Fall 2009

 

Assets
Published by UCLA Anderson School of Management

Sample features provided here. Click to download the entire issue (PDF).

Applied Management Research Program Anniversary

Learn by doing. It is such a common suggestion that it could be considered cliché. When a thought like this one is repeated often, it is usually because there is truth in it. Complete article >

California - Golden Dream to Golden Mean

National news media are filled with stories of California dysfunction, attracted by the state’s fiscal crisis, the resulting issuance of IOUs and the earlier voter rejection of various budget relation ballot propositions. Complete article >

Economic Acting Lessons

For many years, Shlomo Benartzi, has studied a problem that has vexed policymakers: the failure of individuals to save adequately for retirement. Complete article >

Entrepreneurial Ingenuity

In today’s market, whether job seeking or selling your services, it’s imperative to distinguish yourself. Complete article >

China’s Trade and Economic Relations with the United States

He is an international expert and renowned scholar in engineering, economics, finance and management. He has more than 40 years experience in the chemical industry and is a pioneer in growing China’s multi-billion dollar borax industry. Complete article >

 

Applied Management Research Program Anniversary
Celebrating 40 Years of Exposing Students to Real-World Learning

By Hilary Rehder

Learn by doing. It is such a common suggestion that it could be considered cliché. When a thought like this one is repeated often, it is usually because there is truth in it. And it is not surprising that this phrase is routinely used to describe the experience provided by many field study programs, which are now so prominent in academia. As the term implies, participating students work “out in the field,” practicing their skills and applying their knowledge in the real world.

UCLA Anderson’s Applied Management Research Program (AMR), the capstone of the school’s Full-Time MBA Program, is a stellar example of just such a program. Sara Tucker, now director of the Coaching and Team Skills Program, was director of AMR for five years. During that time and since, experiential education has become even more strongly recommended, including making it more central to the entire MBA curriculum. She has seen firsthand what the effects are for the students involved in AMR and views it as having the potential to be “truly transformative” for them.

“In AMR, students sharpen their understanding of the theories they have learned in the classroom,” said Tucker. “The real world is obviously a more unpredictable environment with much less control, and it has more serious consequences. Using their newly acquired knowledge and skills to find solutions for their client companies adds nuances and details to students’ understanding that can be acquired in no other way.”

Now celebrating its 40th anniversary, AMR continues to challenge students to excel with this practical application, strengthening their management acumen in the business arena. Since its inception in 1969, AMR has brought together student teams with executives from both local and global organizations. For two academic quarters during their second year, full-time MBA candidates devote a minimum of 10 hours per week consulting for their assigned companies, trying to solve their problems in real time. At the end of their project, students complete their experience with a written analysis, which is reviewed and graded by a faculty committee.

The idea for the AMR program began when the faculty-at-large decided that the MBA program needed to be improved. A designated faculty team redesigned the program and included action learning and the field project as one of its critical components. Anthony P. Raia, professor emeritus of human resources & organizational behavior, was a member of the founding faculty. He also continued to serve as a faculty advisor in AMR for many years after that, witnessing from the beginning what he considers to be a revolutionary impact on Anderson students’ abilities, as well as real results for the numerous companies they helped along the way.

“With our new program, we were light years ahead of other business schools in terms of field-study projects,” said Raia. “The faculty wanted to expand the core learning curriculum with the new hands-on component. In the process, we went from a traditional MBA program with a thesis and units earned towards graduation to a two-year section-type program.”

During its 40-year history, the AMR program has had partnerships with participating organizations from across the business spectrum and around the world, including nonprofits, microfinance institutions and startups, as well as some from among the Fortune 500. Recent examples include Sony International Pictures, Trader Joe’s, Mattel, Starbucks, Los Angeles County Museum of Art, BCBG, Safeway, Harbor-UCLA Medical Center, Fox Sports International, Princess Cruises, 20th Century Fox, Grameen, Hyundai and Disney, among many others.

“Through the oldest comprehensive field study program in the nation, AMR student teams have been strategic business advisors, providing innovative solutions for over 3,000 client companies,” said George Abe, lecturer and faculty director of the AMR program. “Our partners over the past four decades have offered excellent consulting experiences for our students. In turn, the students have assisted companies in a wide variety of ways, including expanding their customer base, improving their products, creating strategic plans and exploring new sources of revenue.”

AMR’s primary goal of immersing students in live problem solving can be satisfied with different situations in a wide variety of kinds of organizations. While many students choose companies from AMR’s pre-qualified list, a few students look within their own personal experience to find appropriate projects. For example, a family-run company, T & T Supermarket, is the largest chain of Asian supermarkets in Canada, which also happens to be owned by the parents of Tina Lee (MBA ’09), one of the team members on T & T’s project. The focus was to examine whether T & T would ultimately benefit from launching a customer loyalty program, and if so, how they should execute it. (By the way, T & T was recently purchased for $225 million.)

