IDEO CEO Tim Brown on Innovation through Designing Solutions
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Tim Brown is an industrial designer. He also happens to be president and CEO of IDEO, one of the leading "design and innovation" consultancy firms in the world. IDEO's approach is based on user-centered design, and it has become known as a leading innovator in large part because of its "design thinking." Tim Brown spoke at the Commonwealth Club, and he stressed that good innovators don't magically dream up ideas--they design solutions. As IDEO did for Shimano:
The full program is worth your time, as Brown explains the whole design thinking process. You can watch it here.
James Surowiecki on China's 'Consumption Problem'
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In the latest Financial Page column at The New Yorker, James Surowiecki takes a look at consumption in China. The worlds's most populous nation has developed a reputation for thrift to the extreme. He estimates that Chinese households and institutions sock away $2.5 trillion a year. And consumption is just 35% of GDP--"significantly lower than for most Asian countries and only half the rate in the United States," Surowiecki writes. But it hasn't always been this way in China:
One common explanation for this thrift is that it’s the product of “Confucian values.” Yet China has not always been so thrifty—in the eighties, consumption was more than fifty per cent of G.D.P.—and today other “Confucian” countries consume far more than China does. The real source of China’s underconsumption is the way it manages its economy. Credit isn’t always that easy to come by. China’s policy of holding down the value of its currency means that consumer prices are higher than they would otherwise be, which obviously discourages spending. And, as a recent McKinsey Global Institute study points out, once you move beyond China’s biggest cities, there’s often a dearth of retail outlets and products for sale. Potential spenders are also held back by systemic issues. Paradoxically, in this still putatively Communist society, families for the most part have to fend for themselves. Health insurance is limited in what it covers and far from universal, so getting sick can be a costly proposition. Only a fraction of the workforce receives unemployment benefits, while pensions are underfunded and haphazardly administered. A scarcity of student loans and subsidies for higher education, meanwhile, means that paying for college requires hefty savings. The inadequacy of the social safety net forces the Chinese to engage in “precautionary savings,” buffering themselves against disaster. A recent Brookings Institution study attributes much of the increase in household savings to the rising cost of health care, together with that of housing and education.
Read The Frugal Republic here.
Visualization: the Shifting Media Landscape and Consumer Behavior
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The Economist held a Media Convergence Forum in October to explore the changing relationship between consumers and commerce in the digital age. Here's how the organizers described the purpose of the forum on their website:
The surge of new technologies and social media innovations in today's environment is significantly altering the future media landscape for marketers. Consumer behaviour is changing and the way marketers reach their audience must also change. Marketers are searching for new ways to not only reach their customers, but to understand them, to peer inside their minds. As the level of consumer understanding increases, so can the knowledge of how best to reach them. However the plethora of tools at a marketers disposal is not easy to navigate and real learning comes from a real understanding of the future of media convergence.
Interesting and compelling, to be sure. But they also had Karl Fisch, Scott McLeod, and Jeff Brenman put together a video/data visualization of the changing landscape, and it really captures your attention. Titled Did You Know 4.0: The Media Landscape, it presents, in less than 5 minutes, the current shifts in how consumers and businesses are interacting through digital media. And while much of the focus is on news media and advertising, the core issues connect to just about all facets of commerce in the digital age:
(Hat tip to Chelsey Hoffman, University of Michigan)
Black Friday Stats and Consumer Confidence
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Black Friday is always a day ripe for hype and wide-though predictable-television coverage. But the last two Black Fridays seem to have attracted even more speculation, and anxiety, than usual. So it is impossible to resist looking at some of the numbers that are coming through today. The takeaway seems to be that there were more people shopping this Black Friday than last year, but they spent less. So the overall take by retailers was higher, but not by much. Andrea Chang shares some of the key stats in today's LA Times:
Sales on the day after Thanksgiving rose just 0.5% to $10.66 billion, according to ShopperTrak RCT Corp., a research firm that monitors sales at more than 50,000 stores. That compared with a 3% year-over-year Black Friday increase in 2008 and an 8.3% surge in 2007.
"It's a positive sign that we had an increase in sales, but the numbers certainly don't indicate that those will be sustained," said Britt Beemer, chairman of consumer behavior firm America's Research Group.
Nationwide, 195 million shoppers visited stores and websites over the four-day weekend, up from 172 million last year, the National Retail Federation said Sunday.
But average spending fell 7.9%, to $343.31 per person, from $372.57 a year ago. Total spending reached an estimated $41.2 billion.
