Study Claims 77% of Economic Growth is Due to Incremental Innovation

I am surprised by, and dubious of, the claim that 77% of economic growth comes from incremental innovation. That implies that leapfrog innovation, or creative destruction, is not very important. I will need to read and ponder the study that claimed that result.

(p. A15) The comparison of two potential options—known as A/B testing—is now routinely baked into the development of customer-facing software, Mr. Thomke reports. Microsoft, Amazon, Facebook and Google “each conduct more than ten thousand online experiments annually,” he writes, adding that even companies without tech roots (Nike, State Farm) run trials like this regularly. The tests might evaluate, say, the components of a website—style of font, color of background, shape of buttons, choice of words—and continuously adjust them based on user response.  . . .

As much as Mr. Thomke, a Harvard Business School professor, believes that “all businesses should be experimenters,” he wisely observes that “not all innovation decisions can be tested.” A/B testing may not be the best way to evaluate a completely new product or a radically different business model, he concedes, but the approach is the ideal driver of small changes. Though we celebrate disruption, Mr. Thomke urges companies to “tap into the power of high-velocity incrementalism,” explaining that “most progress is achieved by implementing hundreds or thousands of minor improvements.” He points to a study that attributes 77% of economic growth to improvements in existing products and notes that the structured system of incremental improvements that Lego implemented following its near-bankruptcy in 2004 drove 95% of annual sales and helped restore the company to profitability.

For the full review, see:

David A. Shaywitz. “Test, Test And Test Again.” The Wall Street Journal (Monday, March 16, 2020): A15.

(Note: ellipsis added.)

(Note: the online version of the review has the date March 15, 2020, and has the title “BOOKSHELF; ‘Experimentation Works’ and ‘The Power of Experiments’ Review: Test, Test and Test Again.”)

The book discussed in the passages quoted above, is:

Thomke, Stefan H. Experimentation Works: The Surprising Power of Business Experiments. Boston, MA: Harvard Business Press, 2020.

The “study” mentioned above that attributes 77% of economic growth to incremental innovation, is:

Garcia-Macia, Daniel, Chang-Tai Hsieh, and Peter J. Klenow. “How Destructive Is Innovation?” Econometrica 87, no. 5 (Sept. 2019): 1507-41.

Open Offices Speed Spread of Covid-19

(p. B6) After years of squeezing ever more workers into tighter office spaces, companies are realizing how efficiently the modern workspace can spread diseases like the coronavirus.

Cubicles and private offices have made way for open floors, where a sneeze or cough can circulate uninterrupted.  . . .

Between 2018 and 2019, the average office space per seat in North America declined by 14.3% to 195.6 square feet, according to brokerage firm JLL’s 2020 Occupancy Benchmarking Report.

Many companies also have abolished assigned seating, rotating workers through the office. That means workers in many offices are now more likely to touch surfaces contaminated by others.

. . .

In a study of more than 1,800 Swedish office workers that was published in 2014, a group of researchers from Stockholm University found that open-plan offices lead to more sick leaves. Among the possible explanations is that these offices can be more stressful, and risk of infection may be greater. The study also found that offices without assigned desks lead to more extended sick leaves, but only among men.

For the full story, see:

Konrad Putzier. “Open Offices Spur Virus Worries.” The Wall Street Journal (Wednesday, MARCH 11, 2020): B6.

(Note: ellipses added.)

(Note: the online version of the story has the date MARCH 10, 2020, and has the title “Your Open-Floor Office Could Help Spread Coronavirus.”)

Remote Workers Are 13% More Efficient Than Office-Based Workers

(p. B4) Fans of remote work often cite studies showing that people who work from home are more productive, like a 2014 study led by the Stanford professor Nicholas Bloom. The study examined remote workers at a Chinese travel agency and found that they were 13 percent more efficient than their office-based peers.

For the full commentary, see:

Kevin Roose. “THE SHIFT; Work From Home? Think Again.” The New York Times (Thursday, March 12, 2020): B1 & B4.

