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Artificial intelligence, natural stupidity

Psychologist Amos Tversky, with Daniel Kahneman, collaborated not on artificial intelligence, but on the study of natural stupidity.  Their research into cognitive biases eventually became recognized in an emerging field of behavioral economics.  In hindsight, I can claim to have received an “A” in a Ph.D. course taught by the winner of a Nobel Prize in economics.

In my first cycle of doctoral studies, I was guided at UBC by my supervisor Ken MacCrimmon into a PSYC546 “Seminar in Psychology Problems”, which was led by Danny Kahneman.  This course was offered shortly after the 1982 publication of the book Judgment under uncertainty: Heuristics and biases, edited by Daniel Kahneman, Paul Slovic, and Amos Tversky.  With Kahneman at UBC in Vancouver, and Tversky at Stanford University in the San Francisco Bay Area, the back-and-forth flights to visit each other was frequent.  I uncovered more about the relationship between the two psychology professors in reading The Undoing Project. That book describes a difficult history of university faculty offers, not only around the two collaborators, but also the accommodation of wives Barbara Gans Tversky and Anne Treisman.

Psychologist Amos Tversky, with Daniel Kahneman, collaborated not on artificial intelligence, but on the study of natural stupidity.  Their research into cognitive biases eventually became recognized in an emerging field of behavioral economics.  In hindsight, I can claim to have received an “A” in a Ph.D. course taught by the winner of a Nobel Prize in economics.

In my first cycle of doctoral studies, I was guided at UBC by my supervisor Ken MacCrimmon into a PSYC546 “Seminar in Psychology Problems”, which was led by Danny Kahneman.  This course was offered shortly after the 1982 publication of the book Judgment under uncertainty: Heuristics and biases, edited by Daniel Kahneman, Paul Slovic, and Amos Tversky.  With Kahneman at UBC in Vancouver, and Tversky at Stanford University in the San Francisco Bay Area, the back-and-forth flights to visit each other was frequent.  I uncovered more about the relationship between the two psychology professors in reading The Undoing Project. That book describes a difficult history of university faculty offers, not only around the two collaborators, but also the accommodation of wives Barbara Gans Tversky and Anne Treisman.

The impacts of platforms

Concerns in the larger research body of research on platforms often leads to a subset looking into the impacts of the platform economy.  Let’s try some more digests responding to questions.

  • A. Is a shift to platforms considered as disruptive innovation?
  • B. Do network effects lead to a platform economy of “winner take all”?
  • C. With digital platforms based in information systems, what are the opportunities for knowledge effects?
  • D. What is the logic of participation on a platform?
  • E. Should platform capitalism be seen as positive or negative?
  • F. As an alternative to platform capitalism, should platform cooperativism be considered?
  • G. In the larger context of the sharing economy, how might platform initiatives be categorized?

The rise of the platform economy may be described either by the metaphor of “We Don’t Know Who Discovered Water, But We Know It Wasn’t a Fish” or the fable of the “Boiling Frog“.

Concerns in the larger research body of research on platforms often leads to a subset looking into the impacts of the platform economy.  Let’s try some more digests responding to questions.

  • A. Is a shift to platforms considered as disruptive innovation?
  • B. Do network effects lead to a platform economy of “winner take all”?
  • C. With digital platforms based in information systems, what are the opportunities for knowledge effects?
  • D. What is the logic of participation on a platform?
  • E. Should platform capitalism be seen as positive or negative?
  • F. As an alternative to platform capitalism, should platform cooperativism be considered?
  • G. In the larger context of the sharing economy, how might platform initiatives be categorized?

The rise of the platform economy may be described either by the metaphor of “We Don’t Know Who Discovered Water, But We Know It Wasn’t a Fish” or the fable of the “Boiling Frog“.

Platforms, an emerging appreciation

The term “platform” is now popular in a variety of contexts.  What do “platforms” mean, and what research might guide our appreciation?

Let’s outline some questions:

  • A. What came before the rise of platforms?
  • B. What types of platforms are there?
  • C. Why take a platform approach?
  • D. How do platforms manifest?
  • E. Why might a platform not be viable?
  • F. How are digital and non-digital platforms different?
  • G. What don’t researchers know about digital platforms?
  • H. What are the economic consequences of the platform economy?

