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posts relating to economics. For more economics posts see our Investing and Economics blog.
Recommended posts: Manufacturing Jobs Data: USA and China - Manufacturing Value Added Economic Data - Estate Tax Repeal - USA Health Care Costs reach 15.3% of GDP - Housing and the Economy - Science and Engineering Macroeconomic Investment
Obviously many businesses are now dependent on computer Network Operations Centers (NOC). Some of these data centers can cause millions of dollars in lost sales each minute if they fail. So sound engineering, including off-site redundancy is critical. Authorize.net is a recent example of such a failure, Authorize.net Goes Down, E-Commerce Vendors Left Hanging
From what I can piece together it seems within about 5 hours services were back up, at least partially. NOC failures are not uncommon (either due to fire, power failure [including backup systems], government raids, software glitches [not exactly the same as a NOC failure but some can have the affect of essentially knocking off a NOC from providing the specific service desired]). Evaluating these risks must be part of management systems with significant NOC dependencies.
Authorize.net set up a Twitter account and within hours has 2,500 followers. I am not a huge fan of Twitter, it is nice but seems pretty limited to me. But this is an example of using it effectively. You can follow me on Twitter @curiouscat_com.
Related: Information Technology and Business Process Support - Amazon S3 Failure Analysis - Information Technology and Management - IT Operations as a Competitive Advantage - Undersea Cables Cut Again, Reducing India’s Capacity by 65%
The Cost Conundrum by Atul Gawande, New Yorker (The Power of a Checklist was published there in 2007 by the same author)
“I’ll be there,” the cardiologist said. Fifteen minutes later, he was. They mulled over everything together. The cardiologist adjusted a medication, and said that no further testing was needed. He cleared the patient for surgery, and the operating room gave her a slot the next day.
The whole interaction was astonishing to me. Just having the cardiologist pop down to see the patient with the surgeon would be unimaginable at my hospital. The time required wouldn’t pay. The time required just to organize the system wouldn’t pay.
The core tenet of the Mayo Clinic is “The needs of the patient come first”—not the convenience of the doctors, not their revenues. The doctors and nurses, and even the janitors, sat in meetings almost weekly, working on ideas to make the service and the care better, not to get more money out of patients. I asked Cortese how the Mayo Clinic made this possible.
“It’s not easy,” he said. But decades ago Mayo recognized that the first thing it needed to do was eliminate the financial barriers. It pooled all the money the doctors and the hospital system received and began paying everyone a salary, so that the doctors’ goal in patient care couldn’t be increasing their income. Mayo promoted leaders who focussed first on what was best for patients, and then on how to make this financially possible.
No one there actually intends to do fewer expensive scans and procedures than is done elsewhere in the country. The aim is to raise quality and to help doctors and other staff members work as a team. But, almost by happenstance, the result has been lower costs. [actually the Deming Chain Reaction] (more…)
Decades ago Dr. Deming emphasized the deadly disease of excessive health care costs in the USA. Since then, year after year, the situation has become worse (reaching $2.2 trillion in spending in 2007 - 16.2% of GDP). During that time senior executives has put forth very little serious effort (in comparison to the huge cost) to fix this problem. Finally, in the last few years, more and more senior executives are actively moving to address the ever worsening crisis (including, Howard Schultz, CEO at Starbucks).
They seem to be realizing that hoping the problem will just fix itself is not a great strategy. Finally senior executives are realizing they need to have the government address the systemic failures. Those executives need to keep up their efforts because those seeking to retain the system that doesn’t work, because they personally benefit from it, have been doing a great job of preventing progress for decades. Until a critical mass of senior executives demand change from Washington the chance of improving the relative performance of the USA health system in comparison to other countries is very bleak (we have just been getting more expensive and less effective [relative to other countries] over time).
