Wage Expectations for 2013

The recovery from the 2008-2009 recession has been tepid at best, and has disappointed many.  Coming out of such deep recessions we have historically seen accelerated growth for several years, which has somewhat softened the pain of recessions and enabled businesses large and small to recover their losses.  This tepid recovery is projected to develop into slower growth long-term, as has been concluded in independent evaluations by a leading economist and a leading money manager, according to the WSJ article “U.S. Stocks: Look Out Below?”  While not the point of the WSJ article, this slower economic growth will directly and necessarily reduce the wealth creation of firms, which will directly and necessarily impact wage expectations for 2013 and beyond.

The first impact that this slower growth will have on wage expectations is through an increased gap between the income earned by the top tier wage-earner and rest of the workforce.  While not desirable for the economy, this will be the logical result of an economic environment that has less opportunity for growth.  This environment will increase the relative value of workers who are able to find opportunities for growth, especially those able to lead the implementation of expansion into new areas of business for company ownership.  The most critical of these will be the CEO’s and company leaders who are able to successfully implement these growth initiatives; the pay of these individuals will therefore increase due to this value that they are bringing to the ownership.

The rest of the workforce, meanwhile, will be pressured from two sides.  The flip side of the previous paragraph is that although the work they do is still important, it is not as critical because the Big Question will not be “How Can We Do This?” but more fundamentally “What Should We Do?”  On the other hand, the slower growth will reduce the availability of jobs and result in a higher unemployment rate.  As a simple matter of supply and demand, this slower demand will necessarily work against salary growth for the bulk of the workforce.

This raises the inevitable question of how wage negotiations must be managed especially with a unionized labor force.  Unionized labor forces in the long term have shown negative impacts to the profitability of a company, although they have been able to “negotiate” lucrative contracts in the short run.  This long-term negative impact has resulted in bankruptcies at GM and Chrysler, and most recently at Hostess.  A concept missed by the unionized labor force is the fact that if the growth in profit does not exceed the increase in value that the labor force provides such as through higher efficiency, the long-run viability of the business is at risk.  From the perspective of the labor force, the workers as a whole and every worker individually must pursue how he can add more value to his work for his employer, and this will be the only way to justify wage increases.

In a low-growth environment, what ideas are there to reduce the income gap?

U.S. Stocks: Look Out Below?
Hostess Preparing For Bankruptcy-Protection Filing
Right to Work Isn’t All It’s Cracked Up to Be

FCPA: Only as Good as a Company’s Internal Controls

Many of us now have to take annual FCPA (Foreign Corrupt Practices Act) training to validate/confirm that we are in compliance with the requirements of the act. Essentially, the FCPA prohibits bribes (which may be acceptable in other cultures) from being paid by US-based companies while conducting business outside of the US. Companies that are well-prepared for this have policies and processes in-place to ensure that not only bribes are not paid, but also that the appearance of a bribe is not paid.

Walmart is not one of those companies.

For months, rumors have been in and out of the news regarding the bribes paid by their Mexican subsidiary in the course of conducting business; primarily around obtaining permits and zoning for new stores. Their shares are down further after NYT published their investigation into the issue. The worst part: it appears as though Walmart shut down the internal investigation as soon as it started to “look bad” so that they would not be obligated to report any wrong-doing.

Was the price worth it?

Sadly, for Walmart: maybe. They have become one of the largest corporations in the world based on volume and cost, often at the expense of the communities around them, their employees, and now, apparently, ethical business practices. The general motto seems to be to move forward with “the plan” (employee benefits, cost of goods, location of stores, etc.) regardless of the cost.

In the short term, this seems to be working. Walmart also has a favorable economy for their business model as low-cost and convenient are two of the most important things to many of today’s consumers. Many households are on such tight budgets that they cannot “make a statement” with their purchases (or lack of purchases): they need to buy their groceries and other goods at the lowest cost possible. So they continue to shop at Walmart despite the less than stellar business practices.

So, the $1MM question: will it continue to work for Walmart?

Maybe, maybe not. I would like to believe not as the price the communities and individuals are paying to the benefit of Walmart cannot be worth it in the long-run. But, commercialism is powerful. If enough people either: (1) read the news and do not care or (2) do not read the news, then Walmart will continue to have customers and sales despite the business practices.

