Stanford Sloan GSB, Entry 21: The Spring Quarter, Star Wars, and the Class of 2010

The Class of 2010

We just met members of the Stanford Sloan Program class of 2010, who are having their orientation this weekend, as I write this. We gave them a “welcome” presentation (“The opening ceremonies for the class of 2010”, as our Master of Ceremonies, Tim, Tim, described it), in Bishop auditorium, the main auditorium at the GSB.

In the words of Darth Vader from Star Wars (more on the Star Wars theme later in this blog post): “The Circle is Now Complete”.

It’s hard to believe that it’s been a year since we sat in Bishop, watching the Sloan class of 2008 give us their wacky and informative presentation about what life was like in the Sloan program, amidst the MBA's at the Stanford Graduate School of Business.

I can remember sitting in the theater, with my then future-friends/classmates, watching these guys and wondering: “Wow, these guys seem to be such good friends and having such a good time – I wonder if our class is going to gel like that?”

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I remember the 2008 class members, with their private jokes about texting each other at night and hurrying to a restaurant, bar, or social gathering in Palo Alto. It was clear they were having a good time, and I doubted whether we'd be like that in under a year's time.

I sat with my own personal combination of excitement, anticipation, and even anxiousness, about how I’d fit in to the Stanford GSB. I wondered if I’d like taking classes again (it had been 15 years since I’d been to school), wondering if I’d get along well with my classmates, and more importantly, whether I’d be able to relate to any of them personally.

The Sloan program, after all, consists of a very diverse group of people, from a large number of countries, at very different stages of life (from single Sloanies to families with 4 kids) and stages of work (from entrepreneurs to unemployed to Employed for Life).

As I sat in the audience yesterday, that question was finally answered. We have gelled as a class and it was funny to see in our skits and videos just how well we’ve gotten to know each other (and the faculty and administration, who several members of our class played during the skits). Particularly hilarious was our classmate Bree’s imitation of the director of the Sloan program, Marie – who knew we had such a good impersonator in our class?

The experience turned out to be more emotional for many of us than we expected - Of course our first priority was to welcome the new class with open arms and to give them a preview of what they might be like a year from now – which we did. But it also brought forth the realization that we have come full circle and our year at Stanford is almost over! In fact, there are only 4 weeks of classes left, only one big Sloan party left (The Latin party), and then finals, and finally graduation in June.

Many of us are going on the international study trip to South America, though some of us are more concerned about what we’re doing afterwards, with the job market and economy as it is and won't be attending.

What a year it’s been and what great friendships we’ve formed. I find it funny that even those classmates who I didn’t always get along with, or those I didn’t relate to very much during the school year - have become trusted friends that I’m looking forward to seeing sometime after graduation.

The Spring Quarter
Several of the new members of the class told me they’d been reading this blog regularly (one even said that was how he learned about the program), and asked why I hadn’t written any entries lately.

Honestly this last semester has been really busy – not so much with academics, but since it’s my last semester at Stanford, I’ve been trying to meet with as many interesting folks on and off campus, and figuring out exactly what I might be working on next that academics have fallen to a “lower priority”.

Which leads to a piece of un-asked for advice that I’d give to the new class: Think about why you’re coming to Stanford and what your priorities will be. Of course, there will always be academic, social, and professional aspects of your year here, and in the fall quarter they will be all mixed together. But come January, I would suggest it’s important to have a sense of what you’d like to get out of it – is it more experience with Finance? Is it to meet a team (MBA’s, Engineers) that you’d like to start a company with after the program? Is it to get to know professors that you want to keep in touch with? Is it to break into a new industry? Is it to socialize?

Whatever it is, you've got to focus on what's right for you!

Spring Electives
So to give our future Sloanies and others who are interested in classes at the Stanford Business Schoool, here’s the low down on the classes I’m taking this quarter.

I decided to take only four classes this quarter. There are two required core classes (as part of the Sloan curriculum). I took two electives this quarter, which should (fingers crossed) give me the right number of credits to graduate. I intentionally took a light load this quarter (I had 5 classes in the winter quarter, several of which were very demanding). Again, this gets back to priorities – one of our classmates is taking 6 classes this quarter, because it’s our last quarter at Stanford and he wants to take as many classes as possible.

The core classes:

•Non-market strategy.
This was a term that I hadn’t heard before. The idea of this class is that while most business focus on the “market strategy of a firm” (what are competitors doing, what is my product strategy, m&a, marketing, etc.), many firms (particularly big multi-nationals) have to deal with things that are not directly market-related. What things? A big thing called the government is a good example – many firms are in industries that are regulated, that might face environmental issues, that are attacked by citizen groups, and on and on.

As an example, our first case was about Shell and greenpeace and the media. More recently, we spoke about patents, trademarks, and intellectual property protection. Last week we did simulation based on the Microsoft anti-trust case – where one study group (my study group) played Microsoft and another study group played the Department of Justice and we argued whether Microsoft had violated anti-trust laws or not.

The best thing about this class? It makes me think about things I really don’t think about much. The worst thing about this class? It’s at 8:00 am in the morning – I call it my “sleep killer” class.

• HR class.
This class is about HR-related issues and how to structure personnel and compensation based on the strategy of the firm. Some cases we studied include Southwest Airlines, the Portman hotel, and InfoSys, to name a few.

I like the general theme of this class, because I don’t always think about HR issues as being strategic, but rather operational. However, contrary to my expectations, all the assignments in the class are data regressions, which has cause more than one of my classmates to wonder: “Is this a class about financial modeling, or Human Resources?”.

It seems like many professors here at the GSB in what I would consider “soft subjects” (HR, organizational behavior, marketing.) really want to hammer in the point that business-school in general and their field in particular is about data analysis and quantitative techniques – i.e. that it’s not really touchy feely, but rather quanty-crunchy.

I remember our negotiations instructor, when someone said "negotiation is more of an art than a science". She got very upset and yelled at him: “what have I been teaching you? This is a science, not art!” Of course anyone who’s done complex negotiation in the real world knows that it is as much (if not more) of an art involving personalities as it is a science, so I ask you: what gives?

It seems to me that teachers of soft subjects want to portray their subject as “real science” in order to get “academic respectability” from their peers and of course, to get tenure (can't say I blame them). I remember our Organizational Behavior professor’s grading of our final papers, refusing to acknowledge that the case that he laid out for us had more than one way to come up with a “right answer”.

Oh well what can you do? How about running a data regression on it and see if what I say can be backed up with empirical data LOL!!

Best thing about this HR class? The case discussions. Worst thing about this class? The data regressions, and the fact that it’s a “3-day weekend killer” class – it’s on Friday afternoon and Monday afternoon.

My two electives:
Of course everyone has taken different electives this quarter. I’ve taken two classes that I really like and help me to branch out in my own thinking:

• The Business World: Moral and Spiritual Inquiry through Literature.
It might seem funny to be taking a literature class in business school. But this class has been hailed by many MBA’s as a class to take in your last quarter of business school because it provides a good way to “cap” your experience and to think about larger issues of life, purpose, and where we’re headed in our lives and our careers.

I can’t agree more. Each week we read one book, and then we have our three hour class session on Thursday to have a discussion/debate about the book and the themes that were raised by the book, and how/if they have any relevance in our own lives and careers.

We started off by reading F. Scott Fitzgerald (the Last Tycoon) followed by two well known US plays about salesmen – Death of a Salesman by Arthur Miller, and Glengarry Glen Ross, by David Mamet. We then read a novel that had very strong elements of Jewish-American culture post WW II in it – The Ghost Writer, by Phillip Roth. Then we read a novel about post WW II Japan – An Artist in the Floating World. We’re now reading a spiritual novel about a Japanese characters who travel to India on a spiritual quest – Deep River, by Endo. We have a few more international readings, ending a Tolstoy story..

This class might seem like a lot of work, because we’re supposed to read an entire book every week. But, the books are all pretty small (especially compared to the 800 page Tome we have in Non-Market Strategy) and very easy to read. In fact, I can honestly say that this is the only class in my entire business school experience for which I expect to do 100% of the readings – Why? Because they’re all classic works of literature and all very well written.


• Leadership in the Entertainment Industry.
My final class this term is about the entertainment industry – yes – film-making and TV. Given my interest in the film industry (I have been an executive producer and investor on a few indie film projects in my spare time), this is one of my favorite classes. It is taught by an Oscar-winning documentary film-maker (it was cool to go to Blockbuster after we’d started the class and see Professor Guttentag’s name on a movie there).

Each week, we have speakers from the entertainment industry come by and give us a talk, after which we pepper them with questions. This is definitely the fun part of the class. For example, we had the head of Fox TV channel come by and talk about the issues facing the entertainment industry as it goes on line (they funded Hulu for example, but haven’t figured out how to make advertising profitable online). He talked about the history as well. I tried to get him to tell us if Fox was going to renew “Terminator: The Sarah Conner Chronicles” but he was mum on the subject, since he hadn’t even told the producers yet.

We also had Alexander Payne, the director of the film Sideways come in and talk about directing and his experience in the film industry. He was particularly terse in his answers. It kind of made me laugh when one of us would ask some high-minded artistic question and ask his opinion of it and he’d just stroke his chin and say “I don’t know. Never thought about it. Next question.”

Of course the class has more than speakers – it has field trips, which are particularly fun.

The House that Lucas Built
Last week we went to the Presidio in San Francisco and visited Industrial Light and Magic, the company built by George Lucas after the success of Star Wars.. There are actually several companies housed in this gorgeous complex built on a very large park area on San Francisco Bay.

Anyone who is a fan of movies know about the Star Wars films and George Lucas. It was incredible to be able to go the company and see how people work and how the offices are laid out. We were told that they don’t generally do public tours, so we were very lucky to have gotten a tour. The hallways are lined with artifacts from movies that ILM has worked on. This of course, included props and costumes from the Star Wars films – including Stormtroopers, Darth Vader, Yoda, C3PO, and even Han Solo in carbonite!

ILM also did the special effects for the Indiana Jones movies, and (unbeknownst to many) the Star Trek movies, among many many others. In fact, they did all the special effects for the new Star Trek movie that’s coming out next week. There were artifacts from all these movies strewn throughout the hallways - it was so cool! My favorites turned out to be the Matte paintings that were used as backdrops for scenes in the film. Needless to say a classmate and I "got lost" on this tour, and had to be picked up and led back to the tour!

The complex actually houses several of Lucas’ companies – ILM (the special effects company), Lucasfilm (which is the film production company which owns the Star Wars films), and LucasArts (the video game company). We got a private Q&A with the heads of these companies, which was great. One thing that was interesting to me was the key role of the video games in this entertainment empire as it moves forward.

Since this trip wasn’t listed in the syllabus it came as a surprise to all of us, and definitely contributed to making this one of my favorite classes at the GSB.

We have one more field trip scheduled in the Bay area, which also relates to George Lucas in a roundabout way:

'In the 1980’s Lucasfilm/ILM had developed some animation rendering technology which was spun out as a separate company and was funded by a famous Silicon Valley entrepreneur. That company worked on 3d animation and rendering technology, and eventually used that technology to make animated 3d films. I’ve heard that they don’t give public tours either, but we’re going to visit them the week after next. The company? Pixar!

Now who says Business school isn’t cool?

Stanford GSB, Entry 18: Mid-terms, Sticky Ideas, and Governor Meg Whitman?

Mid-Terms and Socializing

On Thursday of this week I lifted up my backpack and found that it was lighter than it had been in a long time. What was missing?

It was “Libby, Libby, Short”. Or to be more precise, it was our 800-page accounting textbook, written by the accountants who bore these three odd-sounding names.

Yes, we had our accounting midterm on Wednesday, and after carrying the very thick textbook around campus with me for the last week, I was glad to finally have “Libby, Libby, Short” off of my back! Literally!

This was our first and only midterm of the quarter for the required Core Classes in the Sloan program (there are two required classes – Accounting and Marketing). Since I had skipped more than one accounting class (surprise, surprise, given that this is my 8 am class!), I figured I had better study hard and do well on the exam to make up for my morning somnambulism (that's a word I learned for my GMAT when applying to business school, hopefully I used it correctly!).

How did I do? Read more...

I’m not sure – the results will be handed back on Monday, but we received an email from the professor that the average score was something like 26 out of 30, which is pretty good. That's great news for the class ("All for one, and one for all") but I’m still trying to figure out whether that’s a good or a bad thing for any if us personally, given that we’re all graded on a curve?

Unfortunately, I have one more midterm coming up. My next mid-term is called something like “International Financial Management” – but I just call it my “currency trading class” because that’s what it’s effectively about.

Along with mid-terms, the busy Sloan social calendar marches on. Last night (Friday) we had one of our first international parties – this one was themed on India. Many classmates bought Indian outfits and there was Indian food as well as Indian dancing and culture. I ended up not going (No, not because I’m Pakistani and there are India-Pak tensions in the air these days LOL), but because of family and other commitments. I’m looking forward to the next international party, though.

Making Ideas Stick

At some point this quarter, I’d like to write about each of my classes so you can get a sense of what they’re about. One of my more fun classes is called “How to Make Ideas Stick” and it’s taught by Chip Heath, one of the authors of the book, “Making Ideas Stick: Why some Ideas survive and Others Die” ( the other author is his brother, Dan Heath).

The basic premise of the class (and the book) is that in the human world, some ideas are memorable and persist on their own, whether they are true or not, while others do not. For example, urban myths persist on their own – you only have to hear them once and then don’t have to worry that you’ll forget them. Not only are they easily remembered, but they are repeated again and again virally, with no effort from the people that started the myths (if we could even track down).