CEOs Secretly Want Health-Care Reform
Related: Many Experts Say Health-Care System Inefficient, Wasteful - Articles on Improving the Healthcare system - Applying Disruptive Thinking to the Healthcare Crisis - Our Failed Health-care System
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Secret of Googlenomics: Data-Fueled Recipe Brews Profitability
Google continues to make bold moves putting faith in their ability to find innovative solutions that others reject as impossible. It is a challenging but interesting path to success, for them, at least.
Related: Google Should Stay True to Their Management Practices - Google’s Answer to Filling Jobs Is an Algorithm - The Google Way: Give Engineers Room - Google Website Optimizer - Google: Experiment Quickly and Often - posts on innovation in management
Toyota Posts Loss of $6.9 Billion in Last Quarter
For the year to next March, the maker of the Prius hybrid forecast an operating loss of 850 billion yen, more than double the average forecast in a survey of 20 analysts by Thomson Reuters. It sees an annual net loss of 550 billion yen based on the dollar and euro averaging 95 yen and 125 yen.
The bleak forecasts prompted ratings agency Standard & Poor’s to downgrade Toyota’s long-term debt ratings to AA from AA+, with a negative outlook.
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To return to profit, Toyota must sell more cars or cut costs further, Watanabe said. But he predicted the U.S. market would be around 10 million vehicles industrywide at best this year, down from more than 13 million in 2008.
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Toyota is bleeding overhead costs, with about a third of its global assembly lines working on single shifts. It will slash capital spending by more than a third this year to 830 billion yen as it puts expansion projects on hold, but it said it was not thinking of closing any production lines for good.
In my opinion these negative results are a sign of Toyota’s strength not weakness. The credit crisis and economic downturn has resulted in a poor economic environment. Toyota has managed to sustain the blow and hold firm to their principles and likely will come out of this downturn stronger as a company (mainly re-enforcing the importance of planning for bad economic conditions and not getting too excited about growth potential versus risks of growing too fast) and in a better position compared to their competitors. I continue to be an owner of Toyota stock and happily so.
Related: Idle Workers Busy at Toyota - Financial Market Meltdown (Oct 2008) - “2007 has been a difficult year for Toyota” - New Toyota CEO’s Views (2005) - Jim Press, Toyota N. American President, Moves to Chrysler
Why Congress Won’t Investigate Wall Street
“We may now need to be reminded what Wall Street was like before Uncle Sam stationed a policeman at its corner,” Pecora wrote in 1939, “lest, in time to come, some attempt be made to abolish that post.” Well, the time did come. The attempt was made. And we could use that reminder today.
Well said. The incredibly dire current economic results should encourage some thought about choices we have made. The failures of the political leaders (putting their donors interests above the public interest) is something that should be investigated seriously. The economy declined 6.3% in the fourth quarter of last year and 6.1% in the first quarter of 2009. And we have paid several hundred billion to bail out bankers; the same bankers that had congress repeal the regulation that prevented such enormous failures in the past.
It would be nice if we at least learned our lesson, but I don’t think we are remotely close to learning our lesson. There seems to be some tilt away from the most egregious excesses of the last 25 years of financial deregulation. But only minor adjustments around the edges seem to be under consideration at this time.
Related: Failing to Understand the Capitalist Economic Model - Looting: Bankruptcy for Profit - Leverage, Complex Deals and Mania - Lobbyists Keep Tax Break for Billion Dollar Private Equities Deals (2007) - Congress Eases Bank Laws (1999) - Why Pay Taxes or be Honest - Failure to Regulate Financial Markets Leads to Predictable Consequences - Losses Covered Up to Protect Bonuses - Bankers Bet Billions and Lose (guess who pays? Not them) - Uncertain Economic Times
I continue to do my part to publicize the abusive CEO pay packages that the current crop of unethical CEO’s, and those sitting on corporate boards have supported (Tilting at Ludicrous CEO Pay 2008 - 2007 post on CEO pay abuses). It does seem there is more anger now at the looting these corrupt CEOs have engaged in; though far too many people seem to think the corruption is some isolated few CEO’s. The widespread failure of ethical standards by an enormous number CEO’s (those taking from corporate treasuries as though it was their own personal bank account) is the problem (not a few individuals). The looters certainly have littered their “courts” with apologists for their egregious behavior. Even with the large amounts they pay such lackeys I am surprised they find such willing apologists, in such large numbers.
