"Is This Really a Thing?" Podcast Archives - Barry S. Miller College of Business

Paul Jarley:                         Sean Snaith is central Florida’s favorite economic forecaster. Sean has been named one of the nation’s most accurate forecasters by Bloomberg News and as appeared on pretty much every media outlet from the Wall Street Journal to the BBC. But he has some very strange hobbies.

Sean Snaith:                       If you’ve heard me speak over the years, you know I have an affinity for SkyMall.

Paul Jarley:                         You remember SkyMall, It’s the defunct inflight shopping catalog that survives on the internet. Well, Sean, he might just be their biggest fan.

Sean Snaith:                       The Dean called it a fetish, I think, last year, which, that sounds a little dirty.

Paul Jarley:                         He’s also a bit of a diva who dreams of becoming a viral internet sensation?

Sean Snaith:                       So, everybody can’t be a social influencer though. I mean, I think that’s where they all want to be. I do too. Quite frankly, I’ve got 1300 on Twitter. I don’t know what I can offer to them, but.

Paul Jarley:                         And he hates being handled, especially by the college’s so called mean girls.

Sean Snaith:                       There’s a group of, largely women, in the college of business and there’ll be shaking you down for money here at the end of the event, but I like to refer to them collectively as the mean girls and they sort of followed me since middle school and they make fun of my clothing and my glasses and things like that.

Speaker 3:                           I don’t know if you’ve seen his PowerPoint slides, but we think they date back to the mid 1980s.

Paul Jarley:                         Is Sean Snaith really worth all this trouble? Are those forecasts right? Or do those mean girls have a point?

Speaker 4:                           That is so fetch.

Speaker 5:                           Gretchen, stop trying to make fetch happen. It’s not going to happen.

Paul Jarley:                         This issue is all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF, I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? Onto our show.

Paul Jarley:                         This podcast is a condensed version of a talk Sean gave at our recent Dean Speaker Series, where he provided his economic forecast for both the US and Florida economies. Since Sean had already weighed in on the US economy as part of our podcast on whether the 2020 recession is really a thing, we focused today’s show on his predictions for the Florida economy. We’re calling this the mean girl edition because I’ve given the team the opportunity to take you behind the scenes and play some of Sean’s comments into context. Listen in.

Sean Snaith:                       No, no wohoos. Nope. Well thank you for coming out. I see a lot of familiar faces, all members of the greater Orlando masochist club apparently. But welcome back and happy new year. I appreciate you getting up early to listen to my nonsense here for a little while. But we just released our Florida Metro forecast and I sort of recounted my youth, growing up, literally, physically, I was always kind of tall and in order to get tall you have to grow. Sometimes that occurred in big spurts and it caused me a great pain in my knees. Right? Like I would get these lumps and it just hurt because of the growth plates or whatever. I’m not a real doctor, but the condition is called Osgood Schlatter disease. So I think what Florida is going through right now is an economic version of Osgood Schlatter, growing pains. Our two achy knees are the housing market and our transportation infrastructure and they’re not unrelated.

Paul Jarley:                         We begin our mean girl commentary with Jess and Erika. They work with Sean on a regular basis and they’ve got some stories to tell about our favorite economist.

Jessica Dourney:              His wardrobe is either, I woke up, I’m going to speak at a presentation dressed to the nines with a suit and tie, or it’s Birkenstocks on with socks, cargo shorts and an old tee shirt from North Dakota where he’s from. Or where he lived.

Erika Hodges:                    He likes a good crowd. To his credit he definitely, he draws a pretty good crowd on his own. But yeah, he is aware of how many people are in the room, and he asks about that often.

Jessica Dourney:              Well, he’s also been called the silver fox before.

Paul Jarley:                         Jess and Erika are two of the original college of business mean girls. Back to the presentation.

Sean Snaith:                       So the housing market, things are going great in the sense that prices continue to rise at a pace more than twice overall inflation. You can see sales here above where they were at the height of the housing bubble. Median prices continue to rise. They’re higher than they were at the height of the housing bubble. So this is a pretty, pretty solid housing market. Sales continue to rise year over year. Prices, you can see, statewide up almost 4% year over year. Again, is this another housing bubble? I get this question and we’ve probably addressed it the past three years and I’m going to give you the same answer. No, it’s not a housing bubble this time around. I mean I know Florida, man you can’t put it past them to do it to themself again.

Sean Snaith:                       But a 3.6 months of inventory, and I don’t know if my colleagues in the real estate school would agree with me, but I think six to nine months depends when you talk to, of inventory, is a balanced housing market. So anything less than that, six months of inventory is what the realtors in the room would call a sellers market, to what the economics professors would call a shortage. In markets where there’s a shortage, what happens to price? Yeah, that’s right. You didn’t know there was a quiz there was. The bigger the shorters, the faster prices rise. So if you look around the state at different metropolitan areas, Tampa’s a good example, their inventories under three months, and they have some of the fastest price appreciation in the state. So there is a real shortage in the housing market.

Sean Snaith:                       The other thing that’s absent this time around that was there in 2004/05/06 that really fed the beast, if you will, is easy money. You cannot just walk in and get a mortgage the way you could in 2005 without a job, without assets, without anything. So in absence of that easy finance and in light of the fact that we do have a real shortage, the price appreciation that we’re observing to me is not something that’s alarming. It’s just a sign of an absence of supply.

