Category Archives: Business

The Fallacy of Composition

Last block, I took ‘managerial economics’, which was my last core class.  Even though I was an econ major for my undergrad, it was still pretty challenging.  One of the topics my professor briefly mentioned was called ‘the fallacy of composition’, which means that a solution for one individual does not necessarily work for a whole group.  Though he didn’t go into a lot of detail, I found this idea really interesting.

This logical fallacy applies to a lot of things.  For example, some might claim that we need to pay down the national debt at the same time, while others might worry that this effort would depress the economy and cause inflation.  Others might say that Obama’s proposal to provide free community college education to all Americans might increase opportunities in some areas, but create a higher unemployment rate due to a lack of high-skill jobs in another.  In one case, it might make sense to localize control of the public school curriculum, and in another, a school could fall behind due to a lack of standards to guide a child’s development.

I am really lucky to be in a field where I am literally paid to ponder the pros and cons to every decision.  Finding solutions to problems in data is my passion, and I have always been a numbers person.  But the kind of mental processing to which most people are accustomed is merely linear thinking.  By this, I mean assuming a direct connection between one thing and another.  When we are faced with a problem we don’t understand, we tend to take a mechanistic view to identifying a solution, breaking the problem down to its individual parts and assuming that every effect has a single cause.  I think this type of rationale is valid, but not complete.

In order to truly facilitate a better world, I think it will be necessary for more people to adopt a synthetic, non-linear way of thinking.  Before any course of action, more considerations need to be made about external effects.  This is bigger than conventional game theory.  It’s definitely not easy to understand that affecting one part could actually affect the system as a whole.  This goes against everything that dictates how I do my work: you must think hard about the potential effects that can come out of a decision, even when you don’t have the data to support it.  This capacity to predict effects beyond what you are directly affecting is difficult to master, but I think will likely be the key to addressing challenges over time.  Unilateral decisions are not going to fix global warming, poverty, income disparity, or public health issues.

Systemic change is not going to happen overnight, but I hope I live to see some kind of progress in my lifetime.  Relying on numbers and statistics is important, but not as important as deeply considering the chain of events that can occur from making one choice compared to another.  When making a decision about the best remedy for the most pressing social ills, be sure to take a step back and effectively consider how others will be affected.  We need to come up with structures for thought instead of building thoughtless structures.  We need to let go of our experiences that turned us into conditioned humans instead of letting ourselves represent the human condition we once were as children.  When we were small, we found joy in bringing others happiness, and as we ‘matured’ and were burned a few times, we became more selfish and defensive.  The more people who come to master this difficult way of thinking, the better off this world will be.  We have become less alive.

I am not at all saying that I have never taken stances on issues that were self-serving.  I know I have hurt people and made mistakes.  But I think that creating a better future starts with me, hopefully inspiring others to share the same attitude.  The more we look out for each other, and the less afraid we become about making changes in our lives in order to benefit others, the more better off we all will become.  Individuals can make a difference everyday by letting go of judgment, hatred, and anger – things that all prevent us from living a full life.  Don’t get caught up in the fallacy of composition or in the numbers.  They’re a great place to start, but what’s truly important will be justified by something more.

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Empowering with Purpose: Why Hillary Clinton is an Effective Leader

Men and women around the world consider Hillary Clinton an exemplary leader.  Her leadership style resonates with many, ranging from listening intensely to being diplomatically assertive.  She has smart answers to today’s hard questions, and takes the best interest of the community seriously.   Highly skilled and intelligent, she has capitalized on her uniqueness in a turbulent political and business world to lead effectively in many important leadership roles, including First Lady of Arkansas, First Lady of the United States, Senator of New York, and Secretary of State.

A leader cannot accomplish anything alone – a loyal and committed following is conducive to making a meaningful difference.  Hillary has a track record of effectively driving change by use of expert and referent power – that is, influencing others to rally beside her by sharing her powerful vision as well as supporting it with facts and evidence.

Hillary’s expert power was developed over many years of hard work in numerous capacities.  She realized her passion for public service early in her career during law school, but turned her vision into reality as she dedicated the rest of her life to serving her communities and gaining valuable insight along the way.  Her ability to convert pressing issues into impactful initiatives has as contributed largely to her thought leadership in a multitude of areas.

In Peter Drucker’s article, What Makes and Effective Executive, he examines the practices which enable leaders to collect the knowledge needed and formulate action to drive a significant impact.  During her 3-year tenure as Secretary of State, Hillary took it upon herself to travel over 956,733 miles to 112 nations to fully understand firsthand the extent of her responsibility and prioritize the issues facing her organization.  One of her biggest wins as First Lady was the enactment of the Children’s Health Insurance Program in 1997, demonstrating her ability to build rapport and trust with both supporting and opposing groups.