“Working with my teammates, we were able to build links between academia and industry, consultants and client, and Western and Chinese cultures, which was critical to making our project a success,” said Lee. “These are skills I will surely take with me and use over and over again as I continue my career. Acquiring them made the great learning experience I had through AMR a very important part of my life at Anderson.”

Richard Ho (MBA ’09), one of Lee’s teammates on the T & T project, added, “Our AMR work made us delve deeper into topics we studied throughout our MBA course, such as strategy, operations, marketing, financial modeling and IT development. We put together a diversified team of individuals with each of us serving as a subject matter expert for a particular topic area. This was truly the culmination for our business school experience, encompassing the fundamental principals we learned. It was an opportunity to put all our new MBA skills to work in a single coordinated effort.”

The UCLA Anderson AMR program will continue its tradition as one of the longest running and most rewarding educational experiences undertaken by the school’s students. It is one of the hallmark elements that helps set UCLA Anderson graduates apart from those of other top-tier business schools. Victor Tabbush, adjunct professor of global economics & management, who served as associate dean and director of the Fully Employed MBA Program from 2001 to 2007, summed up why the learn-by-doing approach of AMR has been so pivotal in the development of full-time MBA students.

“Students learn only a little from listening, slightly more from being shown and the most by doing it themselves,” said Tabbush. “In AMR, they do it themselves and learn about the management challenges of planning and executing business strategies in ways that are truly memorable.”


California
Golden Dream to Golden Mean

By Daniel J.B. Mitchell

National news media are filled with stories of California dysfunction, attracted by the state’s fiscal crisis, the resulting issuance of IOUs and the earlier voter rejection of various budget relation ballot propositions. Not surprisingly, the focus is on the state’s highly-visible political institutions. The liberal narrative attributes California’s dilemma to Proposition 13 of 1978, which drastically limited local property taxes and required a two-thirds vote for state tax increases. Conservatives blame an inability of politicians to live within their means and point to voter-mandated spending propositions, such as Proposition 98 of 1988, which earmarked roughly 40 percent of the state’s general fund for K-14 education.

While there is truth in both narratives, there is a more fundamental shift at work. From the gold rush era to roughly the late 1980s, California grew faster than the rest of the United States. Today, it represents over 12 percent of the nation’s population and economic activity. It is roughly half again as big as the next largest state, Texas. Various factors contributed to that growth. Until World War II, California was an elderly state. People came from the cold Midwest to retire in the sunshine. Not surprisingly, the state — and particularly Southern California — became known for odd religious and political movements catering to those with an eye on the hereafter.

Despite California’s pre-War kooky reputation, in the Bay Area, two fellows named Hewlett and Packard were tinkering with electronic equipment in a garage. And nice weather had attracted movie production and aircraft plants to the south. World War II brought an incredible surge in population needed to work in military production. And the Cold War kept the high-paying aerospace industry booming for many years thereafter. In short, world events, good weather and a host of other factors made California the nation’s largest state by the mid-1960s.

After World War II, rapid economic growth produced tax revenues needed to finance freeways, water projects, public colleges and universities, and a highly rated K-12 system. California went from being an elderly Florida style state to a youth culture. Young people could come to California and acquire cheap housing in suburbs built on former farm land.

So what went wrong? The economist’s notion of rising marginal cost is the key. Cheap land filled up. It became more and more expensive to add to freeways and augment water supplies. As more people crowded together, the environmental costs of growth became more apparent.

Gov. Pat Brown in the 1960s is today remembered for his infrastructure expansion. But his son, Jerry Brown, became governor in the mid-1970s talking about an “era of limits.” House prices rose as population growth pressed against the increasing cost of supply. With those rising house prices came soaring property tax bills and Proposition 13. In the early 1980s, state voters rejected a major water project expansion. Slow-growth movements arose in response to rising density, congestion and environmental issues.

For a time, these developments were partly offset by the intensifying Cold War with the Soviet Union and military spending in California. But by the late 1980s, the Soviet Union was dissolving, along with the Cold War. In the early 1990s, while the United States suffered a mild recession, California had a deep and prolonged recession from which it has never really recovered. The UCLA Anderson Forecast regularly produces a chart plotting California’s actual employment in the 1990s and 2000s against its prior trend. The Forecast projects that by 2011, California will be over 5 million jobs below trend. California’s population will continue to grow, according to the Forecast, but at roughly the national average.