Sean Snaith:                       Here in Orlando, it’s even worse. 2.6 months of inventory. Population growth remains very strong. Economic growth, job growth, all very strong in Orlando. It is one of the fastest growing job markets in the country, certainly in the fastest in the state of Florida. That continues to put upward pressure on prices. This low inventory. We have an influx of population. We saw from Puerto Rico, the wake of fiscal economic crisis compounded by Hurricane Maria, and now they had an earthquake. Geez, I don’t know how Puerto Rico got God mad, but some something’s not right. But I wouldn’t be surprised to see another influx, in the wake of this latest natural disaster.

Paul Jarley:                         Jess and Erika, there’s some of Sean’s toughest critics, but it’s all in good fun and they try not to hurt his overly sensitive feelings.

Jessica Dourney:              When we had the AUBER conference, we went to Medieval Times and he was actually knighted and was known as the homecoming King of the Nerds. So the nickname has stuck, King of the Nerds!

Paul Jarley:                         Most economists, by the way, well they don’t really have feelings, but Sean, back to the presentation.

Sean Snaith:                       All this population into the area, it continues to put pressure on the housing market. So affordable housing is one of the major challenges that we face right now. It’s not unrelated to transportation. How did we get so far behind the curve? Well, builders in 2013/2014, and again in 2015/2016, sort of plateaued when it came to housing starts, and you could see that in the bars. There’s this kind of a flattening out for a year or so and then they picked up again. But during that entire time period, the demand for housing continued to grow robustly. From 2012 on, Florida was outpacing the national economy in terms of GDP growth, in terms of job growth, population growth. Of course in the state we’re back close to that a thousand new Floridians a day, and that all feeds demand for housing and those are the underpinnings of it. But supply just didn’t keep up.

Sean Snaith:                       So now we’re behind the curve, still playing catch up. Ultimately it’s when that supply gets to the market that’ll help alleviate, and dampen some of that price appreciation. Statewide, as I said, population growth is solid. I mean if you had a coin on one side it was population growth, the flip side of that coin would be economic growth. More people in a region means more economic activity it’s just by default.

Sean Snaith:                       This river of a thousand Floridians a day has three tributaries, right? You’ve got domestic migration to the state, whether it’s retirees moving down to the villages or Margaritaville or whatever, jimmy Buffett’s new retirement. That kind of makes me sad in a way, that Jimmy Buffett’s in the retirement village business, right? I don’t know. And migrants coming to the state for job opportunities, right? So we’ve got that domestic migration, we talked about migration from outside the US, whether it’s from Puerto Rico or for international locations. Florida continues to be a magnet for South and Central American migrants. Then lastly, birth rates exceed the death rate in Florida now. So we’re making Floridians faster than we’re losing them. So all that feeds into continued economic growth, really, for the foreseeable future.

Paul Jarley:                         You might be wondering how Sean has time to process all that economic data. Well. He’s got an army of students working for him.

Speaker 8:                           Hi, I’m a non-identified student researcher under Dr. Snaith at the Institute for Economic Forecasting.

Paul Jarley:                         Only one was willing to go on the microphone.

Speaker 8:                           Researching under Dr. Snaith has been a great experience. It’s quite sophisticated, really. The most important thing I’ve learned from Dr. Snaith is when in doubt, use the magic eight ball.

Paul Jarley:                         Magic eight ball or not. Sean’s economic forecasts seem to be pretty accurate. More on that later.

Sean Snaith:                       Unemployment in the state is even lower than it is nationally. You know the last time we got unemployment rates this low in Florida was at the height of the housing bubble, right? This unsustainable sort of crazy phenomenon that was going on, drove unemployment down to 3.3%, now there’s not really anything crazy and unsustainable. We just have a strong economy pretty much across the board and it is a driven the strength in the state’s labor market. State GDP continues to grow faster than what is the case for the United States and we’re forecasting that that will continue here in Florida. Payroll employment, solid growth. Florida’s not quite growing twice as fast in terms of jobs as the national economy, but it’s close to double the national rate of job growth.

Sean Snaith:                       So again, this is a really pan sector in the economy. This is not an unsustainable bubble as was the case of 2005 and six, this is just a really strong economy that we have. I’ll quickly go through some of the sectors here. The construction sector, that’s one of our fastest growing sectors, it’ll continue to be going forward. All you have to do is look out the windows to see evidence of it here in central Florida billions of dollars of infrastructure projects, billions of dollars of private investment projects I mean, it’s hard to find a major road anywhere in this area that doesn’t have some construction going on right now. So couple that with the housing market, and the construction sector remains quite strong. Professional business services. This is the fastest growing sector right now in Florida’s economy. Most of you probably fall into this particular sector, architects, accountants, white collar jobs, high skilled, high paid jobs, and they’re growing rapidly.

Sean Snaith:                       Leisure, hospitality. I mean tourism is just, it’s been pretty remarkable. It was the first sector to start to grow again after the great recession ended back in 2010. People during the financial crisis, the great recession, “Hey dad got laid off and his 401k fell 50%, what are you going to do now? I’m going to go to Disney World.” No you’re not, those trips get postponed in those situations. That kind of leisure spending is a low hanging fruit when households are tightening their belt.