The other unknown is whether Walmart will face fines and/or it’s employees will face jail time. If this happens, then the equation likely changes for Walmart and the need for internal controls and policies will be greater. (Which is the entire point of the legislation: to make it more painful to not comply than to comply.)






Airfare A La Carte: Has the airline ticket become a loss leader?


As airlines continually try to boost their revenue in this down economy, Southwest Airlines has announced that they plan to raise certain fees for baggage (third bags and overweight ones) and “early-bird” check-in. This is significant because Southwest has always billed itself as the airline without hidden or additional fees – yet now even they see the benefits from charging for add-ons on top of airfare (their AirTran subsidiary is also raising its existing fees for baggage and other items).

More surprising, however, is that they also are planning a “no-show” fee for passengers who fail to cancel a ticket prior to flight time – a first-of-its-kind fee in the industry. This is from an airline where flight costs were fully reusable, with no change or cancellation fees. They say that this will only apply to the lowest fare classes and is only meant to encourage passengers to release space that can then be resold.

Southwest certainly is not the first to charge ancillary fees – most major airlines started doing so in 2008, when American started charging $15 for the first bag checked. Over time, fees jumped higher and broader, to offer things like lounge access, extra legroom, priority security lines and earlier boarding – perks and services previously only available to frequent fliers or via membership. And, lest we think these fees are ridiculous, there are airlines out there that have built their model on selling the extras. Spirit Airlines charged for bags, beverages, and food well before 2008, and currently offers 8 pages of extras on their website; Ryan Air (a European budget airline) not only charges for literally everything, they have removed seatback pockets and window shades and covered headrests and tray tables with advertisements. They have even “joked” that they would charge for the bathroom if they could find a way.

It seems likely that the cost of airfare may soon become just the minimum cost of entry, with airlines barely breaking even (or losing money) on the ticket price itself just to sell all of the upgrades and extras. The true cost of traveling by air may become more like buying a car: sure, you can just pay the base price for a seat, but don’t you want the extra legroom and the rustproofing? A number of articles even discuss airlines installing premium and/or extra-legroom seats in the front to increase revenue, while squeezing smaller seats and reducing seat pitch in regular economy in the back. However, while the airlines have enjoyed the added revenue (indeed, it has kept some of them in business), they have lost big in customer satisfaction. Proponents of the fees claim that it allows travelers more choice in customizing their experience; it also keeps the base ticket price affordable than the ‘true cost’ of a flight.

As a leisure or occasional traveler, how do all the additional fees affect your choices? Do you prefer the choices of the “a la carte” approach, or would you rather pay a higher all-inclusive fare? For the frequent fliers out there, how do you feel about regular fliers being able to purchase the perks that were once only available to the elite?


Southwest Raises Fees, Adds ‘No-Show’ Penalty:  http://www.cnbc.com/id/100321169

Add-On Airline Fees: Good or Bad? http://www.cnbc.com/id/47857900

Spirit Airlines defends $100 carry-on bag fee  http://www.latimes.com/business/money/la-fi-mo-spirit-airlines-carryon-bag-fee-20121004,0,5442837.story

Like American, More Airlines Add Fees  http://www.nytimes.com/2008/06/13/business/13bags.html

Airlines shrink seats  http://articles.latimes.com/2012/oct/19/business/la-fi-airline-seats-20121020

Samsung to Take a Bite Out of Apple Enterprise Market

Last summer, Samsung Electronics agreed to customize a version of their popular Galaxy S II smartphone for a health care start-up company that needed a device that would transmit heart monitor information directly to doctors. Since then, it seems that Samsung has officially decided to “play” in the enterprise solutions market. In fact, a Samsung spokesperson noted that Samsung has “made the decision to be No. 1 in enterprise.”

It seems to be a fairly bold statement, seeing as Apple and RIMM have dominated the enterprise market in the recent years. In fact, Apple was said to have recently passed RIMM (Blackberry) as the leading provider of company-issued smartphones and could maintain that position through 2016. (BusinessWeek). The overwhelming majority of large companies are testing iPhones and iPads for employee use.