Despite the impression in the national media that California is becoming a failed state, in fact, what we are observing is a slow and painful adjustment. California is transitioning from being a fast-growth state to an average state, a process that really began in the 1970s. Viewed that way, Proposition 13 was more a reactive symptom of the beginning of that adjustment than a primary cause. Voter expectations have lagged the adjustment process. The political dysfunction in Sacramento reflects the disjuncture between reality and those expectations.

The key point, however, is not that California is doomed but that it is normal. California has many strengths, including its diversified population. But its challenges now mirror those of the nation. How do we deal with an aging population? What changes are needed to make public schools more effective? How do we adjust from being a low-saving consumer society to one that emphasizes competitiveness and exports? The next time you hear a state official boast that if California were a country, it would be the sixth or seventh largest in the world, just ask “So what?” We may be big, but that doesn’t allow us to avoid facing the same issues as any other state.


Economic Acting Lessons
Using Insights into Human Behavior, a UCLA Anderson Special Research Group is Helping to Transform Economics

For many years, Shlomo Benartzi, professor of accounting at UCLA Anderson, has studied a problem that has vexed policymakers: the failure of individuals to save adequately for retirement.

Benartzi found in his research that people fall short in their savings strategies because they do not have the self-control to postpone consumption into the future.

But for Benartzi, identifying the problem wasn’t enough. He set out to find a solution. He understood that although people may not want to forgo current income, they will relinquish money they don’t have now. So with University of Chicago economist Richard Thaler, Benartzi designed the “Save More Tomorrow” or SMarT program, which commits employees to setting aside some of their scheduled future pay increases for retirement savings.

Tried at workplaces in the late 1990s, the SMarT program proved highly successful. More than three quarters of employees joined the plan, and 80 percent of those stayed in it during the four-year study period. Participants nearly quadrupled their savings rates. SMarT is now being used by half of the large corporations throughout the United States and is expanding to other countries.

“People sometimes can be clueless when it comes to money, so there are many opportunities to help them if you understand their behavior,” said Benartzi. “I’m excited by things that work. I want what I do to have a positive effect on people’s lives.”

Benartzi’s SMarT program is one of many projects produced in the last six years by members of UCLA Anderson’s Interdisciplinary Group in Behavioral Decision Making. This collection of scholars conducts groundbreaking research at the boundary of psychology and economics, drawing on a range of other disciplines that stretches from political science to anthropology to law.

Some researchers in the group focus on practical matters: How can people be motivated to conserve energy? What is the best way to plan a big vacation? Others in the group examine larger questions that can affect all of society: Why do markets spiral up and down, seemingly without relation to what is happening in the economy? What accounts for the recent boom-bust cycles in commodities, tech stocks and real estate?

Understanding the Head and Heart

The idea that economists should pay much attention to psychological or social factors is a fairly new one, and it challenges long-held beliefs and approaches in the field. Neo-classical economics, which held sway for most of the 20th century, assumes that people are basically rational and that they behave in ways that maximize their self-interest. Markets are efficient and self-correcting, according to the conventional view.

Behavioral economics, on the other hand, assumes that human decision making results from a complex mix of motivations – emotional, cognitive and social – with rationality often taking a back seat. Behavioral economists point out numerous everyday examples in which people reliably behave in ways that are clearly irrational or at odds with their self-interest: Gamblers at a casino feeding bills into slot machines, knowing they are destined to lose. Participants in lawsuits, labor strikes and divorce proceedings rejecting financially advantageous bargains. Individuals vowing sincerely to exercise and lose weight and then not doing so.

Behavioral economists also like to note that while they have only recently been accepted as legitimate members of the economics profession, their approach is not exactly new. No less a figure than Adam Smith, the father of modern economics, recognized the complexities of judgment and morality in his 1759 book, “The Theory of Moral Sentiments,” published 17 years before his better known “Wealth of Nations.” Jeremy Bentham, an influential English philosopher and a contemporary of Smith’s, wrote at length about “the happiness factor” or pleasure-pain calculations present in human actions.

But in the 19th century, neo-classical economics was ascendant, and it forced these earlier notions of why people behave the way they do to the side. The discipline sought to become more scientific, and the concept of Homo economicus took hold. In the neoclassical view, economic man was rational, self-interested and reasonably predictable. As economics became more like physics, researchers could apply mathematical analysis to all manner of economic questions.