| 2007 pay rank |
Company | CEO | 2008 Pay | 2007 Pay | CEO % of 2008 Earnings | total employees |
|---|---|---|---|---|---|---|
| 1 | Motorola | Sanjay Jha | $104,400,000 | company lost $4.2 billion | 64,000 | |
| 2 | Oracle | Lawrence Ellison | $84,600,000 | $61,200,000 | 1.5% | 86,600 |
| 3 | Walt Disney | Robert Iger | $51,100,000 | $27,700,000 | 1.2% | 150,000 |
| 4 | American Express | Kenneth Chenault | $42,800,000 | $50,100,000 | 1.6% | 66,000 |
| 5 | Citigroup | Vikram Pandit | $38,200,000 | company lost $27.7 billion | 322,800 | |
| 6 | Hewlett-Packard | Mark Hurd | $34,000,000 | $26,000,000 | 7.4% | 6,200 |
| 7 | Calpine | Jack A. Fusco | $32,700,000 | 327% | 2,000 |
This executive pay data is for 2008, from the New York Times article, Pay at the Top. Earnings and employee data for 2008 from Google Finance. I would not pay any of these guys 1% of what they were paid if I owned the company, myself.
These guys and their friends have created a culture where their looting is as accepted as the clothes the emperor is not wearing. We need to wake up and stop letting these people steal the bounty created by the employees, customers, community, suppliers, investors… They want a world where they can behave like nobility - taking whatever they want from the value created by others. And lately they have succeeded in creating such a world. They leave in their wake very weakened companies and societies.
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Health spending in the United States grew 6.1 percent in 2007, to $2.2 trillion or $7,421 per person.
For comparison the total GDP per person in China is $6,100. This continues the trend of health care spending taking an every increasing portion of the economic output (the economy grew by 4.8 percent in 2007). This brings health care spending to 16.2% of GDP (which is yet another, in a string of record high percentages of GDP spent on health care). In 2003 the total health care spending was 15.3 of GDP.
With the exception of prescription drugs (which grew at 1.4% in 2007, compared to the 3.5% in 2006), spending for most other health care services grew at about the same rate or faster than in 2006. Hospital spending, which accounts for about 30 percent of total health care spending, grew 7.3 percent in 2007, compared to 6.9 percent in 2006.
Spending growth for both nursing home and home health services accelerated in 2007 (4.8% v. 4.0%). Spending growth for freestanding home health care services increased to 11.3 percent. Total health care spending by public programs, such as Medicare and Medicaid, grew 6.4% in 2007 v. 8.2% in 2006. In comparison, health care spending by private sources grew 5.8% compared to 5.4%.
Private health insurance premiums grew 6.0 percent in 2007, the same rate as in 2006. Out-of-pocket spending grew 5.3 percent in 2007, an acceleration from 3.3 percent growth in 2006. Out-of-pocket spending accounted for 12.0 percent of national health spending in 2007. This share has been steadily declining both recently and over the long-run; in 1998, it accounted for 14.7 percent of health spending and, in 1968, out-of-pocket spending accounted for 34.8 percent of all health spending.
The costs for health services and supplies for 2007 were distributed among businesses (25%), households (31%), other private sponsors (4%), and governments (40%).
Decades ago Dr. Deming included excessive health care costs as one of the seven deadly diseases of western management. We have only seen the problem get worse. Finally it seems that a significant number of people are in agreement that the system is broken. Still, admitting the system is broken is not the same as agreeing on how to fix it. The way forward to workable solutions still seems very difficult.
Full press release from the United States Department of Health and Human Services.
