COVID-19 era offers proving ground for new business models—for better or worse

May 6, 2020 – B+I’s Jerry Davis explores parallels between the Great Recession of ’08 and the COVID-19 pandemic, and how entrepreneurial trends could be catalysts for significant change on the other side of the current crisis.  This article is reprinted from UM’s Michigan News.

Faculty Q&A

Jerry Davis is a professor at the Ross School of Business, where he also serves as associate dean for Business + Impact. He has studied the effect of crises on business for years, and the ways in which commerce has fallen into but fought its way out of crushing events like the Great Recession.

He sees parallels between that crisis and the one caused by COVID-19. In the following discussion, he explores some of them, as well as how entrepreneurial and technological trends that bubbled up in the intervening years could be catalysts for significant change on the other side of the latest economic upheaval. In other words, are we headed for an era of “Uber-ization”?

You wrote about the Great Recession in your 2009 book, “Managed by the Markets.” It detailed how tied to financial markets society had become. I realize the crisis today has different causes but what parallels can you draw?

I started writing that book in 2006, before the financial crisis, and I had been monitoring how finance and financial transactions were pervading all of society. All these crazy things were being turned into financial instruments that could be traded on markets, including the payoffs of life insurance policies on the elderly and terminally ill. The financial logic behind it made perfect sense: Any one life insurance policy’s payoff is hard to predict, but if you buy 1,000 of them the yields become much more regular. Why not pool them together and turn them into a bond? This kind of thing was happening all over the economy.

I thought financialization—relying on financial markets to channel capital—was a peculiar, one-time shift that had happened to our economy. But financialization is actually an information technology problem. It became possible on a grand scale because it got much cheaper to turn things into financial instruments and trade them on markets, such as bundles of mortgages. Information and communication technologies enabled finance to metastasize in the way that it did.

But it’s not just finance—now this is happening to labor markets. Think of this as “Uber-ization.” That’s information technology applied to labor markets: Instead of hiring someone for a job, you pay them for a specific task. That is a pretty big shift. That is the labor market version of financialization.

The financial crisis showed us the limits of financial markets: Where can things go wrong? The current crisis is showing what happens when people can’t show up in a common place to do their work together. We’ve created this technology that allows us to pay people by the task to work remotely. That is the essence of Uber: Drivers never set foot in the Uber office. They don’t have an Uber boss—they just connect to an app and complete their tasks. We’re now stress-testing the idea that people can work from remote locations and still get things done. It’s almost like a trial run for rampant Uber-ization.

If the pandemic shows that there’s an awful lot of business that can get done by people working in dispersed locations, managed by software, it is not much of a next step to say, “Why do they need to be employees? Why not just hire them as contractors?” This is going to prove which jobs can be done by folks wherever they happen to be, and which really need to be done on-site. It also provides in a sense proof of concept that you can have companies with almost no actual employees. Instead, you can basically “Uberize” the whole labor force.

Think of the Instant Pot. You can cook a rock-solid frozen chicken breast into edible food in 20 minutes. It’s also very inexpensive and a very well-made appliance. Here’s what’s amazing about the Instant Pot: The guy that created the company was a Ph.D. in computer science. He wanted to start his own business after the financial crisis. He thought, “What the world needs now is a quick way to make healthy food.” So he devised a pressure cooker with computer technology built into it.

He used $350,000 of his own money to start the company. After perfecting the design and finding a vendor to produce it, he listed the Instant Pot on Amazon and used the “Fulfillment by Amazon” service for storage and distribution. He read all the customer reviews on Amazon for his product research to improve the design. His marketing was that he sent 200 Instant Pots to influential food bloggers and cookbook writers. He used a vendor in China to manufacture it. It became a $300 million a year product category with just 50 employees in Ontario, which is insane. He’s created an entirely new category of indispensable appliance that dominates its industry. He didn’t need to go to Wall Street to fund it. He didn’t build any factories. He didn’t have to build a distribution channel or warehouse. He just hired Amazon.

That to me is proof of concept that you can have styles of business that look a lot more like a pop-up. That also in some sense feels like the apotheosis of our current situation—I think what the virus is doing is demonstrating in a fairly dramatic way that an awful lot of what we needed to show up to the office to do can be done remotely. If you don’t need an office, why not just rely on all contractors all the time like an Instant Pot?

