Limits, Alternatives, Choices, and the Lorax

Economics is “the social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity.”7 Because we can’t have unlimited options, was must instead pick and choose. We can’t have it all because things aren’t free – whether and individual happens to pay money for something in a specific instance or not, doesn’t make it free. They individual may have paid in some other form, like a recommendation, or at some other time, as in buying a product later. Even in those cases where the individual paid nothing, the product or service is never free for society. It used a resource somewhere that could have been used for something else. And that’s where choice come in, by using a resource to make or consume something, you’re choosing to use it over something else.

Why we pick the things we do is assumed to be rational and in one’s own interest, said to increase your utility – the satisfaction of your needs. This doesn’t mean it’s bad, or wrong, your interests can be, well, anything you want. Logical self interest applies to the Lorax, his interests included speaking out on behalf of the trees, and it seems he gets a lot of satisfaction from the trees in the natural state and from helping out Brown Bar-ba-loots. The Once-ler seems implicitly satisfied by profits, which may have directly increased his utility, or perhaps were used to acquire other products. While I certainly like the Lorax a lot more, economic principals aren’t describing right, wrong, or ethics, just the rational self-interests that can be applies to both of them as a model for understanding the choices they make. Economists also talk a lot about marginal benefits and costs, i.e. how much they change from state A to state B, often comparing the current conditions to some choice to make a change.

Microeconomics looks at the small scale only, but that includes levels beyond an individual or household, it can rise to specific product for example. Macroeconomics is just the big picture, but it can be divided in two major sectors or aggregates.  The Once-ler’s factory created only Thneeds, which are very versatile, maybe like plastics, but it seems not an entire sector of the economy. Certainly, it was a rather specific industry, subject to microeconomic principals.

In a basic microeconomic model, in individual is forced to make choices, because they have limited income, but unlimited needs. Unfortunately for the individual, they also have unlimited wants. These wants expand over a large range of products, we need food and clothes and shelter, but we also want entertainment, shiny things, and good tasting food. This leads to the economizing problem, or need to choose.  At first it seems the demand for Thneeds goes against this principal. The demand seems insatiable as if there is unlimited income at work, and of singular focus not a variety of products.  But all we must assume is that the individuals buying Thneeds have sufficient income to buy their other needs and the Thneeds in such a way that maximizes their utility.  A budget line describes an individual’s attainable combination of such goods. We don’t have insight into the combination for the Once-ler’s customers, but it would be subject to their income, the marginal cost of a Thneed balanced with their other needs.

As a macroeconomic principal, society’s resources are limited and categorized into four areas, land (all natural resources, the trees, the pond, etc.), labor (both intellectual and physical labor), capitol (all manufacturing needs including production, storage and transport like trucks, pipes, and industrial-super-ax-hackers), and entrepreneurial ability (the Once-ler).

The production possibilities curve shows a number of interesting illustrations. There is a scarcity of resource limiting the attainable and unattainable combinations of two products. Take Walking Machines and Industrial super-ax-hackers. Choice is illustrated by the different combinations of machines that are possible along the curve. If I make more walking machines, I have to make fewer super-ax-hackers.  The curve also shows the law of increasing opportunity costs. This is the fact that the opportunity cost (what it costs in fewer industrial-ax-hackers) of making one additional unit of Walking Machines rises as the production of them increases. I.e., it costs only one super-ax-hacker to move from zero walking machines to one, but it costs three super-ax-hackers to move from three walking machines to four. Why is this? The rationale is that resources are not completely adaptable to alternative use. So one or more of the resources needed to make super-ax-hackers doesn’t work as efficiently for Walking Machines. When this particular resource is being stretched to make only walking machines, there is a larger cost in the form of a sharper drop in the number of super-ax-hackers.

If the curve above assumed that the quality of resources was fixed, then what would happen if we assumed that the work force can improve over time? More output at all point of the curve, of course (a shift outward), but also a shift to the right – somewhat relaxing of the increasing opportunity costs. Same with a jump in technology, like that which lead to whacking off of four Truffula trees at one smacker, instead of the previous efficiency, which may have been several smackers per tree.

The Lorax’s former home is a localized environment and doesn’t give us any insight into the surrounding area. Clearly, it was part of a larger economy, because it didn’t have the resources locally to support the localized economic boom. The trucks and roads, manufacturing machines, and even the workers came from somewhere else, maybe lake Erie. At first glance, it also seems that production didn’t retract quickly enough in respond to increasing opportunity costs. But if understood that the Lorax home was a microeconomic area, then the environment surrounding the Lorax, created the necessary balance to maximize marginal cost and benefits. While production was ever increasing of Thneeds, there must have been sufficient production of other products in the economy to overcome the costs of using more and more resources for just thneeds given their marginal benefit.