Perhaps the most admirable of Hillary’s leadership qualities is her courage and modesty to assume personal responsibility and learn from her setbacks, including her loss in the primary election in 2008.  She takes criticism seriously without getting discouraged, and successfully bounces back from every downfall with a more seasoned perspective.  People are fallible, including experienced leaders –nothing is more respectable than for someone, like Hillary Clinton, to be unafraid to admit her mistakes, and move forward with persistence and determination.

It is this tremendous humility and professional will that contributes to Hillary’s referent power and makes her a “Level Five Leader,” a concept developed by author and consultant Jim Collins.  She conducts herself with compelling modesty, always awarding credit where it is due and celebrating the successes of others.  While many emulate her leadership ability when leading their own organizations and teams, she humbly acknowledges that she is just as inspired by her colleagues and supporters as they are by her, saying, “I always believed you could learn something from nearly everybody you meet, if you’re open to it.”

According to Collins, professional will means, “demonstrating an unwavering resolve to do whatever must be done to produce the best long-term results—no matter how difficult.”   One of the most significant initiatives Hillary spearheaded was the Violence Against Women Act in 1994.  She facilitated a shift in attitude among officials who were blocking the legislation, helping them understand how the bill represented core American values they share, while also listening and acknowledging their concerns.  She called the effort, “4 years of hard work to strengthen the relationship… getting them to see our point of view, and learning more about theirs.”

In today’s dynamic environment, Hillary demonstrates a stanch resilience to find creative solutions to complex issues and persevere in the face of difficult challenges.  It is unreasonable to expect any person to be a “Level Five Leader” 100 percent of the time, but Hillary Clinton embodies “a clear catalyst from good to great” in critical times when her judgment matters most.  Even those who disagree with her ideas see her in the highest regard as she has mastered the art of compromise and building productive relationships.  She says, “Part of the great challenge of living is defining yourself in your moment, of seizing the opportunities you are given, and of making the very best choices you can.”  As she has in each of her past roles, she continues to incorporate this philosophy into her leadership approach, guiding and inspiring others along the way.

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Supply Chain

The International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) have failed to agree upon and sign a new contract for the last six months.  Since last month, demand planning and forecasting has been difficult, and I’ve had to raise prices to mitigate stock outs since many of our POs haven’t landed.  The ports of Los Angeles and Long Beach are congested and there are chassis shortages because the union refuses to work.  Some of my containers have been rerouted to Oakland, but ILWU workers walked off for three shifts there too, causing further delays.

I received an email just now saying that ocean carriers announced a $1,000 congestion surcharge per 40-foot container.  I have dozens of containers sitting in the ports right now, and many of my SKUs are going to stock out if this inventory doesn’t land in the next week.  I’ve already increased my prices to slow sales volume, but I can only do so much.  One of the SKUs that is going to stock out in the next couple of days is a Key SKU, meaning that this SKU alone drives about 10% of the revenue streams of my business.   Not to mention that Q4 is hands down the busiest time of the year in retail – The seemingly small scale disruption caused by the longshoremen’s attempt to apply pressure on management could potentially have a large negative impact on the economy and suppress sales during the holiday season.

In spite of how irritating this situation is, and the additional costs of time and money it is imposing on me and Overstock, I’m quite fascinated with these dynamics.  It’s kind of interesting how big of a ripple effect labor slowdowns and contract negotiations between unions and employers can have.  I can understand why businesses dislike labor unions, but I also see how important it is for labor unions to stand strong to negotiate better terms and conditions.  If it weren’t for unions, we wouldn’t have the standard 8-hour work days, or 40-hour work weeks.  We wouldn’t have family or medical leave, employer-based health coverage, or even weekends off.  Labor unions have accomplished a lot of things that many of us take for granted.

Supply chain is much more interesting than I thought. 🙂 There are many different levers I can pull to keep my business running smoothly, but this union’s tactics are making it quite the challenge.  I probably look like the biggest weirdo because I’m excited and jazzed up about something that is not necessarily a good thing for my business, haha but it’s really cool to see all these moving parts in action.  I probably won’t be pissed off about this whole thing until I’m impacted more directly. 😛 Nonetheless,  I hope that the ILWU and PMA are able to reach a compromise soon that benefits both parties.

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Retail Business Models

I’ve been in love with my job at Overstock since day one.  The more I learn about the business, the more I become fascinated with the industry and how Overstock fits within it.  It’s so funny because I never would have expected to see myself working in retail, let alone data analytics, but I absolutely love both worlds.