Related: Many Experts Say Health-Care System Inefficient, Wasteful - International Health Care System Performance - USA Paying More for Health Care - Health Insurance Premiums Soar Again - PBS Documentary on Improving Hospitals
Minnesota Bank Asks Why It Pays for Wall Street Greed
I am not very surprised that politicians provide big favors to those that give them huge amounts of money (former investment banks, farming interests, private plane owners, Fortune 100 companies, owners of oceanfront mansions, private equity speculators…). I am a bit surprised how much money is being lavished on those huge donors now, with the bailouts. Especially with how lacking in even minor consequences those huge gifts to their donors are (normally if the payoffs to supports get too huge there are at least some cover provided by putting in consequences for this “need” to send taxpayer money to their contributors).
The FDIC is a great government program. But allowing huge banks to take enormous risks and then passing on the much of the costs, of a small portion of those risks (FDIC insured deposit accounts), to banks that do not act as irresponsibly as the risk takers is a bad idea. Insurance should have increasing costs based on increasingly risky behavior.
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Warren Buffett published his letter to shareholders yesterday. As usual, it is of great interest to anyone interested in the economic, investing and management ideas.
Our record matches our rhetoric. Most buyers competing against us, however, follow a different path. For them, acquisitions are “merchandise.” Before the ink dries on their purchase contracts, these operators are contemplating “exit strategies.” We have a decided advantage, therefore, when we encounter sellers who truly care about the future of their businesses.
Some years back our competitors were known as “leveraged-buyout operators.” But LBO became a
bad name. So in Orwellian fashion, the buyout firms decided to change their moniker. What they did not change, though, were the essential ingredients of their previous operations, including their cherished fee structures and love of leverage. Their new label became “private equity,”
Berkshire Hathaway is a very well run company. Warren Buffett is a great investor. He is also a great executive. He hires honest and able people and lets them do their job. He ensures managers retain constancy of purpose by focusing on the long term and not getting overly focused on quarterly results. And have you ever read an annual report that talks of so many employees with such respect (granted it is a rare situation - something similar in an annual report could well seem disingenuous if it were not Warren Buffett writing)?
Related: 2005 Annual Report from Buffett - Warren Buffett’s 2006 Shareholder Letter - Warren Buffett Webcast on the Credit Crisis - Berkshire Hathaway Annual Meeting 2008
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Cost Cutting is Much Different than Waste Removal by Jim Womack
This last expedient is the one I most fear, because it is likely to be justified in the name of “lean.” Every recession seems to produce a major cost-cutting campaign sold by traditional consultants. Their key promise is rapid financial payback, even within one quarter, and the only practical way to achieve this is layoffs. I truly hope that the recession of 2009 will not be known to history as the “lean” recession and everyone in the Lean Community should vow to avoid the cost-cutting urge in their own organization.
To avoid the need for cost cutting, I hope that every would-be lean enterprise will assign someone responsibility for developing a “recession A3″ that carefully reviews the background situation. The critical step in the A3 process will then be to develop a set of countermeasures that can protect the organization and its people through the current recession while laying the ground work for a sustainable lean enterprise in the future.
Related: Operational Excellence - Going lean Brings Long-term Payoffs - Bad Management Results in Layoffs - Cutting Hours Instead of People
Looting: The Economic Underworld of Bankruptcy for Profit by George Akerlof, University of California, Berkeley; National Bureau of Economic Research (NBER) and Paul Romer, Stanford Graduate School of Business; National Bureau of Economic Research (NBER). George Akerlof was awarded the 2001 Nobel prize for economics. This is the abstract to their 1994 paper:
In this paper, we use simple theory and direct evidence to highlight a common thread that runs through these four episodes. The theory suggests that this common thread may be relevant to other cases in which countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust. We describe the evidence, however, only for the cases of financial crisis in Chile, the thrift crisis in the United States, Dallas real estate and thrifts, and junk bonds.
Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society’s expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.