Underlying all of the comparisons here, I think what’s most clear is that opening chapter in microeconomics are really, really boring, even, or particularly, with an unnecessary number of Dr. Seuss references. I missed a lot of economics jargon, but will be adding them to a flashcard deck shortly.

References:
7. McConnell, Campbell R., Stanley L. Brue, and Sean Masaki Flynn. Microeconomics: principles, problems, and policies. 18th ed. Boston: McGraw-Hill Irwin, 2009.
8. The Lorax, . (1971). New York: Random House.

Schneider National’s Cost Leadership Strategy

Schneider National’s use of in-cab technology demonstrates driving a cost leadership Generic Strategy enabled by lower costs through increased productivity and safety while delivering the same, if not improved, transportation service. The “industry leading” devices drive down costs by enabling productivity gains in a wide range of ways, including eliminating stops for instructions or training, and electronic logging. The increased safety and resulting claims-cost reductions come primarily from enhanced navigation capabilities that combine clear on-screen trip previews and audio instructions.

Schneider National can be seen investing resources in the Run component of the RGT framework as it leverages its fleet of trucks and drivers in the most efficient ways possible. The system is built of a previous Qualcomm platform, keeping the implementation costs down as compared to an entirely new system.  All these combine to help the bottom-line through lower costs. However, this can also grow revenue and contribute to the top-line assuming the cost reductions create sufficient margins even while being a cost-leader in the industry.

Schneider National can be seen including all their key resources in this strategy including the people component, not just the valuable technology and information. The devices, besides being cost savers, include features meant to increase driver satisfaction and quality-of-life which makes drivers more eager to adopt the devices and become technology-literate. This investment in their employees has a direct affect on the bottom-line through the effective use of these devices, but probably also in more indirect ways due to productivity gains related to overall employee satisfaction.

References:
1. Haag, S., & Cummings, M. (2009). Information systems essentials (3rd ed.). Boston: McGraw-Hill/Irwin.
6. For Schneider and In-Cab Technology, Its Back to the Future. (n.d.). Schneider National, Inc. | Truckload and Transportation Services. Retrieved June 12, 2011, from http://www.schneider.com/news/News/PRD_003388

Management Information System Introduction

Cliché, but true, we live in an information age, as well as an age of ubiquitous technology. But businesses make decisions on how to use technology differently than we do personally, or, at the very least differently than getting the latest tech-gift for a holiday, if they are to be successful. Business make decisions based on the drivers of their business strategy, weighing costs and returns. This means understanding the industry pressures and competition to develop business strategies, find processes to support these strategies, and then find key technologies to support the business process. Any other order – not ideal, at least.

Management information systems (MIS) deals with the planning for,
development, management, and use of information technology tools
to help people perform all tasks related to information processing
and management. 

Information Systems Essentials, 6.

MIS has to do with how people work with technology to processes and manage information, and the coordination of the three very important organizational resources. Information Technology (anything related to the consuming, processing or support of information) then, is one of these three key organization resources that together information and people using information, and make up MIS.

Information, or data in context, is a key resource to understanding these things. Or even more specifically, it’s Business Intelligence, or business relevant information, that leads to effective decision making.  Finally, knowledge is actually having the experience and ability to use business intelligence, make it actionable. “Context” in terms of knowledge is of the more actionable type.

Generally, information is subject to issues of quality. Timeliness, both getting it when I need it and it describing the time I need, is critical. The information has to be somewhere I can get it, described by location. Form describes how useful the format is, as well as cleanliness (errors).  Finally, validity is similar to form, but has more to do with correctness, for example finding something from some yahoo on the internet may just not be accurate even if the form is free of errors.

Data flows through an organization in an upward flow when it travels from the transaction to some c-level report, loosing granularity along the way as it is summarized. Strategies and goals flow downward on their way turning into tactics and operational considerations at the bottom. (Although in my personal experience strategies that involve upward flow are often more effective an adopted more quickly, not in their entirety by any means, but as an ingredient). To keep the right hand knowing what the left hand is doing, there needs to be horizontal movement between business units. All organizations today use customers and partners like suppliers, so outward/inward flow of information can be a competitive advantage, which is what e-commerce is all about.

People are still the most critical resource. Someone’s literacy in information and in technology can be described as their ability to know what’s needed, how and where it get it, understand it, and take action – i.e. work with information’s different contexts and quality, etc., discussed earlier.