I sometimes feel that Overstock operates a lot like a start-up in that its strategy isn’t very complete or well-defined.  From my perspective, the company seems to have goals that are all over the place, and it’s easy to get lost in all the noise because we’re not just a retailer, we’re also in the tech industry.  It’s difficult to understand who exactly our competitors are, because we have so many product lines and there are competitors springing up from every direction, channel and industry.  We don’t really compete directly with Amazon, because we use a differentiation strategy when it comes to our furniture department.  But we also don’t really compete head to head with exclusively furniture e-retailers like Wayfair because we sell more product beyond just furniture.  Then, there’s also retailers who were formerly brick-and-mortar stores moving into the e-commerce scene, like Wal-Mart and Sears.  Are they competitors too?

I think that having a clear, well-defined strategy, and sticking to it is the key to running a successful business.  Rather than trying to have a hand in everything, I think it’s important to build a core competency and own that competitive advantage.

One of my favorite entrepreneurs of all time is Tory Burch.  The story of her road to success is so inspiring, and I feel that she built her company with a distinct strategy in mind from the onset.  She didn’t aim to compete head on with top-tier designers, but instead brought her own classic-boho look into the high fashion scene at more affordable prices.  There are very few designers whose style identically matches her product line.  And while she introduced a broad range of items from swimwear, apparel, sunglasses and handbags, she built her competitive advantage around her Reva ballet flats and her classic tunics, new styles for which are introduced each year and likely support a majority of her revenue streams.  Similar to Hermes scarves and Diane von Furstenburg’s wrap dress, Tory Burch built a competitive advantage around one signature item for which her brand could be built around.  Within a decade, Tory became a multi-billionaire and represented a threat to already-established mid-level brands like Michael Kors, Coach and Kate Spade  (See guys, I’m not just obsessed with her product – I’m in love with her story!).

Another favorite retailer of mine is Zara.  Zara is known as a fashion-forward retailer, but it’s funny to me because their strategy does not involve their designers bringing new and fresh designs to life.  In fact, it’s the exact opposite – Zara buyers closely monitor the attributes of products that are depleted from Nordstrom and Saks’ shelves the fastest.  As soon as they buyers identify styles that are “trending”, these designs can be seen on Zara’s racks within two weeks.  And, they intentionally hold low quantities of each style so that they sell out fast.  Thus, Zara does not risk incurring additional costs of releasing designs that don’t sell, and by limiting the quantities they have available they mitigate the cost of holding weak economic inventory.  I love this strategy because they avoid the uncertainty associated with being an “early adopter” of new and innovative styles, but are able to maximize the benefit of profitability while the style is at its peak and before it reaches its life cycle.

Even though Overstock is not primarily a fashion or apparel retailer like Tory Burch or Zara, I feel that Overstock can learn a thing or two from their strategies.  By differentiating itself, Tory Burch was able to make herself stand out among other mid-level brands.  Had Tory Burch tried to compete head on with designers of all tiers, or had the company invested additional time in developing other signature items beyond their tunics and ballet flats, it probably may not have been as successful as its competitors.  And Zara, deciding not to be the trend-setter, but instead a damn close follower of already-popular styles, probably would not have as robust of a business model if it decided to be a trend-setter as well.  Overstock should considering companies like Amazon, Alibaba,and Rakuten as competitors.  We don’t have as wide of a selection as they do in many of our stores, because the basis of our competitive advantage is in furniture.  And Overstock should not try to predict the next big fad and stock up on new and fresh inventory in anticipation – it should continue what it does best and generate revenue off of styles and attributes that have already proven themselves successful and coveted by the market.

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Ethical Compass

My first block in Westminster’s MBA program is drawing to a close, and it’s been an amazing experience so far.  It feels incredible to be back in school, and to learn new and exciting things everyday.  I’ve loved working through case studies with a room full of smart people and leaving each session feeling more enlightened.

One of the most amazing things I’m experiencing is that I am not just building my foundation of academic knowledge, but I am also learning more about who I am.  I remember starting my business ethics class thinking that I am Paul Krugman and John Cassidy’s protege, and that I am a liberal inside and out.  But realizing the ideas I was expressing during class discussions, I started to realize that I’m becoming somewhat conservative.

AAAAAH!  Somebody slap me and bring me to my senses, right?

Before I lose all my friends, I want to clarify that I am still a rational, well-meaning person, haha.  I just don’t think I’m as much of an advocate for a “socialist”-esque community like I was when I was in college.

One of our assignments for my ethics class required negotiating a social contract with the class by way of an online discussion board.  Following was my first post:

“At a high level, I believe the role of government should be to provide the freedom and empowerment necessary for individuals to pursue their goals.  This includes ensuring the protection of persons, property and human rights, promoting hard work and productivity, and providing incentives for the market to alleviate social ills.  It is definitely important to establish a society that is just and fair, ensuring opportunity and equality for all individuals.