Some ideas have persisted across cultures – for example the saying “An apple a day keeps the doctor away” is not only repeated here in the US, but as a quick survey of our very international class of Sloans and MBAs found, has its equivalent in many, many other cultures, ranging from Japan to South America to Europe. Whether the idea is true or not seems to have very little to do with whether it survives in people's minds.

The idea of the class is that brilliant marketers, speakers, and writers use this knowledge of how and why some ideas “stick” to their advantage – either knowingly or unknowingly. And that many of us, who will have to make pitches or market products in the business world should have practice in making ideas more memorable, likely to be repeated - i.e. to “sticky”.

The formula the brothers Heath have found for these ideas is abbreviated SUCCES – Simplicity, Unexpectedness, Concreteness, Credibility, Emotional, and Stories.

The way to learn to do this is to practice it, which we do in almost every one of our classes, focusing on a different aspect of this formula. As an example, this week our group had to come up with an example or pitch that would make sense out of whether the following was possible or not: In 2002, Venture Capitalists raised something like $204 billion of capital. In order to justify an 18% return (which is a historical benchmark for VC’s) they would have to return some $1.3 trillion in market value over 10 years.

Our intuition was that this wasn’t very likely. But our group (and others) struggled with a way to make these big numbers (Particularly the $1.3 trillion) “sticky” to an audience of financial investors, etc. Finally I remembered from my Entrepreneurship and VC classes that there were something like an average of 100 IPO’s per year during the height of the go-go 90’s. And in 2008 there were less than 7 total IPO’s, and in the last few quarters of 2008 there were exactly zero.

I also vaguely recalled that there was something like $100 million returned per successful IPO (we looked it up and Google told us it was something like $120 milion returned per IPO).

So we came up with the idea: For this to be possible, there would need to be 3 IPO’s per day, on average, every single day for the next 10 years for the VC’s to return this kind of result! How likely is that given the IPO rates we’ve seen in the past (even in the best VC years there were 100 or so IPO's per year)? Not very likely.

We took a big number, made it concrete, unexpected, and compared it with a yardstick (the 1990’s) that they would all know, and this was a good way to “present” this idea. The class is really about how to “present” ideas to make them more sticky. You can see why it’s fun too!

Meg Whitman – the next governor of California?

One of the entrepreneurship classes at the GSB had a very well known visitor this week – Meg Whitman, the former CEO of eBay. Meg spoke to the class and then stayed afterwards while the students had lunch for an informal Q&A. Even though I wasn’t in the class, I was able (with the professor’s permission) to slip into the class to hear the end of her talk.

During the Q&A session, she not only talked about her experiences at eBay, but also her future career plans. There has been a lot of speculation (on and off what the republicans call the Internets) that Meg Whitman will be running for Governor of California in the upcoming campaign as a republican. She did after all spend most of the last year working on John McCain’s campaign.

Well, in front of a group of Stanford GSB students, she told us definitely whether she will be running for governor or not, even though a formal announcement has not yet been made. She also said that an announcement would be made formally on Monday, so far be it for me to spill the beans on my little Stanford GSB blog, but it’s kind of fun to at Stanford and at least in this case, to be “in the know”.

Check out www.megwhitman.com on Monday and you’ll be in the know too!

Stanford Business, Entry 14: Nike, PACCAR, Boeing, Amazon and Costco: Our Northwest Study Trip

Keeping up with our breakneck pace, we had our first out-of-town study trip last week, followed by the Stanford Thanksgiving break. I think I like the Stanford thanksgiving break a lot better than I liked the MIT break during my undergrad days; at Stanford, we got the whole week off.

This was (no doubt) so that we could catch up on the work for our final projects, since there's only one week of class left in the Quarter before... (drumroll)... Final Exams.

Of course we all studied very hard during this break (Well, honestly, most people started their vacation last weekend and took the whole week off; now we're struggling to get caught up on everything by Monday morning).

In the case of the Sloans, we left for Portland the week before Thanksgiving (for our international readers, Thanksgiving is a very big holiday in the US, and occurs on the last Thursday of November). On Wednesday morning, we got up very early (pre-dawn), flew up to Portland, Oregon, where we visited the headquarters of Nike.

On Thursday, we rode in a bus from Portland to Seattle and visited PACCAR (originally stood for the Pacific Car and Foundry Company), and then on Friday we visited three companies in the Seattle area: Boeing, Amazon.com, and finally Costco. Many of us spent the weekend in Seattle, our first real break since the term started.

Study trips like this are, in my opinion, one of the more fun aspects of business school. OK well maybe it's not exactly fun to get up before dawn, get dressed up in business suits, and spend the whole day listening to corporate executives talk about how great their businesses are.

But relatively speaking, it's much more fun than being in a classroom talking about these same things. On the positive side, we (usually) get to meet with high level executives of (usually) well-known companies, they give us a schpeal about Leadership, with copious amounts of company history thrown in for color, and we (usually) ask them lots of (usually) intelligent questions. And that beats studying about the derivation of the Black-Scholes option pricing formula any day!

So here’s my brain-dump from what I recall of our Northwest Study Trip:

The Cult-ure of Nike

We were welcomed to Nike headquarters near Portland by a number of executives, including the head of Nike HR, a woman in charge of retail aspects of Niketown, and a guy named Nelson, who was one of the first employees of Nike when it started back in the 70’s. His official title is now something like “Keeper of the Nike Culture”; kind of a cool title – what it seems to involve, as far as I can tell, is displaying knick-knacks that he has collected along the way, and telling stories about Nike’s history, which he did with great aplomb and fanfare.

Nelson shared with us that you could understand Nike by looking at the primary personalities around which the company was built - Phil Knight (who was CEO for a long time, not to mention a Stanford business school alum; also a multi-billioinare who donated enough money to Stanford that the new GSB campus will be called the Knight Management Center); a very famous mid-distance runner in the 1970’s named Steve PreFontaine (known to the initiated simply as Pre), and Bill Bowerman, who was a legendary track and field coach for both Knight and Pre at the University of Oregon.

Does this history matter? Well from what I could tell, these stories reflect the culture of Nike quite well to this day; and of the companies we visited, Nike had the most in your face culture: Everyone at Nike seemed to be 1) passionate about sports, and 2) passionate about the history and culture of Nike, and 3) very, very competitive, as if business was sport.

I love Nike’s products and they’ve certainly developed one of the top consumer brands of the last 30 years, but the visit was a bit strange for me. It kind of felt like I was going on a guided tour of a Scientology shrine. I felt, I don’t know how else to put it, like I was one of the un-initiated.

But it’s probably because 1) I’m not a sports fanatic, and 2) Before our visit, I had no idea who Pre was, 3) I didn’t know that Coach Bowerman was a legend in the running world, and 4) I knew that the new Stanford Business School campus was named Knight, who must've been a very rich guy for Stanford to name a campus after him, but that was about it.

We also had the former head of Nike Golf give us a presentation about leadership. Speaking of Golf, did I mention the meeting was in the Tiger Woods shrine, er, i mean, building? This building is basically a memorial to Tiger's career, including some of his trophies, memorabilia, and a timeline showing everything Tiger has done in his career. For golf fans, this building must be like dying and going to heaven.

Many of the Nike buildings are named after famous athletes. At the moment I can’t remember any of them, except for Tiger Woods and Michael Jordan (probably the last Nike product that I know by name was the Air Jordan when it was introduced in 1984, and I was on junior high school basketball team).

Nike even had an athletes walk of fame – kind of like the Hollywood Stars. I could hear my colleague’s sounds of recognition as they saw the name of their favorite 70’s or 80’s football or baseball or basketball player.

It felt like a trip into the “Cult of Nike”; I don’t mean that Nike is a cult in a bad sense; the most effective organizations with the most passionate members usually have this kind of quality to them.

Another thing I noticed about Nike culture: I found them to be brutally honest. Maybe too much so, which I kind of appreciated.

For example, why did they start the non-profit Nike foundation? Honstely, because they were getting a lot of heat over bad working conditions in their off-shore factories. Why did they want us to go the Nike store? To spend lots of money on their products so their profits will go up. Why were they being so nice to us? Because they hoped we might want to work for Nike someday. What is Nike's biggest weakness today as a company? That they're a bunch of old white guys with very little diversity. Actually it was kind of refereshing to get such direct answers.

Of course, being ignorant about sports didn’t stop me (or my classmates) from spending at the famed Nike Store. I usually buy a pair of sneakers once every five years; I bought two pairs that day!

PACCAR: The Lexus of Heavy Duty Trucks

On Thursday, we visited PACCAR outside of Seattle. According to Wikipedia, they are the third largest manufacturer of heavy-duty trucks in the world. I hadn’t heard of them before the Sloan program (one of our classmates is from PACCAR), though I had heard of their truck brands – Kenworth and Peterbilt in the US and DAF in Europe. There’s a famous gun-battle scene in the movie Heat, which was one of my favorite movies of the 90’s.

Although I grew up in Detroit, I'd never been to an automotive assembly line, so this was fun for me to see. In fact, between Nike, PACCAR, and Boeing, it was fun to see companies that made actual things.

This might seem like a trivial point, but I was discussing this with another software guy in our class, and he remarked that we weren’t used to building actual physical objects – our products are usually just bits and bytes on a computer.

At PACCAR, we had a former Sloan and (currently EVP of something), give us a talk about the company and its history. Inevitably, the question about why GM and the other US car companies were doing so poorly and why PACCAR wasn’t in danger came up. The answer was interesting – having to do with being hamstrung by unions, quality of products, and providing what customers wanted.

Of course, the world wide recession was affecting them too – demand for trucks was down considerably, their plant was running at less than maximum capacity.

The first thing that struck many of us about the assembly line was that it was spotless; as one of our colleagues from Japan told us, just like Japanese assembly lines, you could eat food off of the floor (No not literally!).

The second thing was how automated the whole process was – PACCAR was a poster-child for efficiency. Each piece of the assembly had it's own barcoding and in some cases RFID so they could track exactly where the parts or the assembled trucks were.

In fact, PACCAR is one of the few companies that Toyota allows to use one of its internal suppliers, notably the Lexus supplier for interiors, PACCAR trucks are known as the high end of trucks, often called the “Lexus of Trucks”.

When we sat inside the cab of one of their finished trucks, I could see why. As the owner of three Lexus vehicles (the only car I’d ever owned before buying a Honda hybrid a few years ago), I can confirm that the interior looked and felt kind of like I was sitting in a Lexus!

The Bigness of Boeing

On Friday we visited Boeing – this was fun. One of the EVP’s (also a Stanford Sloan alum) gave us a talk about Boeing’s line of aircraft, including the new model of the 747 (which is being used for freight primarily) and the new 787 dreamliner, of which lots of airlines have ordered, but which is behind schedule.

Of course the conversation naturally turned to Airbus and Boeing’s recent rivalry – the A380 (the very large plane that Airbus released recently) vs. the 787 dreamliner. Airbus’s plane is bigger. Does that matter? On any visit to Boeing, the conversation inevitably turns toward size.

We saw brand new 747’s being produced on the assembly line and all I can say is that they are BIG. We visited the BIGGEST building in the world. It’s so big that it has it's own fire-station, birds live in rafters, and Boeing employees hunt the birds now and then to clear them out. The building can house something like 70 football fields. The engines of the Boeing 767 are so big that it’s the same size as the fuselage (i.e. the body) of the 737 (which is the airplane that airlines like southwest use for point to point flights).

How does Boeing feel about Airbus plane being bigger than theirs? Boeing makes the point that they tried to go out to sell a larger plane, but came back with a different set of customer requirements - more fuel efficient planes. Boeing says that the two new planes are not really direct competitors – the A380 was meant for a hub and spoke model, where large numbers of passengers are going from hub to hub. The 787 dreamliner, a much more fuel efficient plane, is meant for point-to-point travel and so Boeing will sell alot more of them.

Like PACCAR, Boeing seems to be affected by the recession. Unlike PACCAR, they seem to have a very large union workforce. Unlike PACCAR, you can’t order a plane from Boeing before 2015, because all of the planes coming off the assembly line are already accounted for by “firm orders” from airlines around the world. Why would the recession affect them if planes are full until 2015? Don't know but they were certainly of the opinion that the recession would be bad for them.

We then drove by Boeing’s own little airport, which is just outside this building. When the planes are built, they are then flown off to the ordering airlines right from Boeing field. Oops...did I say "little" airport? I stand corrected. The Palo Alto airport is a little airport. Compared to this, the Boeing field is freaking huge.

Kindlin at Amazon

We then shuttled off to Amazon.com, to meet a GSB Alum who is in charge of corporate development. For me personally this was a fun visit, because of the internet angle (the lobby with articles from the nineties was like a trip down memory lane back to the dot com boom). It was also fun because as writer, I’m all into books. One of the things he spent a lot of time talking about was the Amazon kindle e-book reader.

The Kindle has been under development for a while – as it seems have many other non-successful ebook platforms. This one, though was endorsed by Oprah, who gave away kindles to all the members of her studio audience recently. And, just like that, Amazon sold out of all of it’s kindles.

With over 200,000 books available on it, this might be the ebook reader that actually works. What makes this one different? The Power of Oprah.

Costco-land

We ended our visit with a trip to Costco. The CFO it turns out is also a Stanford GSB Alum, and he came prepared with lots of slides about Costco’s past and future performance.

Speaking of cults, Costco is fascinating not because of the cult-like nature of employees, but because of the attitude of customers. It turns out I was the only US resident in the audience who’d never been inside a Costco. I remember last year, when I was part of a California company that was being acquired by EMC (which is a Massachusetts company). During the HR question and answer session (in California), the only question that the employees seemed to care about, really care about, even in this age of inflated health care prices, was whether the new company was still going to pay for employee’s Costco membership cards!

When I moved to California about a year ago, I happened to be going to a store which shared a parking lot with a Costco on the weekends. It was a madhouse… with kids and entire families jumping with excitement as if they were going to Disneyworld! There was an electricity there. Think of a 21st century version of the Brady Bunch dressing up in their sunday best to go to Sears.