The articles cited below are not exhaustive, but they may give a sense of the ballpark.

A. What came before the rise of platforms?

The industrial age was typified by descriptions of “supply chains” and “value chains”, which otherwise may be called “pipelines”. Marshall Van Alstyne, Geoffrey G. Parker, and Sangeet Paul Choudary write:

… platforms differ from the conventional “pipeline” businesses that have dominated industry for decades. Pipeline businesses create value by controlling a linear series of activities — the classic value-chain model. Inputs at one end of the chain (say, materials from suppliers) undergo a series of steps that transform them into an output that’s worth more: the finished product. [….]

The term “platform” is now popular in a variety of contexts.  What do “platforms” mean, and what research might guide our appreciation?

Let’s outline some questions:

  • A. What came before the rise of platforms?
  • B. What types of platforms are there?
  • C. Why take a platform approach?
  • D. How do platforms manifest?
  • E. Why might a platform not be viable?
  • F. How are digital and non-digital platforms different?
  • G. What don’t researchers know about digital platforms?
  • H. What are the economic consequences of the platform economy?

The articles cited below are not exhaustive, but they may give a sense of the ballpark.

A. What came before the rise of platforms?

The industrial age was typified by descriptions of “supply chains” and “value chains”, which otherwise may be called “pipelines”. Marshall Van Alstyne, Geoffrey G. Parker, and Sangeet Paul Choudary write:

… platforms differ from the conventional “pipeline” businesses that have dominated industry for decades. Pipeline businesses create value by controlling a linear series of activities — the classic value-chain model. Inputs at one end of the chain (say, materials from suppliers) undergo a series of steps that transform them into an output that’s worth more: the finished product. [….]

Education of the average Canadian worker and the Fourth Industrial Revolution

The average Canadian worker has (at least) some college or university education.  This fact is counter to presumptions in a question on the first day at the World Economic Forum by Fareed Zacharia, in an interview with Canadian Prime Minister Pierre Trudeau.  Zacharia asked:

What do you say to the average worker in Canada, who may not have a fancy college degree — and I’m thinking about the average worker in America or in Europe, as well — who looks out at this world and says “I don’t see what globalization is doing for me.  The jobs are going to South Korea and China and Vietnam and India.  Technology is great, but I can’t afford the new iPad Pro, and more importantly, this technology means that it increasinly makes me less valuable.  Why shouldn’t I be angry and involved the politics of progress?”

The response by Trudeau spoke to the Fourth Industrial Revolution, the theme of the Davos conference.  He didn’t actually respond to the presumption on education.

In a national picture of educational attainment:

In 2012, about 53.6% of Canadians aged 15 and over had trade certificates, college diplomas and university degrees. This was an increase of 20.9 percentage points since 1990.

Level of education, 15 years of age and over, 1990-2012 (percent)
Learning – Educational Attainment, Employment and Social Development Canada

… says “The Indicators of Well-Being in Canada (2016)“, by Employment and Social Development Canada.

In the Economic Indicators for Canada,

Between 1999 and 2009, the proportion of adults aged 25 to 64 with tertiary education in Canada increased from 39% to 50%. In 2009, Canada had the highest proportion of the adult population with tertiary education among all reporting member countries of the OECD. By comparison, the 2009 OECD average was 30%.

Population aged 24 to 64 with college or university education and their employment rate, Canada, provinces and territories, and selected OECD countries 2009
Population aged 24 to 64 with college or university education and their employment rate, Canada, provinces and territories, and selected OECD countries 2009

… says Statistics Canada in “Educational Attainment and Employment: Canada in an International Context (February 2012)“.

If there’s going to be another industrial revolution, an educated population should be better positioned for it.  What’s the fourth industrial revolution?  The World Economic Forum describes “The Fourth Industrial Revolution: what it means, how to respond“:

The average Canadian worker has (at least) some college or university education.  This fact is counter to presumptions in a question on the first day at the World Economic Forum by Fareed Zacharia, in an interview with Canadian Prime Minister Pierre Trudeau.  Zacharia asked:

What do you say to the average worker in Canada, who may not have a fancy college degree — and I’m thinking about the average worker in America or in Europe, as well — who looks out at this world and says “I don’t see what globalization is doing for me.  The jobs are going to South Korea and China and Vietnam and India.  Technology is great, but I can’t afford the new iPad Pro, and more importantly, this technology means that it increasinly makes me less valuable.  Why shouldn’t I be angry and involved the politics of progress?”