That is exactly what has been happening. People that are not honorable and are given huge incentives to risk the future of all the other stakeholders for immense personal gain will do so.
via: New York Times Pulls Punches On Wall Street Bubble Era Pay
Related: CEOs Plundering Corporate Coffers - Obscene CEO Pay - Why Pay Taxes or be Honest - Tilting at Ludicrous CEO Pay 2008 - Excessive Executive Pay
How These Businesses Made Me A Customer For Life
I love how easy it is to deal with Amazon. I’ll use them unless they don’t have an item. Shopping at Trader Joe’s is odd. The workers actually seem like they like that they have customers. And seem as though they want to do what they can to please customers. You wouldn’t think this would be an odd trait if you read about management in a book and never actually went to stores. But I find almost few retail employees see happy provide customer service.
Related: Ritz Carlton and Home Depot contrast in customer service - Good Customer Service Example - Seven Steps to Remarkable Customer Service - Paying New Employees to Quit - Customer Service is Important
Big Three, Meet the “Little Eight”
This is not behaving in a paternalistic manner, this is behaving in an honorable manner with the other long term stakeholders that have a shared interest in the long term success of the company. When managers and executives do their jobs the company will succeed in good times and have a plan for bad times and will deal effectively with obvious long term issues. Health care costs, pensions costs, and bad labor-management relations have been obvious critical issues to solve for GM, Ford and Chrysler for decades. The pathetic job those 3 have done with those, and other issues (they still don’t understand how to work with suppliers, how to stop the obsessive focus on quarterly profits, how to demand honorable behavior [not looting] from senior executives…), lead to their current situation.
The poor economy leads the the situation you now see with Toyota and Honda: profits being cut, having to put in place plans to retain employees while they are not needed to produce output today, etc.. You don’t see companies needing billions to survive a few months unless they were incredibly poorly lead. And those leading them were paid many times more than those that led Toyota and Honda. They have had decades to act responsibly. They have failed. And there failure will be felt by those that enabled them to take huge pay packages that were not warranted. They should be ashamed.
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This is a post from my Curious Cat Investing and Economics Blog. For me, giving back to others is part of my personal financial plan. As I have said most people that are actually able to read this are financially much better off than billions of other people today. At least they have the potential to be if they don’t chose to live beyond their means. Here are some of the ways I give back to others.
Kiva is a wonderful organization and particularly well suited to discuss because they do a great job of using the internet to make the experience rewarding for people looking to help - as I have mentioned before: Helping Capitalism. One of my goals for this blog is to increase the number of readers participating in Kiva - see current Curious Cat Kivans. I have also created a lending team on Kiva. Kiva added a feature that allows people to connect online. When you make a loan you may link you loan to a group.
I actually give more to Trickle Up (even though I write about Kiva much more). I have been giving to them for a long time. They appeal to my same desire to help people help themselves. I believe in the power of capitalism and people to provide long term increases in standards of living. I love the idea of providing support that grows over time. I like investing and reaping the rewards myself later (with investment I make for myself). But I also like to do that with my gifts. I would like to be able to provide opportunities to many people and have many of them take advantage of that to build a better life for themselves, their families and their children.
The photo shows Frew Wube, Haimanot and Melkan (brother and two sisters), an entrepreneur that received a grant from Trickle up. Trickle Up provides grants to entrepreneur, similar to micro loans, except the entrepreneur does not have to pay back the grant. They are able to use the full funds to invest in their business and use all the income they are able to generate to increase their standard of living and re-invest in the business.
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I continue to tilt at the robber barron CEO pay packages (2007 post on CEO pay abuses).