We learned a lot about the history of Costco; about the founding of the company; they did close to $100 million in their very first year. They’re the third largest retailer in the industry (after Walmart and Target, I believe). The founders are still around, and the culture is very no-frills, keep costs low kind of culture.

The bottom line: Costco sells a lot of stuff at very low, wholesale prices. In fact, the CFO showed us all manner of pics and figures of the amount of various products they sell, ranging from hot dogs to diamond rings.

One dynamic that he mentioned was that Dads who spend time with their kids on weekends and aren’t sure what to do, take the kids to Costco. The kids pig out on the sugary sweets and greasy food (well he didn’t say that exactly but he did say that Costco wasn’t into healthy food) while the Dad shops, the perfect win-win situation.

Unlike PACCAR and Boeing, though, Costco doesn’t seem to be suffering from the downturn. Even more people are looking for ways to save money. In fact, he said that many "premium" brands who would not even talk to Costco in the past are now approaching Costco to get rid of excess inventory. Soon we may all be dancing in the Costco parking lots looking forward to seeing Mickey Mouse!

Stanford Business, #9, I Have a Dream... of Approaching Midterms and Dysfunctional Study Groups

Time is flying fast, and we are almost to our midterms – only two weeks to go. This is no doubt raising some concerns and fears within the business school in general, and the Sloan program in particular (more on some of the rising tensions later).

So, what’s our week like?

Monday is our Excel day (we have two class-dose of financial modeling with Microsoft Excel). Tuesday is our “hard science day” – with Finance in the morning and Economics in the afternoon. I say hard science, but honestly I personally have some concerns about whether economics is such a hard science and not really a social science disguised as a hard science. Sometimes, when i'm not sure what direction the supply and demand curves should go, it kindof seems like a social science ("anthropology?") that's basically concerned with an imaginary tribe of people called “rational” people (rumored to exist?), an imaginary group of producers, called "profit-maximizing firms" (also rumored to exist) , and what these two groups might do in an imaginary place called "the free market".


On Wednesday we usually don’t have any official “classes”. You might think we have the “day off” – but not really. Usually there is a dizzying array of activities planned for us on Wednesdays – some of it by the Sloan GSB program itself, and some of it by our study groups (speaking of study groups, I think we are starting to see some real drama in the study group realm– see later in this post). Last Wednesday we had the lunch with the CEO of Skype. There is usually a Career Development Workshop on Wednesdays for self-funded Sloans, and those of us in study groups usually work on our finance assignments, which are due on Thursday. Next week we have our Silicon Valley Study trip on Wednesday.

On Thursday, it’s Finance and Economics again. And on Friday we have what I like to think of as our touchy feely day. On Friday, we have two doses of our OB class. I’m not even sure what the class is called in reality; we just refer to it as OB.

So, what is OB, really??

OB stands for Organizational Behavior. At Stanford, this seems to be the “discipline” (or rather, the umbrella) under which all so-called soft stuff – leadership, interpersonal dynamics, communication skills, teambuilding, HR – gets dumped. It's just OB.

I like to think of it as a way for academia to talk respectably about interpersonal dynamics and touchy-feely stuff without actually calling it that. By calling it “Organizational Behavior” instead, it lets Stanford GSB still maintain that everything is being researched rigorously and thoroughly as a “field of study” rather than a bunch of interesting ideas about how people behave in groups.

In some ways this has been the most “fun” class thus far. Last week, we watched video clips from the movie, 12 Angry Men (the old one, with Henry Fonda). We were discussing influence and how, in the movie, the jury starts out as 11-1 for a guilty verdict. He gets them, through many techniques, one by one to reconsider, and by the end it is 11-1 on his side for a non-guilty verdict. I won’t tell you what happens at the end (If you haven’t seen this movie, it’s a great one to watch). Basically the whole movie takes place in the jury deliberation room. Henry Fonda’s character is masterful in how he unfolds his doubts about the case to the rest of the group.

I Have a Dream … of an iMac?
This week our OB class sessions were about goal-setting and effective communication. On this second point, we watched the complete video of Martin Luther King’s “I have a dream” speech from 1963. It is interesting, says Professor F., who teaches the class, that many of us know the last few minutes of this speech, but few, if any of us, have watched the speech in its entirety. I don’t think there was anyone in the room who had read or seen the whole speech.

He gave us a transcript of the speech and we watched Martin Luther King deliver it. I don’t have to tell you that it was a masterful speech; but afterwards we analyzed it to see what techniques he used in his speech that made it very effective. Here’s some of what we found:

· Analogies. MLK used analogies and metaphors very effectively, talking about the manacles of segregation and the chains of discrimination. He also spoke extensively about the metaphor of a check being given to the African American community when the Emancipation proclamation was issues in 1860’s by Abraham Lincoln, and how that check was bouncing. There were many, many more.

· Integrating the Setting. The speech was given in front of the Lincoln Memorial in Washington DC at a very large rally. MLK did a very good job of integrating this setting, starting by talking about Lincoln, alluding to the famous Gettysburg Address, and mentioning the Emancipation Proclamation (for our international readers, this was the proclamation at the end of the US Civil War made by President Lincoln which freed the slaves in the south). He also brought in the US Declaration of Independence and Constitution indirectly, quoting “life, liberty, and the pursuit of happiness”, and “we hold these truths to be self-evident, that all men are created equal”, all the while with Washington DC as his backdrop.

· Identifying a Common Purpose. One of the things that MLK did in his speech was to talk about racism as not a problem just of the “south” (technically, southeast) but of all Americans. There were lots of references to the North and states which were not part of the south (California, Colorado, New Hampshire) in an effort to cast light on the speech as affecting an American issue and not just a regional issue.

· Repeating Key Concepts. MLK repeated certain phrases over and over again, which made them stick. In fact, Professor F. pointed out, that a few of his repeated lines basically captured the whole speech, including the progression of the speech: “100 years later”, “Now is the time”, “Never be satisfied until”, “I have a dream”, “Let Freedom Ring”.

· Building Momentum and Creating a Sense of Urgency. The speech started out very logically, and with MLK speaking softly and slowly. As the speech went on, as the metaphors became more colorful, we saw him speed up and start raising his voice.

After watching the MLK speech, we watched another example of effective communication, this time of Steve Jobs when he rejoined Apple computer. It was a precarious time for Apple, and as usual, Jobs did a masterful job of presenting the iMac as being better than most, if not all, computers out there.

He focused on the issue of speed. First he showed a chart comparing the speed of iMac vs. a Compaq PC. Then he presented a slide showing the speed of iMac in relation to other Pentium computers out there. Finally, to hammer the point home – he showed a demo of an animation running head to head on a Compaq PC and on an iMac. Let’s just say that the demonstration was pretty effective -- the Compaq computer was limping along with the animation barely moving, while on the iMac, the animation was blazing along.

Now as I said the demo was pretty effective communication, though perhaps a bit contrived. As a software guy, there could have been any number of reasons why a particular animation ran slowly on the PC rather than the Mac. If some of those conditions had been reversed, it could have been the Mac that was running painfully slow compared to the PC. That’s what marketing is all about, I guess.

Those of you NOT in business school will probably see right away the irony of showing and evaluating these two pieces of effective communication one after the other. One was about a social issue of staggering importance, while the other was pretty much only of staggering importance to the shareholders of a given corporation, albeit an iconic one. One was about social justice, while the other was about technological prowess.

Don’t worry, those of us in Business School see this irony too (at least I hope some of us do!) Or maybe we don’t. Maybe to b-school students, these are both, well, simply good examples of OB.

Midterms are Approaching

As the midterms are approaching very quickly, I can sense a general level of nervousness in the class rising, particularly as we struggle with finance, modeling, and even economics – have we learned enough to pass the midterms? Are our study groups being effective? What is a Net Present Value, anyways, and why do I care?

We’ve started having “Modeling for Poets” sessions (aka remedial modeling) and “Finance for Poets” (aka basic finance) sessions each week. The finance sessions are scheduled very conveniently at 8 am in the morning.

Inspired by our discussion of goal-setting in our OB class, I think I’ll set a goal related to these early morning sessions. I will set a goal to make it to at least one of these “Finance for Poets” sessions (yes, the 8 am ones) sometime this term.

Speaking of OB, my goal is what Professor F. would label as a SMART goal, a popular acronym for goals which are set in a “good” way. S is for Specific: one session of Finance for Poets is specific enough– nothing vague about it; M is for Measurable: Well, so far I’ve made it to zero sessions so this is easy to measure; A is for Achievable: Yes I have occasionally gotten out that early so it is possible; R is for Realistic: well, not sure about this one- we’ll see; T is for Timetable: I have a clear timetable in this goal, by the end of this term.

Study Group Drama

Yes, I think as mid-terms approach, tensions are definitely heating up, and not only in our study group, but others as well. Tensions between morning and evening, all of whom have to agree on a time to meet. Between married, married with kids, and single Sloans, all of whom have to pay the same class dues, and who often have radically different schedules trying to coordinate a time to meet. Between those who think finance (or economics, or modeling) is easy and those who think it (they) is black magic and extremely difficult. Even between those who think certain classes are not being well taught and those who don't.

I have also heard from several people that their study groups are not working well. I originally posted the specifics of an incident from my own study group.


-----Incident Transcript and Interpretation Deleted-------


I've taken it out because it proved too controversial since it involved my taking serious offense at comments directed to me personally from a member of my study group about why our study group wasn't functioning so well.

The reactions from my classmates to this blog entry were perhaps even more interesting than the incident itself - ranging from:


· encouragement ("a little dirty laundry can go a long way", "thanks for saying what some are thinking but not saying", RESPONSE: thanks)

· genuine concern about our relationship ("Hope you and this other guy are going to get along", RESPONSE: we're going to get along fine; we had a very heated discussion today that did a lot of good for us both and will hopefully lead to a productive relationship over the next eight months of the school year)

· logical admonishments ("you really should have discussed it with your classmate before putting it in your blog", RESPONSE: thanks, a very good point in general)

· offense ("I'm shocked. can't believe someone would say that to you!", RESPONSE: neither could I at the time)

· censorship ("Please don't put anything in your blog that might make the GSB look bad or hurt recruiting for the Sloan program or that those recruiting from the Sloan program might read online"), RESPONSE: Call me crazy, but I think Stanford GSB's reputation is strong enough to be able to handle it; if it can survive a book called "Snapshots from Hell", my little blog isn't certainly going to tip the scales...

· a serious case of cold-shouldering from some of my previously very friendly and warm GSB Sloan classmates ("If I don't look at Riz today and don't say hello to him, maybe he'll know that I don't approve of him putting stuff that happens between him and his classmates into the blog"). WARNING TO FUTURE BLOGGERS: yes, this is part of the joy of personal blogging, especially if, like me, you don't always follow the party-line that everything is always hunky dory... I read one blog that took place at a prominent business school (!) from a few years ago; the blogger quit in October, because "it was just too controversial" to continue. We'll see how long this one lasts - even this revised entry is likely to generate its share of controversy!

Interestingly, the most encouraging and helpful reaction was from our study group. The incident and our subsequent discussion led us to one of the more open and most productive study group sessions we've had in a while, with broad agreement about how to move forward.

So, ironically, our study group at least, is likely to be well prepared for the approaching mid-terms!

Stanford Business, Sloan #8: Top 9 Things I Learned in School Last Week

Yes the official term has started – not just for us, but for all Graduate Students and Undergraduate students on campus. We’re now officially two weeks into the Stanford “Fall Quarter”. Stanford uses a Quarter-based system – so there are three quarters in the “school year” – Fall, Winter, and Spring. The summer quarter is, well summer and not an official part of the school year – not sure if this system is used in other countries as well.

Here are some of the top things I’ve learned in the first two weeks:

1. Monty Hall is a Genius. On our first “official day of class”, we had a double-dose of our Modeling class (see previous post about the modeling workshop we took in pre-term). In our very first class, Professor M. played a version of Monty Hall’s game show. Not that many of us had actually seen the show, Let’s Make a Deal, which is an classic American TV show that involved contestants choosing a door from three potential doors. One of the doors had some cool prize behind it like a New Car! Others had nothing.

As many of you may know, this game comes down to probability – it’s pretty easy to figure out what the probability is of something being behind door #2 when you first start the game (1/3, assuming the other doors don’t have prizes between them ). After the contestant had chosen a door (say you had chosen door #2), Monty would usually (according to Professor M., since I don’t remember the show at all) reveal what’s behind one of the other doors (usually an empty one, say door #1) and then let you choose whether to switch from your selection (door #2) to the other, unopened door (in our example, door #3). Should you switch? This is an interesting question and it comes down to probabilities.

The probability isn’t what you would think it is. This is so commonly gotten wrong that academics have a name for it: The Monty Hall Paradox (do a search on Google, our professor told us and you’ll see almost a million hits). Now how many TV game show hosts have academics name a phenomenon after that? Not many, forcing me to conclude that Monty must have been a freaking genius.

2. Stanford really is the center of Silicon Valley. Many of my classmates will know that during the pre-term, I sort of became infamous for saying, “OK, but how does that apply to software or internet companies?” The pre-term content was very “big company” and “traditional industry” based, and I was beginning of to wonder if b-school wasn’t going to be all like that.
Luckily, now that the term has started, I see that’s not the case – in fact, there is probably so much software and entrepreneurship stuff going on at Stanford, that it’s difficult to keep track of it all. In the first two weeks, we had: 1) a co-founder of Siebel Systems (Pat House) come talk to us about the experience of starting Siebel and growing it into a billion dollar software company, 2) Steve Ballmer, who dropped out of Stanford Business School back in 1981 when he joined Bill Gates at Microsoft and is now CEO of Microsoft, and 3) The CEO of Skype (another Stanford GSB alum) talked to us about his experiences. Ballmer was in what they call the “View From the Top Series” which is open to the full business school. The other two came to our special Sloan TMS series, which makes the event much more intimate (there are only 57 of us, compared to over 600 b-school students total).