Insights into Economics from Psychology

Then, late in the 20th century, the neo-classical grip began to weaken. A pair of psychologists, Daniel Kahneman of Princeton and Amos Tversky of Stanford questioned assumptions of rational choice and introduced more psychologically valid models of judgment and decision making. In particular, they published a paper in the journal Econometrica in 1979 arguing that people’s decisions are determined by how options are perceived relative to a reference point, and this reference point can be influenced by how options happen to be described. In general, people tend to avoid risks that are perceived as gains and seek risks that are perceived as losses. For example, most people choose to avoid risk when choosing between health policies that are described in terms of the number of lives that would be saved, whereas they choose to seek risk when choosing among health policies that are described in terms of the number of lives that would be lost. This notion that changes – gains and losses – are the carriers of value challenged a key assumption of neo-classical thought, which is that all that matters to people when confronted with a choice is how options affect one’s final state of wealth so that reference points don’t matter and decisions are not affected by how options are described. The paper is often cited as the founding of behavioral economics.

Throughout the 1980s, behavioral economists continued to make inroads in the neo-classical paradigm. Richard Thaler, who was at Cornell then, wrote a regular column, “Anomalies,” in the Journal of Economic Perspectives. In provocative style, Thaler explored glaringly non-rational phenomena, such as the fact that people strongly prefer avoiding losses to acquiring gains and will demand much more to give up an object than they are willing to pay to acquire it. His collected columns would later become a popular book, “The Winner’s Curse,” and in 2008, he would be a key economic advisor to Barack Obama.

A milestone came in 1997 when the Quarterly Journal of Economics devoted an entire issue to behavioral economics. Then, in 2002, the Nobel Prize in economics went to the psychologist Kahneman, only the second time until then that a non-economist had won the award (his collaborator, Tversky, had died six years earlier and was therefore not eligible for the prize).

UCLA Anderson at the Forefront

By the early 2000s, a number of scholars at UCLA Anderson and the larger university community were exploring the many aspects of the burgeoning field of behavioral economics. In keeping with the hybrid nature of the field, these researchers represented different academic disciplines and were employed by different departments spread across the UCLA campus. Rakesh Sarin, chairman of the business school’s faculty at this time, recognized the need to bring together these individuals with diverse backgrounds and similar interests.

Sarin, now the Paine Chair in Management at UCLA Anderson, encouraged Shlomo Benartzi, who had studied under Thaler at Cornell, and Craig Fox, professor of policy at UCLA Anderson and professor of psychology at UCLA, who had trained under both Kahneman and Tversky, to launch the Interdisciplinary Group in Behavioral Decision Making.

“The behavioral decision making group provided a forum to connect all these researchers with a common theme,” Sarin said.

A decision was made early on to invite to the business school program not only researchers from across the university but others from institutions beyond the UCLA campus. Today, official members of the group include faculty from California Institute of Technology and the University of Southern California, as well as members of UCLA’s psychology, anthropology, political science and communication studies departments, and the law school. Within a year of its founding, the behavioral decision making group at UCLA was ranked among the top behavioral decision making programs in the world, and today it is commonly regarded to be the strongest group in the Western United States.

Bringing the Best Minds to Campus

One of the first initiatives of Fox and Benartzi, who have been co-chairs of the group since its founding, was a seminar series to bring in the world’s leading researchers in behavioral economics. The gatherings would expose students and faculty to the top minds in the field and underscore the reputation of UCLA Anderson’s interdisciplinary group as a leader in the increasingly influential academic movement. One of the first seminar speakers was the father of behavioral economics, Nobel Laureate Daniel Kahneman.

Today, the seminar series, which meets twice monthly during the academic year, is one of the best attended on the UCLA campus, drawing participants from not only the business school, but also the law school, medical school and many diverse academic departments. In addition, a number of participants meet weekly to discuss current research in progress and seek feedback from one another.

Another key feature of the interdisciplinary group is its series of working papers, which highlights cutting-edge research produced by group members. The group also offers two MBA elective courses, Managerial Decision Making, taught by Fox, and Psychology and Personal Finance, taught by Benartzi, along with a number of doctoral seminars.

The presence of the Interdisciplinary Group in Behavioral Decision Making has helped UCLA Anderson recruit top faculty and students. Suzanne Shu is an assistant professor of marketing who received her doctorate in behavioral science under Thaler at the University of Chicago in 2004. “My decision to come to UCLA Anderson was greatly influenced by the existence of the behavioral decision-making group here,” Shu said. “This is a vibrant community that helps us move our research forward more quickly than if we were working on our own.”

Real Solutions to Real-World Problems

Shu uses her background in behavioral economics and marketing to analyze consumers’ saving and spending decisions. Her research draws on her expertise in both these subjects to analyze these choices for both consumables and financial purchases. For example, with consumables, her work on procrastination of positive experiences has looked at consumer’s search for the right time to use their frequent flier miles, drink that special bottle of wine or use their gift cards. Her findings show a tendency to wait too long in all these situations.