Sean Snaith:                       But once the economy stabilized in 2010 and things started to turn around, the recession ended, the tourism picked back up and hiring in that sector took off. It’s remained robust really ever since. This is in the face of a lot of headwinds, right? We’ve had hurricanes, we’ve had Zika, we’ve had red tide. We’ve had all kinds of things that, that should have taken a little wind out of tourism sales. But that has not been the case, and this will continue to be a cornerstone to the state, and certainly our region’s economy.

Sean Snaith:                       Financial activities. We’re finally seeing in forecasting some job growth in this sector. I was on for a long time, the Dodd-Frank soapbox, kind of rant and raving about that. Now it’s just mostly the kids that are on my lawn that bothers me. But what we’re seeing and this administration is addressing the regulatory environment in a way that hasn’t been done for a really long time. So the first year of the administration we saw 22 deregulatory acts for every one regulatory. Year two that ratio was 13 to one, year three it looks like it’s about 20 to one, including addressing some of the issues with, with Dodd-Frank.

Sean Snaith:                       I mean a regulation that large and that complex always, always brings with an unintended consequences. So the impact, for example, on small community banks have this increase in compliance costs. I just don’t think was part of the thinking back when this law was put together. I mean, I think it was put together, I don’t want to point fingers, play politics with it. It was put together in a time of fear and uncertainty and we had gone through this horrible crisis that nobody wanted to see repeat. So at the time when you’re doing something out of fear and all that emotion, anything that contributed to this crisis, “We’re going to come up with a new Bureau and a new rule and a new regulation and we’re going to stop it.”

Sean Snaith:                       Next thing you’ve got a 2,600 page law, that still isn’t fully implemented by the way, signed into law in 2010. But now that’s being addressed, the financial sector, I think, is going to start to see some growth. Over the past 10 years, I believe, there’s only been three new banks in the entire State of Florida. That’s a problem in a market economy. You need new entrants into every sector to drive competition, to drive innovation. But I think regulation kind of choked some of that off.

Sean Snaith:                       So looking forward, over the next three years here, average job growth, you could see professional business services, construction, hospitality, health services, I think will continue to grow. I mean, we’ve got an aging population. As I said, you need a doctor for every body part when you get older. So the demand for health services is going to continue to grow in Florida. Paying for it, we still haven’t figured that out yet, but I thought the Affordable Care Act was a solution. But now we’re saying that’s not it. So I don’t know what the answer is exactly. But the demand is going to drive job growth in that sector going forward.

Sean Snaith:                       Looking across the 12 metros that we currently forecast, you could see that Orlando has very solid population growth. Lakeland is booming. I don’t know if you’ve been to Lakeland lately. I know, I know. It’s not all just Lego buildings. There’s actual big cranes and real buildings going up because Lakeland in position between Orlando and Tampa and they’re really going to benefit from the growth in those two Metro areas, and currently are. Job growth, you could see, well above what the state is producing we’re forecasting for Orlando. I mean this is a really good economy.

Sean Snaith:                       I don’t want to jinx it, but I mean it’s hard to find a flaw. I mean other than our achy knees of transportation and housing, the rest of the checkup, the bill of health is pretty, pretty good. I wish I could get the same from my physician. So looking here at our Florida County Metro area you could see growth even faster than what we’re forecasting for the state, much stronger and really across sectors. I think this is likely to continue. I think there’s enough momentum here in central Florida barring some sort of black swan event to carry us for several more years of pretty solid growth. With that I’ll happily take some questions or go back and sit in my office. Yes.

Speaker 9:                           So you listed leisure and hospitality as a growing sector. I don’t know if you read Orlando Says No, but they had a nice little segment series called Laborland, which kind of went into affordable housing and many who work at the parks and leisure can’t afford to stay in homes. You saw Universal Orlando pledge $100 million affordable housing, at the same time receiving some money from the county to build roads, which is probably not related to each other at all. But the question becomes, is affordable housing a significant block to the growth that you’re talking? Because if I can’t afford to live where I’m going to work, then I can’t work properly.

Sean Snaith:                       Right. I mean, I think it’s a bump in the road. I don’t think it’s necessarily a road block, but it is something that that needs to be addressed. Now Disney has announced a move into the $15 minimum wage, I think Universal’s done the same. I don’t necessarily believe they’re doing that out of the goodness of their theme park hearts. I think this is a strategic move to make sure they have the workforce in place to satisfy an increasingly larger customer demand.

Sean Snaith:                       But the transportation, I mean we have to, first of all, you need affordable housing. Typically to get affordable housing. Right? If you look around the country at major metros as they’ve grown, where do you live in DC if you want affordable housing? Georgetown? No, you go out to West Virginia. Well how do you get from West Virginia to your job at the Veterans Affairs Department? You take a train, you take the metro, you take something. So we’re piecing it together, right? We’ve got SunRail, we’ve got Brightline. I think public transportation in central Florida really needs to be addressed, and have a source of dedicated funding so we can get those people who might have to come in from Lakeland to Universal or Disney.