On the surface it would appear that the barrier to entry in this market is very difficult, if not almost futile. How could Samsung possibly think there’s an opportunity here?  The answer is customization. Apple has a history of cutting edge products, but ultimately doesn’t customize ANY of them. What you see is what you get, and for most, this is quality product that needs no customization. However, Samsung sees an open door. So many companies are now looking for enterprise solutions that will best fit their structure, and Samsung feels it can meet these demands better than Apple or RIMM. By being open to customization as well as working with third party vendors to target specific industry’s needs, Samsung plans to fight to become #1 in enterprise solutions. The company is taking a good hard look at competitors like HTC and even Google, and notice that neither seems to be interested in the enterprise space. The business strategy seems to be to attack a market segment that has not yet been saturated.

Of course, to play in this segment, Samsung must be prepared for the new challenges it will bring. For example, an advantage of Android is that it’s highly customizable. However, it can be a disadvantage for the same reason, making it difficult to standardize security and management software to sell across multiple corporations due to so many different versions of Android currently available. To address this challenge, Samsung has already invested in designing its own software for this purpose which will make all Samsung devices operate consistently.

Samsung will have other challenges to consider as well. For example, the company will need to be sure to market to corporations accordingly to re-brand itself as an enterprise solution provider. Also, it will need to continue to offer a sustainable competitive advantage over time. Finally, resources will need to be reallocated or added to support corporations’ customer service requirements as well as to meet their customization needs.

How do you think Samsung will perform in the enterprise market? What would you say your biggest concern would be if you were the CEO of Samsung?


Samsung and Apple Duel in Enterprise Tech

How do you Plan for a Union Strike?

The U.S. economy is still weak and U.S. port strikes are not helping matters. The LA/Long Beach clerical union strike that lasted 8 days in late November-early December, 2012 shutdown a total of 10 container terminals, and caused a vessel and container backlog that showed its affects 2 weeks after the strike ended. The strike cost companies an estimated $1 billion in lost revenue per day of the strike. At a time when the last of the holiday imports are arriving to the U.S. and as stores are trying to make last minute sales, product/parts delays of any kind limit those U.S. sales.

On December 29, 2012 we may see a U.S. East Coast union strike, costing companies billions more in lost revenue since import/export containers will be delayed at the ports. As stated in the article, “Potential US East and Gulf Coast Port Labor Strike Could Further Destabilize International Trade”, in the maritime-executive, “Those not prepared for such disruption could face adverse operational and economic impacts including increased expenses, decreased revenues, loss of market share, and reputational damage due to their profit-driven strategy of keeping inventory levels low and the sudden and severe backlog and rerouting pressures caused by a work stoppage”. So those companies who were trying to limit carrying costs of inventory and who have moved production overseas, now may see a disadvantage of this strategy as potential port strikes become a reality.

Now many companies are looking at options to build up inventories and keep imports moving into the U.S. Since the issues on the West Coast are cleaned up and the strike has ended, some importers have moved vessels to the West Coast instead of the East Coast, causing extra transportation costs and shipment delays. Some U.S. companies have been building supplies of inventory in their warehouses, at the possibility that a strike could happen. A major factor in limiting supply chain delays will be increased visibility throughout the companies supply chain. Perhaps in the future companies will invest in warehousing at multiple port locations in order to create options in case of strikes or even use this as a reason to either keep factories in the U.S. or this will make a company think twice before outsourcing production overseas.

In the end union strikes are difficult to plan for, especially as there are extra costs in order to manage these possible risks. However, by having proper risk management in place and being ready for this type of situation a prepared company can take market share from those who are not prepared.




An East Coast Port Strike Could Have Devastating Impact


California Ports Strike Disrupts Holiday-Shopping Cargos


L.A. Port Workers Reach Agreement to End Eight-Day Strike


Potential US East and Gulf Coast Port Labor Strike Could Further Destabilize International Trade


Worries mount about possible East Coast port strike


Predicting the Future with Business Forecasting

Wayne Gretzky said.  “I skate to where the puck is going to be, not where it is.”  This statement not only applies to hockey, but also to the business world.