She also has a special interest in consumer behavior for financial decisions. Unlike others in behavioral finance, her focus here remains on individual consumer’s decisions to purchase or not purchase a product. Her investigations explored topics like loans and mortgages, including recently looking at how people decide to invest in annuities or use reverse mortgages.

“When it comes to choosing loans, I have found that people pay a lot of attention to the total amount of interest they pay instead of just paying attention to annual percentage rate,” Shu said. “This can affect other aspects of the mortgage decision, such as how long of a loan to take or whether or not to pay points on the mortgage.”

Getting people to conserve energy is on almost everyone’s agenda these days. It is a goal of governments, businesses, utilities, environmentalists and consumer activists. Millions of dollars have been spent on the cause. Noah J. Goldstein, assistant professor of human resources & organizational behavior, decided to tackle the problem. And he made the task more difficult by deciding beforehand that the solution he came up with had to be inexpensive.

He began by hypothesizing that people do not want to be very different from their neighbors. So with the cooperation of San Diego Gas & Electric, he had notes added to bills telling customers whether they were using more or less energy than people in their neighborhoods.

As Goldstein expected, those who were told they exceeded the norm responded by cutting consumption in subsequent billing cycles. But while solving one problem, the messages in the bills created another. When customers who had been using less than the norm were notified of their success, they increased their usage – presumably to be more like their neighbors.

Goldstein pondered how to counter this phenomenon. He knew that while people want to see themselves as normal, they also want approval. So he and his colleagues hatched the idea of putting smiley faces on the bills of those using less electricity. It worked. After receiving bills with smiley faces, conserving consumers kept their energy use down. The results were so clear and convincing that after Goldstein published his findings, several major U.S. utility companies adopted the practice.

You can also influence people by spending $10 million on an advertising campaign,” said Goldstein. “But I’m interested in finding what can be done with very few resources. Most organizations don’t have a lot of spare cash now.”

Like Goldstein’s energy conservation project, much of the research coming out of the interdisciplinary group combines rigorous theory with very practical applications.

Wendy Liu, assistant professor of marketing, devised strategies for planning a vacation by using her knowledge of how the brain balances emotions and practical concerns. Aimee Drolet, professor of marketing, has done research into decision making and aging that concluded that people over 65 can handle mixed stimuli better than younger people and that maybe we shouldn’t feel so bad about getting older after all.

What Marketers Need to Know about Decision Making

If marketing is about satisfying customers, then behavioral economics has much to offer the field of marketing. Successful marketers need to know how and why people make choices.

Sanjay Sood, associate professor of marketing and faculty director of UCLA Anderson’s Behavioral Lab, discovered in his research that consumers’ evaluation of a product or service depends greatly on whether it is presented by itself or as one in a group of options. Something offered in isolation tends to be much more highly thought of than when the same option is presented as part of a group, Sood found.

Asking people whether they would like to take a vacation in Hawaii usually will elicit a positive response from most people. But ask them whether they would like to go to Hawaii, Las Vegas, Miami or New York, and the Hawaii vacation seems less desirable because people think of the positives (e.g., beautiful beaches) and negatives (e.g., no gambling), according to Sood’s research.

These findings are consistent with the seminal 1979 paper of Kahneman and Tversky that described the principle of loss aversion – that losses have more impact than equivalent gains. In this case, the losses are negative features that come to mind because of the presence of other options in the group. Even though choosing the group offers a kind of flexibility to keep one’s options open, the negative features that come to mind reduce the perceived value of an option compared to when it is presented in isolation.

Shi Zhang, associate professor of marketing, found that giving consumers difficult choices among competing products can build strong brand loyalty. In several experiments, he observed that difficult choice decision making led consumers to be more attentive to product features, and later, these consumers recalled more features. However, at the same time, they confused the source of features, incorrectly attributing more positive features to the chosen option. These distorted memories bias future evaluations of similar products. As a result, consumers were more likely to stick with their original choice and less likely to switch to a new option, even if the new option was objectively superior. But when choices were easy, fewer features were recalled with less source confusion, hence there was less memory distortion, and consumers were more open to new options.

“Making the choice easier for consumers, as marketers now preach and practice, is not necessarily a good thing if the goal is to have customers stay loyal,” Zhang said. “These findings are applicable to a wide group of settings involving memory distortion in decision making, showing a lack of objective judgment when reviewing past decisions in any context.”

Irrational Markets and Getting to Know Your Stock Analyst

For behavioral economists, financial markets provide volumes of research material. If the financial crisis demonstrated anything, it is that there is much more to markets than rationality.

