Business aesthetics

Aesthetics are growing in importance, or perhaps rather, the loss of aesthetic appreciation is waning. Even aesthetics of products that are mostly visual and not very functional, such as Philippe Starck's "Juicy Salif" lemon squeezer, shows that aesthetics themselves can sometimes be the point. The lemon squeezer is apparently poor at squeezing lemons and is primarily to be appreciated as a way to "start conversations". It sold well and lived up to its description.

Similarly, a business may have aesthetic appeal that is broader than the design or use of its products and relates to a larger impact it has on the world.

But there has to be strength of both artistry and finance. Dotcoms for example, did not have an enduring aesthetic. Their value came mostly from potential financial upside and much secondarily from their output. Once the upside disappeared much of the excitement disappeared with it. Older, stodgier, more established companies that worked on similar issues did not reap the temporary benefits of the dotcoms.

Industries that meld aesthetic appeal with financial upside include environmentally friendly technology (health, social and climate benefits / upside tied to high oil prices), pharmaceuticals (health and lifespan benefits / upside tied to waning regulatory regimes that protect drug patents), architecture and urban development (comfort of the local population / upside tied to real estate market). If the importance of the financial upside gets too extreme and is lost, these industries may also lose some of their aesthetic impact.

The classical music cost disease

A paper from William Baumol and William Bowen “On the performing arts: the anatomy of their economic problems” (1965) showed that while productivity improvements have been made in many other fields there cannot be productivity advances in the performing arts (a string quartet still requires the same number of performers today as it did centuries ago). Baumol and Bowen show that since the performing arts could not realize greater efficiencies, their cost rose over the centuries in comparison to other things.

But today the paper seems to be incomplete in that Baumol and Bowen did not expect performing arts output gains outside of live music. Today it is no longer only the process (playing the music live) that the audience pays for. Productivity has come from other developments such as the sale of recorded performances, performing for larger paying audiences and even quality improvements in instrument components. Additionally it may take musicians less time to learn new music by using technology including computerized note recognition and the ability to hear different recorded versions of a piece at a whim. There may be even more room to improve the learning process.

That being said, classical music today is a money-losing endeavor reliant upon donors and sponsors in addition to ticket sales. What had been the popular music of a century or more ago was the favorite musical type of only 30% of the American public back when Lincoln Center was built in the 1960s and the current favorite music of only 3% of the public today. I believe that some of this problem is related to the fact that classical performers today have found limited success in creating new powerful works and in evolving the performance experience itself. Some steps in that direction have been taken by performances such as those put on by Sympho.

Otherwise, the music exists as if in a museum but with pieces that are preserved not necessarily being the best ones available and the method of their current display influenced by the practicalities of the past.

This is one example of the type of problem we work on at Inticiti.

The risk of measuring business success against false peers

Sometimes companies fall into the trap (or are pushed in by market analysts) of measuring themselves against false peers. A false peer is an entity that is not comparable (for a variety of reasons) and to which comparison may even lead to poor business decisions.

Here’s an example (guess which company). Company X was measured against a set of companies, some of which showed their innovation, skill at execution and cultural maneuverability through a series of acquisitions, new service launches and soaring stock prices. Company X was not seen as being as innovative nor did its stock jump as high, but soon it became involved in a senseless joint venture, money-losing acquisitions and service offerings. A few years later, Company X’s competitors were shown to be frauds in accounting scandals. Did their fabricated success lead Company X to engage in business behavior that it might not have otherwise?

Company X was AT&T in the late 1990s – early 2000s. Other companies it was measured against included WorldCom, Qwest, Tyco, Enron, etc.

Was former AT&T CEO Armstrong pressured into a bold (but reckless and unprofitable) cable play? By spending $100B+ to acquire cable networks and improve the upstream signal quality from the home to cable headends (something that was never intended in a cable TV model), AT&T tried to defend its place competing against false peers. It seems that it destroyed value by doing so.

Round the island

I recently walked around the perimeter of Manhattan – 32 miles – and that walk became a metaphor for me.

I’ve lived in NYC for six years and most of that walk covered places I had never been. During the walk I met people I never would have met otherwise, saw things I wouldn’t have otherwise, including driftwood sculptures, an enormous abandoned trellis, the big Columbia “C” visible from the Harlem River, a fisherman who caught a 2 foot fish.

No matter where you live or where you work, how often do you “walk around your island”?

Mechanical conscience

I’ve been thinking about how businesses react to ethical transgressions. Some types of transgressions, such as those recorded by electronic messaging (email, file uploads, IMs etc), contributed to a number of large corporate court cases in the US since 2000 and came to influence the way companies store and monitor data.

Messaging supervision is a series of processes and tools put in place by organizations to monitor employee electronic communications with the goal of catching problematic communications either in real time or soon afterwards. Businesses (often those in financial services) implementing messaging supervision are often required, or influenced by regulations including NASD Rule 3010 and SEC Rule 17a-4 when they put such systems in place. Businesses also implement these systems in order to protect intellectual property and catch undesirable employee behavior, hopefully before it gets out of hand. Transgressions are caught by the system’s mechanical conscience.

But really, businesses just want to automate compliance and adhere to regulations efficiently. While no regulatory body requires a software-based system to check for possible transgressions, the sheer volume of email is too large for anything but spot checks from compliance staff. Nor should an organization want to actively review all communications traffic. Instead, the bulk of email communication, website visits, IMs and file downloads are scanned by rule-based software platforms. That means that if compliance staff look at a fixed number of tracked communications daily, use of these systems should increase their probability of finding something problematic without adding extra content volume to view.

What the mechanical conscience cannot do is account for context, intent, or employees who write for the censor’s eye. Also, these supervision systems are used at a corporate level primarily in the US. Interestingly Americans, who are normally considered to be privacy conscious, accept the right of their employers to look at their email. In France, for example, employees are allowed to set up private email folders which cannot legally be read by corporate compliance supervisors, should there be any. Further, employee knowledge of messaging supervision also pushes potential transgressors to other means of unmonitored communication: the cell phone conversation or meeting for a drink, which an industry worker once told me is just what the presence of the system is supposed to do.

Does regulatory compliance lead to a different approach to ethics in organizations?