem attacks" are not helpful. Some examples:

    • "Stop using your looks and personality to get things done."
    • "I never really liked you."
    • "How can you be a good manager? Your kid is a juvenile delinquent."

    In addition, if the reviews are conducted as part of an evaluation for a promotion, the jealousy and competitiveness of others might influence them to make comments that will damage the reputation of the evaluatee.  Or it just might be someone getting their revenge because they didn't get the office furniture they wanted. The anonymous nastiness expressed by "someone, somewhere" as part of a 360 review can undermine morale and trust...and negatively affect future performance. 

    As a manager, you might think twice about using this tool as a major factor in performance evaluations. If you are a candidate for a position, you might want to ask if these reviews are part of the regular performance evaluation process. And if one of these reviews is coming up for you...take the constructive comments a guidelines for improvement. But ignore the mean-spirited comments as being more of a reflection of the writer of the review than of your own performance.

    Some resources for finding out more about 360 reviews:

    Source: "360 Reviews Often Lead to Cruel, Not Constructive, Criticism," by Meg Halverson, New York Times, February 26, 2016.

    Follow up

    • What is your experience with performance reviews? If you have experienced a "360 review" how does it compare to your other reviews? Describe your best (or most effective) and worst experiences.
    • Write a self-evaluation of your performance as a student, an employee, a partner, or a family member. Include your
      • strengths,
      • weaknesses,
      • goals for the coming year,  and
      • how you are going to evaluate whether or not you meet those goals. 

                         

  • From Stanford to Google to Entrepreneur: Kamakshi Sivaramakrishnan

    Kamakshi Sivaramakrishnam, CEO of Drawbridge

    Kamakshi Sivaramakrishman's family valued education--and tended to be involved in mathematics. Kamakshi was raised in Mumbai, but educated in the United States as an applied mathematician, intending to have a career as a professor. Instead, she landed a job at AdMob, a start-up that was soon acquired by Google. But she felt that she could expand her "disruptive" idea better on her own. Three years later, she is pulling in $100 million from selling information to advertisers about consumers' device use related to purchase behavior. She is connected to over 1.2 billion consumers. 

    Sivaramakrishnan told the NYT this about her motivation:

    "I grew up having broken pretty much every rule in the book that I was given as a young woman or as a child. I even left a fairly comfortable position at Google to start this company. There’s an innate desire in me to pursue what I feel is right for me at the time. And it doesn’t come from any kind of rebellious streak as much as it comes from a sense of conviction that I believe in this and I want to pursue it."


    Sources: "Kamakshi Sivaramakrishnan: Finding Direction Off the Beaten Path," by Adam Bryant, New York Times: Corner Office, February 26, 2016.

    "How This Google Veteran Quit Her Job to Launch One of America's Fastest-Growing Businesses," by Zoe Henry, Inc. Magazine, August 18, 2015.

    Follow up:

    • Explain exactly what a cross-platform advertising program does. Check out the Drawbridge website and watch their video for details, or read the explanation in the Inc. article linked above.
    • Would you quit a job at Google to invest in yourself and your own ideas? Why or why not?

            ----------------------------------------------------------------