Avanidhar Subrahmanyam, professor of finance, or Subra as he is known on campus, spends much of his time studying the stock market. In a study that tracked the Consumer Confidence Index with stock market fluctuations over a six-year span, Subra and two other researchers found that when investors are overly optimistic, stock prices first tend to run up quickly, yielding big profits. Then prices reverse direction and fall into decline – the same phenomenon seen in the financial crisis.

The study found that price reversals occurred only after optimistic periods, leading to the insight that investor psychology is a trigger for the boom-bust cycles.

“I genuinely believe that there are many episodes in the stock market that cannot be reasonably attributed to rational behavior,” said Subra. “Look at the tech stock boom and bust, and the real estate boom and bust. Look at what happened to gasoline and oil prices, which spiked by 60 percent over three months. These are hard to account for using rational demonstrations.”

Subra also has studied the stock analyst industry, comparing the behavior of younger and older analysts. He found that younger analysts tend to be more impulsive and make snap decisions about whether to upgrade a stock. Older analysts tend to be more moderate and think things through. When young analysts decide to upgrade a stock, its value spiked in the short run but reversed long-term. If older analysts upgraded a stock, its price tended to rise and stay there.

Subra’s advice to investors: Consider age and experience when evaluating a stock analyst’s enthusiasm.

Detecting Risk and Reward in the Brain

A cornerstone principle of behavioral economics, articulated in Kahneman and Tversky’s 1979 paper, is known as “loss aversion”: people are more sensitive to losses than equivalent gains. This leads people to favor the status quo over changes that entail potential gains and losses, and leads people to demand more to sell objects that they own than they would have been willing to pay to acquire them in the first place. It also leads people to avoid taking risks that involve possible gains and losses.

Fox, co-chair and co-founder of UCLA Anderson’s Interdisciplinary Group in Behavioral Decision Making, explores this issue at the level of basic biology. In a collaboration with neuroscientist Russell Poldrack, he has used functional magnetic resonance imaging (fMRI) to scan the brains of people while they are making decisions. This technology tracks the flow of blood to electrically activity parts of the brain, allowing researchers to which parts of the brain are most active when people face choices involving risk and reward.

Using this technique, Fox and Poldrack determined that the primary reward center of the brain is more sensitive to potential losses than gains, just as Kahneman and Tversky’s model predicted 30 years ago.

“For the first time, we were able to detect loss aversion at work in the brain, literally seeing its neural signature,” said Fox. “We found that this reward circuitry is generally about twice as sensitive to loss as it is to gains, but it varies widely from person to person. More exciting, we can predict to a high degree of accuracy how loss averse a person is when making decisions by examining how much more sensitive his or her brain is to losses than gains.”


Entrepreneurial Ingenuity
Do Work to Get Work

By Kathryn Ullrich (MBA ’92)

In today’s market, whether job seeking or selling your services, it’s imperative to distinguish yourself. Toyota Prius and other hybrid vehicles bring premium prices. In a declining home mortgage refinance business, companies with good rates or customer service will beat out competitors for the customers requiring the product. In the job market, a director of marketing with experience in Web 2.0 community – building or Software-as-a-Service (SaaS) lead generation skill or a finance executive with business process cost cutting experience in biotech may distinguish themselves from other generic marketing or finance executives.

In asking a former Coca-Cola branding strategy executive, now in a small public relations agency, how the public relations business is doing in today’s market, he responded, “Companies with a strong brand message, an expertise in an area, are still drawing in customers; customers seek these companies. However, the larger agencies that try to be all things to all people are struggling.”

Sometimes it is not enough to say that you are good at some area. You need to demonstrate it to customers. Show us the money. I’m not advocating taking free internships or doing all your work for free. I recommend doing a focused “consulting” project that demonstrates your expertise, while building your knowledge capital and network in your niche. I call this using your entrepreneurial ingenuity to do work that gets you work, whether you seek a job or increased consulting revenue.

Consulting firms do industry benchmarks. Look at boutique payments consultancy Edgar Dunn and Company or supply chain strategy firm PRTM and their industry-leading benchmark studies and roundtables. Consulting firms, in their core strengths, benchmark best practices in an industry. They determine the processes and/or metrics to measure, identify companies to target, ask target client companies to participate in the study (often for a fee), interview key individuals in the company, analyze results and prepare a final report. Then they present the report to executives at participating companies. The consulting firms take their new expertise and tout this in the industry with white papers, web content, conference keynotes, media spots and business development presentations to other potential clients.