Sean Snaith:                       If you look at surveys of consumer expenditures for the lowest 50% of US households, the two largest components of spending are housing and transportation. So those two things can really, I think, improve the plight of folks in Laborland, as that story called it. Yes.

Speaker 10:                         Could you talk a little bit about the upcoming election?

Sean Snaith:                       Oh boy.

Speaker 10:                         Or is that next meeting?

Sean Snaith:                       I don’t know. What’s college is political science in? Maybe we should get those suckers. Yeah, I’ll talk about it. Sure. My speaking career here, it’s been about 20 years now, I started doing this-

Sean Snaith:                       I’m going to go out with a bang. You might want to videotape this and you could tweet it, and I’ll be fired before lunch.

Speaker 10:                         You know I’m not the only one that wanted to ask.

Sean Snaith:                       Yeah, of course. But no. So I mean, in my speaking career you never really know your audience. I mean, I kind of know some of you, but I mean you don’t, so you stay away from politics, you stay away from sex, you stay away from religion. Right? Some people are Democrats, there’s all kinds of perversions in the world. See actually, it depends where I’m speaking. I change the party, right? So when I’m in Kansas I say Democrats, when I’m in California, I say Republicans, it gets the same laugh.

Sean Snaith:                       No. My feeling on this, I think incumbency is a big benefit. I think that the economy is particularly strong and unless something really goes off the rails, I would be surprised if the president was not reelected. But who knows? I mean, I sure surely didn’t predict he was going to get elected the first time around. So we’ll see. I mean I think politics has really changed dramatically. It used to be right, it’s the economy stupid. That was it. I’m not so sure. But if it’s the economy then I think he’s in a pretty good place.

Speaker 11:                         Well, thank you Sean.

Sean Snaith:                       Yeah. Appreciate it.

Paul Jarley:                         The mean girls have a point. Sean is high maintenance, but in my world, like many others, notoriety has its privileges. Sean has been named one of the nation’s most accurate forecasters by Bloomberg News, and has appeared on pretty much every media outlet from the Wall Street Journal to the BBC. Who cares if it’s because of a magic eight ball? Whatever method he’s using, it appears to be… “fetch.”

Paul Jarley:                         Sean’s ego doesn’t need inflating, but let’s hope he’s right about the Florida economy in 2020. If so, the roaring ’20s will be off to a good start, and my May graduates, well they’ll have plenty of job offers. What do you think? Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show. Special thanks to my producer, Josh Miranda, and the whole team at the Office of Outreach and Engagement here at the UCF College of Business, and thank you for listening. Until next time, charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

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Jordan George:                 We’re really excited to dive into this topic around changed management. Something that I know that you have overseen a lot in your time at UCF and certainly we’re experiencing a lot internally right now with the name change from CFE to Addition Financial. Getting ready for an acquisition in the next couple of months here. So as we think about change and how disruptive it can be, why is effective change management so difficult?

Paul Jarley:                         Well, the short answer is people don’t like change. It’s uncomfortable for them. But if you drill down into it, I think it comes down to a few things. If your change is very fundamental, a lot of people came to the organization, they were attracted to it maybe because of a specific mission or set of values or culture that you have. And if they see that change is threatening those things, they can have a very emotional reaction to that. People care deeply about those things. And they feel like they fit in an organization. And if they think that change threatens their fit with the organization, that can be a pretty traumatic experience for them.

Paul Jarley:                         Secondly, organizations develop compensation systems and other kinds of reward systems that are in place to encourage the kinds of behaviors and outcomes that they want. And people know whether they’re winning or losing under those systems. Or perhaps they’ve come to be comfortable with wherever they are kind of in the hierarchy of that system. And if those initially proposed change is going to threaten that they get pretty nervous about that. That’s their livelihood, at one level, and that can be very disconcerting. Another real problem here is generally in a change process, the costs of the change are borne first by people. They’re really well known and they’re at a minimum irritating and maximum kind of threatening to their security. The benefits are all about the future. And those are kind of fuzzy and they’re kind of unknown.

Paul Jarley:                         So unless you have a change that’s being motivated by something that’s really compelling and urgent and threatens the entire organization, and it’s just going to force a change, people tend to focus on the cost side of the change, rather than the benefit side of the change. If you’re a leader in the organization, the hardest thing I think it is for a leader to do is to get people to see a future they have yet to experience. That’s really, really difficult for people. And if they don’t see that future experience as something that’s going to benefit them personally, they’re going to resist it.

Jordan George:                 I like what you said about, we receive the cost of the change before we receive the benefits of the change up front. There’s that initial reaction of seeing what this is taking away or how this is going to make my life more difficult, or how I’m going to have to adjust, even if ultimately the outcome down the road is really going to be a positive one. I remember we went through that a couple of years ago, we went through our core system conversion and everybody who was here then just let out of collective sigh. But it was a really stressful time for a lot of people who had been here for a while, because you’re basically taking the core system that everybody operates on day in and day out, and changing it up. So your day to day is changing, even though the new system was radically better. There were a lot of people who were just really hesitant to let them go.

Paul Jarley:                         Absolutely. I think that happens a great deal. And no leader comes into it to announce a change initiative and says, “We’re going to work less now.”