(Note: the online version of the commentary has the date March 10, 2020, and has the title “THE SHIFT; Sorry, but Working From Home Is Overrated.”)

The paper mentioned in the passages quoted above, is:

Bloom, Nicholas, James Liang, John Roberts, and Zhichun Jenny Ying. “Does Working from Home Work? Evidence from a Chinese Experiment.” The Quarterly Journal of Economics 130, no. 1 (Feb. 2014): 165-218.

Humana Founding Entrepreneur Said Notion That Non-Profit Hospitals Are Better Than For-Profit Hospitals, Is “Baloney”

(p. 26) Mr. Jones was a genial but extremely competitive executive. During the years that Humana owned hospitals, several in Louisville, he vigorously defended the for-profit hospital model, contending that Humana’s facilities could deliver better care at lower costs.

“The notion that being nonprofit adds some weight to what you do is baloney,” he once said.

For the full obituary, see:

Richard Sandomir. “David Jones, Health Care Entrepreneur Behind Humana, Is Dead at 88.” The New York Times, First Section (Sunday, September 22, 2019): 26.

(Note: the online version of the obituary has the same date and title as the print version.)

“No One Has the Stomach to Challenge the Status Quo”

(p. B14) Before precision-scheduled railroading, or PSR, locomotives had been run the same way for more than a century. Trains waited for cargo at the rail yard, then left when customers brought their shipments and loaded them up. It was an unreliable business with plenty of inefficiencies. But that started to change early this decade, when Mr. Harrison teamed up with William Ackman’s Pershing Square Capital to take control at Canadian Pacific Railway.

“No one has the stomach to challenge the status quo,” Mr. Harrison, who started his railroad career as a 19-year-old laborer in 1963, said several years ago.

Rather than leave the departure times up to clients such as factories, farms and mines, Mr. Harrison demanded they be ready or miss their trips, much like airline passengers. This didn’t win many friends among clients, but after successfully implementing the model in Canada, Mr. Harrison moved on to take the helm of Jacksonville, Fla.-based CSX in 2017. Tragically, his tenure this time was short-lived. Mr. Harrison died just a short time after joining the company.

For the full story, see:

Lauren Silva Laughlin. “Late Railroad Guru’s Legacy Is Losing Steam.” The Wall Street Journal (Saturday, Aug. 24, 2019): B14.

(Note: the online version of the story has the date Aug. 23, 2019, and has the title “Hunter Harrison’s Train Overhaul Starts Running Out of Steam.”)

Some Workers Seek to Unionize Brooklyn Food Co-op

(p. 29) Had you found yourself with nothing to read at any point this summer, the letters section of The Linewaiters’ Gazette, the bi-weekly newsletter of the Park Slope Food Coop, might have sated a certain narrative hunger. Serving a community of 17,000 members, The Gazette is a forum for news, grievance, debate, inquiry and perhaps above all, the expression of principle.

. . .

Given the seriousness with which the co-op takes matters of equity and justice, it surprised many members to learn that an effort on the part of some paid workers to unionize had not been going smoothly. Member owned and operated since its founding in the 1970s, the co-op permits only those who work a certain number of hours per month (behind the cash register, unloading delivery trucks, stocking oranges and so on) to shop there. It also employs about 75 people, all but 11 or so of whom receive an hourly wage.

How was it possible that these workers in an institution so famously aligned with the left were not already unionized? It was like imagining the Catholic Church without baptism. As one stunned member pointed out in his letter to The Gazette, the co-op is “literally on Union Street.”

Money is not what has motivated the movement. Many workers receive upward of $27 an hour, and health-insurance fees are not deducted from that pay. Instead, as Marc Thompson, who has been behind the effort to organize, told me, the problems have had more to do with strained dynamics between workers and supervisors and poor communication generally.

Another big issue is that the co-op is an “at will” shop, meaning that workers can be let go at any time for any reason, without managers having to offer cause. Although it rarely happens, the notion that such a scenario could play out has troubled certain employees. The last time someone was abruptly fired, it was because of theft, Mr. Holtz explained, and that was three years ago.