Let me share some examples:

1) I recommended the following approach to an executive interested in finding a corporate social responsibility (CSR) role in a technology company. (She had background and teaching experience in this area.) Contact target companies who might have CSR initiatives at some point. Find out where this responsibility might lie within the organization – human resources, marketing, finance, etc. Contact your network with the pitch, “I’m doing a benchmark study on corporate social responsibility to learn what companies are doing and the return on investment of initiatives. May I talk with you about what your company is doing?” When the research and report is done, contact the company with the message, “I have the benchmark findings on CSR. Who else from your organization should be in the presentation of results?” As for your results, you have knowledge of best practices and their return on investment, relationships with people in your target companies with responsibility for this function, and if data suggests, possible consulting or, later, full-time job opportunities with the company. If the company hires in this area, you will be the first they contact if done correctly. And, you have the knowledge that helps build your brand as the expert in CSR.

2) An investment banker moved from New York City to Silicon Valley and looked into buying a company. Finding only third-rate opportunities, he reconsidered his options. He said to me, “I’d look into private equity or venture capital, but I don’t have relationships in the area. I would become a business broker, but no one knows where the money is. And, the people in those roles have all moved.” Ah-ha. That’s an opportunity. No one knows where the money is. Why don’t you find out who is making loans? What are the requirements for loans? And who in the companies is making those decisions? In the process of contacting people, you will amass information that you can share in white papers, local presentations and blogs. And you will begin to develop relationships with those contacts. The knowledge in itself could make you a very qualified business broker with a network of targeted relationships.

3) A job seeker in software strategic alliances is targeting the clean tech industry. The clean tech industry, much like the Internet industry in 1995-96, does not have a deep talent pool of people with industry expertise. To gain the skills to change careers, this executive immersed himself in professional organizations and informational interviews to learn the industry and pursue jobs. Despite having negotiated many deals, he was always stymied by the question, “How many power purchase agreements (PPA) have you negotiated?” Saying “none” does not go over very well. Why not change that to an answer of, “None per se. However I just completed a study of PPAs and learned best practices about what makes the most effective contracts. Companies that …”

4) Recent alumni applied their own entrepreneurial ingenuity in the real estate industry. Three graduating students, Mike Brown (MBA ’09), Casey Lynch (MBA ’09) and Albert Bernal (MBA ’09), facing limited job prospects and motivated by Sam Zell’s advice, “It’s times like these that fortunes are made,” decided to start their own business. They started a real estate fund, Pelican Holdings, investing in distressed workforce housing. They put in their own funding and raised a sizable first round fund to buy foreclosed homes – all with positive cash flow. Using their real estate and finance backgrounds, they do considerable due diligence: climbing on roofs during inspection, doing renovations, and analyzing cash flow for current and future returns. Their work is getting them into discussions with other much larger real estate trading funds looking for partners to do due diligence on properties. As experts doing the work, not job seekers, they are having these conversations that extend their real estate networks and create business opportunities.

To get started applying entrepreneurial ingenuity, ask yourself the following questions:

• What is your industry and strength?
• What is your target industry?
• Where are there areas of opportunity?
• What knowledge or expertise can you
create that is needed in this space?
• What is the value of this knowledge?
• Who would be interested in this expertise?
• What opportunities will this create for you?

Whether you are looking to boost your business revenue or find a job, I encourage you to apply entrepreneurial ingenuity to create opportunities for yourself. Do targeted work, reaching out to the networks you want to know your brand and expertise. Rather than a cold call saying, “Are you interested in buying my services?” or “I’m looking for a job,” you can call with expertise and knowledge.


China’s Trade and Economic Relations with the United States
Si-Wei Cheng Visits UCL A Anderson to Share His Perspective from Inside Business and Government

By Paul Feinberg

He is an international expert and renowned scholar in engineering, economics, finance and management. He has more than 40 years experience in the chemical industry and is a pioneer in growing China’s multi-billion dollar borax industry. He is the former vice chairman of the 9th and 10th standing committee of the National People’s Congress for the People’s Republic of China.

But during a recent visit to UCLA Anderson, he told a Korn Convocation audience, packed with UCLA Anderson students, faculty and an array of Chinese and Chinese-American business men and women, that he prefers the simple moniker “professor,” suggesting that with all his accomplishments, it’s the role of teacher that Si-Wei Cheng (MBA ’83) most enjoys.

During his whirlwind Anderson visit, Cheng was well-received during what proved to be a very busy day. In addition to his Korn Hall appearance, he addressed UCLA Anderson’s Board of Visitors and met privately with UCLA Anderson students from the Greater Chinese and Asian Management Business Associations. One particular highlight was a visit to the Charles E. Young Research Library, where he viewed the She-Wo Cheng Memorial Fund collection. This collection of Chinese-, Japanese and Korean-language materials relating to journalism and education was established by Cheng and his siblings (including UCLA Sociology Professor Lucie Cheng) in honor of their blate father She-Wo Cheng.