Porter’s Five Forces Model

Ref 2

This model tackles the first step in determining how to use technology, how to understand an industries’ competitive forces, i.e.

1. The bargaining power of buyers,
2. The bargaining power of suppliers,
3. Threat of substitute products,
4. Threat of new entrants,
5. Rivalry amongst existing competitors.

In order to drive a successful business, an organization must follow a process by which they understand their unique environment including their customers, competition and other factors before developing business strategies or attempting to identify processes or technology. The Five Forces Model describes an industry’s pressures and understanding all of these and how a business strategy can move these forces in the organization’s favor, will, hopefully, lead to better decisions regarding the organization’s strategy to compete and win. The Five Forces Model would also be a useful tool in deciding whether to move into an industry by showing the relative attractiveness of a particular industry.

A business wants to maximize their own power in any of these categories while minimizing it in their customers, competitors and suppliers. Since business both consume and sell, they can often apply in both contexts. Buyer bargaining power is high when there are many choices, so business can lower customer buying power by creating a competitive advantage – offering something or offer it in a way that makes it better than the competition, thus lowering the buyers choices. Examples are new products or services, like Netflix, and loyalty programs, like American Airlines. These are always temporary; however, and a first mover’s advantage can be short-lived. The bargaining power of suppliers is just the counter to buyer’s power, so business want to have many choices in their supply, but want their customers to have limited choices in their respective supply – e.g.  a unique offer. The threat of new entrants can be kept lower by entry barriers. Offering a service or product that customers come to expect and is hard to duplicate creates such a barrier, if only temporarily. The previous barrier of your unique phone number was eliminated with local number portability, but there is still a switcher cost, which reduces the threat of substitute products, in the form of delays and hassle in the processes. In a unique dynamic, Google Voice offers a way of porting a phone number to their service, which increases the threat of substitute products for the cell phone provider thereafter. Yet Google isn’t competing directly with those providers, at least for now, since a phone provider is still needed to make the phone work over the network, and for the services they do offer, there is a large barrier to entry.  Finally, a business wants a less competitive industry force, examples of which are hard to come by. Even the text’s mortician example is affected by word of mouth regarding competitors, or location of competitors, Costco manages to compete for some of these products in-store, i.e. caskets, but indeed it is less competitive than many industries.

Companies must constantly innovating in order to create their own advantages or match a competitor’s offer (at least close enough in light of their overall strategy), or both in order to compete. Thus, any existing advantage becomes irrelevant, or insufficient without constant innovation.

Although these forces are distinct in their nature, there is inevitably overlap. An interesting aside, some industries may be changing so significantly, that the forces don’t just overlap, they collapse into one another⁵. An industry where the supplier is the same person as the buyer certainly creates a unique pressure. Although more complex, the fundamental forces are still at work here, business intelligence must understand how the pressures move together and not assume independence. The technology to support this understanding is interesting too; examples of business intelligence typically show a “customer ID” and all relevant information about the customer. What a shift, then, if the organization must start to merge your customer information with your supplier information. Would many organizations be capable of making the change? What is the cost, and how would the benefits be quantified?

Porter’s Three Generic Strategies

Ref. 3

Overall Cost Leadership is just like it sounds, same or better product is key to being considered cost-leader, i.e. it has to be the same product that’s cheaper. A loss leader is something offered at or below cost just to drive in potential buyers for more profitable products.  Differentiation is uniqueness, at least in perception.  Focus (segmentation in the figure at left, but usually “focus”) is a segment according to a buyer group, or within a product line, or geographically. The top-line vs. bottom line framework and the RGT framework fit in well with this also. Top line, or revenue, may coincide with a market focus or differentiation strategy along with a higher percentage of expenditures in the Grow (increase revenues) or Transform (offer something new, innovate) strategies relative to Run. On the other hand, bottom-line, reducing costs, applies well with overall cost leadership and the Run framework component, which seeks to gain efficiency on what’s already in place.

Value-chain analysis

Ref 4

Now we get to implementing, as all the understanding and strategy in the world doesn’t do much if you never implement. Determining how to do this is what value-chain analysis is about. The support activities have to be in place so that the primary activities can operate efficiently. It is also important to evaluate what processes add value, and which reduce value. In any assessment, quantifying the value and cost helps prioritize and focus company investments where the most return is likely to result.

