Big Red Horseshoe - Vanderbilt Owen MBA Students on Business Strategy

Econometrics...Not A Bad Way To Shape A Strategy

My classmates who missed the lunchtime presentation by The Parthenon Group's Roger E. Brinner missed a an often fascinating overview of the power of multiple variable regression analysis for analysis and forecasting. Mr. Brinner spoke with incredible vigor, insight and intelligence. Though he did not have enough time to get too in depth on any one example, the message was clear: This practice can change a company's fortunes. It was my favorite of all the Distinguished Speaker Series events I have attended.

The timing of Mr. Brinner's talk coincides with a book I just (I mean really just) started reading, "Competing on Analytics: The New Science of Winning" (I'll have it back to the Owen library when I'm done). After just a few pages in I can tell it's going to be an educational and possibly transformational read.

Think maybe econometrics is going to be a valuable business tool for MBA in the coming years? Oh yeah.  Sharpen up those quantitative skills, folks.

Washington Imposes New Strategy On Detroit

As a rule of thumb, an industry is better off policing itself than waiting for Congress to step in and do it for them. But in a post-"Inconvenient Truth" America with gas prices at record highs, American automakers are paying a bit of penance for decades of trading fuel efficiency for larger vehicles. Not even heavy lobbying could hold off the new fuel standards set in the energy bill that passed a few days ago.

By 2020, vehicles must average 35 miles per gallon. The Wall Street Journal takes a look at the implications behind a mandate to quickly move to fuel-saving technologies. Large vehicles won't be gone forever, though, since automakers will have some "regulatory maneuvering room" in the form of federal subsidies to offset retooling factories and fleets. But there's no doubt MacVehicles are going to be less practical to manufacture.

"As manufacturers go about their product plans, the thinking will be 'all mileage, all the time,' says an official with one major auto maker. Emphasis on 0 to 60 performance, big engines and large horsepower numbers will decrease. The balance will tilt toward improving mileage, this person said. Powerful sports cars like Ford's popular Mustang could become endangered, economic-forecasting firm Global Insight says, though exactly how auto makers will recalibrate their product mix remained unclear."

How much wiggle room will Detroit get? An article at The Freep implies the Mustang very well may be endangered, but certain loopholes will still exist.

"The deal also gives automakers some room to maneuver. Not all of them will have to meet the 35-m.p.g. industry-wide goal, and Detroit companies might have a lower number. Regulators will count cars and trucks separately, preserving to some degree the so-called SUV loophole that has helped Detroit over the past few years.

The rules also would allow automakers credits for renewable fuels and a new ability to trade gains in one class of vehicle for shortfalls in the other."

Bonus reading:

-- FuelEconomy.gov, a website with info on hybrids and flex-fuel vehicles, as well as tax incentives consumers can get.

-- EPA.gov, learn how the EPA sets fuel economy estimates for vehicles and read the 2008 Fuel Economy Guide.

The best business in China....

...could be truck-driving! You have read about infrastructure problems in China - looks like anyone with a truck is getting into the fray. Road and rail freight were a $110 billion dollar industry in 2006, growing at 14%. That is $13 billion in new business last year! Sole proprietors comprise the majority of trucking firms. Although the multinationals compete within China, this is a very fragmented market with low barriers to entry. Porter and his 5 Forces also tell us that low switching costs encourage new entrants.

Express shipping is ramping up with the big boys all focused on the Chinese domestic market. Everyone has been negotiating for the limited number of flight frequencies that Beijing will grant to foreign air carriers. DHL has been servicing China from a Hong Kong facility in a JV with Air Hong Kong. They just announced a new hub in Shanghai. UPS(Shanghai) and FDX(Guangzhou) have been there since 2005. These guys are betting on the express parcel shipments to balloon as infrastructure improves on the mainland and exports and domestic consumer spending continue to build.

Dropping DRM A Good Strategy

I read with glee Ed Christman's article  at Billboard.biz on the state of DRM. (DRM stands for digital rights management, the locks and limitations placed on digital media. In this case, I'm talking about purchased music downloads.) EMI was the first to drop DRM. Universal Music Group is in the midst of a test phase, and Sony BMG is rumored to be ready to ditch DRM as well. Between those three companies, that's about 80% of all music purchases in the U.S. (a bit less when you take out physical sales, though).

Last month I spoke on a panel on DRM at the Americana Music Conference. My main point was that DRM was standing in the way of growth in digital sales and was a stipulation that would discourage the kinds of entrepreneurs that will lead music into the next digital age. There is no doubt that protected Windows Media, the typical format of a non-iTunes download, is a non-starter with virtually all consumers. Since Apple is not going to license its FairPlay technology to others, the best option for the industry is to drop DRM. New ideas and creative services will flourish where before they were stymied by the unfortunate fact that nobody wants a DRM file unless it comes from iTunes.

Record labels are good at administering catalogs and copyrights, discovering talents and marketing music. They are not good at offering services to consumers. So, it would be best to encourage a new generation of digital retailers and service providers, would it not? That is impossible with DRM. If labels stick with DRM, they are chaining themselves to years of acrimonious relations with the market monopolist, iTunes. Label execs do not wants that.

For DRM to be of value, the benefits of dropping DRM would have to be less than the dollar impact of the increase in piracy. That's assuming there will be an increase in piracy, which is anybody's guess. OK, so there will probably be a tiny increase in piracy. (But not a great deal since songs ripped from CDs are unprotected and songs download from file-sharing networks are unprotected.) The future gains, though, that will come from dropping DRM will undoubtedly be far larger than whatever small downside will exist. And that's the basis of the move away from DRM: Take the gains from new entrepreneurship and absorb the smaller loss from piracy. Introduce a new era of cross-marketing and put up with the chance some of those unprotected tracks might be swapped from one person to another. At the end of the day, it's a net gain. That's what matters. Only a seriously risk-averse and foolish industry would pass that up.