The response by Trudeau spoke to the Fourth Industrial Revolution, the theme of the Davos conference.  He didn’t actually respond to the presumption on education.

In a national picture of educational attainment:

In 2012, about 53.6% of Canadians aged 15 and over had trade certificates, college diplomas and university degrees. This was an increase of 20.9 percentage points since 1990.

Level of education, 15 years of age and over, 1990-2012 (percent)
Learning – Educational Attainment, Employment and Social Development Canada

… says “The Indicators of Well-Being in Canada (2016)“, by Employment and Social Development Canada.

In the Economic Indicators for Canada,

Between 1999 and 2009, the proportion of adults aged 25 to 64 with tertiary education in Canada increased from 39% to 50%. In 2009, Canada had the highest proportion of the adult population with tertiary education among all reporting member countries of the OECD. By comparison, the 2009 OECD average was 30%.

Population aged 24 to 64 with college or university education and their employment rate, Canada, provinces and territories, and selected OECD countries 2009
Population aged 24 to 64 with college or university education and their employment rate, Canada, provinces and territories, and selected OECD countries 2009

… says Statistics Canada in “Educational Attainment and Employment: Canada in an International Context (February 2012)“.

If there’s going to be another industrial revolution, an educated population should be better positioned for it.  What’s the fourth industrial revolution?  The World Economic Forum describes “The Fourth Industrial Revolution: what it means, how to respond“:

Sustainable scale of an organization: A case study at IBM?

How many employees can IBM sustain?  At Dec. 31, 2013, IBM reported 431,212 employees for the company and wholly-owned subsidiaries.  In February 2014, there were projections that 13,000 to 15,000 employees would be released within the year.  The estimate for 2015 of 26% further reductions calculates to leave about 300,000 IBMers worldwide.  This leads to three questions about the current situation (and potential other cases with similar circumstances).

  • 1. How many employees, worldwide, can a company sustainably afford?
  • 2. Where should global resources be geographically deployed?
  • 3. Can science guide us on sustainable ranges of scale for organizations?

The domain of business is a social science, so corporate decisions lead to paths where alternatives (i.e. the path not taken) can never be tested in reality.  Thus, much of the thinking below is speculative.

1. How many employees, worldwide, can a company sustainably afford?

Let’s look at history, published in annual reports.  IBM reported 412,113 employees at Dec. 31, 1989.  Under John Akers as CEO, the organization was trimmed down to 301,542 employees by the end of 1992.  Lou Gerstner joined as CEO in April 1993, and job actions were announced by July.

The employees to be cut, mostly from overseas operations, will be given incentives to leave, but just what the financial package will be has not been determined. The $8.9 billion charge includes funds to pay for 25,000 additional job cuts under an early retirement program announced this year that has drawn 50,000 participants — twice as many as expected — and for 35,000 job cuts over the next 18 months.  [….]

Of the $8.9 billion pretax charge for streamlining I.B.M., $2 billion is to pay for the additional 25,000 workers who took advantage of the company’s early-retirement program that began in 1993. Some $4 billion will go to pay for the 35,000 workers who will be trimmed over the next year to 18 months. The remaining $2.9 billion will go to retire surplus factories, equipment and office buildings [Lohr, 1993].

At the end of 1994, IBM reported a population of 219,839 employees.  With a successful recovery by March 2002 for the handover from Gerstner to Palmisano, IBM reported that its employee population had grown to 319,876.

Employees and revenue per
Figure 1: Employees (IBM and wholly-owned subsidiaries) [left axis], and Total geographic revenue per Employee (IBM and wholly-owned subsidiaries) [right axis], from IBM Annual Reports
From my experience in IBM Canada Plans & Controls in 1985-1987, I know that headcount in World Trade countries was justified on affordability.  The affordability was expressed as additional revenue per additional employee.  At the end of 1992, 301,542 employees were producing $214,077 per employee.  At the end of 2001, 319,876 employees were producing $245,095 per employee.  At the end of 2013, 431,213 employees were producing $226,803 per employee.  While this doesn’t necessarily look so bad, let’s recognize inflation, and adjust to constant dollars.

