Archive | July, 2013

A Whole New Mind

23 Jul


I first learned of Dan Pink via a podcast on Russ Robert’s EconTalk:

Having just finished my MBA, I was disappointed to learn that the world really needed MFAs (Masters in Fine Arts).  OK, that’s an exaggeration – the main point of Dan’s book “A Whole New Mind” was that the changing face of business will require not only an understanding of the “hard stuff” (i.e. operations management, financial analysis, marketing, manufacturing and supply chain management), but a greater understanding of the “soft stuff” (i.e. design, story, symphony, empathy, play and meaning).

I’ve long been a proponent of this approach and apply design thinking techniques often in my consulting business. Many business owners and managers hate the “soft stuff” because it doesn’t directly contribute to revenue – or does it?

I’ve just updated by blog to include references to Dan Pink’s 5 books and his website – check it out and let me know what you think.


CPI & Inflation Data 1970-2013

18 Jul

CPI & Inflation Data 1970-2013

Indicator 7 – Consumer Price Index

18 Jul

The Consumer Price Index (CPI) attempts to be a direct measure of the standard of living in a country. It is based on the overall cost of a fixed basket of goods and services bought by a typical consumer, relative to price of the same basket in some base year (the current standard reference base period is 1982-84 = 100).

Price data are collected for over 180 categories, which Bureau of Labor Statistics (BLS) has grouped into 8 major groups: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services. By including a broad range of thousands of goods and services within the fixed basket, the CPI can obtain an accurate estimate of the cost of living. It is important to remember that the CPI is not a dollar value like GDP, but it is instead an index number (or percentage change) from the base year.

While the CPI is a convenient way to compute the cost of living and the relative price level across time, because it is based on a fixed basket of goods, it does not provide a completely accurate estimate of the cost of living. Three problems with the CPI deserve mention: the substitution bias, the introduction of new items, and quality changes.

Substitution Bias: as the prices of goods and services change from one year to the next, they do not all change by the same amount. The number of specific items that consumers purchase changes depending upon the relative prices of items in the fixed basket; but since the basket is fixed the CPI does not reflect consumer’s preference for items that increase in price little from one year to the next.

Introduction of New Items: as time goes on, new items enter into the basket of goods and services purchased by the typical consumer. But since the CPI uses only a fixed basket of goods, the introduction of a new product cannot be reflected. Instead, the new items are left out of the calculation in order to keep time period comparable with earlier time periods.

Quality Changes: when an item in the fixed basket of goods used to compute the CPI increases or decreases in quality, the value and desirability of the item changes. This change would not be reflected in the CPI from one year to the next.

As a cost of living index, CPI is the most widely watched and used measure of the U.S. inflation rate. It is also used to determine the real gross domestic product (GDP).

Creative Revolution

4 Jul


First and foremost I want to wish everyone a safe and happy 4th of July.

In the midst of the barbeques, parades and fireworks, we should all take time to reflect upon what we are celebrating – our independence and our freedom. While there were both economic and political reasons for the revolution that began in 1776 – from the restrictions by the British mercantile system to the loss of ability to handle local affairs locally – America was (and is) an innovation created when our founding ancestors sought “to begin the world anew.” A world in which we have freedom to live our lives as we choose. But there is a duality to freedom – for me to have the right to choose how I live my life; I must also allow others the right to live their lives their way. There are, of course, limits to freedom. While this has become a complicated issue (although it is interesting to note that the Declaration of Independence consists of only 1337 words), I believe there must exist a social contract (between each other as well as between government and the governed) that I would best define as “first, do no harm.”

So what does this have to do with business? I believe our economic future is based upon our ability to create and innovate – not simply improve upon existing products and services. Creation and innovation are often destructive processes undertaken by those who refuse to abide by the status quo. There is nothing more threatening, and at the same time, more fragile as a radical new idea that does not fit in the current culture. Therefore, we (government leaders, corporate directors and individuals) must adopt a culture of innovation – one that allows innovators and entrepreneurs the freedom and independence to try, fail and try again. This flies in the face of a culture that values predictability, control, reliability, repeatability and continuity. Let me be clear, there is a sense of security that predictability, control, reliability, repeatability and continuity bring to a business or society (and this is desirable) but the world does not remain the same for long. The only constant in life is change.

Therefore, our culture of innovation must be based on mutual trust. And this is a difficult thing when we feel that others are out to destroy (or limit) that which we value. Trust is not an abdication of our freedom, independence or our values, but rather an agreement to explicit roles and clear boundaries. Perhaps the best way to build trust is to understand the creative process – but that’s a subject for another blog post.

Happy Independence Day!