The resistance to making big purchases is no surprise to the folks at The Big Picture, where, before any Friday stats came out, David Rosenberg shared the below chart and stressed that consumer frugality is alive and well:
Rosenberg writes:
The Conference Board’s consumer confidence index may have improved (48.7 in October to 49.5 in November) and beaten consensus expectations, but it remains firmly in recession terrain. It is so obvious that consumers are tired of the over-borrowing and over-spending days of yesteryear. Despite all the temptations provided by the government, auto buying plans dropped to an eight-month low (from 4.7 in October to 4.4 in November); home buying plans slipped to a new 27-year low of 2.3 (from 2.5 in October and 3.0 in September); and intentions to buy a major appliance stayed at a 14-year low (23.2).
Read Consumer Confidence in the Doldrums here.
The Street Poll on the Impact of Dubai Crisis
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The United Arab Emirates has "pledge[d] to lend money to banks operating in Dubai," according to the New York Times, in an effort to prevent big disruptions on markets around the world after Dubai's announcement on Friday that the once-high-flying emirate needs to "reschedule" debt payments. The Street's Eric Rosenbaum is now polling readers, asking who will be hit the hardest by the Dubai "sand trap," and he writes that the impact could be widespread:
Big bank lenders to Dubai and the United Arab Emirates, including the Royal Bank of Scotland(RBS Quote), HSBC(HSBC Quote) andStandard Chartered were throttled, as was the entire banking sector in the broad sell-off.
However, the implications from the Dubai sand-trap could spread across many players, sectors and slices of the economy, and it's still anyone's guess as to the true significance of the debt crisis. There is already talk that the problems in Dubai could serve as an emerging-markets contagion, harkening back to Argentina in 2000 and Russia in the 1990s.
Read the article and participate in the poll here.
Big Think Black Friday Special: 'The Science of Spending'
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Big Think has pulled together a baker's dozen of videos for Black Friday viewing. The videos cover our collective issues with spending and saving. The third video in the collection features Lee Eisenberg, author of the new book Shoptimism: Why the American Consumer Will Keep Buying No Matter What. Here is Eisenberg discussing the history of splurging:
You can watch the full Science of Spending series here.
60 Years of Unemployment, Visualization
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Over at Tableau Software, Ross Perez has put together a nice visualization of unemployment across decades. Take a look:
Case-Shiller Numbers: Housing Prices Rose in Third Quarter
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The Standard & Poor's/Case-Shiller Home Price Indices released today reveal that housing prices rose in the third quarter. That means we saw two consecutive quarters of rising housing prices this year, and while that is good news overall for the economy, the year-over-year figures paint a much gloomier picture:
From the Case-Shiller release:
The chart above depicts the annual returns of the U.S. National, the 10-City Composite and the 20-City Composite Home Price Indices. The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded an 8.9% decline in the third quarter of 2009 versus the third quarter of 2008. This is a marked improvement over the 14.7% decline in the annual rate of return reported in the second quarter of 2009, and the 19.0 drop in the first quarter. The 10-City and 20-City Composites recorded annual declines of 8.5% and 9.4%, respectively. These two indices, which are reported at a
monthly frequency, have generally seen improvements in their annual rates of return every month since the beginning of the year.
The New York Times has some helpful charts online that look at the Case-Shiller data for the 20 cities in the 20-city composite. Like this one of Las Vegas:
Click here to use the NYT interactive charts.
Read the full Case-Shiller release here.
Lloyd's of London CEO on Learning from Crises
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Richard Ward, CEO of Lloyd's of London, says his company isn't really a company, but rather it is a market--"the only insurance market in the world." Ward spoke recently as part of the Wharton Leadership Lecture Series at the Wharton School. He explained how the "Lloyd marketplace" works, and he recounted two moments when Lloyd's faced its own collapse: first in the Nineties when billions of dollars in claims came in with the a series of suits over asbestos, lead paint, and others; and later after the September 11, 2001 terrorist attack on the World Trade Center. After the World Trade Center attack, Lloyd's face $11 billion in claims and came close to bankruptcy.
Good Housing Data/Bad Housing Data
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The National Association of Realtors is celebrating some good numbers out today:
Existing-home sales – including single-family, townhomes, condominiums and co-ops – surged 10.1 percent to a seasonally adjusted annual rate1 of 6.10 million units in October from a downwardly revised pace of 5.54 million in September, and are 23.5 percent above the 4.94 million-unit level in October 2008. Sales activity is at the highest pace since February 2007 when it hit 6.55 million.
Lawrence Yun, NAR chief economist, was surprised at the size of the gain. “Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November,” he said. “With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer.”
Read the full release here.
Meanwhile, the Morgage Bankers Association focuses on a different set of housing market statistics from last quarter:
The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64 percent of all loans outstanding as of the end of the third quarter of 2009, up 40 basis points from the second quarter of 2009, and up 265 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 108 basis points from 8.86 percent in the second quarter of 2009 to 9.94 percent this quarter.