Jordan George:                 I’ve yet to hear Kevin Miller say that.

Paul Jarley:                         That’s just not how that works.

Jordan George:                 Yeah, right. So Christina, you came in at a time when Dean Jarley was talking about how the culture shift changes and how people as they come into the organization may be attracted to one thing, then that’s changing. And that seems a little threatening. But you’ve come into the organization at a time when we were already changing. You came in right at the height of our brand redesign. So what was that like for you?

Christina Lehman:           I did. I just started six months ago. So I started here as CFE but entrenched in the middle of this rebrand. I’m not only learning about CFE and me, but then I’m also in the process of who’s Addition Financial and what does that mean for us as an organization because I’m learning two organizations at the same time. But there’s so many people, so many team members in our organization that have been here for so many years. So I can’t even imagine how that change must have been for them. And I think something that makes it easier is just trust. And Kevin Miller is really big on communication, and communicating, and speaking about the change, and he’s wrote so many emails and so many week and x about this, and I think that really helps the growth and understanding of why we did it.

Paul Jarley:                         Well, that’s that’s absolutely true. The first part of any change process is to explain to people why you’re doing it. And honestly, you have to explain that to them until you’re sick of hearing yourself explain that to them. And then you should explain it to them some more.

Christina Lehman:           Yes.

Paul Jarley:                         That’s just about how that is. The why is really important. And the deeper the kind of change that you’re going to make, the more compelling the why needs to be right. It’s one thing to say we’re going to change how we’re doing certain things. And people might be uncomfortable like that, like with your IT system. At least they knew that the old system might have been terrible, but they understood the rules of engagement with the old system. And now you’re changing the rules of engagement, that’s going to cause some friction. But that’s a very different thing than coming in and to people, “We’re not going to be something different than we were before.”

Kerby Pickens:                  And so, Dean Jarley, change can be seen as something disruptive or something scary. So how do we implement successful change?

Paul Jarley:                         Well, it’s a long process to be quite honest about it. And it’s one that’s fraught with a lot of difficulty, but explaining that need for change is kind of the first step. What’s the compelling reason for the change? And sometimes that coincides with a leadership change. Frankly, that happens a lot. And it can happen for two different kinds of reasons. Sometimes the board will identify a need and understand that they needed a different leader from the kind of leader that they had before in order to implement that kind of change. And it’s not uncommon in that situation for that leader to come from the outside. Sometimes they come from the inside. But it’s almost certainly the case that the new person is the opposite to the last person. I was the opposite of my predecessor and I’ve known Kevin and Joel a little bit. Yeah, not the same guy. We can all agree. They’re just not the same person. I know I interact with both of them very differently. Right.

Paul Jarley:                         If you come from the inside, you said something really important a minute or so ago. People kind of know who you are and there tends to be more of a trust factor associated with that. When you’re a leader and you come in from the outside nobody trusts you.

Christina Lehman:           Yep.

Jordan George:                 Christina goes, “Yep.”

Paul Jarley:                         Well, that was my situation. So one of the things in that situation that you have to do is you have to borrow somebody else’s trust. And the way that you do that, once you’ve got your idea for change and why it’s important, and you can articulate what that is, you have to get your top leadership team kind of aligned on. So you need to hash out any concerns that you have before you’re going to take that public. If you’re coming in from the outside, you should do an assessment of who on your leadership team people do trust. Because you know what, as soon as you say something, they’re going to go right to that person.

Jordan George:                 Yeah, that’s a great point.

Paul Jarley:                         And a lot of times they’ll run to that person because they want to test whether or not they can say something to me as the leader in that situation. So if that person isn’t on board, that’s a real problem. But even more generally, inconsistency is a killer. For those of you who are parents, how many times does a kid try to split mom and dad?

Jordan George:                 Yep.

Kerby Pickens:                  Yep.

Paul Jarley:                         You’re going to have that exact same dynamic here. That doesn’t mean everybody’s going to agree on every detail. That’s not going to happen. And you want to be really careful here because people have a tendency to tell the leader what they think the leader wants to hear and that’s a really bad situation to be in. So you kind of have to have that sweet spot where everybody understands what the goals are, and the need for change, but can be kind of flexible on how you get there. So how do you build a culture, whether it’s within a team within an organization, where people tell the leader the truth, instead of what the leader wants to hear.

Paul Jarley:                         I know you mentioned trust and trust is a big component of that. Obviously, before you get to that trust, it’s going to be really difficult for people to come up and be honest with you. But as you move through that process as a new leader coming in, and maybe Christina, you’ve experienced some of this and you want to weigh in on it, or Kerby. How do we, within our teams move beyond people telling us what we want to hear or what they think we want to hear, to really being honest with us and giving us the feedback that we need in order to make the team and the organization better? You want to reward honesty, not punish it. That’s kind of the short answer to that.

Paul Jarley:                         You can also sometimes identify by talking to your people who sort of more prone to do that anyway. If you can find out who they are putting them in public forums, or if they’re willing to do that and let others see how you react to that. That’s not a bad thing.

Jordan George:                 All right. That’s the opposite side of the coming in and borrow someone else’s trust, and then find your most vocal person and let them be the mouthpiece for the rest of the team that may be too afraid to say.