References:
1. Haag, S., & Cummings, M. (2009). Information systems essentials (3rd ed.). Boston: McGraw-Hill/Irwin.
2. Porter five forces analysis – Wikipedia, the free encyclopedia. (n.d.).Wikipedia, the free encyclopedia. Retrieved June 12, 2011, fromhttp://en.wikipedia.org/wiki/Porter_five_forces_analysis
3. Porter generic strategies – Wikipedia, the free encyclopedia. (n.d.).Wikipedia, the free encyclopedia. Retrieved June 12, 2011, from http://en.wikipedia.org/wiki/Porter_generic_strategies
4. Value chain – Wikipedia, the free encyclopedia. (n.d.).Wikipedia, the free encyclopedia. Retrieved June 12, 2011, from http://en.wikipedia.org/wiki/Value_chain
5. Lamb, J. A. (n.d.). The Collapse of Porter’s Five Forces Model « James A. Lamb. James A. Lamb. Retrieved June 12, 2011, from http://tonylamb.wordpress.com/2011/04/17/the-collapse-of-porter%E2%80%99s-five-forces-model/ 

Aplia

My very first assignment is simply to set up Aplia. I would have skipped notes for this entirely, but apparently answers are actually graded, so maybe a couple notes wouldn’t hurt:

• Practice mode vs. Graded mode is at the bottom of your screen – nope… is Chrome the trouble?  I guess there will be a “check answer” for practice problems anyway.
• Funny, you can “try another version” even when you get them all correct, and lower your average, I assume. For real assignments. The extra practice questions seem like they could be handy, but not with lower score…
• Make sure to finish after a “try another version” because if you leave it blank and due a “save and continue”, its not the original score that is going to apply but the average including your blank answer when the due date arrives.
• Can’t really tell if a graded question would fail to register if you didn’t save after, but guess I won’t do that anyway…
• The presence of check-boxes in intentional, more than one is possible to check.
• I wonder how a flaky connection is going to affect this stuff…

Ok, so the quiz was what you’d expect for this type of thing, but I guess a few worthwhile things about grading should be remembered.

Books. And Insecurity.

Five minutes worth of research has Amazon in the lead for book pricing after reviewing Google shopping results and the official course materials provider.  Good enough for me. The actual check-out process ended up revealing those subtle differences between what I was buying through my own channels and the official university authorized book store, however. It was the add-in stuff, an “access card” and a subscription to MathXL online. The latter appears to be used for assignments and other very mandatory activities. I’m a bit more sceptical regarding the usefulness of the access code to supplement the book materials, but I figured better safe than sorry.

In the end I’ve save a whopping $40 (12%) and it took about an hour for me to be confident I found all the correct items. But, the loose-leaf version of text wasn’t available at the official bookstore, nor the Kindle version of the book, and these should help me get an extra hour of work in during the morning commute without lugging books around. Maybe next time I’ll be a bit quicker finding everything I need.

In checking out the MathXL site, I’ve discovered a big pet peeve of mine. They sent my permanent account password to me via email. Their web page appears to send login info in the clear also. Their privacy policy says they can share your personal identifying information with Pearson Education and include your password and credit card information as “personal identifying” information. This is just basic stuff that can be accomplished with secure methods without reducing any functionality or experience of them or me. It turns out that they are not alone, apparently a lot of major web sites have issues. I’m not sure how major this company is, but I imagine a lot of people use the same password as for other school information, since it feels like an extension of class. I tend to keep several levels of passwords, not just one for everyone but not different ones for everyone either. Like one junk password for accounts without anything important up to very secure bank-account-type passwords. I used a medium-low importance password for these guys just assuming they would have basic security practices since they are associated with a class and had to go change my password at a few other places after the fact. Boo MathXL and boo Pearson Education.

Begin

What begins really? Just about everything begins as a continuation of something else, serving as extra emphasis for a change, not so much a beginning. And so it is, this blog really began with an automated post from WordPress announcing “Hello World” and my undergrad education really began years ago. But, for both, I’ll start things off with this post instead. I’ve registered at UWC for two classes recommended by the UWW advisor that should serve as prerequisites for their online BBA program: ECO 204: Economics-Micro and BUS 230: Introduction to Management Information Systems.

I’ll be collecting posts for each class once instruction begins on June 10th, and maybe a few lead-up items to get me organized. I don’t have great expectations for the usefulness of these notes for people other than myself. If you’re in a class with me or some similar class elsewhere, by all means comment, give feedback, set me straight or ask for help. I tend to absorb more information by the simple act of writing something down, forcing thoughts to become words, so that is the main intent of my notes. I learn a little more by reviewing in an organized way and figuring out what things don’t feel as familiar as they should, so that is the other likely benefit. Explaining to someone or being challenged on a mistake is a whole extra level of learning I would welcome, but my rather detailed and rambling notes may fit a clean vision and helpful learning tool in my brain alone – so read and consider at your own risk.

-j