Revenue per employee, constant dollar
Figure 2:  Employees (IBM and wholly-owned subsidiaries) [left axis], and Total geographic revenue per Employee adjusted to U.S. CPI-U (1982-84=100).
The U.S. Bureau of Labor Statistics provides a Consumer Price Index based on 1982-84.  At the end of 1992 when Lou Gerstner was soon to become CEO, 301,542 employees were producing 152,584 1982-dollars per employee.  At the end of 2001 when Sam Palmisano was about to become CEO, 319,876 employees were producing 138,396 1982-dollars per employee.  At the end of 2013 following two years with Ginny Rometty as CEO, 431,213 employees were producing 97,735 1982-dollars per employee.  On a constant dollar basis, this could be interpreted as a 30% drop in productivity by employees between 2001 and 2013.  In order to maintain productivity per employee, either the revenue should have continue to rise, or else the number of employees should drop.

How many employees can IBM sustain?  At Dec. 31, 2013, IBM reported 431,212 employees for the company and wholly-owned subsidiaries.  In February 2014, there were projections that 13,000 to 15,000 employees would be released within the year.  The estimate for 2015 of 26% further reductions calculates to leave about 300,000 IBMers worldwide.  This leads to three questions about the current situation (and potential other cases with similar circumstances).

  • 1. How many employees, worldwide, can a company sustainably afford?
  • 2. Where should global resources be geographically deployed?
  • 3. Can science guide us on sustainable ranges of scale for organizations?

The domain of business is a social science, so corporate decisions lead to paths where alternatives (i.e. the path not taken) can never be tested in reality.  Thus, much of the thinking below is speculative.

1. How many employees, worldwide, can a company sustainably afford?

Let’s look at history, published in annual reports.  IBM reported 412,113 employees at Dec. 31, 1989.  Under John Akers as CEO, the organization was trimmed down to 301,542 employees by the end of 1992.  Lou Gerstner joined as CEO in April 1993, and job actions were announced by July.

The employees to be cut, mostly from overseas operations, will be given incentives to leave, but just what the financial package will be has not been determined. The $8.9 billion charge includes funds to pay for 25,000 additional job cuts under an early retirement program announced this year that has drawn 50,000 participants — twice as many as expected — and for 35,000 job cuts over the next 18 months.  [….]

Of the $8.9 billion pretax charge for streamlining I.B.M., $2 billion is to pay for the additional 25,000 workers who took advantage of the company’s early-retirement program that began in 1993. Some $4 billion will go to pay for the 35,000 workers who will be trimmed over the next year to 18 months. The remaining $2.9 billion will go to retire surplus factories, equipment and office buildings [Lohr, 1993].

At the end of 1994, IBM reported a population of 219,839 employees.  With a successful recovery by March 2002 for the handover from Gerstner to Palmisano, IBM reported that its employee population had grown to 319,876.

Employees and revenue per
Figure 1: Employees (IBM and wholly-owned subsidiaries) [left axis], and Total geographic revenue per Employee (IBM and wholly-owned subsidiaries) [right axis], from IBM Annual Reports
From my experience in IBM Canada Plans & Controls in 1985-1987, I know that headcount in World Trade countries was justified on affordability.  The affordability was expressed as additional revenue per additional employee.  At the end of 1992, 301,542 employees were producing $214,077 per employee.  At the end of 2001, 319,876 employees were producing $245,095 per employee.  At the end of 2013, 431,213 employees were producing $226,803 per employee.  While this doesn’t necessarily look so bad, let’s recognize inflation, and adjust to constant dollars.

