Since the mid-1800s, the Laws of Thermodynamics (e.g., the First Law, Conservation of Energy) have guided the thinking of generations of engineers, ensuring that their dreams of a better machine were channeled into the art of the possible. Rather than constraining innovation, the laws ensured that creative energies were focused on productive invention and not wasted on fantasies like perpetual motion machines.Business leaders could benefit from a comparable set of laws – not lofty, idealized theories like the Efficient Markets Hypothesis, but simple, engineering-style Laws of Profit Dynamics. We could start by leaning on the laws used by our engineering colleagues.The First LawThe First Law of Thermodynamics states that energy can be moved around and converted from one form to another, but it can’t be created out of nothing. The same is true in business — the rate of value growth for companies in total is limited by the rate of global economic growth. Any company that “creates” value at a faster rate has to take the value from someone else. We understand this easily enough when we take share from a direct competitor, but the First Law of Profit Dynamics says that it’s always true, which means sometimes we have to dig deeper to see where the economic “energy” comes from. For example:When Google exploded on the business scene early in the millennium, was its growth fueled by taking share from direct search competitors like Alta Vista and Yahoo? No, its “energy” came from newspapers. Online advertising grew in the U.S. from about $7 billion in 2003 to roughly $32 billion in 2011, while advertising spending with newspapers fell from about $45 billion to less than $20 billion. The energy equation balanced. Google didn’t create economic value; it drained “heat” from another system.Sometimes a company grows by tapping into successive sources of energy. According to unconsolidated market cap numbers from Thomson Reuters, between early 2001 and early 2005, Apple “created” incremental market value of about $25 billion as the iPod took off. During that same period, Sony (creator of the Walkman) saw its value drop by roughly $25 billion. During Apples’ next growth surge, from 2007 to 2010, this time driven by the new iPhone, Apple’s market value grew by nearly $120 billion. During that same time, the combined market values of Nokia, Motorola, and RIM fell by more than $160 billion. Having drained energy from both consumer electronics and mobile phones, Apple then turned its sights on another heat source, its original business of personal computers. Between early 2010 and early 2012, as Apple’s tablet business took off, its value jumped by more than another $150 billion, while the market values of the aforementioned companies along with HP, Dell, and Microsoft fell by a total of nearly $140 billion. In one decade, Apple tapped into and drained the heat from three successive pools of energy in order to fuel its own value growth.Just as the First Law of Thermodynamics (conservation of energy) forbids creating something from nothing, the first Law of Profit Dynamics notes that any value growth beyond what’s driven by general economic growth is not really value creation, but rather value migration (a phrase coined by business writer Adrian Slywotsky). This means that business leaders must relentlessly and rigorously challenge themselves with two questions:If your business plan calls for more than simple economic growth, who are you taking the value (energy) from? This is not a casual exercise. You can’t assume profit into existence. Like a good engineer following the laws of thermodynamics, you must “balance the equation” and account for all of the profit in the system.Who may be looking to tap into the heat (profit) of your system? Anticipating the potential leaks out of your business system can be a daunting process. In a perverse inversion of the boiled-frog syndrome, many businesses grow surprisingly cold before they realize their profits are being bled away through the un-insulated walls of their industry.Keep an eye out for Part 2 in this series which aims to explore how business leaders apply the Laws of Profit Dynamics to grow and sustain value.
Guest speaker discusses right-to-work laws, organized laborGuest speaker discusses right-to-work laws, organized labor
The Notre Dame community explored the subject of labor politics Tuesday through a lecture delivered by Elizabeth Tandy Shermer, assistant professor of history at Loyola University Chicago.Tracking the evolution of laws that make mandatory union participation illegal, a continuing theme of Shermer’s discussion was the prevalence of prejudice and discrimination in the movement to enact Right to Work statutes.“Americans’ discomfort with unionism also reflected the presumption of who was in them,” Shermer said. “In the late 19th century through the early Cold War, it was presumed that union members were not ‘all-American’ workers, meaning the workers in those unions were not white and Protestant.”The origin of the term “right to work” is important, Shermer said, as it indicates Americans’ inherent suspicion of labor unions. One of the first known uses of the phrase, she said, comes from a 1902 article written by muckraking journalist Ray Stannard Baker.“He writes [an] … article for a magazine with a middle-class readership about an anthracite strike. And he has these extraordinary descriptions of workers braving crossing the picket line so they can work to feed their families and the violence and intimidation that they face,” Shermer said. “What he’s doing is he’s sort of trying to warn … his middle-class readers that labor … might not have values that we like.”Building upon that idea, Shermer said many people in the early 20th century feared unions were simply a means of importing European radicalism into the United States. However, Shermer argued unions often espoused American values and used perennial socialist presidential candidate Eugene V. Debs, a native of Terre Haute, Indiana, as an example.