Our class just completed a Capstone simulation where we competed as companies selling sensors.  It gave us an opportunity to run a corporation by making several business decisions including R&D, HR, Marketing, Operations and Finance.  One lesson I learned is how important forecasting is to a company.  It helps drive some very important decisions.  It impacts on how we calculate our capacity as well as how we want to invest for the year.  We are constantly challenged to keep a positive cash flow.  This is also very true in the real world.  I believe we would have performed better with more accurate forecasting and we did put together a spreadsheet to help us, but it’s more than just data.  Professor Byron Anderson from the University of Wisconsin-Stout said it best.  “If futuring were only based on science, statisticians would be wealthy.”

In an age where Big Data is becoming increasingly important, people continue to struggle with forecasting.  Data as a platform is quickly becoming an industry of its own.  Businesses are being formed around meta-data management, enterprise performance management tools, data warehouse utilities and search engines.  However, people still struggle to accurately forecast.  These tools are great, but they are just tools.  There is a human element that also exists.  During our competition, some of us knew how other teams would react because we know them well.  These decisions can’t be found in a spreadsheet or queried from some place.  We are forced to know our customers and our competition at all times.  This information is invaluable.

  • What’s the size of the market and how fast is it growing?
  • What’s the competition doing?
  • What types of opportunities are there for the company?
  • How much demand will there be?
  • How much money will the company need to borrow?
  • Etc.

John Vanston did some work around forecasting.  He created a model bringing Forecasting, Foresight and Strategy together.  This model gives us a view ranging from heavily quantitative to more qualitative approaches. (Byron C. Anderson 2012)  This helps students understand what is needed to decipher the data around us and I’ve provided a picture of his framework below.

After my recent experience and reading a little more about forecasting, I wonder if there is a need for a required class within the MBA program.  This isn’t a challenge for one particular industry.  It can be applied from manufacturing to finance to sports (as evident with the recent movie Moneyball).  I believe forecasting is more than just numbers.  It’s an art.  Who’s making decisions and why are they making these decisions are just as important.  In a constant world of pressure for margin, having accurate forecasts could mean the difference between staying in business or not.

What are your thoughts about forecasting as a mandatory course for MBA students?

What experiences (Good / Bad) have you encountered at work with forecasting?


JIT – Just-in-Time or Just-in-Trouble?

The importance of managing risk through the supply chain has become painfully evident as a result of natural disasters which have occurred in recent months and years. Despite the obvious human cost and tragedy that ensued, catastrophes caused by the earthquakes, tsunamis, flooding, factory explosions and volcanic eruptions have all impacted enterprises who source globally, and who have embraced Lean/JIT practices at least to some degree.

The supply chain effects of these catastrophes have lead to a JIT rethink, but it is clear that many companies have failed to put in place back-up plans to cope with emergencies like the Japanese catastrophe. They were content to place all their eggs in one basket like Japan or China owing to low production costs while ignoring the obvious risks of natural disasters. But even where companies had a disaster-recovery plan in place, room for maneuver depends largely on the nature of the industry.

The production philosophy born on the factory floors of Japanese car companies is a global management practice and has saved companies billions of dollars. The idea behind JIT, or lean manufacturing, is to have the supplies a firm needs at the exact moment that they are needed. Most of the companies, with production systems based on just-in-time inventory management, understand keeping minimum inventory has its risks.

The problem for many global corporations is that they are mesmerized by cheap production costs in disaster-prone countries. They know the natural disaster risks but feel that their infrequent occurrences on a major scale justify the risks. Nature is not the only threat to the supply chain; there are also significant political risks to be considered in many politically unstable countries.

The rising production costs in China will favor a shift of production back to countries concerned to have a more secure source of supply unaffected by natural disasters. There are, however, other reasons favoring a production shift back to regions close to their markets, like flexibility to react to market changes more responsively.

There are number of avenues open to risk mitigation strategies to deal with large scale disruptions of supply chains, including:

–        Challenge suppliers to develop disaster plans so that they can make provisions to move to alternate sites for production, in the event that they are unable to produce product at their main plant.

–        Eliminate sole-source suppliers, and developing the capabilities of additional companies. Having one supplier is probably too few, but having five suppliers is too many in terms of achieving economies of scale.

–        Analyze where suppliers are located, and limiting the number of critical component suppliers that are geographically situated in a risky area.

–        Review insurance policies and consider taking-out contingent business interruption insurance that protects against losses relating to the inability of suppliers to deliver.