| 2007 pay rank |
Company | CEO | Pay | 5 Year Pay | CEO % of 2007 Earnings | |
|---|---|---|---|---|---|---|
| 1 | Apple | Steve Jobs | $646,600,000 | $650,170,000 |
| 18.5% |
| 2 | Occidental Petroleum | Ray Irani | $321,640,000 | $509,530,000 |
| 5.9% |
| 3 | IAC | Barry Diller | $295,140,000 | $512,270,000 |
| Company Lost Money |
| 4 | Fidelity National Financial | William Folley | $179,560,000 | NA |
| 138.4% |
| 5 | Yahoo! | Terry Semel | $174,200,000 | $432,490,000 |
| 26.4% |
| 7 | Countrywide Financial | Angelo Mozilo | $141,980,000 | $295,730,000 |
| Company Lost Money |
| 13 | XTO Energy | Bob Simpson | $72,270,000 | $215,280,000 |
| 4.2% |
Data via: Forbes CEO Compensation (Total compensation for each chief executive includes the following: salary and bonuses; other compensation, such as vested restricted stock grants, LTIP payouts and perks; and stock gains, the value realized by exercising stock options.) and Google Finance (using 2007 earnings - Countrywide from SEC). I realize this chart could be improved by spending more time (the effect of stock options exercised in one year distorts things a bit but the excess are so massively huge that the clarity of the data does not need to be very precise).
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Singapore is again ranked first for Ease of Doing Business by the World Bank. For some reason they call the report issued in any given year as the report for the next year (which makes no sense to me). The data shown below is for the year they released the report.
| Country | 2008 | 2007 | 2006 | 2005 |
|---|---|---|---|---|
| Singapore | 1 | 1 | 1 | 2 |
| New Zealand | 2 | 2 | 2 | 1 |
| United States | 3 | 3 | 3 | 3 |
| Hong Kong | 4 | 4 | 5 | 6 |
| Denmark | 5 | 5 | 7 | 7 |
| United Kingdom | 6 | 6 | 6 | 5 |
| other countries of interest | ||||
| Canada | 8 | 7 | 4 | 4 |
| Japan | 12 | 12 | 11 | 12 |
| Germany | 25 | 20 | 21 | 21 |
The rankings include ranking of various aspects of running a business. Some rankings for 2008: Dealing with Construction Permits (Singapore and New Zealand 2nd, USA 26th, China 176th), Employing Workers (Singapore and the USA 1st, Germany 142nd), protecting investors (New Zealand 1st, Singapore 2nd, Hong Kong 3rd, Malaysia 4th, USA 5th), enforcing contracts (Singapore 1st, Hong Kong 2nd, USA 6th, China 18th), getting credit (Malaysia 1st; UK and Hong Kong 2nd; Singapore, New Zealand and USA 5th), paying taxes (Hong Kong 3rd, USA 46th, Japan 112th, China 132nd).
These rankings are not the final word on exactly where each country truly ranks but they do provide a interesting view. With this type of data there is plenty of room for judgment and issues with the data. Several of my posts, from my other blogs, that I recommend on this topic: The Future is Engineering, Science and Engineering in Global Economics and Intellectual Property Rights and Innovation.
Related: Easiest Countries from Which to Operate Businesses 2007 - Countries Which are Easiest for Doing Business 2006 - New Look American Manufacturing - Top Manufacturing Countries (2007) - Oil Consumption by Country - International Health Care System Performance - Economics, America and China
The updated data from the United Nations on manufacturing output by country clearly shows the USA remains by far the largest manufacturer in the world. UN Data, in billions of current US dollars:
| Country | 1990 | 1995 | 2000 | 2005 | 2006 | 2007 |
|---|---|---|---|---|---|---|
| USA | 1,041 | 1,289 | 1,543 | 1,663 | 1,700 | 1,831 |
| China | 143 | 299 | 484 | 734 | 891 | 1,106 |
| Japan | 804 | 1,209 | 1.034 | 954 | 934 | 926 |
| Germany | 438 | 517 | 392 | 566 | 595 | 670 |
| Russian Federation | 211 | 104 | 73 | 222 | 281 | 362 |
| Italy | 240 | 226 | 206 | 289 | 299 | 345 |
| United Kingdom | 207 | 219 | 228 | 269 | 303 | 342 |
| France | 224 | 259 | 190 | 249 | 248 | 296 |
| Korea | 65 | 129 | 134 | 200 | 220 | 241 |
| Canada | 92 | 100 | 129 | 177 | 195 | 218 |
See manufacturing data for more countries.