“I always think it’s amazing to think about Debs, who defined himself as much as an American citizen … thought his radicalism more lived up to the ideals in the Declaration of Independence, but also as a devout Protestant,” she said.Shermer said the term’s meaning has changed over time. For example, she said Presidents Franklin Roosevelt and Harry Truman both used the term to refer to workers’ rights to a good job.“They assumed that it wasn’t just going to be any old job,” Shermer said. “They assumed that because of the rights working people gained during the 1940s that those jobs would be good because they were likely to be unionized.”Shermer said right-to-work laws, which the Supreme Court has ruled may only be passed by states, are much more common in southern and western states. Business groups and other entities supported by business groups propagated the laws as a means of attracting investment, she said, and because the laws were unlikely to pass through normal legislative means, many politicians tried to pass them through ballot initiatives. Nevertheless, Shermer said, the laws were still undemocratic.“We shouldn’t presume that those right-to-work laws represented the will of the people,” she said. “One, because there’s a lot of outside money coming in. And the second, they were passed before the 1965 Voting Rights Act actually provided a real guarantee that someone had the right to vote.”Shermer closed the lecture by discussing current attempts to enact right to work laws. She referenced a case the Supreme Court heard just this week, Janus v. AFSCME, that centers on right-to-work issues. If the court rules against the union, Shermer said, public sector unions stand to lose revenue and influence.Shermer concluded that right-to-work laws are constitutional, but not right. She said she applauds activists who continue to work on behalf of organized labor.“Those questions still have very serious implications for residents and citizens who continue to lead inspiring campaigns to use their federal rights for democratic unionism and improving working conditions to once again have decent — if not good — living standards,” she said.Tags: Loyola University Chicago, Organized labor, Right to work laws, Unions
“Tradition – Honor – Success” is the new mission statement of USC’s club wrestling team, which has seen a great deal of change since its creation two semesters ago. For the first time, the team will be eligible to compete against varsity squads from other universities.Making moves · Kasra Behizad, a sophomore majoring in health promotion and disease prevention studies, competes for the new club wrestling team in a recent meet against an opponent from UCLA. – Courtesy of Nick Cegelski Previously, the team had only been wrestling against other universities’ club teams. USC recently joined the National College Wrestling Association and is now able to compete with opponents on the NJCAA, NCAA, NAIA and NCWA levels.Up until early last semester, the team only had about 10 wrestlers. Peter Ferra, the president of the wrestling club and a senior majoring in mechanical engineering, says that since then, the program “has been growing at an unbelievable rate.”Nick Cegelski, the web director for the wrestling program and a freshman majoring in public relations, says the team recruited new athletes via social media, such as Facebook and Twitter, as well as by posting advertisements on campus. The club now features about 40 wrestlers, including a small women’s team led by Raquel Cannon, a freshman majoring in human biology.This upcoming season is not only special because it is the first time USC wrestling will compete at the varsity level — it is also the first season the team will have an official head coach. Jack Schwartz had personal success as a wrestler in the past, winning third place in the Junior World Olympics and second place in the Pan American Games. He has also won the Senior National Olympics three times. In addition to personal success, Schwartz has an impressive coaching record: In 1981, he coached a South Hills High School team that won the California state championship. In his first season, Schwartz is looking forward to “fielding a complete team that is super competitive and creating the excitement to recruit other athletes to USC.”In addition to Schwartz, Wesley Fulkerson, a USC alumnus, will be joining the coaching staff, while Marty Lockwood, who was an alternate for the 1976 Olympic Games, will continue to serve as an assistant coach.Schwartz and Fulkerson’s arrivals have the athletes looking forward to the upcoming season, as their help will be necessary to compete against higher-level teams.“I am very excited to work with our new coaches,” Cannon said. “I see great potential in our rising team and can only see the coaches as an extension of that potential. We are all very happy to have their help.”The team hopes the new coaches will help build upon the success of last year. In a tournament on Dec. 1 at UCLA, USC’s somewhat young team fared well, recording 10 wins and nine losses against wrestlers from UC Irvine, UC Riverside, UCLA and Ventura College.This season, the team will travel to Santa Barbara for a dual meet with UC Santa Barbara on Jan. 26, and will later compete in the California Collegiate Open, hosted by San Francisco State University, on Feb. 2.“We have fairly high expectations for this season,” Cegelski says. “Even though we are a new team, we have a few guys who wrestled at community college before coming to USC, guys who competed in the high school nationals and a few state placers.”The wrestling team welcomes new members and no experience is required. The expansion of the wrestling program is simply good news for Cannon, who says wrestling is a sport that more people should watch and more schools should adopt.“There’s just something about wrestling; the blood, the sweat, the tears, the training, the accomplishments and the falls … it’s just something that the world needs to experience.”