And MBA Chief Economist Jay Brinkmann says the news is only going to get worse in those regions of the country hardest hit so far, like Arizona, California, Florida, and Nevada:
First, it is unlikely the employment picture will get better until sometime next year and even then jobs will increase at a very slow pace. Perhaps more importantly, there is no reason to expect that when the economy begins to add more jobs, those jobs will be in areas with the biggest excess housing inventory and the highest delinquency rates. Second, the number of loans 90 days or more past due or in foreclosure is now a little over 4 million as compared with 3.9 million new and previously occupied homes currently for sale, although there is likely some overlap between the two numbers. The ultimate resolution of these seriously delinquent loans will put added pressure on the hardest hit sections of the country.
Read the MBA's release here.
Seth Godin's Tips on How to Lose an Argument Online
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Seth Godin shares a lot of good advice for business owners at Seth's Blog on how to communicate. Today he gives some good advice on how NOT to communicate, by listing effective ways to lose an argument online. For example, Tip#1:
Have an argument. Once you start an argument, not a discussion, you've already lost. Think about it: have you ever changed your mind because someone online started yelling at you? They might get you to shut up, but it's unlikely they've actually changed your opinion.
And #4:
Question motives. The best way to get someone annoyed and then have them ignore you is to bypass any thoughtful discussion of facts and instead question what's in it for the person on the other end. Make assumptions about their motivations and lose their respect.
For the full list, and Godin's ideas on what actually works, click here.
World GDP Share Since 1969
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Chart of the weekend: this is a simple graph, from Mark Perry of the University of Michigan, Flint, that says a lot:
Here's how Perry interprets the info above:
World GDP (real) doubled between 1969 and 1990, and has increased by another 60% since then, so that world output in 2009 is more than three times greater than in 1969. We might mistakenly assume that the significant economic growth over the last 40 years in China, India and Brazil has somehow come "at the expense of economic growth in the U.S." (based on the "fixed pie fallacy") but the data suggest otherwise. Because of advances in technology, innovation, and significant improvements in U.S. productivity, America's share of total world output has remained remarkably constant at a little more than 25%, despite the significant increases in output around the world, especially in Asia.
Read Perry's full analysis here.
(Hat tip to Greg Mankiw)
Acemoglu on Institutions, Prosperity, and What Makes Poor Countries Poor
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MIT economist Daron Acemoglu believes institutions matter when it comes to generating prosperity. And in analyzing what makes rich countries rich, and poor countries poor, one has to look primarily at government. Or as he writes in Esquire: "Put simply: Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments."
How do we know that institutions are so central to the wealth and poverty of nations? Start in Nogales, a city cut in half by the Mexican-American border fence. There is no difference in geography between the two halves of Nogales. The weather is the same. The winds are the same, as are the soils. The types of diseases prevalent in the area given its geography and climate are the same, as is the ethnic, cultural, and linguistic background of the residents. By logic, both sides of the city should be identical economically.
And yet they are far from the same.
On one side of the border fence, in Santa Cruz County, Arizona, the median household income is $30,000. A few feet away, it's $10,000. On one side, most of the teenagers are in public high school, and the majority of the adults are high school graduates. On the other side, few of the residents have gone to high school, let alone college. Those in Arizona enjoy relatively good health and Medicare for those over sixty-five, not to mention an efficient road network, electricity, telephone service, and a dependable sewage and public-health system. None of those things are a given across the border. There, the roads are bad, the infant-mortality rate high, electricity and phone service expensive and spotty.
The key difference is that those on the north side of the border enjoy law and order and dependable government services — they can go about their daily activities and jobs without fear for their life or safety or property rights. On the other side, the inhabitants have institutions that perpetuate crime, graft, and insecurity.
Read What Makes a Nation Rich? One Economist's Big Answer here. And take a closer look at the accompanying map/graphic (above) by clicking here.
When Marketers Become Media Companies
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Ad Age editor Jonah Bloom says "the marketer has truly become the media owner." With technology lowering "cost of entry" dramatically in the digital age, some marketers are now able to take their messages directly to consumers. In this Ad Age video, Bloom discusses some of the recent success marketers have had, and suggests these are not exceptions, but signs of a larger trend:
OECD Economic Outlook: 'Tepid' Recovery and Rising Unemployment
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The Organisation of Economic Cooperation and Development's latest Economic Outlook is out today, and it is full of some mildly good--if reserved--news. The big takeaway: the recovery is on, but it is slow and unemployment will keep rising across OECD nations at least until the middle of 2010 for the US, and likely later for Euro countries. Jørgen Elmeskov, head of the OECD's Economics Department, answers some key questions about the report's findings:
Here's a look at the unemployment projections in the report:
You can watch the OECD's press conference explaining the report, and access the full report here.