I think this role can be fulfilled by a civilization built around John Rawls’ Theory of Justice.  Rawls reaches his conclusion from behind what he calls a “Veil of Ignorance”, meaning that he has no knowledge regarding what his situation will look like, and thus he cannot develop principles that favor his particular circumstances.  Without knowing what his position in life will be, he will be most likely to choose principles fairest to all.  This theory includes two principles:

1. Everyone is entitled to basic freedoms (e.g., freedom of speech, political liberty, pursuit of happiness, etc.)

2. Difference Principle: There can be inequality in any society as long as it makes the person in the worst situation better off.

Building upon his second principle, I think it’s important to control the level of inequality.  I definitely want to promote a “rising tide that lifts all boats,” but I think mechanisms should be put in place to ensure that a large disparity of social/income inequality does not exist.”

It literally took me three hours to determine the theory on which I would base my proposal.  It was no easy task to determine who would become the “winners” and “losers”, and I felt conflicted when putting this theory together.  But it just seemed to be the most justified and fair.

Surprisingly, I got very few comments on my proposal, but those who did comment on it agreed with me.  Even more shocking to me was that the recurring theme among a class full of MBA students was one what emphasized socialism – a heavily progressive tax system, an extended entitlement program for the elderly, disabled and unemployed, free education, free healthcare, free housing, even free grocery… Everyone was rallying behind a classmate named Viktoria, who was advocating for such a system.  It was very interesting to see that dynamic.  I definitely would love to see a world where everyone had open access to these necessities, but such a world cannot exist.  It is simply too expensive, and I don’t think that a system with socialist characteristics as well as the ability to progress technologically and economically would not be sustainable.

So the next post I made was:

“I agree with many of Viktoria’s points.  I especially love that her contract is primarily built upon a concern for the welfare of others, and places an emphasis on giving equal access to many of the resources conducive to a successful life.  I am 100% behind the protection of fundamental human rights.  However, I worry that a society built around her contract, namely the components relating to free education and healthcare, will be too costly and presents a high likelihood for wasted resources.

When resources are provided for “free”, there will always be free-riders who game the system at the expense of actual contributors.  I don’t feel entirely comfortable with a heavily progressive tax system, because I want to enter into a society that promotes hard work and [technological, academic, scientific] progress.  Though the Ayn Rand view appears to be controversial, I feel that it is truly representative of reality – many people are motivated by greed and profit, but many breakthroughs in medicine, science and technology–solutions to many of our country’s existing social problems–have come out of a desire to accumulate wealth and prosperity, as well as the liberty and resources to do so. I fear that the imposition of a larger proportion of taxes on high-income earners (hopefully the greater contributors in a society) would be a crutch to innovation.  The tax rate should be the same among all income levels – the wealthier will still be providing a larger portion of the government’s revenue, but at least it will be fair across all income-earners.

I think that Mike’s view is a much better approach to handling the “free education” portion of her contract.  I would love to advocate equal access to resources such as education and healthcare, but I worry that Viktoria’s approach may be too costly.  By admitting individuals into a specific level of study consistent with their likelihood to succeed in that subject are, we will be making the best use of our educational resources.  I also like that Mike sees excessive taxation as a form of harm – I mentioned in an earlier post that the government’s role should merely be to protect individuals, their property and their rights from harm, and excessive taxation can definitely cripple the economy from growing and negatively impact many people.

The bottom line is that everyone will enter the world with advantages and disadvantages.  Some people will need to work harder than others.  But my nirvana is a merit-based society that is constantly growing and innovating.  One where the government provides its citizens the freedom to do as they please so long as it doesn’t infringe on the freedoms of others, or inflict harm on others, and a society where the more privileged will do their part to alleviate social ills.  If more privileged individuals do not exercise their social responsibility to address social problems, the government should provide incentives for them to do so, but should not be the direct provider of any free public service.  The government should definitely step in when the rights and preservation of citizens are threatened, but overall I think individuals will need to make the best of the cards they are dealt in order to truly allow society to flourish and continue to progress.”

And, of course, I received even fewer comments on my second post than I did on my first.

I felt bad.  I felt like the ideas I was expressing were very different from what I’ve advocated in the past.  I just sat and thought, “Am I becoming one of them? Am I moving into the dark side!?”  But I realized that I’m not.  I am effectively applying ethical principles that seem like conventional Republican ideals to back policy decisions that a more moderate Democrat would advocate.  I’m still blue, but more of a baby blue than a royal blue.  It’s better to sit on the fence anyway – sitting at either end of the spectrum just starts too much trouble.  🙂

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