2a. Bill Gates was Paranoid and had a pretty Persuasive Dad. Steve Ballmer, the current CEO of Microsoft talked about a lot of things (how Microsoft’s strategy adapts, how he sometimes underestimates people that have different leadership styles than he or Bill Gates had, as a Detroiter how he looked down on Cleveland – something I could relate to since I grew up in Detroit,, etc.), I found the most interesting part of his visit was when he spoke about his decision to quite Stanford Business School and join Microsoft. He remarked that he was having a great time at Stanford ( “I learned a little here,” he quipped, “But man the Golf course is Great at Stanford!”).

Steve was doing pretty well at the GSB, and it came time for him to find a summer job. His old buddy from Harvard, Bill Gates, had started a small software company called Microsoft in Seattle, and Bill was trying to convince him to leave b-school and join the very young company. Steve made it sound like he had offers from top tier consulting companies (Booz-Allen maybe? I can’t remember the specific companies) and investment banking companies. He told all of them and his friends that he was considering an offer from a very small software company – this was back in the early eighties and everyone thought he was either crazy or just saying that to get leverage with the “real firms”. Even Steve’s father (who was dead-set on him going to Harvard and already thought he was crazy for going to Stanford b-school) thought he was nuts. Bill asked Steve to have dinner with BG’s father, which we were all surprised to hear seemed to be BG’s strategy when he wanted to convince people of something in those days.

When Steve arrived in Seattle, he stayed at Bill G’s place, because they didn’t have enough money for a hotel. One thing he remembered was that Bill had little scraps of paper littered all over his apartment. On them, he had a list of all the employees and their salaries. “Bill was paranoid that Microsoft would go Bankrupt, so he kept writing these pieces of paper to make sure there was enough money in the bank to make payroll.”.After a few weeks of this crazy life, Steve decided that maybe he should return to B-school rather than stay at this crazy little company. He had already told Bill that they needed to hire like 18 more people, but BG was so paranoid about the company going out of business that he wasn’t enthused about “spending all that money”.

When Steve told him he was ready to leave, Bill returned to his old tactic: He told Steve to have dinner with his (Bill’s) father before making a final decision. I guess it worked. Steve never returned to b-school (though they’re thrilled to have him back now), and the rest is history…

2b. The House that Siebel Built. Patricia House and Tom Siebel left Oracle to start a new software company dedicated to enterprise customer relationship management, Siebel Systems.. Pat spoke to us and told us this story. It was an interesting story in many ways, as was the Q&A afterwards. Siebel is a well known success story from the nineties, they defined one category of Enterprise Software, CRM (which is a term Pat told us they made up and convinced others to use). Siebel is also well known because near the end (after staggering growth in the nineties and going public) they sold the company to Oracle.

But there were a lot of things about the story I didn’t know. One thing I didn’t know was that they got an office in East Palo Alto (which was the murder capital of the world at the time, according to Pat) because they had no money. For 18 months, people flocked to work for them without pay because they already had a successful track record in the software industry in Palo Alto.

A company NOT built by engineers. For one, the founding team didn’t have any technical people. This means that what they were innovating was not really a new technology, but a business process. For that reason, the way they went about it was almost completely different from most tech startups I’ve seen. They built a 700 page product specification and roadmap after extensively interviewing customers about what their sales-related needs were. They recruited 4 customers to pay like $1 million each in order to be early adapters of their software. They didn’t take a dime of VC money in the beginning. They convinced George Shaheen, CEO of Andersen Consulting, to put his own money in and that tied them to a large implementation partner for their very large deals. They talked to CIO’s who had spent tens of millions of dollars on custom mainframe business systems built by firms like Andersen to spend a million dollars on their new CRM software. In many ways, their culture – a sales oriented culture, a very professional culture – dress up every day, was a key to their success (she used the word “insubordination” at one point in her speech talking about subordinates, which honestly I don’t think I’ve ever heard anyone outside the Military use). This was the culture of AC and many large companies to whom enterprise software was being sold. Although their product had many innovations, particularly using client/server technology where only standalone desktop or custom mainframe apps had been used in the past, it didn’t strike me as an innovation culture, but rather an “execution” culture.

While this contributed to their success, my thoughts are that it may also have been a part of Siebel’s downfall, since the general perception in Silicon Valley was that they had missed the big new wave of Software-As-A-Service over the web that started at the end of the nineties (led by one of their main competitors, SalesForce.com) which started to displace the need for costly enterprise systems like Siebel. By the time they sold, many people in the Valley thought that Siebel was on its way down.

It was almost like SalesForce was doing to Siebel (using web technology and a new model to displace costly client/server) what Siebel had done to the mainframe players (using client/server to displace costly mainframe systems). This last part was not something she talked about (in face she pooh-poohed Salesorce as a small niche player) – but the shift to the new model is pretty undeniable for the rest of us.

2c. One of the Best First Acts in Business History. Last week we had Josh Silverman, who is the CEO of Skype, which is completely owned by eBay. He made the statement that Skype had one of the best first acts in business history – no one can argue that – they’re up to 300 million users (yes that’s more than Facebook) and have built a great brand and a great technology. But it seems like they’re now treading into waters that involve the big telecom companies and that seems to be their new challenge. Josh was the founder of evite, another brand that most internet savvy people have heard of. He talked a lot about that experience, and how they probably sold too early. Of course evite was founded in the nineties when expectations were sky hi for companies like that – I remember those days well.

Josh spent a lot of time talking about leadership challenges since he joined eBay and how he handled them (he ran Shopping.com, another ebay acquisition, before taking over Skype). One of these included all of the direct reports of the new CEO resigning before he even took over as CEO. Ouch! Did business school help him?

He said that he got a lot out of his experiences at Stanford GSB, though what he used were mostly the touchy-feely aspects of leadership. If as CEO, he said, you’re using things like your accounting or finance class, then you’re probably micro-managing. Josh was an Arjay Miller scholar, which meant he got very good grades in b-school, which brings me to the FOAM.

3. Where’s the FOAM? Everyone else at the b-school who is not an AM scholar is referred to as FOAM – friends of Arjay Miller. FOAM is also the title of the Tuesday night social events that happen each week (there are no classes on Wednesday, though plenty of other stuff going on), which makes partying until the wee hours of the night more than acceptable for normally uptight b-school students. We had our first FOAM event last week, with what seemed like all 600 MBA’s attending, at the Blue Chalk in downtown Palo Alto. It was a typical college night out, and loads of fun. The MBA's know how to Party!

Honestly I felt a little old as a Sloan Fellow at this first FOAM event (the Sloans in general have more years work experience than the MBA's, which means that most of us are in our 30’s while most of the MBA's are in their 20's). Still, a small group of Sloans stuck it out until about closing time, so I guess we still know how to party, too! But, then again, the MBA events are fun precisely because there are so many younger people with a lot of energy (Not to mention the significiantly larger number of cute women in their twenties at these events!). On the other hand, the Sloan events are fun precisely because we have gotten to know each other so well through our smaller, more intimate program. Let’s see how these shake out as the school year progresses - stay tuned!

4. The Prisoners Dilemma. Our economics class began in the same way our modeling class did - all fun and games.

In particular, we started talking about "game theory" which is built on studying how people who are in collaborative or competitive situations behave in fictional "games". The most famous of these is the Prisoner's Dilemma: This is when two people who committed a robbery together are both arrested and then put in separate rooms. They are then told that the police have evidence against them and that if they squeal on the other person, then they can get a reduced (or no) sentence and go free. On the other hand, if they don't tell on the other person, and their partner squeals on them, then they,'ll go to jail for a long time while their partner goes free. Of course, if neither of them squeal, there is the possibility that they'll both go free.

What would you do in this situation? There is a cooperative solution (neither of them tell, which is best for both of them over-all), or two non-cooperative solutions (one of them tells on the other, or vice versa) and one not so great solution (both of them tell and both end up in jail). Turns out that these situations occur in business, though you can usually signal your intent based upon your public behavior, which is prohibited in a "True" Prisoner's Dilemma. The idea is that the one cooperative solution is best overall for both parties, but the competitive situation is best for one party and not the other, or in the worst case, it is a lose-lose for both parties. In fact, you can usually label each of the four quadrants as "win-win", "win-lose", "lose-win", "lose-lose". Of course, in the real world, a competitive situation can become worse if you can force yourself and the competitor into a lose-lose. The professor didn't think this approach was rational in the real world, so long as both firms were earning profits.

This led us to the idea of a Nash equilibrium. In game-theory speak, a Nash equilibrium is a point in the game where neither party can better their situation by acting unilaterally. I and others brought up that one party might do it anyway, going into a loss situation in order to drive the other competitor out. The professor again thought this was "irrational" behavior and wouldn't be adopted by profit-making firms.

Given that i'm a big fan of movies, I think a more intuitive description of a Nash equilibrium was given in the movie, A Beautiful Mind, about John Nash starring Russel Crowe (assuming we're talking about the same Nash, which I'm pretty sure is the case). In that scene, Nash and his grad school math-geek buddies are sitting at a bar when they see a group of young women, the most striking of whom is a beautiful blonde, while here less (but still) attractive friends are all brunettes. One of the engineers is going to ask the blonde out. Nash has a flash of insight - if none of them ask the blonde out, it's likely that they will all end up dancing with a girl - each one with one of the brunettes. If one of them asks the blonde out, he may be happier if she says yes, but if she says no, then he can't in good conscience go ask one of her friends to dance. And ditto for everyone else in the group. So the best point - the equilibrium is for none of his friends to ask the blonde out, and for all of them to ask one of the brunettes to dance.

Now OK this is a contrived scenario and it doesn't exactly strike me as a likely outcome in real life. But watch the movie and I think you'll understand what a Nash equilibrium is all about, and then ask yourself what you would do in such a dilemma?

5. The Engineer’s Dilemma and the Career Vision Workshop.
I confronted a whole different kind of dilemma this week. I call it the Engineer's Dilemma: I was up late (let's say 3 am) the night before our Career Visioning Workshop, which was to start on the dot at 8:30 am and went until noon. Needless to say I didn't make it to class at 8:30am. By the time I got up and got ready, it was almost 9:10. So I was confronted with my own dilemma: Do I go to class and get something out of it? Although I missed over half an hour, the class went on until noon so there was a lot to learn.

Or should I blow it off completely - which will save the embarrassment of going into the class late? After all, we found out (later that day) that the b-school professors are calling our Sloan class the "Tardy Sloan Class". (There's a word I haven't heard in a while - tardiness - another reason why b-school is kind of like elementary school, we get graded on attendance and tardiness!). Turns out I"ll be facing this dilemma alot more I think since our professors are not big fans of us walking in late to class...

So what to do? If you don't stay up late, or don't require much sleep, then you probably won't face this dilemma, but if you do, do you go to class or skip it?

I ended up going after all - partly because it sounded like an interesting workshop, and after all, we are paying Stanford quite a bit of money to be here and learn, not the other way around! In the real business world, paying clients can usually get away with showing up late, while those who get paid generally can't get away with this kind of thing! Call it the Golden Rule.

Turned out I wasn't the only one late - one of my Swiss colleagues showed up at the exact same time, and one of our other colleagues showed up half an hour later! Whew!

It turned out to be the right decision after all, and not because I wasn't the only one late. The workshop, taught by Andy, the director of the career office, was pretty interesting. It also revealed how Stanford, probably unlike alot of east coast schools, can be creative in "touchy-feely" ways. At one point in the workshop, we did a relaxation and visualization exercise where we imagined ourselves to be in an ideal career and personal situation some time in the future. I saw some very vivid imagery about where I might end up; in fact it reminded me of some Shamanic journeying that I have done in the past, where you journey into an "imaginary" future and bring back insights and energy to motivate yourself. The Journeys are based on techniques used by Shamans in indigenous cultures around the world. Of course at b-school, we simply call them "visualizations" and partner them with lots of "rational analysis" so that it doesn't come across as too sketch loosey-goosey!

6. Seeing the Trees from the Forest. One concept that we learned about which I think gets at the heart of business school thinking is the decision tree. When faced with multiple choices and unpredictable events, you draw a tree, starting at the present and branching out for each choice you have to make. For external events, you assign a probability to each branch as a potential outcome.

For example, in the Stanford Concessions case, you are a vendor who provides food at the Stanford football stadium and the biggest game of the year is coming up. In this case, it was when O.J. Simpson played for USC (yes, OJ was a football player before he becamse a celebrity on the run from the law), and USC was ranked number 1 (in the PAC-10, and perhaps in the coutnry). The only problem: it might rain that day, which would mean the crowd might be as small as 20,000. If it ended up being a bright sunny day, the crowd might be as high as 80,000. So, how much food to rder?

The key data was to use probabilities provided by historical data - the probability that it might rain might be 40%, meaning it was a 60% probability that it would be sunny, etc. (not the actual numbers). In the decision tree, you look at all the possible outcomes, and work backwards assigned each branch, all the way up to the initial choice, outcome values (usually $ amounts).

This is called the EMV (expected monetary value) and my initial impression is that it comes up again and again in our classes (we've already seen it in our economics, our organizational behavior, and perhaps even in our finance class).

My major problem with this approach is that it fosters a (false) sense of certainty. The probabilities are the key to the whole equation. If you assign the probabilites basedon historical data, you will get some results that tell you branch A or branch B is the rigth way to go. Definitively. Unfortunately, in the real world, it's highly unlikely in my opinion that the probabilities come up right - so simply caclulating what looks like the highest $ based on these is a way of thinking you have a "certain" answer in an uncertain situation. Let me give you an example of when this can go wrong.