Experts have been recommending for years that manufacturers diversify their supply base. After all, recent history is full of examples of widespread supply chain disruptions and their consequences for manufacturers reliant on too few sources, such examples are: attacks to WTC and Hurricane Katrina in USA, flooding in Thailand, factory explosions in Germany, volcanic ash from Iceland and earthquake and tsunami in Japan.


Japanese Earthquake-Tsunami Show Flaws In Just-In-Time


Reducing Risk in The Automotive Supply Chain


Japan’s earthquake must force JIT supply changes


Auto companies relook at just-in-time mantra


 Japan One Year Later: What Did Supply Chain Practitioners Learn from the Tsunami?


Delta Invests Heavily in Virgin Atlantic

Airline industry experts have been predicting increased consolidation in the airline industry for years now, as unpredictable volatility in oil prices, high labor costs, and an overall softened global economy have left some carriers with few options other than to be gobbled up by carriers who are on stronger financial footing.

Delta Air Lines, America’s second largest airline recently announced their intent of purchasing 49 percent of Britain’s second largest carrier, Virgin Atlantic, to help strengthen the trans-atlantic market share held by Delta. The airline is purchasing the 49 percent share of ownership that is currently being held by Singapore Airlines, with founder Sir Richard Branson retaining the remaining 51 percent of ownership. Behind this transaction are coveted and extremely valuable London Heathrow landing slots. Heathrow, despite being one of the worlds busiest airport, is actually slot-controlled which means that there is a limit as to how many flights (or “slots”) available for airlines to fly in or out with. Because supply is effectively controlled by airport administrators, fares to Heathrow are typically higher and include a premium related to the high demand for seats that many corporate business travelers don’t mind paying to get access to London’s best geographically located airport.

The partnership will provide a stronger competitor to the American Airlines – British Airways alliance that currently controls 60% of the London to United States market (with this alliance expecting to control an estimated 25% of traffic). The two airlines are also hoping to achieve anti-trust immunity that American and British Airways both currently have, which will legally allow Delta and Virgin to share their schedules, prices, and strategize together on trans-Atlantic operations which provides a real competitive advantage as the resources of the two airlines will be effectively utilized as one large carrier. Delta and Virgin have signed an agreement where they will share both the revenue and costs from their London to the United States flights.

Another advantage for Delta in this deal is that like their U.S. competition, Delta is strategically interested in dominating the New York airline market, which is difficult to do if you don’t have a strong presence in New York’s second largest travelling destination in London. This partnership will allow Delta to strengthen their New York operations by being able to offer lucrative corporate travelers better access to London’s Heathrow. Not only that, some analysts are saying that the real value in this partnership is actually the ability for customers to connect in London to other destinations throughout Europe and Asia on Virgin, giving the airline an effective and valuable hub in London that it never had before.

Delta Air Lines has transformed themselves into an industry trendsetter, with recent investments in oil refineries to produce their fuel in house, in addition to bucking the industry trend and leasing older but extremely cheap and reliable aircraft to expand their fleet. Time will tell whether these strategic decisions will pay off or burden the airline with higher costs. One thing is for sure though; their new-found access to the London Heathrow market is now the envy of their competition.


Facebook’s Mobility Challenge

Facebook’s Mobility Challenge

Facebook has announced its inability to monetize the more than 400 facebook members who access the site via a mobile device.  As part of their public offering facebook had to reveal risks that the company faces in the upcoming years and one that they highlighted is their inability to generate meaningful revenue through mobile devices.  Overall spending on mobile advertising in the US is expected to jump 80% next year to over $2.6 billion and facebook needs to find a way to capture a large chunk of that spend if they want to continue to be a powerhouse in the tech industry.  Although a large number, the mobile advertising industry is still very immature when compared to TV, print and online advertising.  The inability to generate significant revenue on mobile advertising is not unique to facebook as other large companies are struggling as well.  Although facebook has listed their inability to generate significant revenue from mobile devices as a risk many believe that facebook is deliberately delaying ads on mobile devices, similar to their strategy with the traditional facebook website. 