Just to be clear, I’m not saying this is a good thing. It’s likely to be a disaster for labor, at least in the U.S., where people get health insurance and pension savings from their employer. But in some cases, it is likely to be the cheaper thing. In capitalism, cheap usually wins.

Speaking of test runs, auto and apparel makers, who have retooled their lines to make personal protective equipment, could similarly evaluate new lines of business or manufacturing approaches after the pandemic passes.

You could visualize “reshoring”—bringing manufacturing back to the U.S.—but there’s another trend that’s really interesting: Capital equipment has gotten really cheap and really flexible. It can be programmed to do lots of different stuff. It used to be the advantage of China was cheap labor. Because capital equipment has gotten so good and so cheap, you can replicate that ability in the U.S. Next door to every Amazon warehouse you could build a universal manufacturing facility.

I think about Ford Motor Co., where both my grandfathers were welders. Could Ford be a universal manufacturer? It’s consistent with their heritage—the idea of converting to wartime production as part of the Arsenal of Democracy. Shifting to producing ventilators is the same kind of transformation. These days designs are often fungible—it can be done in a dispersed, online way, like Wikipedia, or crowd-sourced designs for ventilators. Design globally, manufacture locally.

We’re hearing about big companies being called out or shamed into returning public money that was intended for small business. Is the pandemic lens distorting or enhancing the behavior? Are most businesses doing right amid the pandemic?

We’re at one of those moments where leaders in business are being told that what you do now is what is going to end up in your obituary. Do I lay a bunch of people off or do I find some way to maintain them and repurpose them? This is one of those moments that is going to define people and their legacy. I think a lot of folks are feeling that.

This is a situation where you don’t want to be the one who says, “Shareholders first.” It feels like that pressure, that scrutiny is out there—because of social media, one wrong step and it will go viral instantly. There’s a lot more at stake in making a morally defensible choice. From what I’ve seen, it feels that a lot of businesses are stepping up the best way they can.

This has also enabled workers in an interesting way. For example, GE workers at an idled aviation factory organized this protest and said, “This factory could be making ventilators. We’ve got the equipment to do that. Why is this factory idled?” That was genius. They weren’t protesting about hours or conditions, exactly. They were saying, “We can do some good here.” The companies that enable their workforce to identify those opportunities—it feels like they are going to win coming out of this. You’d rather work for a place where those values get built into the culture. Repurposing a manufacturing line to make ventilators and save lives is a story that will be told years from now.

What else is important to know or ponder about the culture of business as we emerge from the pandemic?

Where we end up on the other side of this is going to be a political choice and not purely an economic or business decision. I tweeted the other day: “How about we shift to a 30-hour workweek, where people show up in staggered shifts. That could give us more leisure, a little less income, less unemployment and a safer workplace. Thirty million unemployed in the last month is a lot. Can we return to work in a way that accomplishes some sort of social goals that would make us all better off?”

During the Second World War, in the darkest period in the United Kingdom, they formed the Beveridge Committee. The committee essentially asked, “What can we do when the war is over to make these sacrifices worth it? What kind of vision can we provide about the world we’re fighting for that will get us to the other end of this?” They came up with this set of ideas: A universal health care system, which became the NHS, universal education, pensions for the elderly. They came up with a set of core values and welfare policies for a civilized society. This is kind of our reward at the end of all this trauma.

What can we offer as a vision for the future at the other end of this that would make people say that was horrible but now we’re better off? I don’t know what that would look like, but it’s intriguing to think about.

B+I COVID-19 Response Page

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New Website Answers Michiganders’ Questions about Federal Stimulus Checks

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One-Third Of Michigan Ross Full-Time MBA Class Of 2020 Donates To The Give-A-Day Fund, Receives $10,000 Match On Giving Blueday

During the University of Michigan’s Giving Blueday, the student-run Give-A-Day Fund at the Ross School of Business received thousands of dollars in donations from nearly 100 students, faculty, and staff, which unlocked a $10,000 matching grant from an anonymous donor.

So far in 2019, more than one-third of the Michigan Ross Full-Time MBA Class of 2020 have donated to the Give-A-Day Fund, which supports full-time MBA impact interns with funding from their fellow students. 

Read more on Michigan Ross Website

Now Open: The +Impact Studio At Michigan Ross Is Taking On Society’s Greatest Challenges

This article was original written by Michigan Ross News

OCTOBER 15, 2019  ANN ARBOR — It’s official, the new +Impact Studio is up and running at the Ross School of Business, and MBAs and other graduate students from across the University of Michigan are already at work figuring out how to translate faculty insights into tangible business solutions to the world’s challenges. 