Kerby Pickens:                  But I just had an interesting point come through the chat. It’s someone asked, “But when does that sort of truth telling become where maybe you are detracting from a team or you’re starting to turn into maybe not being a team player.” And I did that in sort of air quotes. I think maybe that’s a fine line.

Paul Jarley:                         Well, that will depend on your leader a bit, but I guess I would characterize it this way. Every organization should have things that are not negotiable. If you do not sign on to those things, you just shouldn’t be here. And those tend to be the values of the organization. Generally speaking, sometimes there’s some key behaviors associated with those values too, but we can argue all day about how to get there. That’s an entirely different matter. And that’s the line I’ve always kind of used when I’m managing up and I’ve been managing down.

Kerby Pickens:                  I think that’s a really important point because we’ve kind of mentioned leaders in the scenario, but we’re not talking about maybe leaders of people, but everyone, you are a leader of yourself, of your daily work. And so, managing up is the term where you maybe see a need and using your influence in a way that is maybe outside of what you have jurisdiction over.

Jordan George:                 Yeah, absolutely.

Paul Jarley:                         Well, because every organization has key influencers in them. There’s two kinds of authority, there’s formal authority, and then there’s informal authority. And during any change process, it would be a huge mistake not to understand where the sources of informal authority are, and making sure that you’re in touch with those processes. That’s really, really key.

Jordan George:                 That was one of those things that I learned the hard way very early on in my career, was the value of those informal influencers. So if you’re listening to this today, and you’re saying well, I’m not a manager, I’m not a formal leader in the organization, I don’t really think this change management stuff really has a lot to do with me. Really evaluate the role that you have culturally on your team or within your branch within your department. A lot of you that have been here for quite a while, we’ve got more than a third of our organization that have been here 10 years or more, several people that have been here 25, 30, 35 years, think about the role that you play in swaying the opinion of those around you. And if your immediate reaction is to be critical to something others are looking to you to see what you’re going to do. You may be not indirectly influencing them on that. And likewise, if you’re really passionate and supportive of something, the same is going to be true there.

Paul Jarley:                         So a really good example of that are administrative assistants because administrative assistants know everyone, everyone interacts with them. They have really diverse network. And so yes, they can have a lot of influence on what people think.

Jordan George:                 Oh, yeah, no one gets to Kevin without going through Jeniffer. We know that-

Paul Jarley:                         Her name is Tina in my organization.

Christina Lehman:           So what might make people resistant to this change, or any change?

Paul Jarley:                         Well, I think there are a few things that come to mind. And these are very closely related I think. Change generates uncertainty. People hate uncertainty. They really, really hate it. And that uncertainty can come in a few different ways, really. They may be uncertain about the role as the role evolves, and they’re not really sure what to do. They may feel that they’re ill equipped for the tasks ahead and usually in that situation, a combination of training and clear instructions from supervisors is really, really kind of key. Sometimes people have nagging concerns about whether the plan will work or not. If they don’t see quick results, for example, they might start to doubt the plan. So it’s really, really important in any change process for the leader to have a few very simple measures that everybody agrees, will show what you’re winning or losing. They don’t have to be perfect measures because no measure is ever perfect.

Paul Jarley:                         And again, this is more of an emotional response than it is an intellectual one. So if you can find just two or three measures, I wouldn’t say more than three, that everybody agrees is an indication of whether you’re winning or losing and you can use that data to show people where you are in that process. That’s really important. I think milestones can be really important to the extent that the leader can say things like, “We’re going to engage in this process. And when we get to A, then we’re going to do B. And when we get done with B, we’re going to do C, I’ll give you an example.

Paul Jarley:                         When I first came to UCF, I fired a department chair and I shut down their PhD program. Those are two of the most disruptive things you can do to a group of people. I brought them all together, and I said, “We are going to engage in an external search for a chair, we are going to get that done in seven months. When we have that new chair, that new chair is going to sit down with all of you and create a new plan to make your PhD program more effective than it is now. We’re going to go out and hire two more senior faculty over that next year. And then we’re going to reopen your PhD program.” We did every one of those things on schedule and on time.

Jordan George:                 Just laying out a clear framework for them to know what the expectation was moving forward. And I think what you did there too, was you gave them a little bit of a sense of when normalcy would return, maybe not in the same way, because obviously, there were some things you needed to change, but you let them know clearly when they were going to get back to that world that they were so used to.

Paul Jarley:                         So another one. Sometimes the change process requires you to bring in people who are really different than the people that you have. So one of my favorite books of all time is called How Stella Saved the Firm. And How Stella Saved the Firm is a book written by two Harvard faculty members as a children’s book. And it takes you through the innovation and change process. And so, the farm is run by animals, short story. The farm is run by animals and the long time owner of the farm is sick. And his daughter becomes the head of the farm. And she recognizes pretty early that the farm in financial trouble. And it has being run by a project manager who has been there a very long time and has sort of set in his ways.

Paul Jarley:                         And so ultimately she asked for suggestions from the employees. Stella is a donkey and Stella had been on vacation in South America, and she met alpacas. And she knew a little something about the luxury fair market. So the daughter brings in alpacas, well, nobody likes the alpacas. They’re kind of smelly. They stand in the fields by themselves, no one will eat with them. Long story short, the alpacas saved the farm. By integrating people who are really different too at a very different thought process can be really fun.