Whether commanding a full house in Korn or addressing an intimate gathering of UCLA Anderson students from Greater China, Cheng exudes a learned charm. When addressing the case for U.S. investment in China and describing the state of U.S.-China trade relations, his persona is not that of a politician making the case for his country, but rather of a learned sage, logically advocating for expanded development of the two country’s economic relations.

It’s a relationship that Cheng characterizes as “mutually complimentary,” despite the United States’ $268 billion trade deficit with China. (That’s according to the U.S. Census Bureau.) Cheng suggested that China’s statistics indicate the deficit is less, noting that the U.S. figures include Hong Kong in the equation.

Cheng cited three ways in which the two countries enjoy a complimentary relationship. The first is China’s production of low-end goods, compared to the United States’ focus on high-tech products. Secondly, he noted, that the U.S. economy is based on consumer spending, while the Chinese economy is focused on savings. Third, the United States enjoys more advanced technology, while China boasts less expensive labor. Taken together, the U.S. trade deficit is currently inevitable. The Chinese people, who Cheng mentioned earn on average 50 cents an hour, cannot afford to purchase high-tech American products at the same level that U.S. consumers can buy less expensive Chinese goods.

“The United States still has the higher end of the market, but China is catching up step by step,” Cheng said in an interview with Assets magazine. “As time goes by, some labor-intensive low-end production will shift from the coastal areas of China to the western areas or from China to other Asian countries. This is the normal process, and in this case, we are catching up. But I think it will take a much longer timeframe to catch up to the higher-end production, because we are a country of 1.3 billion people. We cannot rely on high-tech industries.”

“If you want to balance the trade between the two countries, the United States must sell more products to China,” Cheng said. “But,” he added with emphasis, “The process should not be politicized.” The professor emphasized this point several times throughout his visit during various appearances, repeating the story of an American politician complaining that the ships entering the United States from China are “full,” while the ships heading back are “empty.” In response to what he sees as American political rhetoric, Cheng said with a smile that the consumer goods China sells to the United States are large and must be sent by cargo ships, while the computer chips and other high-tech gear traveling from the United States to China are more easily delivered by air. More to the point, Cheng believes that the imbalance should be solved by the United States gradually selling more goods to China, as the Chinese economy grows and becomes more globally integrated. What he does not want to see are regulations and other political instruments artificially interfering with economic progress.

Cheng understands the process after an “accidental” career in the Chinese Congress. As he explains it, his decision to enter the political realm came about because he wanted his ideas about economic reform to be heard and taken seriously by Chinese leadership.

As a leader in the chemical industry (and armed with an MBA from the United States), Cheng was a member of the Chinese People’s Political Consultative Conference (CPPCC). As a member, he made proposals to the government, including to various committees and party officials. In 1994, a senior member of his committee, a chairman of a democratic party in China called the China National Democratic Construction Association, asked him to join his party. Cheng wondered why.

“He told me that ‘even if you are a member of the CPPCC, your proposals cannot be well understood by the top leaders, because there are 2,000 members,’” Cheng explained. “But he told me, if I were a leader of the democratic party, I could talk to the top leaders face to face. So, I joined and after one year was elected to the chairman of the central committee of the party. But really, I did it, so I could talk to top leaders seven times a year. I was then elected to the National People’s Congress as vice chairman, because according to our regulations, the top chairman of my party is always the vice chairman of the National People’s Congress.”

Today, Cheng spends his time promoting financial reform in China. He cited three areas of focus: internationalization, market orientation and systemization. Internationalization, naturally, refers to China’s continued integration into the global economy.

“‘Market oriented’ means China’s interest rates and China’s foreign exchange rate should be a ‘natural rate’ according to the market,” Cheng said. “At this point, it is being controlled, but in the future, it should reflect the supply and demand relationship of money.”

“As for privatization, I would say there are two directions,” he elaborated. “One is to create more and more public companies. I even encourage state-owned companies to go public – not only for the capital, but also to improve their corporate governance. On the other hand, we encourage the development of the private sector. At this time, the private sector is around one-third of the economy in China, and most are small and medium-sized companies. We need to encourage them to grow, especially through alliances and through mergers and acquisitions. Otherwise, it is a very slow process for a company to grow into a big company through only the accumulation of capital.”

 

Anderson Assets welcomes input from alumni and the UCLA Anderson community for letters to the editor, articles, or ideas on themes.