The USA’s share of the manufacturing output of the countries that manufactured over $200 billion in 2007 (the 12 countries on the top of the chart above) in 1990 was 28%, 1995 28%, 2000 33%, 2005 30%, 2006 28%, 2007 27%. China’s share has grown from 4% in 1990, 1995 7%, 2000 11%, 2005 13%, 2006 15%, 2007 16%.
Total manufacturing output in the USA was up 76% in 2007 from the 1990 level. Japan, the second largest manufacturer in 1990, and third today, has increased output 15% (the lowest of the top 12, France is next lowest at 32%) while China is up an amazing 673% (Korea is next at an increase of 271%).
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Why Tip? by Paul Wachter
Renee Lorion, a former waitress at the Linkery who now works in publishing in New York, liked the new anti-tipping policy too. “As servers, we all took a pay cut, but we knew it was for the general health of the restaurant,” she told me. “What made it work is that Jay was very transparent about the restaurant’s finances.”
Obviously, the kitchen appreciates the new policy. “Earning three or four extra bucks an hour makes a difference,” Matthew Somerville, a cook, says. “In most restaurants, there’s not a close relationship between the front and the kitchen. But here you don’t have that tension, where waiters are trying to accommodate customers’ special requests, while the cooks doing the extra work don’t see any of the tips.” Today, Porter’s employees appear almost as fervent in their opposition to tipping as their boss.
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The single most important factor in determining the amount of a tip is the size of the bill. Diners generally tip the same percentage no matter the quality of the service and no matter the setting.
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In his one concession to big tippers, Porter offers them the option of donating money to charity. The Linkery’s charity of the month is printed on the menu, and in two years more than $10,000 has been raised for various causes.
This is an interesting article discussing some of the psychological and systems thinking aspects of managing a system made up of people.
Related: Eliminating Commissions - Losses Covered Up to Protect Bonuses - Respect for People, Understanding Psychology - Losing Consumers’ Trust - Compensation at Whole Foods - I wasted the best years of my life
The financial market meltdown has grown to the point where it has profound ramifications for everyone. The common wisdom for financial market variation, for most of us, is just to focus on the long term and don’t worry about short term fluctuations. That is good advice. This panic is threatening to override that wisdom however. There are at least 2 areas to consider: personal finance and business prospects (how managers need to take this crisis into account).
On personal finance I still believe the same smart personal financial decisions last year, or five years ago are wise today: avoid credit card debt, have an emergency fund of 6 months of expenses, save for retirement, have proper health insurance, don’t buy what you don’t need and can’t afford… The biggest change I see is that the risks of failing to do these things (and the risks of failing to have done them in the past) are increasing greatly.
One of the challenges with personal financial matters is they are by nature long term issues. What you did over the last 5 years cannot be fixed in a few weeks, most likely it takes years. For more details follow the links in the paragraph above (to posts on the Curious Cat Investing and Economics Blog). You can’t make much progress quickly on these matters if you failed to do so over the last 5 years. However, you can at the very least start doing so now and you can even go a bit further if you were doing well (I am seriously considering raising my retirement contributions to take advantage of low stock prices).
On the impact to management area, this crisis has reached the point at many companies that managers not involved in finance have already been dealing much more with the importance of cash flow. And all indications indicate the risks related to manage cash flow are increasing dramatically. The expected sources of cash to provide for long term investments, for medium term investments and even short term cash flow needs are disappearing in a way I don’t think anyone predicted was possible.
What will happen in the next 1-6 months is very hard to predict. Most likely the credit markets will recover some (it is hard to imagine they could stay this broken). But to what extent is hard to say. And the real business risks of almost unimaginable (anytime the last 70 years anyway) problems raising cash, require managers to evaluate how to react today based on these risks. Even a month ago, for most businesses (outside of the financial industry or those with extremely heavy financing needs) this was not likely a consideration.
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