Kerby Pickens:                  When I think talking to people resistant to change with our brand change and Christina you kind of deal with this externally, our members who are saying, “CFU is was just fine.”

Christina Lehman:           Yes, I help run our social media and about a week after our change, there was a lot of resistance. And I think going back to your story about Stella Saves the Farm, is the comfort zone. And the comfort zone is such a dangerous place. It’s a comfortable place, and it’s a nurturing place. But it’s a dangerous place because if you’re in your comfort zone, you’re not taking any risk, calculated risks. So that’s a scary place to be and that’s when change doesn’t happen. So in your example, they were in their little comfort zone, they’ve been doing the same thing for 20 years, and then this person comes in and wants to disrupt it. And it’s very hard to get out of that comfort zone.

Jordan George:                 But once you get out of the comfort zone, that’s when the growth occurs, that’s when you’re stretched and pushed and challenged a little bit.

Christina Lehman:           Well, the comfort zone leads to mediocrity.

Jordan George:                 Yeah, exactly.

Christina Lehman:           It’s essentially what it does.

Jordan George:                 Its complacency. It’s just, “I’m very comfortable in my cocoon here. I think I’ll stay a while.” But it’s a fine line between… I had a professor that described it as there’s really three phases, in the comfort zone, there’s discomfort, and then there’s alarm and you don’t want people in alarm. Or at least not for very long

Paul Jarley:                         Yeah, that’s right.

Jordan George:                 So discomfort is a good place to be because that that causes you to stretch some muscles that might have been under-used in the past and help you grow and change and evolve. But once you get into alarm, that’s when people start to panic, they start to worry about things like, “Will I continue to have a job? Will I be as good as I was in the past? Will somebody else come in and surpass me or replace me?” That’s not a place that we want to have people operate within at least not for a long time.

Paul Jarley:                         I agree with that. The term I like, I borrowed it from somebody, is positive restlessness. That’s [crosstalk 00:21:50].

Jordan George:                 Oh, I love that. Yeah, that’s a good one. I love that.

Christina Lehman:           I feel like, going back to our members, they felt just like Kerby was saying, “But I like the old CFE,” or they thought, “Oh, they got bought out. This Addition Financial, what’s that? I don’t know who that is.” We actually had to come out and say, “Same great credit union. We’re the same people, same values. We’re just a different name and we’ve done it three other times.” And exactly what you were saying about explain and explain again and explain again, every time I talked to a member online or on Facebook or Will can attest to this. You explain it to them, they’re like, “Oh, you’re not abandoning teachers. Oh, you’re not.” All these things that they speculated in their head we had to explain it again and again, but the explanation calm their fears and brought them to the other side.

Kerby Pickens:                  I think that’s important like letting people vent and giving them that opportunity.

Jordan George:                 Putting people on your couch is one of the things that I spend a lot of my time doing. We’re all counselors in some capacity.

Paul Jarley:                         Exactly.

Jordan George:                 Have seat tell me how you are feeling right now.

Paul Jarley:                         That’s so true.

Jordan George:                 Yeah. Well, I agree, and I had heard similar stories from the folks in the branches in the contact center, there are just some people who are never going to be happy with change, even positive change, no matter how many times you explain it to them. But I think that’s a very, very, very small minority of people. And we saw that with this change, like you were saying, Christina, once we were able to explain it to them, and they understood the why, and they understood that we weren’t taking away anything, this is only going to make things better for them. It’s only going to improve the number of people that we can serve, how we can serve them, the types of products and services that we can provide.

Jordan George:                 It was a much easier thing, but I know someone out there will be able to echo this in their own experience with their family. My own mother was upset that we changed our name. And I remember I was out to dinner with her a couple of weeks before, and I said, “Yeah, we’re getting ready for this brand branch. It’s really exciting. We’ve got a lot going on right now.” And she was like, “Yeah, I don’t really like it.” And I said, “Well, what don’t you like about it?” She goes, “Oh, no, I just really liked CFE,” I said, “Do you know what it even stands for?” She had no idea. But she knew that she liked it. And I heard that, bringing this back to UCF, with the Arena. I know there were some kids who go, “Addition Financial Arena? I don’t like that.”

Paul Jarley:                         “We’re going to win fewer games now.”

Jordan George:                 Yeah. [crosstalk 00:24:34] name the stadium.

Paul Jarley:                         Yeah.

Jordan George:                 But I was thinking to myself, I understand not everyone’s going to like the name. But was it really better or was CFE Arena really any better? At least you know what this stands for, we can be proud of that. But it is it’s an adjustment period. And particularly around the name, we talked about how you think about all the big organizations today that people know as household names. And you look and you analyze their names. Walmart, Apple, Google, Starbucks. What do those mean? What do those names… If someone just Starbucks, that’s really the one that’s… It’s what you make of it, I think. And so going back to your point, it’s how we communicate these things. It’s the influencers, it’s the buy in, it’s understanding that the changes are what we make of them and if we go in with that negative mindset of well, this is only going to hurt me, only seen those immediate costs, and not recognizing the potential long term benefit, I think we’re doing ourselves and our members a disservice.