Revenue per employee, constant dollar
Figure 2:  Employees (IBM and wholly-owned subsidiaries) [left axis], and Total geographic revenue per Employee adjusted to U.S. CPI-U (1982-84=100).
The U.S. Bureau of Labor Statistics provides a Consumer Price Index based on 1982-84.  At the end of 1992 when Lou Gerstner was soon to become CEO, 301,542 employees were producing 152,584 1982-dollars per employee.  At the end of 2001 when Sam Palmisano was about to become CEO, 319,876 employees were producing 138,396 1982-dollars per employee.  At the end of 2013 following two years with Ginny Rometty as CEO, 431,213 employees were producing 97,735 1982-dollars per employee.  On a constant dollar basis, this could be interpreted as a 30% drop in productivity by employees between 2001 and 2013.  In order to maintain productivity per employee, either the revenue should have continue to rise, or else the number of employees should drop.

Value capture in a global innovation network

With the primaries in the United States making headlines, Americans have been making noises about revisiting NAFTA. Michael Hart and William Dymond provided a Canadian perspective1, with a global perspective on the larger trends.

If our neighbours elect a Democratic president, Senate and House on Nov. 4, things could get ugly, as a falling U.S. dollar, the credit crunch and serious troubles in the housing market add to recession anxieties.

The target for much of that ugliness will be China and other low-cost suppliers to the U.S. consumer market. Most Americans do not have much understanding of the role of these suppliers in maintaining U.S. economic activity. Both politicians and the public fail to realize the benefit of Chinese manufacturing goods produced to U.S. design and using U.S. technology. A recent University of California study found that, of an Apple iPod sold in the U.S. for $299, $160 goes to American companies that design, transport and retail iPods. Only $4 stays in China with the firms that assemble the devices.

I was curious about that $4, and tracked down the report to the Personal Computer Industry Center (PCIC), part of the Alfred P. Sloan Foundation. The paper by Dedrick, Kramer and Linden2 has some interesting tables. Here’s a breakdown from the $299 retail price of the iPod.

Table 5. Derivation of Apple’s Gross Margin on 30GB Video iPod

Retail Price $299  
Distributor Discount
(10%)
($30)  
Retailer Discount
(15%)
($45)  
Sub-Total (estimated
wholesale price)
  $224
Factory Cost ($148)  
Remaining Balance
(estimated Apple gross margin)
  $76

Source: Authors’ calculations; see text

With the primaries in the United States making headlines, Americans have been making noises about revisiting NAFTA. Michael Hart and William Dymond provided a Canadian perspective1, with a global perspective on the larger trends.

If our neighbours elect a Democratic president, Senate and House on Nov. 4, things could get ugly, as a falling U.S. dollar, the credit crunch and serious troubles in the housing market add to recession anxieties.

The target for much of that ugliness will be China and other low-cost suppliers to the U.S. consumer market. Most Americans do not have much understanding of the role of these suppliers in maintaining U.S. economic activity. Both politicians and the public fail to realize the benefit of Chinese manufacturing goods produced to U.S. design and using U.S. technology. A recent University of California study found that, of an Apple iPod sold in the U.S. for $299, $160 goes to American companies that design, transport and retail iPods. Only $4 stays in China with the firms that assemble the devices.

I was curious about that $4, and tracked down the report to the Personal Computer Industry Center (PCIC), part of the Alfred P. Sloan Foundation. The paper by Dedrick, Kramer and Linden2 has some interesting tables. Here’s a breakdown from the $299 retail price of the iPod.

Table 5. Derivation of Apple’s Gross Margin on 30GB Video iPod

Retail Price $299  
Distributor Discount
(10%)
($30)  
Retailer Discount
(15%)
($45)  
Sub-Total (estimated
wholesale price)
  $224
Factory Cost ($148)  
Remaining Balance
(estimated Apple gross margin)
  $76

Source: Authors’ calculations; see text

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    • New status by daviding August 19, 2019
      In the Canadian press, this is attributed to inverted yield curve, resulting from the trade war. > Anyone buying that bond is willingly buying an investment that's guaranteed to lose money, but investors are more than happy to buy it up - because the fear is that alternative investments will fare even worse. [....]> Those […]
    • New status by daviding August 19, 2019
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      Web videos of keynote presentation "Innovation Learning for Sustainability: What's smarter for urban systems" for 2018 International Conference on Smart Cities and Design (SCUD) in Wuhan. http://coevolving.com/blogs/index.php/archive/innovation-learning-for-sustainability-scud-2018-04-21/
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