The +Impact Studio, which is part of the Business+Impact initiative at Ross, encompasses an interdisciplinary action-based learning course; a collaboration space; and a campus hub for programming and events. In addition to translating academic research into real-world impact, the studio also seeks to train students on how to be architects to create new kinds of enterprises.

By design, the interdisciplinary +Impact Studio course brings together the diverse talent and expertise of U-M’s top-ranked graduate schools to take on society’s greatest challenges. This year, the students in the class are divided into two different groups: one focused on using the latest fintech research by Michigan Ross finance professor Bob Dittmar to improve financial inclusion, and the other on scaling a technology developed by Ross marketing professor Eric Schwartz on how to identify lead in Flint water pipes so that it can have a greater impact in Flint and beyond. 

“In this course, it is incredibly rewarding to bring together graduate students from five different schools on campus to learn design methodologies and immediately apply them to pressing challenges in society,” said Jeffrey Sanchez-Burks, faculty director of the +Impact Studio and instructor of the course. “The +Impact Studio course provides rare and valuable skills and a set of experiences employers across sectors are asking for.”

With long-term interests in making an impact in healthcare, Gautam Kandlikar, MBA ’20, enrolled in the +Impact Studio course because he said there hasn’t been a good way to define and address larger healthcare problems beyond simply providing care and how to go about tackling them. 

“What I like about this course is that professor Sanchez-Burks is taking really big and difficult-to-solve societal problems like poverty, and forcing us to think about them in different ways so that we can develop solutions by incorporating tools from business, design thinking, and new ideas we are being introduced to,” said Kandlikar. “I’m excited to explore those methods in the class so that I can apply them to healthcare and in my future career.” 

To celebrate the grand opening of the space, an open house was recently held at the +Impact Studio. At the event, Michigan Ross students, faculty, staff, alumni, and members of the business community were able to get a firsthand look at how the space was designed to facilitate collaboration and idea generation. 

“The physical space itself was designed around ‘users’ (students), based on observation of how they work together as teams,” said Jerry Davis, associate dean of Business+Impact at Michigan Ross. “Each part of the +Impact Studio provides a functional space for different ways of working and creating, from small group discussion work to quiet contemplation to interviewing to big presentations of work in progress. The space and the work and the course are all perfectly aligned.”

Kandlikar agreed the space was fulfilling on its promise, providing a great space to step back and think about problems, a place to have insightful conservations, and a source of creative inspiration with its bright pops of color. 

“It’s nice to be able to come into this sacred atmosphere where I’m only thinking about the problems in the class and having access to resources that I need,” he said. “Since my like-minded classmates and I are looking to make social impact a big part of our careers, this course and this space provide us with the perfect platform to explore achieving something really meaningful in a safe environment.” 

Read original article at Michigan Ross

Michigan Ross Dean signs open letter on immigration

October 15, 2019 – Michigan Ross Dean Scott De Rue joined 62 other business school deans and US CEOs in authoring a letter to administration and congressional leadership today about the effects of restrictive immigration on business school enrollment and the future of the US economy. The message appears as an open letter in the Wall Street Journal DC edition today.

Maintaining that Reagan’s “shining city upon a hill” description for the US welcomes immigrants, the signatories asked that leaders work to change a “dangerous negative trend” that turns away “hundreds of thousands of highly-skilled immigrants for no other reason than that they failed to win the H-1B lottery.” The letter suggested that lower-than-normal foreign student numbers in America’s universities are adversely affecting America’s crisis in filling STEM jobs.

In addition to this open letter, the Graduate Management Admission Council (GMAC) will be releasing an evidence-based white paper today on the same topic. 

Read a full copy of the open letter here.

 

Ted London Wins Book Award for “The Base of the Pyramid Promise”

AUGUST 2019 – The International Humanistic Management Association (IHMA) awarded Ted London the 2019 Humanistic Management Book Award for Practice for his book, The Base of the Pyramid Promise.

The book draws on over 25 years of experience across some eighty countries, and offers concrete guidelines for how to build better enterprises while simultaneously alleviating poverty. London outlines three key components that must be integrated to achieve results: the lived experiences of enterprises to date—both successes and failures; the development of an ecosystem that is conducive to market creation; and the voices of the poor, so that entrants can truly understand what poverty alleviation is about. London provides aspiring market leaders and their stakeholders with the tools and techniques needed to succeed in the unique, opportunity-rich BoP.