7. To Race or Not To Race, that is the Question! In our Organization Bahavior class, out first task was to break into groups and take on the "Racing Case" as it's called. Each group had to decide whether to race or not to race in a formula one race on a given day. We were told we were having a great season, finishing in thetop 5 in over 50% of the races that we had run in. Unfortunately in 29% of the races we were in, the engine crashed. We stood to make *alot* of money if we finished in the top five in the day's race, including a million dollar sponsorship. If we didn't run in the race, then we were at a loss. Plus all of our engineers (except one) really wanted to go ahead with the race and it would be demotivating to everyone to not go ahead.

So, What to do?

Well, our first inclination was to use the data presented, including probabilities of finishing the race and our engine blowing up, to construct a Decision Tree and figure out the expected payoffs on each branch. The decision tree and EMV was very definitive in what we should do, but something didn't sit right with me. Everything in the decision tree was based on probabilities, and something in this situation reminded me of bad decisions made in the real world. In fact, the fact that the Decision tree was so definitive when in reality you just don't have that kind of certainty, made me suspicious.

I won't give away what we were supposed to do, but suffice it to say that decision trees are only as good as the percentages you plug in. In the real world, there is more uncertainty about probabilities and percetnages than there is on paper, so you have to do the best you can!

8. What is a Zero Coupon Bond anyways? No discussion of our first few weeks of class would be complete with discussing our finance class. Professor I., who was our finance teacher, wasn't much older than those of us in the class - in fact, probably younger than us, and this created an interesting dynamic. The material itself was cluttered with NPV (Net Present Value), IRR (Internal Rate of Return), PV, and covered interest parity.

I finally learned what a coupon and a zero-coupon bond were (a coupon isn't something that saves you money in finance, it is a periodic payment that a financial instrument makes; a zero copuon bond). My big impression of finance is that finance is the art of doing equations using r, the required rate of return. We learned how arbitrage can exist and how markets price thins based on the time value of money - there it is again, the interest rate. Well, rather it's the required rate of return that we plug into a given equation. Usually it's the yield-rate of zero coupon bonds plugged in. But this is why i find finance to be a bit of black magic. It isn't always clear what r will be over a period of time, nor what a required "rate of return" is. This differs by industry - in the tech industry, for example, we need 30% return on invested capital. Does this mean that a software investment that returns 30% is a good invesment?

No, not really, because software investments are so risky inherently that we need a 30% return over a portfolio. Since most software investments will fail completely (zero or negative return on investment), the ones that succeed need to return signficantly more than 30% return in order to get to the "required rate of return".

So, thus far, finance is all about the present value of a future stream of cash or payments and almost completely based on the prevailing interest rates, which might be different in different countires. Which brings me to the interesting question: If some students are required to pay the full Stanford tuition at the beginning of the year, while those with financial aid can pay only some of the money up front and some of it later, are some students paying more tuition than others, although we're both taking the same classes, given the time value of money, or r?

The answer, according to our finance equations is, Yes! How much more? Depends on the number you plug in for r.

9. Band on the Run. Every university has its traditions. Stanford has its, definately, though for the most part they seem to be undergrad traditions. One of the first ones a freshman sees when they get here is the "Band Run".

Now those of you who've heard of the Stanford band may know that they're a little "unusual" and in true Stanford style, don't "conform" to the normal ideas of a marching band. They don't wear uniforms, never march in a line, and generally do goofy things, like throwing up their instruments into the air. I was sitting next to a grad student who had just arrived from the University of Michigan at a grad student welcome picnic, when the Stanford "Band" appeared to play a few instruments (I would say a few "tunes" but that's really debatable). The grad student from Michigan, which has a very well-respected and well-uniformed and well-playing Marching Band, was horror struck. "What the hell are they doing?" she asked. "That's not a real marching band!".

I find the band pretty amusing. So back to the band run. On the first night of freshman orientation, the Stanford Band comes to a dormitory and starts "playing" their instruments from outside (quotes around the word playing for obvious reasons, for those of you who have heard the Stanford band play). The freshman rush out, along with the upperclassmen, and they form a gang that runs around campus to the next dormitory. There the band plays and hte rest of the undergrads yell and shout and generally make fools of themselves, dressed in funny clothes, until the next group of freshman come out of their dorms. This continues all over campus - and if you've ever been on a tour of Stanford's campus, you'll know it is the largest contiguous campus in the country with over 8000 acres, this can go on for quite a while. The large body of undergrads ends up at the Stanford Main Quad - a beautiful architectural area that usually has a peaceful, even serene feeling.

At this point (usually after midnight) the Band "plays" for another half an hour while the students generally party until about 1 am. As a grad student, I wasn't technically invited on the Band Run, but I tagged along anwyays jogging around campus with the mob (er, I mean, crowd) of undergrads. Unlike them, I ran out of steam well before 1 am, and hopped on one of the Golf Carts (who trail the crowd for those who need a little help) for the rest of the Band Run. Driving the Golf Cart was a member of the staff, who explained to me all about the Band Run and what it was about. Along the way, we picked up a few Dollies.

What are Dollies? No, they're not devices used for hauling furniture, but rather the proper term for Stanford's cheerleaders (Stanford, as I was reminded, doesn't have cheerleaders, just Dollies).

Does that Make sense? Not really? Oh well u must be getting old like me. Stay tuned for more interesting (or inane, depending on your point of view, Stanford traditions). I find them kinda fascinating since I wanted to come to Stanford for undergrad but ended up across the country in Boston instead, so I get to see a glimpse of what I missed out on!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.

Stanford Business, Entry 7: New Study Groups, Philosophy, Desert Survial and Jack Welch

So, last week we officially ended our pre-term. This was an important milestone for us, as many of us in the Sloan program hadn't been to school for many years. Despite the fact that it wasn't officially graded, we learned a lot about how to work in Study Groups, about business school generally, and about Micro(MicroEcon, not MicroSoft, though the CEO of Microsoft did visit this week - will post more about that in my next post), Strategy, and Managerial Accounting specifically (see previous posts for specifics of what we learned in these classes).

I was personally excited about the end of the pre-term because it meant that we would shift to a more normal schedule: instead of starting class in the morning each day, some days would be off (well at least Wednesday would be our day off), and on most days class wouldn't start until 10 am! Yahooooo! (Wasn't that what customers of Wamu said in their commercials? Turns out Wamu went bankrupt this week - more on the financial crises and what our professors have to say about it later).
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Those of you following this blog will know that i like to follow "engineer's hours", which don't seem to work so well at a business school full of the best-and-brightest-early-risers. By "bright-and-early-risers" I mean those who don't follow engineer's hours - for me, I'm usually asleep at 8 am; Given that I probably didn't get to sleep until 2 am, that would mean i'm just finishing my sixth hour of sleep. For some business school students, 8am seems to be "mid-day", meaning they have been up for at least 3 hours.

Last Wednesday, on the last day of the pre-enrollment bootcamp, we had farewells from all of our three professors (actually one of them, our economics professor, is going to continue in the fall term - but as for the other two, that was it).



Someone in the class had the idea that we should give the profs a little gift as a token of our appreciation. This was a brilliant example of an idea starting at the grass roots level reaching fulfillment at a blistering pace. From an email that was sent out on Tuesday, by Wednesday someone in the class had bought three bottles of wine as appreciation for each of our professors: A Chilean wine, a French wine, and an Argentinian wine. Then we had our Chilean fellow, our French fellow, and our Argentinian fellow present the wines to each of the professors.

So what else has happened happened last week? Here are some highlights:

New Study Groups



As I mentioned before, our Study Group was just starting to hum by the third week of pre-enrollment. But then, suddenly, and without warning, just as classes ended on Wednesday, new Study Group assignments were sprung upon us!

At least that's how it felt - in actuality, we knew that this was coming. Despite our occasional hiccups, I realized that I was going to miss my initial study group. We'd gotten to know each other well. We had even become forgiving of each other's idiosyncrasies and learned (for the most part) how to channel these unique qualities into getting the best result for the group. (Err, except when we had to survive in the desert, which didn't go so well - see section on Half Moon Bay retreat below).

I figured that the new group might also be willing to work out some compromise so that we weren't meeting at the crack of dawn every single day. Anyways since we had a few days before class began (thursday was our retreat; friday was a free day, the weekend was free, and classes didn't start until monday). Well the weekend wasn't really free since as usual in Business School, we had both readings and problem sets for the first day of class.

As soon as the study group assignments were handed out, most of the students left to enjoy some sun and relaxation after what seemed like a very long pre-term. Just as I grabbed my bag to leave the room, I was informed that our study group was going to meet there and then!
Well, I figured, Business School is about efficiency, after all, so I put aside my toughts of r&r and went to the Study Group meeting, figuring that at least this meant we wouldn't have to meet on Monday. And at least one other member of my group, a Marine biologist with multiple degrees from Stanford already, had told me that she also was a night person, so the two of us might have some sway with the rest of the group members.

The group met for a while, but we accomplished only one cooncrete thing: Our first "official meeting" was going to be at 8:30 am on Monday morning before our first class. And we were all expected to have done our reading and homework before the meeting.

Sigh. My endless quest for a laid back study group goes on.

The old doubts started to creep back in; I looked out the little tiny window in our study group room, literally and metaphorically gazing "across the street", wondering if there wasn't a spot in an engineering class which began at 3 pm meeting only once a week with my name on it... Actually I had already decided to audit a computer science class (it would be a shame to spend this whole year and Stanford and not take advantage of the incredible engineering and comp sci departments). And it was scheduled to start at 4:15 pm on Tuesday ; not that I'm counting, but that would be more than seven hours later than our study group meetings. Ahh! Engineers hours.



Poets, Quants, and a Philosopher


In biz school (at least at Stanford), students are often grouped into poets (those with liberal arts education), and the quants (those with more financial, numerical, or engineering background). I should fit nicely into that second category, the quants, given my degree in computer science from MIT, but somehow I don't.

Poets had trouble with quantitative subjects and wanted to spend time talking about issues. That sort of fit me, as I definitely enjoyed the class discussions more than the actual material that was being covered . But I didn't have problem with quantitative subjects, other than being motivated to sit in class for hours on end. Quants could solve quantitative problems easily, but had problems with soft mushy wordy subjects. That kinda fit me too - except that I kind of enjoy soft, mushy, wordy subjects.

In fact, I don't have a problem with either kind of subject; I just have trouble getting motivated to get to class on time, day after day. I remember in elementary school one of the determinants of our grade was "attendance" - those who attended class automatically got a better grade than those who didn't. I didn't always find this fair, if we ended up learning the same things, but as an elementary student you're taught to respect the adults point of view. When I got to MIT, it was like having a straitjacket removed. I could go to class when I wanted; skip it when I wanted; as long as I passed the exams, I could pursue my extra-curricular activities with vim and vigor.

Believe it or not, Business School is a little bit like elementary school in this regard. In almost all of our classes, attendance is graded. If you don't attend, you're not participating - and you can lose up to 20% of your final grade on this.

Despite the lack of structure during my undergraduate days, when I'd first graduated with a bachelors, I had been a very motivated young man. I remember showing up for work at my very first startup, a company called DiVA (spun out of the MIT Media Lab), at 8:30 am wearing a suit hoping to make a good impression. No one was there. I couldn't even get into the office so I sat down outside the front door. In fact, around 10 am, people started to wander in, and were wondering why I was wearing a suit (was I a customer? was I interviewing for a job?).

In Business School, the exact opposite was happening. I would show up at 10 am, a few minutes late for class, wearing jeans and whatever shirt I could find as I scrambled from my dorm (which several of my b-school colleagues have pointed out is usually the same two shirts, again and again). In this case, everyone else had already been jogging, had discussed the homework, kissed their wives (or husbands) goodbye, dropped off the kids at school, eaten breakfast, and reviewed today's case study, all before I had even gotten out of bed!

Even harder (and more disturbing) than attending classes, I can't seem to stop my mind wandering to the philosophical underpinnings of what the heck we're really trying to accomplish in business school. Rather than try to figure out the marginal cost curve which yields maximum output for a given set of resources (a company, or even a country), I found myself questioning the assumption (made on the very first day of econ class) that a country is best off when they have made maximum utilization of their resources from an economic point of view. I have met many friends from other countries (who were not in business school) and it wasn't always clear to me that we were much better off. I remember talking to a woman from Cape Verde a few years ago, and she went on and on about how much happier people in her country were than we are here in the US. This is despite the fact that we have such a significantly higher "standard of living" than say Cape Verde.

In strategy class, rather than simply analyzing what made a company successful, I found myself wondering whether strategy can really be taught simply by talking about successful companies in the past (the case method, which was first pioneered by Harvard Business School and is now used pretty heavily by Stanford, though we also use textbooks heavily in our other classes). When we studied WIP (work in progress inventory accounts) in accounting, I couldn't help but start thinking about how the accounting system seems to have been built entirely for manufacturing firms, and how services firms, software firms, and Internet firms aren't really well represented by the current accounting system - shouldn't somebody be redesigning the system to reflect the new reality?


Another example: George Parker, a former Dean of the Sloan program at Stanford, and a well known finance dude, laid out for us the fundamental structure of the financial services sector, partly in response to the current financial crisis. As a result of his talk, it would be natural to start thinking about the mechanics of the interest rate, how banks and investment bank works and what interest rates should be charged. He divided the world into 1) people who save money (you, me, our friendly neighborhood corporations, and governments) and 2) people who need money (you, me, our friendly neighborhood corporations), and how this created the need for banks in the first place.

