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The Laws of Profit Dynamics (Part 2)

first_imgIn my first post on the Laws of Profit Dynamics I explained that any growth a company experiences beyond what’s driven by overall economic growth is not really value creation, but rather value migration. This parallels the First Law of Thermodynamics. What follows is a comparison between Entropy and commoditization and what it takes for businesses to fight disorder and maintain their value.The Second LawThe Second Law of Thermodynamics (Entropy) tells us how energy (or its equivalent, matter) moves around. In simple terms, entropy says that systems become more “disordered” over time. Energy dissipates. System becomes spread out, less concentrated.In business, we call entropy “commoditization.” Profit dissipates. It’s hard for a business to stay hot, or for market share to stay concentrated in the hands of the original innovators.But how fast does profit dissipate and what drives the value flows? Once again, thinking like an engineer can bring structure to this question. It’s all about the strength of the forces that fight disorder. A bit of food coloring dropped into a glass of water will spread throughout the glass rapidly, achieving maximum entropy. But a chunk of iron dropped into the glass will tend to stay a chunk of iron, because the forces holding it together are strong enough to fight disorder.So what are the binding forces in business that are strong enough to fight the force of disorder and keep value from rapidly drifting away? There are several:Experience. Hard-earned, deep experience that is collaboratively shared within a team but not well understood outside the team. Think maps. Apple wanted to take control of the maps app on its iOS devices, but it apparently underestimated how much learning had gone into making maps look easy. In fact, maps are hard. Like iron. Some experience is embodied in formal patents, but even more is embodied in the collective collaborative knowledge and relationships of the company’s employees.Integration. Designing a brilliant product, whether it’s a printer or a phone, is hard. Designing a set of products that work together, like IBM did with the System 360 mainframe in the 1960s, is harder. Designing an architecture that integrates multiple heterogeneous products across an ecosystem, like VMware has done, is hardest. Effort invested in integration creates enduring value by building strong bonds that hold the system tightly together.Trust. A strong brand is a measure of the cumulative trust built up through countless transactions and experiences between a company and its customers. A positive brand represents a strong bond that resists decay.For companies that don’t or can’t create these entropy-fighting assets, the alternative is pure speed — moving quickly from one hot space to another as different opportunities cool rapidly. For example, in the technology industry, Intel has built a model that allows it to extract most of the value from a new chip early in its lifecycle. But the speed required to stay ahead of the game seems to be increasing. HP enjoyed a decades-long run in printers, whereas Apple’s smartphone is already being challenged aggressively by Android and Samsung.The Laws of Profit DynamicsThe Laws of Thermodynamics apply to steam engines and galaxies. But business isn’t a steam engine fighting for maximum efficiency, nor a galaxy racing away from the big bang and held together by gravity. So what’s the value to business leaders of following analogous Laws of Profit Dynamics? What can we learn from the successes of our engineering colleagues?In a nutshell, the laws show us what’s possible, even if it’s beyond what we know how to create today, while simultaneously keeping us honest by forcing us to do the math rather than substituting wishful thinking for productive innovation. Applying the Laws of Profit Dynamics encourages a business leader to grow and sustain value by challenging the organization every day with three questions:Who is our value coming from?Where is our value most likely to escape to?What will hold our value in place?Value is the energy of business, and these three questions can be a powerful mechanism to help a business leader harness and hold value.last_img read more

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Episode #55: She Likes Big Data

first_imgBig Data has traditionally been about the 3 V’s: “Volume, Velocity & Variety”.  The concept of Big Data has taken on different meaning to different people.  While EMC provides tremendous value to our customers via infrastructure for Big Data, the real value isn’t necessarily the data itself but what you do with it.This week Erin Banks (@banksek) joins us to talk the real value of Big Data – and it’s not the data, it’s what you can do with it – Data Analytics that lead to business results.The EMC Taxonomy is designed to help our customers accelerate business results.  All based on EMC industry leading products, EMC Big Data Foundation, Systems and Solutions are designed with one goal in mind.  Find more at www.emc.com/bigdataDon’t miss “EMC The Source” app in the App Store. Be sure to subscribe to The Source Podcast on iTunes, Stitcher Radio or Google Play and visit the official blog at thesourceblog.emc.comThe Source Podcast: Episode #55: EMC AppSync with Erin Banks Audio Playerhttp://traffic.libsyn.com/thesource/EMC_The_Source_Episode_55_audio.mp300:0000:0000:00Use Up/Down Arrow keys to increase or decrease volume.EMC: The Source Podcast is hosted By Sam Marraccini (@SamMarraccini)last_img read more

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High court orders continued look at Texas death row case

first_imgWASHINGTON (AP) — The Supreme Court is telling a lower court to continue to consider a case brought by a Texas death row inmate protesting a policy that means a chaplain can’t accompany him into the death chamber. The justices on Monday ordered Ruben Gutierrez’s case sent back to a federal trial-level court. The justices in June had blocked his execution after Texas changed its policy and barred all spiritual advisers from the death chamber. Gutierrez is on death row for fatally stabbing an 85-year-old woman.last_img

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W.Va. lawmaker who resigned over slurs returns to statehouse

first_imgCHARLESTON, W.Va. (AP) — A Republican lawmaker in West Virginia who resigned after posting an anti-gay slur is set to elude political consequences now that he has won back his seat. John Mandt stepped down as a Statehouse delegate in the heat of his reelection campaign last October after screenshots showed him using the slur in a Facebook Messenger group. It had been the latest in a series of discriminatory remarks from him about gay people and Muslims. But he reversed his decision to bow out of the race and won re-election. The Republican speaker of the House of Delegates did not say Mandt would face any repercussions.last_img

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Virus expert says she’s exploring bid for US Senate in Ohio

first_imgCOLUMBUS, Ohio (AP) — Dr. Amy Acton, the former state health director who became the face of Ohio’s early pandemic response, is stepping down from her position at the Columbus Foundation to “carefully explore” running as a Democrat for the U.S. Senate. Acton would be vying for a coveted open seat being vacated by Republican U.S. Sen. Rob Portman. He announced Jan. 25 that he will not seek reelection next year. Acton’s leadership at Republican Gov. Mike DeWine’s side made her something of a folk hero and role model for Ohio girls, but she also faced intense backlash over the health orders she signed.last_img

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