Ted London is an internationally-recognized expert on enterprise strategy and poverty alleviation. He is Vice President of the William Davidson Institute and a faculty member at the Ross School of Business, University of Michigan.

Order on Amazon

Net Impact @ Ross Awarded Gold Chapter Status

Earlier this summer, in recognition of their hard work as a chapter, Net Impact @ Ross received Gold status from Net Impact Central. The chapter accomplished a great deal in the 2018-2019 year and NI Central said it was excited to see what your chapter does this school year.

Net Impact Central will be announcing the full list of Gold chapters on their site to share Net Impact @ Ross’  great stories with the larger Net Impact community.  As a Gold chapter, Net Impact @ Ross has also been entered into the running for Chapter of the Year and is promised special status at the 2019 Net Impact Conference in Detroit Oct. 24-26.

Business+Impact is proud of this extraordinary club and close partner in the work of impact for business.

Michigan Ross MBAs Share the Insights They Learned About Teamwork on Day 2 of Business School

Just one day after arriving on campus, the most diverse class of Michigan Ross Full-Time MBA students ever were faced with an ambitious business challenge presented by Amazon and the Sanger Leadership Center. This year’s Business + Impact Challenge asked students to develop innovative ways Amazon could use its resources to create ethical and profitable impact for those living on less than $2 a day in India.

Read full blog post

Popularity of Social I’s and E’s

Keyword Volume

 
PPC Comp.

 
Intent

 
corporate social responsibility
  22,200 9.05 Very high
social responsibility
  14,800 1.47 Medium
social entrepreneurship
  9,900 5.46 Very high
impact investing
  6,600 41.98 Very high
social change
  5,400 0.66 Low
social enterprise
  5,400 5.82 Very high
community impact
  4,400 1.12 Medium
social impact
  3,600 6.73 Very high
corporate social responsibility definition
  3,600 1.39 Medium
what is corporate social responsibility
  2,900 2.72 High
social responsibility of business
  1,600 12.64 Very high
social good
  1,600 4.1 Very high
social innovation
  1,300 9.87 Very high
impact of social media
  1,300 4.25 Very high
centre for social innovation
  1,300 3.08 Very high
social impact bonds
  1,300 10.06 Very high
social implications
  1,000 0.23 Very low
social impact jobs
  880 4.39 Very high
social impact definition
  880 2.08 High
center for social change
  880 5.47 Very high
social entrepreneurship definition
  880 3.11 Very high
impact company
  880 3.47 Very high
social enterprise definition
  720 2.33 High
social impact investing
  720 56.01 Very high
social impact theory
  590 1.1 Medium
corporate social responsibility companies
  590 12.87 Very high
social entrepreneurship examples
  590 6.37 Very high
social bonds
  590 0.37 Very low
social investment
  590 41.42 Very high
social aspects
  590 0.02 Very low
social venture
  590 2.29 High
social impact consulting
  480 20.51 Very high
social enterprise alliance
  480 7.11 Very high
social sector
  480 0.03 Very low
pay for success
  480 0 Very low
kapor
  480 0.1 Very low
social effects
  390 0.05 Very low
impact investing funds
  390 63.91 Very high
enterprise social network
  390 61.69 Very high
what is social impact
  390 4.78 Very high
social consequences
  390 0 Very low
impact center
  390 2.49 High
media impact
  320 4.81 Very high
social entrepreneurship companies
  320 11.84 Very high
impact consulting
  320 2.8 High
social lab
  320 0 Very low
sroi
  320 1.07 Medium
social impact fund
  320 26.31 Very high
impact measurement
  320 3.88 Very high
social significance
  320 0 Very low

We Face Incredible Global Challenges — But I’m Committed To Helping My Fellow Students Rise To The Occasion

April 22, 2019

by Grant Faber, BBA ‘19 / MS ‘21

More than 70 billion farm animals are killed for food each year, along with trillions of sea animals. And about 67 percent of humanity lives on less than $10 per day. These depressing statistics represent some of the worst problems that conscious beings on Earth face: existential risk, factory farming, and global poverty respectively.

Effective altruism (EA) is a philosophy and international social movement that uses evidence and rigorous research to determine the most effective ways to identify and solve these kinds of problems. And, I’m happy to say, it recently found its way into Michigan Ross.

Read the complete blog post »