He pointed out that the average 3% margin of banks between what they paid for capital (what they pay us for depositing savings) and the inherent mismatch of needs between the providers of capital (we want to be able to pull out our money short term, with no risk) and the recipients of capital (who want to borrow money for as long as 30 years, and have inherent risk in the projects they invest in), he told us that some shakiness was inevitable.

Rather than thinking about the equity/debt ratios and what interest rates were sustainable to maximize profits, I found myself wondering about the stability of the whole financial services sector altogether, in the very long term. Was it really sustainable to have two parties with such different interests mediated by a bank who owes us our money back every time we ask for it, but never actually has all that money available? Was the financial system, based the idea of cost of capital (represented as i or r in our finance equations) really sustainable, in the long run, or were "runs on the bank" unavoidable, even inevitable? WaMu's recent crash (the biggest bank failure in history) underscores this.

There are other financial systems that don't rely on interest as the key motivator (the Islamic financial system, for example, does not allow charge for money). Is it possible to have an economic or financial system where interest (the cost of capital) is not the sole, end all, be all. But it's not clear to me that the Islamics system is inherently any more stable either - since they just change the word profit for "interest" and charge about the same as the "prevailing current interest" rate, just calling it something else.

But business school students aren't supposed to be philosophers! We're supposed to be here to get skills and perspective that helps us to get ahead in our careers, and make more money, not question the fundamental nature of the subjects we're studying. So on to career advancement and skills training!


Incompetent Jerks and Lovable Fools in the Desert


On Thursday we had a field trip to Half Moon Bay for a "team-building" retreat. The bus was going to leave from Littlefield arch at 8:30 am. Sharp. By the time I got there, I learned that some of my classmates (who'd gotten to know me well) were already taking bets to see how late I'd be and if I'd miss the bus and have to drive to Half Moon Bay on my own. Oops! Sorry to disappoint, guys, but on that day, I made it on time (there were even a few students who showed up after me).

So what does one do on a "team-building" retreat from arguably the top business school in the country?

The presenter started out by talking about interpersonal skills and how important they were. She brought up the classic consultant (and MBA) tool, the two by two matrix - divided into quadrants. Along the horizontal axis was "interpersonal skills" and along the vertical axis was interpersonal skills. The people in the top right quadrant (Lovable, Competent Heros, or some moniker like that) were people everyone wanted to work with. The bottom left quadrant (Incompetent Jerks), were people that no one wanted to work with because they didn't know what they were doing and they were hard to work with.

The two tricky quadrants were the upper left - "Competent Jerk" is someone who is very good at what they do, but has bad interpersonal skills, and "Lovable Fools", those people who have good interpersonal skills and get along with everyone, but aren't very good at what they do. She asked us how many of us would like to work for one or the other. Quite a few raised their hands under working for "Competent Jerks", with some people giving an explanation that at least that way they'd learn something, even if thier boss was a jerk. In fact, she continued, when people are asked this question in a survey, a large percentage answer "Competent Jerks". But when people are observed actually choosing people to work for, they almost always favor working for "Lovable Fools" rather than "Competent Jerks". This was interesting.

We spent the morning talking about interpersonal skills and qualities that different people in the class had. This consisted of an exercise where we each had a number of cards - each colored differently and each with a "personal quality" on them - for example "does well under pressure", "is a diligent worker", "speaks his mind", "gets things done methodically", "is a visionary", etc., and we had to hand out the cards to people in our class if we thought the card didn't describe us, but described someone else. I won't get into specifics but I think we were all surprised how well (or not so well) our classmates knew us.

Half-moon bay is a nice little beach on the other side of the hills that define the western edge of Silicon Valley. During lunch a few of us went on a walk along the beach while our Marine biologist gave us a tour of the little aquatic life that lives near the seashore. "I may not know much about balance sheets," she quipped after pointing out the different kinds of snails and barnacles that lived there, "but I do know alot about fish!". Somehow I don't think that's going to help her through businesss school, but it sure was a lot of fun! (except for the time when I tired to touch a sea enenemy, something I didn't even know existed 24 hours earlier, and it squirted me; hopefully it was just water it sprayed on me!).

In the afternoon, we divided into our old study groups and had to face the highlight of our trip to Half Moon Bay, a group test: The Desert Survival scenario. We were all on a plane (let's suppose). Let's also suppose that we crash-landed int he Sonoran desert (that's south of Arizona near the Mexico border). Let's further suppose that the pilot and copilot were killed in the crash, but miraculously, we are all OK. Let's one-more-time suppose that we have a series of items - including a parachute, a swiss knife, a topcoast, a mirror, a quart of water each, salt tablets, and on and on - and it is the goal of the group to come up with rankings of items by importance. I found myself thinking that this scenario was written well before the iphone was out; I would just do a GPS lookup of where we were and call someone to pick us up.

iPhone-less, the sole determinant of our survival would be our rankings of the importance of each item. We were revealed at the end to the the rankings of a "survival expert", our team would either survive or die in the desert, depending on how close our rankings were to his rankings.

Needless to say, most teams died on the desert! Ours was particularly bad, and my own score was more than particularly bad (though there might have been one person in our whole class who scored worse than I did!).

The trick happened to be the two most important items - I somehow ended up ranking them both last. Our group mostly agreed on our rankings, though we had a few disagreemetns. One member of our group insisted that the most important item (i won't tell you which one it is, since you might want to go thru this exercise yourself) was among the most important, we (myself included) didn't listen to him! Oops!

This situation, one person who is in a minority, disagreeing passionately with the group, who is too far gone to listen, seems to come up again and again.


I thought we'd learned our lesson about this. But this week, in our first OB (organizational behavior) class, it happened again, in our new Study Groups. All the members of my study group agreed on one position, except one of us - in this case it was me -- passionately disagreed with the group.

In both situations, the desert scenario (where I was with the group) and the OB scenario (I'll describe the actual scenario in my next blog entry), where I was the dissenter, it turned out that the dissenter ended up being the person who was "most right" and the group ended up being "most wrong". This was an interesting result- in both cases, neither of us had the data or votes to back it up, we were operating on what is one of my favorite topics, intuition.

One of our team members, John, said that in his real life job (in the construction industry), when one of his team members disagrees very passionately about something, he usually takes the time to really hear that person out and understand why they feel so strongly. But neither he nor I nor the rest of our group did that in the desert scenario, beacuse we thought we were pressed for time and had agreement from the other group members. Maybe the wisdom of crowds isn't as great as it's cracked up to be!



Jack

In the movie industry, whenever someone says "Jack" in a knowing way, they all know who's being talked about: Jack Nicholson, the famouse movie star who has won multiple best actor Oscars, and who has a personality that is recognizable wherever he goes.

In businesss school, when someone says "Jack" in a knowing way, they are also talking about an easily recognizable celebrity - in this case, Jack Welch, who was CEO of General Electric for many years, and considered by some to be among the greatest of American CEO's. Though John Q. Citizen might not recognize Welch, John Q. BusinessSchoolStudent certinaly does. Even though Welch retired a few years ago from the CEO slot at GE, he is a recognizable figure in the business section of the bookstore and on financial news programs on TV.

We studied a case in Strategy class on General Electric, and reviewd what happend during multiple CEO's ending up on Jack Welch, who many consider one of the most visionary CEO's of his time. One of the elements of his vision for GE was that they be #1 or #2 in every industry they were in - and that sometimes meant selling businesses which were profitable but couldn't get there, or buying into other businesses which were already there. This vision also originally led to a process of "de-staffing" early on during GE's days.

The class seemed very energized by this discussion about GE and about Welch in particular. After the discussion, the professor showed us a clip of Jack speaking at some conference. The professor said it was the most "geniuine" clip he'd seen, even though it's fairly old. Jack talked very passionately about how many people in corporations have trouble coming to grips with a six letter word: Reality. He spoke exuberantly about how corporate staffs (in big companies) don't make anything, don't sell anything,a nd they should be there primarily to support the field and how often they don't, and how companies need to be restructured for that.

Like the rest of the class, I found this talk inspiring, up to a point. Then later, as I was wandering around campus, the philosopher in me came out,and I began to wonder what I really thought about Jack Welch, his philosophy, and the culture of adoration that's gone up around him. Something was nagging at me and I couldn't quite articulate it until later.

Note: if you read on, you might be exposed to heretical views on being acorporate CEO and might, like I am in danger of, be excommunicated from the religion of American Business School Students.

So let me start by saying that I agree that Welch was a wildly successful CEO who brought in profits. And even an effective leader. But I guess i get a little unsettled when they talk about Welch being a visionary for American business.

It strikes me that "Being #1 or #2 in every industry you're in" isn't much of a vision. It's more of a performance measure. It's kind of like going to college and saying my vision of college is to get an A or B in every class I take. And if I can't get an A or B, then I'm going to drop the class. And I'm only going to take classes where I can get an A or a B. Sorry guys, but that's not a vision - that's a grade point average.

It also struck me that Jack was a great operator but not much of a visionary about the business units themselves, which seemd to have no rhyme or reason why they were part of GE except Welch's three circles (which didn't strike me as showing any kind of real understanding of the new or old technology or markets that GE was in), just how each was performing.

OK, granted I'm operating on limited information, of course. And no doubt, Jack is a "great" guy who knows how to squeeze every penny of performance out of the people that work for him; I just disagree that he's much of a visionary [of course when the Business Inquisition gets to me, I may change my mind on all these philosophical topics, and get back to making profits, yeah!].

Speaking of a vision of a grade point average, I have a vision too: that i'm not going to get A's or B's in my classes unless I stop spending all my time writing and get back to studying!

Stay tuned for more on the first week of the official term, the arrival of the MBA's and the undergrads onto the Stanford campus, and the house that Software Built. Coming Soon to a blog near you!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.

Stanford GSB, Entry 6, Microeconomics: What we Learned in Pre-Term

In the Sloan program at Stanford, we don’t have to buy textbooks. Why not? They’re provided as part of the program – it’s one of the many perks of paying beaucoup bucks to Stanford.

As I left my dorm room on the first day of class, I was in a rush. I took a cursory glance at the various textbooks that we’d been given, and grabbed the only one I saw that had economics prominently written on it. I didn’t notice until I pulled it out during econ class that it was for the wrong class; the book was for Macroeconomics rather than the class we actually had that day, Microeconomics. (OK, perceptive ones will notice that this obviously means either I didn’t do the reading we were supposed to do before the first day of class, or I read the wrong book; I'm not saying which one is true).

Since I’ve already given you an overview of our Strategy class, let’s talk about Microeconomics. This brings us (not because it is a sequitor, but because this is where the class actually began) to two questions:

Question #1: What’s the difference between Micro and Macro?
Question #2: Why is it that Economists can never agree on anything?

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On the first day of class, Professor Flanagan was introduced as our Microeconomics teacher (incidentally he’s also going to be teaching us Macro in the real-term so we’re going to get to know him well). He was an older, skinny gentleman, with angular features and a commanding but friendly demeanor and a soft voice. He used no projection equipment, but wrote everything on the whiteboard.

On the second question, he told us about a large number of famous quips about economists and their inability to agree on, well, anything, really. At least that’s the public perception. As a member of the public, I am inclined to agree.

I remember Rudi Dornbusch, who was a famous economist that taught at the Sloan School (MIT, not Stanford), telling us about a president (may have been Truman too, can't remember) who complained that he never seemed to be able to find a “one-handed” economist.

This was a problem only because all the economists he did find would begin with “On the one hand, blah blah blah”, and then after some time, they would inevitably continue with: “But, on the other hand, blah blah.”

Professor Flanagan gave us what may be an actual Truman quote, who once complained that if you lined up all the economists in the world end-to-end, they would never reach a conclusion!

But them’s just jokes, right?

Economists aren’t really like that, are they? Actually, Professor Flanagan pointed out to us, that there was surprisingly little disagreement between economists about Microeconomics – the disagreements tended to be about Macro-economic issues, which affect the economy as a whole: unemployment, monetary policy, economic growth, etc.

Our class during the pre-term, Microeconomics, was concerned with markets at the level of a firm selling products or services (called the supply side) and an individual or household as a buyer of these products or services (the demand side).

In general, we are concerned with three questions in Micro: How much should a firm or industry produce? How should it be produced? And for whom to produce it?

Since economists generally agree on these, the class should have been fairly non-controversial, right? Not exactly. Professor Flanagan explained to us that politicians will make it look like there’s disagreement on issues where most economists tend to agree.

Economics and public policy is a broad subject, of course. But Flanagan told us that when studied with economics, the policies that governments follow to affect the market almost always end up creating unintended consequences. These consequences often reduce (or even remove) whatever benefits the policy was intended to produce. These examples, such as the “War On Drugs” (more on this example later in this post), provided much of the more colorful moments in this class.

The disagreements usually come up because of the difference between what economists call normative vs. positive economics.

On the one hand, Normative economics is about making judgmental statements and calls. You can identify a normative statement about economics when someone uses the word “should”. As in “We should raise the minimum wage”, or “We should cut taxes”.

On the other hand, Positive economics refers to evidentiary statements and deals strictly with the facts, or at least with standard, agreed upon economic theories. "At a higher price, consumers will buy less of X" would be a positive statement, at least as far as economists are concerned (if it is true and can be domenstrated). They don’t mean it as in positive in the sense, which is the opposite of negative.

Words and Words: If Shakespeare were an Economist
As you may have noticed, economists tend to have their own definitions for words that we think we already know the meaning of. We learned this very quickly.

For example here are just a few terms which mean one thing in everyday terms, and mean something else or very specific to economists. Here are just some examples:

Short term.

The short term has a specific meaning in economics: is when one element of supply (capacity) is usually fixed.

Elasticity.

Elasticity in econ specifically means the percentage change of one thing in response to a percentage change in another thing. More commonly, this commonly means elasticity of demand, which means the percentage at which quantity changes when there is an effective change in price.

