Rediscovering the importance of institutions - “Why Nations Fail”

Tom Friedman had a fascinating column in Sunday's New York Times on the book "Why Nations Fail."  The main thesis of the book is that institutions that promote greater access to economic activity and that are associated with greater income equality also are good for the nations that sponsor them.  I was rather struck by this notion, as it is almost the same thesis that William Baumol suggests are associated with the promotion of entrepreneurship.  Things like transparency, the existence of property rights, open exchanges...  A book that touches on this is:

The Free Market Innovation Machine: Analyzing the Growth Miracle of Capitalism, 2002.

Baumol essentially argues that innovation, not price competition, is the growth engine behind the miracle of capitalism.  Innovation is also fostered by access to opportunities and a regime that rewards innovators. 

It is worrying that we seem to have lost this thread somewhere.

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• Posted Rita McGrath on April 03, 2012

Lightsquared and dirty rotten cheaters!

At Columbia's School of Engineering, I was very pleased to attend the Armstrong lecture given by Dr. Irwin Mark Jacobs.  He gave a fascinating talk about Qualcomm's founding, how it emerged from a previous company called Linkabit and how he views technological progress.  It was both interesting and inspiring to hear from someone whose innovations have profoundly changed the world.

Among the points he made during the Q&A portion of the lecture was a reflection on the current sorry state of the Lightsquared venture.  For those who haven't been following it, Lightsquared is an effort to create a nationwide wireless network capable of competing with other carriers and potentially creating greater consumer choice.  It's run into a political buzz saw, as its very existence faces virulent objections from users of GPS devices.  Here's the issue:  The reason the GPS people object to the new technology is that it interferes with their operations.  But, as Jacobs pointed out, the problem is that GPS devices in their millions were not designed to stay within the spectrum they are legally supposed to.  Instead, many of the receivers operate in such a way that they bleed into Lightsquare's spectrum.  In other words, it isn't Lightsquared's fault that the devices used inadequately engineered components.

Be that as it may, as Dr. Jacobs noted, you'll never solve a political problem with an engineering solution; and you can't count on competition living within the rules. 

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• Posted Rita McGrath on February 16, 2012

Rita Gunther McGrath one of the world’s top 20 business thinkers

The global management list of leading thinkers has just been released, and I'm happy to share that I am one of the top 20 on the list.

 

You can see the list, images of the swanky awards dinner and other images at this link.

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• Posted Rita McGrath on November 15, 2011

Rita Gunther McGrath short-listed in strategy category by Thinkers50

Rita Gunther McGrath was short-listed in the strategy category by Thinkers50, a one-every-two-years compendium of the world's top business thinkers. The category considers who CEO's would turn to for practical and imaginative strategic advice.   Awards will be announced at a major event in November, 2011.

The complete shortlist can be downloaded here.

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• Posted Rita McGrath on October 05, 2011

So much for “Keep the Change”

In 2005, Bank of America did something very unusual - they introduced an innovation in financial services that customers actually liked!  Called Keep the Change, the program targeted young women who were terrified of running up credit card debt and so used their debit cards for everything from coffee to the newspaper.  Consultancy IDEO helped with the design of the program, by observing how the target customers kept track of their spending.  Rather than noting each amount precisely, they would round up to make the record-keeping easier, then reconcile their accounts once in a while.  The innovation was to 'round up' the purchase to the next dollar, and put the difference between the cost and the next dollar into a savings account linked to the card.  Brilliant.  It won a design award in 2007, attracted reams of new deposits and has been, I'm told, really good for customer loyalty.  I thought the example was so great that I've been using it as an illustration in class.

Well I guess it was fun while it lasted.  B of A has just announced that they are going to levy a $5 monthly fee for its customers that use debit cards.  Swipe it once, swipe it 50 times, same card fee, with some exceptions for certain higher worth accounts.  I think this has every indication of being what my colleagues and I call an 'enrager' - a move by a company that is highly emotionally charged in a negative direction.  Seems to me that the very customers "keep the change" attracted (and to whom BofA, like every bank on the planet, is paying virtually nothing to hold onto their deposits) will flee in droves to avoid the fee. 

It also violates a number of basic principles in the contract between a company and its customers.  Firstly, it is not proportional to use.  Even telephone operators (themselves not the most beloved of organizations) allow you to some extent to pay for what level of service  you think you will use!  Further, and this is just simple business, the company is adding no more differentiation or value, but expecting customers to pay more. BofA, for the time being, stands alone, so there is nothing to prevent enraged customers from yanking their deposits and walking across the street.  In the 5 mile radius around where I live, there must be branches of 20 banks, quite happy to take that money.  I wouldn't be surprised if the bad vibes this produces have a negative effect on those customers BofA wants to keep, meaning that they aren't just going to lose expensive to maintain low-balance customers but possibly the higher end ones as well.  Finally, the profile of people who tend to use debit cards - like my daughter, a college student - are really going to notice that $60 disappearing over the course of a year.

Note to self:  Perhaps change our daughter's bank.

I guess I'll be rewriting my slide deck.

 

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• Posted Rita McGrath on September 30, 2011

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