This article brings up several interesting points about the mobile advertising market.  This market is poised to grow over 80% in the upcoming year; however marketers still do not know how to fully capitalize on this market.  According to the article and several other experts consumers are not yet ready for advertising to appear on their mobile screen.  In most cases mobile screens are much smaller than those on traditional PC’s and consumers do not want to see clutter on their phones and they do not want anything to jeopardize the speed at which they pull up content on their mobile devices.  Google is currently the leader in mobile advertising however they are still not fully capitalizing on the vast potential that this market offers.  Another interesting point that this article brings up is the other ways that companies like facebook can make money on mobile devices.  Currently Google allows developers to great apps and games and offer them on their android platform free of charge while companies like Apple and facebook charge a percentage of app sales from each developer.  This is one reason why facebook was reluctant to create and Ipad app for facebook because now facebook needs to share revenue from faecbook apps with Apple.

With the current model and fight for dollars in the mobile market there are several battles going on within the war.  For instance many believe that facebook deliberately created their Ipad app with bugs so their members will just access facebook via the web directly versus the apple app.  This would be a very interesting strategy especially because facebook openly admits that over half of their users access their website via a mobile device.  It is obvious that there is still great potential to be reached in the mobile market and facebook is testing models with streaming advertisements that are attached to a member’s friend.  The question that still remains is facebook’s current mobile strategy one that will make this segment profitable?  Facebook must make a lot of strategy decisions in the upcoming months and two of the most critical strategies will be how much resources to devote to mobile and how to attack this segment.  If you were facebook how would you attack this segment?

You can access this article at the link below.

3-D Printing

Mechanics and engineers have been using 3-D printing for several years.  Prototypes are printed during the Research and Design (R&D) phase as it is cheaper to print one prototype than have to pay to manufacture several only to find out that specifications may be slightly off.  Today more than 20% of goods printed by a 3-D printer are not prototypes, but actual products.  And it’s estimated that by 2020, this will rise to 50%.1

The process of using 3-D printing in the manufacturing industry is known as “additive” manufacturing whereby the manual construction of a prototype is known as “subtractive” manufacturing.  This is because utilizing software to print a prototype saves a lot of retooling costs that would otherwise eat up a large portion of the R&D budget.  3-D printing also saves time and raw materials since the printer is more precise and more efficient than cutting, molding, soldering, etc. by hand.

Not only does 3-D lower costs, but it also lowers risk associated with developing a new product.  Before, a manufacturer would have manufacture and sell hundreds and even thousands of a new product just to recoup the R&D and manufacturing costs.  With 3-D printing, the break-even point is lowered substantially.  This is good for consumers as well as more unique products may be brought to market for consumption.

Another cost savings of 3-D printing is the reduction of scrap waste.  During the normal manufacturing process, sheets or coils of steel may be used and the edges are considered scrap after the shape of the product has been cut out of the sheet/coal.  With 3-D printing, you hit a “print” button, much like a typical ink-filled printer we use today at home.  However, there is no scrap because the 3-D printer prints in layers, and only uses the raw materials necessary to make the object.

This article mainly discussed the 3-D printing of airplane parts, but there’s no telling how far this new technology will take other industries as well.

The world of 3-D printing is pretty amazing.  I was pretty impressed with the concept and found that it has opened a lot of doors for a lot of people.  Hobbyists such as jewelry makers can utilize a 3-D printer to print their designs.  What was once a hobby can perhaps turn into a small business.  And an architect at MIT is experimenting with the possibility of printing buildings!  In her experiment, the 3-D printer is able to print layers of concrete for the building construction.

Furthermore, human organs have even been printed with a 3-D printer!Ten years ago, a young boy was given a printed bladder.  The bladder was printed using a combination of synthetic, biomaterials and the boy’s own cells.  The boy would go barely go outside for recess and had been on dialysis for ten years went to become captain of his high school wrestling team and is now majoring in Communications at the University of Connecticut.  His quality of life improved drastically due to 3-D printing.  Other 3-D organs are currently undergoing testing before being approved for transplant.

In summary, I think the possibilities are endless.  It’s hard to believe that this technology has actually been around in manufacturing for at least ten years, but it’s not hard to see that it is taking off rapidly (and with great success) in many fields.  It’ll be exciting to see what comes next!  Which industries do you think 3-D printing may have the most impact on?


  1. http://www.economist.com/node/18114221

2. http://blog.ted.com/2011/03/07/printing-a-human-kidney-anthony-atala-on-ted-com/