Rent.

I still don’t know what the economic definition of this is, but trust me, it’s different from what you and I think of as rent.
Positive. This, as mentioned above, has nothing to do with positive vs. negative. It’s positive vs. normative. Confused? Reread above.

Perfect Competition.

Again, another term with a very specific meaning in econ. It means when a market has many competitors with no differentiated products, such that no one single player has the ability to set the price.

Profit.

We usually think of profit as sales minus expenses. In economics it means total sales minus total economic cost. What’s total economic cost? I’ll give you a hint: it includes more than just what we think of as cost. It includes the normal rate of return (and maybe even opportunity cost).

Normal Rate of Return.

We might “normally” think of this as the interest rate, which is the return you can get on your money by putting in the bank (theoretically). Not exactly in econ. In economics it means the normal rate of return for capital in a given industry. It’s another kind of abstract term among many abstract economic terms.

Opportunity Cost.

We usually think of this as something else we could be doing. Again, econ has a more specific definition: the cost of the next best alternative.

Marginal.

In everyday speak we might think of something as “marginal” if it is small and not enough to make a difference. Marginal in econ means “extra”. Marginal cost is the cost of adding one additional unit of production. Marginal revenue is the revenue that comes from selling an additional product.

Average Cost.

We usually think of average cost as: take the total costs of producing products and dividing by the number of units. That is actually “average total cost” in economics. There is average variable cost, average marginal cost, average marginal variable expialadocious costs. Actually, I made that last one up, but you get the idea.

Should I go on? The point is that I could go on, perhaps even ad infinitum. If it’s Saturday night and you have nothing better to do, you can start reading your econ book and find all kinds of different definitions for words we use in everyday language. It’s called economics.

Which bring us to perhaps the most important question related to Economics.

What do economists know, really?
Professor Flanagan insisted to us that there were only two things economists really know. I suspect he meant this in non-literal sense; if this was literally true, perhaps the class could have been a lot shorter. Nevertheless, he was quite adamant about this point. The two things are:

• That Supply and Demand are equal
  

• That Marginal Revenue equals Marginal Cost
  

We spent a lot of time talking about demand curves and supply curves. Where they meet, the so-called equilibrium is the point where supply equals demand. This is the price and quantity set by the market.

The arguments that they use for both points are variations of the original, well known “invisible hand” argument put forward by the Scotsman Adam Smith some 230 years ago.

Let’s suppose you start at a point where supply and demand aren’t equal. There will be either a shortfall or a surplus of supply, affecting the price of the product. If there is a shortfall, then the price will go up, increasing profit. More firms come in to the market, eventually pulling the price back to equilibrium.

Similarly if there is too much supply, the price will come down, increasing demand for the product, and the market reaches equilibrium again (eventually!).

This argument has been part of the public understanding of economics long enough that it's not too controversial. What about the second point, that marginal revenue equals marginal cost?

Well this point is a little more “subtle”. Flanagan says that “subtle” is what academics say when something is actually difficult.

I’m an engineer by training, (“A Quant”, as they call it in business school, vs. a “Poet”, someone whose undergrad degree was in liberal arts), and we usually say something is “non-trivial” when it’s difficult.

Why don’t we just say that it’s difficult? Beats me.

The Marginal Way
As for the second point, Marginal Revenue = Marginal Cost, we had a case study about Continental Airlines related to this point. The team presenting it did a good job with supply and demand and marginal cost and marginal revenue curves. The question was whether Continental airlines should continue certain routes if these routes were not profitable?

The trick is how you define the word “profitable”.

The Marginal Revenue (I’m sure you remember what this means from the definitions above) is the additional revenue from selling one more product. The marginal cost is the additional cost of adding/producing one more product (or providing one more unit of service, like a flight).

The Average Total Cost tells you if you have made a profit on all the units sold thus far.

The Average Variable Cost tells you if you are making a profit on the next unit (if it’s less than Marginal Revenue).

The Marginal Cost tells you the cost of the next incremental unit. Professor Flanagan explained that if Marginal Cost is less than Marginal Revenue, then adding another unit will add some contribution to your overall profit. If Marginal Cost is less than Marginal Revenue, then you will be adding a loss onto your overall profit by producing and selling the next unit.

The subtle point is that it’s possible that by selling another unit, you will still be unprofitable because the Average Total Cost may still be less than the average sales price. However, if MR > MC (Marginal Revenue is greater than Marginal Cost) then you are contributing to the total profitability, even if it means you are only helping the company reduce its loss.

Back to the Scotsman’s invisible hand: If MR <> MC, then you’ll want to keep producing units, because you will be contributing to your profit. How many more should you produce?

Up to the point just before MR < MC.

What point is that? You guessed it, the point where Marginal Revenue is equal to Marginal Cost, and that’s why the economists “know” that this is true.

Does that make sense? If not, pay a hundred grand to attend Stanford Business School, and Professor Flanagan will explain it quite well, I assure you.

Real Economists Draw Curves
The way we reached some of these conclusions is by drawing Supply and Demand curves. Economists love to draw Supply and Demand curves, and after many days of sitting still watching our professor draw them, I have to say, they are quite useful, though it’s still a bit of a mystery how such a simple drawing can convey so much information.

Economists draw a simple graph with a horizontal and a vertical axes. Then they draw one line which slopes downward, say the red line. And the draw one line which slopes upward, say the blue line. Where the red line and the blue line meet is called the equilibrium point.

If you look closely you’ll notice that the curves aren’t curved at all. They are just lines sloping upwards and downwards. This means that you could just draw a big X on the board and refer to its two lines as being the “supply" and "demand" curves, and you'd generally be correct.

What does a simple picture like this, which even a five year old could draw, reveal about the markets?

Plenty, if you’re an economist.

Take a graph with only a single line sloping downwards (the “red line” above). Economists might say that this to represents the demand curve of an individual. Why does it slope downwards? Because of the principle of diminishing marginal utility. When the professor asked us this, one of our classmates answered without hesitating: “You eat one In-and-Out Burger, it tastes really good. The next one doesn’t taste quite so good. By the sixth burger, you’re sick of them and don’t want any more.”

This is because quantity is on the horizontal axis and price is on the vertical axis. A downward sloping curve shows a lower price as the quantity increase. According to this principle, an individual is willing to pay less for each additional unit of something – whatever that something is. The proper economic term is “widgets and gidgets”.

Turns out this same principle applies not only for individual, but to aggregate market level supply and demand curves.

It also turns out that the same graph can be applied to the labor market if you change the vertical axis to be “wages” and the horizontal axis to be “employment”. I’m pretty sure as we get into macroeconomics the same X will represent something entirely different, but still prove equally useful.

Vouchers, Price Controls, and Heroin, Oh My!
Professor Flanagan, who won an award from the previous Sloan class for his teaching, has plenty of experience with public policy. His discussions of what an economist think of certain government or political policies provided part of the “fun” of this class. The other “fun” was usually provided by the study groups doing their cases.

It turns out that Professor Flanagan was on the President’s Council for Economic Advisors a long time ago. One of our classmates commented: “Wow, I didn’t realize this guy was so famous and well known. And here is teaching us basic freshman economics – I wonder how he puts up with that?” The answer is probably that he likes what he does, which is a good thing for us.

As for policy discussions, to illustrate the point of “unintended consequences” I mentioned earlier, he presented us the example of The War on Drugs:

In fighting this “War”, the US government is focused intensively on the supply side of the equation - in fact, our efforts are almost exclusively focused at getting the “bad guys” - drug dealers. We do very little, comparatively on the demand side of the equation – in reducing the demand for drugs.

If we follow this scenario out logically using supply and demand curves, as the government gets some heroin dealers, then supply goes down in the short term. Once supply is restricted, and if demand doesn’t change, this only led to an increase in the price of heroin. (Same number of people want it, less of it to go around). And since the number of people who are addicted to heroin hasn’t changed, how do they go about getting the extra money for it? Any ideas?

Increased crime, says Professor Flanagan, is one of many unintended consequences of the government’s policies in the War on Drugs. This was an eye-opener for me. Perhaps the politicians need to not just hire, but actually listen to economists like Bob Flanagan.

He had many more examples of government policies, including the gas tax or a vice tax, and the unintended consequences of these policies, from an economic point of view.

The rest of the color came from each of our study groups, who were required to present on one of the cases using the tools of microeconomics to understand what happens to supply and demand. The issues were (from what I can remember off-hand) things like Vouchers for Education, Price Controls, Food Shortages, Mergers, Monopolies, the Congestion Tax in London, and so on.

The case presentations started out as very simple PowerPoint slides, accompanied with drawings of Supply and Demand curves on the whiteboard. But each group learned from the last one, and presentation quality steadily increased throughout the pre-term. By the end, we had professional looking supply-and-demand curves in the PowerPoints, and some groups started to use skits to illustrate the ideas to make them more interactive. Pretty soon, YouTube videos started to be appear in the presentations to make them more fun and interesting (which they did).

For example, in the case about Mergers, the XM / Sirius satellite merger was discussed, and a YouTube clip was used to show the news reports of when the merger was finally approved. To top it off, we actually had someone in our class who was working for XM at that time.

On the case about monopolies, they actually showed the trailer from the Hollywood movie, “There will be Blood”, about a Texas oilman, to show how a malevolent monopolist acts. On the case involving the congestion tax in the city of London, actual video clips of news reports about the results of the tax were shown.

This is one of the things that’s pretty interesting about going to b-school today rather than 10 years ago. The availability of these video clips makes it much more fun to be in class. Especially since economics can be a little dry on its own, except of course when Professor Flanagan brings up what he now affectionately calls “Our Old Friend” (because it keeps coming up again and again, and again): the Elasticity of Demand.

Let’s play Monopoly
Many of the principles of Micro we learned seem to apply only to markets where there was perfect competition (again, see the definition above). A perfect market relies not only on competitors not being able to do anything to affect the price of their product; they aren’t even able to differentiate their products in any way. It also relies on perfect information in the market (an unlikely scenario in any market).

Commodities are as close to a perfect market as we get, but it’s not clear to me that’s even a perfect market. Does a perfect market really exit? Maybe not.

But towards the end of the pre-term, Professor Flanagan began to relax the restrictions on the markets we were learning about and moved to “imperfect competition". A market with imperfect competition market is one where products have differentiation, have some influence over how much they sell their products for, and can respond to the competition.

I could be wrong, but it seems to me there’s a simpler name for “imperfect competition”: it’s what we call the real world.

Surprisingly, when this restriction was reduced, the basic principles we’d learned - supply and demand, marginal this and average that - continued to apply reasonably well even in imperfect markets.

To illustrate this, we went to an extreme example: Monopolies. The monopolist also faces a demand curve - which means that fewer consumers will buy their product at higher prices, and more will buy at lower prices. Ignoring our old friend, the Elasticity of Demand for the moment, where will the monopolist set his price?

The morning of this lecture, I was very tired, having stayed up late the night before (must have been doing the readings for econ, though it’s more likely I was blogging or playing on Second Life). I was on the verge of dozing when Professor Flanagan began to talk about monopolies. Of the many reasons why monopolies arise, one is that governments mandate that only one firm is allowed to serve an area, as in utilities.

I don’t know how or why but in my half asleep state, I began to see images of nuclear power plants, and this brought me to images of the The Simpsons. Those of you who have watched the Simpsons at some point (which practically includes the entire population of the US, I think, since it’s one of the longest running prime-time TV shows), will know that Homer Simpson, the lovable clown, works at a nuclear power plant just outside Springfield, USA.

I don’t know why, but an image of Homer’s boss, the unscrupulous monopolist, Mr. Burns, flashed into my mind as Professor Flanagan talked on about monopolists. Mr. Burns is an older gentleman, very skinny with angular features. I opened my eyes and for an instant (only or an instant mind you), our professor (if he took off his glasses) was the spitting image of Mr. Burns! I jolted awake, half expecting our professor to tap his fingertips together and say in the very measured soft voice of Mr. Burns, “Now we have a monopoly. Excellent!”

Now, in reality Professor Flanagan’s personality (who is a nice, friendly guy quick to smile and laugh) is nothing like Mr. Burns (who is a ruthless monopolist trying to make money by squeezing the residents of Springfield). Maybe it was my half-dazed state, but the physical resemblance was uncanny, if only for that moment. If nothing else, it kept me awake during the rest of the discussion about Monopolies!

Which brings us back to the earlier question, where will the monopolist set his price and how much will he produce?

The answer, surprisingly to me (but not to economists) is the same as before: he will produce up to the profit-maximization point where Marginal Revenue equals Marginal Cost, and will stop there. Whatever quantity is equated with that price is the amount that the monopoly will produce.

What the bleep do we know, really?
This is all nice, in theory, but does this actually happen in the real world? Does Supply=Demand and does Marginal Revenue=Marginal Cost, or are these more concepts and principles which help to guide the market?

Do perfect markets exist? Perfect information, I’m pretty sure, doesn’t exist. Entry or Exiting a market requires a significant amount of resources and rarely happens easily, as we know from our Strategic Management class, because of barriers to entry. And is there really such a thing as a “normal rate of return” which is different in each industry?

These questions started nagging at me early on in our economics class, as I struggled to try to apply the material we were learning to business (at least apply it in my head). No doubt everything we learned will apply in a general sense about how consumers buy from producers. But would it apply specifically to a situation any of our companies are likely to come up with?

It seems to me that in the real world, companies are entering and exiting markets and adjusting supply and trying to figure out what the heck demand really is for a product. It seems to me that the only way to figure this out is through trial and error, since there is no way to know exactly how many people will buy car X at price Y. If General Motors could have figured out the demand for hybrid cars, perhaps they would have reduced the supply of SUV’s and increased the production timeframes of their hybrid cars years ago and not have lost more money than anyone else over the last year.