. . .

In a letter to The Gazette that appeared in May [2019], a group of workers representing the majority who oppose the union said they had “doubts that the traditional union model is the right fit for our very nontraditional workplace.” They were pro-union as a matter of political belief but thought that the co-op had “a rich history” of solving its own problems. Whatever was wrong could be handled within the family, in essence.

For the full story, see:

Ginia Bellafante. “BIG CITY; A Labor Rights Rift? Say It’s Not So, Park Slope Food Coop!” The New York Times, First Section (Sunday, September 22, 2019): 29.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the story was last updated on Sept. 30 [sic], 2019, and has the title “BIG CITY; They Tried to Unionize the Park Slope Food Coop. Guess What Happened.” Above, I cite the title, section, and page number from my National print edition. Those may have been different in the New York print edition. Where there are differences in wording between the online and print versions, the passages quoted above follow the print version.)

Netflix’s Reed Hastings Was Blunt for the Sake of the Project

(p. B1) SANTA CRUZ, Calif. — Long before binge-watching, the streaming wars and “Netflix and chill,” there were two guys barreling down Highway 17 — the California roadway that connects Santa Cruz to Silicon Valley — trying to come up with the next big thing.

One was Marc Randolph, an entrepreneur and marketing specialist who had co-founded a start-up, Integrity QA. The other was Reed Hastings, then the head of the software company Pure Atria.

It was 1997. Mr. Randolph, whose start-up had been acquired by Pure Atria, did most of the pitching. Customized dog food, customized baseball bats, customized shampoo — all sold over the internet and delivered by mail.

Mr. Hastings was the one with the cash and the ability to shoot down ideas without worrying about hurt feelings.

They flirted with the notion of challenging Blockbuster Video with a mail-order videocassette business, only to decide that mailing VHS tapes would cost too much. Finally, they thought they had something: DVDs, sold and rented online and delivered to customers by mail.

Although few people had DVD players at the time, they forged ahead, with Mr. Randolph as the chief executive and Mr. Hastings (p. B5) as the chairman backing the operation.

. . .

Mr. Randolph describes an evening in 1998 when he got a big dose of Netflix’s radical honesty. It happened after a botched investor pitch and a promotion deal with Sony that went horribly wrong. Mr. Hastings asked to see Mr. Randolph alone and subjected him to a PowerPoint presentation detailing the reasons he was no longer fit to remain chief executive.

In the book, Mr. Randolph describes what he said in reaction to the surprise presentation: “‘There is no way I’m sitting here while you pitch me on why I suck.’”

Mr. Hastings closed his Dell laptop. By the end of the talk, Mr. Randolph was bumped down to president, and Mr. Hastings was the new chief executive. As part of the demotion, Mr. Hastings persuaded Mr. Randolph to give up some 650,000 stock shares, which reduced his Netflix stake to 15 percent.

“Doing it with a PowerPoint slide show perhaps wasn’t the most empathetic gesture,” Mr. Randolph said with a laugh. “But he was right.”

The episode, as described in the book, helps form a portrait of Mr. Hastings as someone whose bluntness results more from a sure sense of what a business needs than from an inner ruthlessness.

“What I really want from the book is to paint Reed as a real person,” Mr. Randolph said. “I hope it comes through that I have this tremendous respect and affection for him, as opposed to bitterness. Most people wouldn’t have had the strength to say that. But he recognized it was the right thing for the company.”

For the full review, see:

Nicole Sperling. “Pushing the Red Envelope: A Memoir of Netflix’s Birth.” The New York Times (Thursday, Sept. 19, 2019): B1 & B5.

(Note: ellipsis added.)

(Note: the online version of the review has the date Sept. 18, 2019, and has the title “Long Before ‘Netflix and Chill,’ He Was the Netflix C.E.O.”)

The book under review is:

Randolph, Marc. That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea. New York: Little, Brown and Company, 2019.