Similarly, if “Marginal Revenue = Marginal Cost” is the profit maximization point then firms should stop producing there. I don’t know of any public companies who choose to not to produce any more products. Which means that they must not be at this point yet, or if they’ve crossed it, then they’re reducing supply.

Maybe the two things that economists know should come with an asterisk and two additional comments:

1. Supply and Demand, while theoretically equal, are rarely actually equal. Rather, the market is in constant motion trying to get to that equilibrium point.
2. Marginal Revenue rarely equals Marginal Cost. But firms are in constant motion trying to get to (or get back to) this profit-maximizing point.

Those are my two cents worth of contribution to the field of Microeconomics. But then, what the hell do I know? I’ve only had 12 days of Microeconomics class, and it wasn’t even graded!

Excellent!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.

Stanford GSB, Entry 5: The Second Week: Study Groups, Blue Angels, and Russians

We are now two weeks into classes (Two weeks and One Day since I’m posting this on Monday Night) – that means our “pre-term” is almost over (it’s actually only two and half weeks long), and after some wrap-up activities this week, we’ll move into the real “term” next week, when we’ll have grades and everything.

So here are some notes and observations about the second week. I’ve already given an overview of what we’ve learned in Strategy in my posting over the weekend – click on the link to entry 4 to the right if you’re interested in learning more about that class. I’ve promised to do the same for Microeconomics and Managerial Accounting, but I seem to keep getting distracted with reading assignments and study group meetings and what Professor Flanagan, our Economics professor, calls “merriment and diversions” - so will get to it eventually.

Read more!

#1: Our Study Group(s) Finally Seem to be Humming Along.

Each of the study groups seem to have settled into a pattern in the second week (this is good news, since there are only three weeks in the whole pre-term). During the first week, I heard many complaints about Study groups (no, I’m not telling who complained about whom, that’s confidential); By the second week most of the groups had gotten beyond the initial shock of having to negotiate with each other and started plowing through the large amount of reading and started working on the two group assignments we each had to present.

For example, my study group, after some negotiation, agreed to have some evening sessions in addition to the morning sessions, in order to balance the burden between the “night people” and the “morning people” (Yes, this took a little negotiation, and it’s still on-going!). We even ordered pizza in the GSB building at our first evening session – Round Table Pizza (a California chain with California-type prices - it cost us like $60 for two large pizzas – outrageous. It took me like 10 minutes to explain to the guy on the phone that GSB wasn’t an apartment building).

To counteract all the reading, we are assigning individual chapters to group members, who are responsible for creating summaries so that not all of us have to read every single chapter before every single class. (Oh wait-a-minute, our professors might be reading this blog, so what I really meant to say was that each of us is doing all of the readings assigned by our professors before every single class!)

We’ve also gotten to know each others strengths and weaknesses pretty quickly. For example: B. is great at presenting and PowerPoint, but not so experienced at accounting, L. is great at accounting and Excel but doesn’t like presenting so much, V. is really good with IRR and NPV, but likes to “discuss” strategy A LOT and thinks that 1 hour in the morning is not enough to discuss a single strategy case, while P. likes to keep our strategy discussions short and takes great notes on the whiteboard, but doesn’t like to create notes about the econ and accounting reading, J. is a good all around mediating force in the group, and, along with H., is pretty good at economics, and I’m, well, you’ll have to ask them! Though I certainly win the award for showing up late at most early morning study groups. [NOTE: names have been abbreviated to protect the innocent].

We’ve also gotten to know about each other’s personal circumstances - a few of us are married and have kids, while another needed to go out and buy his Porsche the morning of our case presentations (turns out the seller flaked out on him that day so we he was part of the presentation after all - this Porsche, if he buys it, might appear in the blog again this year I'm sure). Two of us (including yours truly) are still entrepreneurs with international businesses while at school (mine is in Pakistan, while the other is in Russia), so we often have to keep u with late night calls to our companies.

Despite all these differences, or perhaps because of them, we’ve all been willing to listen to each other and support each other [for the most part, except for the occasional yelling match like the one which broke out at one of our 7:45 am meetings one day last week – I’m sorry I can’t tell you any much more about that since I was still in bed asleep dreaming about the reading I had done late the night before ].

So the good news is: The Study Groups are finally working!

Now, for the bad news: Now that we’ve all gotten to know each other and have good habits forming in our study group, guess what? The pre-term is about over and we’ll have to form entirely new study groups and will have to go through this entire process again with the new groups starting next week. Doh!

#2: The Pressure is Off, For the Moment.

Each Study Group had to make two presentations based on “cases” – one for Managerial Accounting and one for Microeconomics. These presentations created the only “real” pressure during this pre-term (though there is lots of imagined pressure given all the readings and problems that were assigned to us, believe you me).

My study group did both presentations on Thursday, and since these were the only formal assignments we had to “hand in” during this pre-term, we’re effectively done. If you saw us on campus last weekend, or see us this week, and if we’re looking kind of relaxed, it’s not just the California weather…it’s cause we’ve already handed in our assignments and oh yeah, the pre-term isn’t graded anyways!

In general, the Sloan Fellows are a co-operative group, rather than a competitive one, at least from what we’ve seen so far. The program is designed to encourage a feeling of “we’re all in this together” from study group level up to the level of the entire class of Fellows, including the families and partners. We’ve had (at least) two alumni of the program speak to us thus far – one was a Sloan ’87 graduate who will be teaching the entrepreneur workshop later in the fall, and the other was John Foley ’97 (see the section below titled “I want to Fly Jet’s, Sir!”). They both told us how the class banded together and helped each other out. In John’s case, the class decided as a group that they would have an explicitly defined mission of “leaving no one behind”.

This is probably true of the two-year MBA’s as well, since they also are taught collaboratively to work in study groups (though we'll find out about them soon enough; they're just starting to arrive on campus this week).

But it seems that not all grad schools are like that. I heard a story from a friend of mine about one of the nation's top law schools. He said that many law school students are very competitive, because of their student rankings, and he offered up the following story: A law student that he knew, in his third year, he was ill and missed class one day.

I found this story unbelievable. So I asked him again to make sure I’d heard him right and if it was true. He insisted it was. This seems to me (to put it politely) just plain silly. I don't know if it's true or not, but if it is, then: NOTE FROM A GRADUATE BUSINES STUDENT TO GRADUATE LAW STUDENTS: Live a little.

#3: The Mind Meld has Started.

Those of you who watch Star Trek will recognize the term “Mind Meld” – but no I don’t mean that we are putting our hands on pressure points on each others faces and establishing telepathic links (though maybe there’s a little bit of that going on, I couldn’t really say) – what I mean is that the classes are starting to meld together in interesting ways.

This is one of the neat things about business school that wasn’t always present in undergrad – since the classes are all about different aspects of the same thing (business), there is definite area of overlap on the edge of each class.

In the second week of business school, we’ve started to see this already – in the Managerial Accounting Case our study group presented, we had to deal with issues of elasticity of demand, a concept from our Microeconomics class. In Econ, we have already started to deal with fixed costs and variable costs, concepts which we are heavily exploring in our accounting class. In Strategy, we started to deal with issues of Total Average Cost and Marginal Cost, which we learned about in Econ.

This is actually kind of neat, though having the curriculum so inter-related means that we can’t really blow off any of the existing subjects. In fact, our same professor from Microeconomics is going to be teaching us Macroecnomics soon enough, so I guess we have to pay attention.

#4: “I Want to Fly Jets, Sir!!”

So on Friday, at the end of our second week of class, we had a motivational talk from John Foley, who was a Stanford Sloan Fellow in 1997.

John is also an ex-member of the Blue Angels – yes that’s the Navy fighter group that does acrobatic air-shows around the country and the world. They fly F-18’s in very close formation, sometimes upside down, creating a dazzling display of technical and human prowess in their air-shows. John was there, along with some of his class members from the class of ’97, to talk to us about maximizing our experience in our year at Stanford.

After doing a stint doing VC work in Silicon Valley (he did graduate form the program back in 1997, during the dot com boom, after all) he is now a motivational speaker who shows video clips of the Blue Angels and uses lessons about how they achieve such high performance as part of his talks.

In fact it turns out that the Blue Angels fly these umpteen-ton, umpteen-million dollar jets within 3 feet of each other– yes that's 36 inches (for our international friends, that’s about a meter) apart. A direct quote: “I don’t think what the Blue Angels do is dangerous, it’s just unforgiving”. I’d say it is extremely dangerous but no doubt a very good example of high performance. I happen to be a student pilot and I wouldn’t feel comfortable if there was another plane within 300 feet of me, let alone 3 feet!

John’s speech was a mixture of inspirational stories, videos of the blue angels flying, and applying some of the principles he learned there and in his year as a Sloan Fellow. The Blue Angels, he explained, were the top one-tenth of the top one-tenth of one percent when it came to jet pilots (I believe it given some of the things they have to do). He drew the analogy that we (the Sloans at Stanford GSB) were like them in a way, the top one-tenth of 1 percent (I don’t know about this; Once you get into the real world and away from structured hierarchies like med school, law school, and the military, I don’t think you can rank people so easily). Regardless of where we fall on the map, his point was that for people that are already top performers, whether fighter jet pilots, top athletes, or in the business world, a 1% improvement can make a world of difference. That was a very interesting point I had never really thought about before.

Sometimes, though, high performance can only come with the right amount of teamwork. We saw video clips not only of the Blue Angels flying, but of how they prepare for their flights. They do an extensive briefing which includes a visualization of every part of the flight; it was pretty interesting. Being a student pilot myself, this made sense to me. They make sure that each part of their flights are coordinated, with what they call a center-point for each maneuver, and verbal and visual marks that they can look at to see if they and there colleagues are off – because at the speeds they go – over 1000 miles an hour, and the distances between them, even a few inches can be a very costly mistake.

How did he deal with all of the reading that the GSB students have assgned? His answer was: "Yes, It's a lot of reading". Then after a pause, with a knowing smile: "If you bother to do it."I thought I detected a wink and a nod there about the necessity of doing all the reading that's assigned to us.

Another element of his personal story that I found interesting was that he wanted to fly F-18’s ever since he was very young, but at each stage of his career, he seemed to get de-toured. They didn’t let him into the Air Force because of some technicality. Then later, in college, he joined the Marines. At first they didn't take his wanting to fly jets seriously, but then they sent him to flight training. After his flight training, they wouldn’t let him fly F-18’s because he was too young. He ended up going on what were considered not very great assignments. But each detour led to its own set of interesting experiences. In fact, one of those diversions, he happened to be on the USS Enterprise (no, not Star Trek, in this case the aircraft carrier) in the Indian Ocean when the movie Top Gun was filmed. He said that he’s actually one of the fighter pilots shown on the aircraft carrier at the very beginning of the movie. I found this to be very interesting because I believe that sometimes we get to where we want to go not by following the normal path, but by following what seem like diversions but turn out to be integral parts of our individual paths to success.

OK, OK, so for the Trivia Pursuit purists, I quoted the wrong 1980’s military movie in the title of this section (“I Want to Fly Jets, Sir” was actually spoken by Richard Gere in “An Officer and Gentleman”, and not Tom Cruise in “Top Gun”).

One thing I noticed is that John probably wasn’t as used to making presentations in front of international groups – he sometimes came across as, well, an American military guy who’s gone into business trying to “pump up” the troops. While this works great in a sales convention in the good old U.S. of A., that aspect of it might not have worked so well in a group that is more than one third international (don't get me wrong, the talk was quite successful overall).

In Example: In one of the videos he showed from his visit to Russia, a Russian pilot was tapping him in the chest, a bit aggressively, saying “Me Pilot, You Pilot”. He took this to mean that the guy was challenging him and when he took the Russian pilot up in his F-18, he did some intense maneuvers, intending to impress on him that our pilots have the “Right Stuff” too. This he proceeded to do by going into a 6-G climb (maybe it was 4-G or 9-G, I can’t really remember), in which the Russian went unconscious for a moment. This struck me as a little over the top and completely unnecessary, but he proceeded to tell us that after the flight he and the Russian pilot, who was a "hero of the Soviet Union", proceeded to be great friends. John spent a lot of time with the guy’s family and they even went to the ballet together during his time in Moscow. The piont of his story was that a relationship could change quickly.

#5: A Russian Perspective

We happen to have more than one Russian in our class and it’s interesting to get their perspective on Americans. When I asked one of our resident Russians about the pilot episode, he said: “that Russian guy probably only knew one or two words in English, so he was probably just trying to be friendly, that’s all.” Oops.

In another example, this weekend, a few of us went out to see the new movie, Righteous Kill, with Al Pacino and Robert DeNiro, about NYC cops investigating a serial murderer. In the movie, there is a tough Russian who, despite having been shot nine times, is still alive, though hovering near death. One of the Americans is tyring to revive the Russian, and starts yelling a Russian word, Svoboda, over and over again, alternating it with what we think is the English translation, "Wake Up! Wake Up!".

Of course, we had one of our Russian classmates, Valeriy with us, who started laughing. The word they were repeating in the movie, Svoboda, had nothing to do with “Wake Up”. He told us it means “Freedom” in Russian. *Sigh*, Hollywood gets it wrong, again.

But then again the Sloan program is pretty unique that way. We can get an international perspective from any major country simply by turning around and talking to someone from that country, since so many companies are represented in our class.

This really started to become apparent in the second week. When we did the case on Wal-mart, we were able to turn to our Korean and Japanese and Chilean friends to find out why Wal-mart’s strategy didn’t work so well in those countries.

That is one of the things I really like about being at Stanford GSB in general, and the Sloan Fellows program in particular.

In fact, I think that is “Kruto”, which Valeriy tells me is the correct Russian translation for very “Cool”!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.