Paul Jarley:                         I think one place we really missed in our change process going forward, looking back on it, and I still don’t have this completely worked out. Excuse me. Making sure you’re incorporating something into your orientation program for new employees is really important because they’re going to get set into the middle of this and you might think that they come kind of baggage free. And in one way that’s true. But they’re going to immediately be inserted into a conversation that you haven’t prepared them for. And you might want to think through how you do that.

Christina Lehman:           That’s a good point.

Jordan George:                 We saw a lot of that, especially during the name changes, people were coming in because we were really hiring then-

Paul Jarley:                         “I thought I applied to CFE?”

Jordan George:                 Yeah, right. Right. We were hiring…

Kerby Pickens:                  People were throwing away their credit cards and they were like, “I don’t know who [crosstalk 00:26:44] handle it.”

Jordan George:                 Yeah, “I have no idea.”

Kerby Pickens:                  “I’ve been hacked.”

Jordan George:                 Yeah, “I never applied for this card.” Yeah, it was interesting, because we did have some hiring managers that had preempted the discussion with the folks that they brought on board and said, “Hey, we’re going to be changing our name. This is coming, just FYI.” And we had others that didn’t. And that was very clear in orientation when we would start talking about Addition Financial, and you’d see two or three confused looks, sideways glances, “Am I in the wrong…” It’s like going to the wrong class on the first day of school. “Am I in the right room right now? Am I in the right place?” And that was before we changed any of our signage or anything. So it was interesting. That’s a great point.

Jordan George:                 I think when you look at all the different educational channels that as organizations we have to reach people and the different ways that we can do that, the different times in their employee lifecycle that we can do that, that new hire orientation is a really critical piece, because that’s really setting the foundation for their expectations moving forward.

Paul Jarley:                         Well, I think too, because the leadership team and the communications team generally, you’re living and breathing this change process every day. So it’s like the most relevant thing in your life. But for a lot of your people in the field, frankly, that isn’t true. And it only becomes salient when they run up against something that’s changed that they don’t like. And then suddenly the light bulb goes on and they think, “Well, why are we doing this?” And as hard as that can be, that’s when you need to have the answer for them. The fact that you told them before, it doesn’t really matter.

Kerby Pickens:                  So are there any common mistakes that we should look to avoid as leaders or even just as someone trying to influence change?

Paul Jarley:                         I think so. I actually think the biggest failure that most organizations have is they don’t recognize from the outset, that not everything is going to go well. There’s a famous quote, attributed to a number of different generals, [inaudible 00:28:51] is one of them, who was fond of saying, “The battle plan never survives contact with the enemy.” Now Mike Tyson said everybody’s got a plan until you get punched in the mouth. Yes, that’s true.

Jordan George:                 Yes.

Paul Jarley:                         So you want to go into it, kind of understanding that not everything is going to go well. And I think if you fail, that’s sort of three risks in one for you. So I honestly think it’s your biggest risk. If you go into it, particularly if the leader goes into it, thinking that they’re a genius, and have an ironclad plan, that’s just going to work well, honest assessments of progress will not occur. They will not. Because the leader is essentially telling you, they don’t really want honest assessments of progress. Things are perfectly fine from the way he sees it. Secondly, it’s going to lead to a lack of resilience among people. As soon as things get hard, they’re going to want to quit.

Paul Jarley:                         This is related to the third thing, you’re going to miss opportunities to learn and pivot. And some amount of pivoting always has to occur. So you want to think about those sorts of things up front. Now, you’re never going to be able to come up with a document that says, “Here’s all of the ways things can go off the rails.”

Christina Lehman:           That’d be great, you don’t have that?

Paul Jarley:                         Well, back to my introduction. I have 8,500 students. If there are cracks there, they are like water, they’re going to find those cracks, wherever they are. And so, it isn’t that you’re going to be able to do all of that up front, but you will reduce the scope of the number of times you’re surprised. And you can start to think through at least what your options are because the place you’re most likely to make the worst decision is when you think you’re in that crisis situation, because of something you didn’t anticipate. That’s a really bad spot to be. In those spots, generally people don’t see all of the alternatives that they have in front of them, and rarely pick the best ones.

Paul Jarley:                         So if you have a good system in place, I think a lot of times people think communication is about the leader standing up and explaining the why over and over again, and that’s important. But the other side of communication, is making sure that the person up front is actually listening to what people are telling them as part of that process, And not dismissing them, but understanding that those are real issues that somehow you got to get out in front of.

Christina Lehman:           I found that really great quote that I think would fit well there. It says, “I’m not going to tell you it’s easy. But I’m going to tell you it’s worth it. So join me.” And the leader needs to lead by example. And I think if they’re transparent, and they say, “This isn’t going to be easy, but together, we’re better together. Trust me, trust my team. Let’s do this.” And I think the culture here, which is so wonderful, that I didn’t experience in the past, is that we all fail forward. It’s okay, we’re going to make mistakes. Let’s learn from those mistakes and then let’s move forward. So we don’t have those critical [inaudible 00:32:41] that we’re not prepared for. We can always come back reflect and let’s keep going. That’s also scary. I don’t like making mistakes. Fear almost, is crippling to me.

Jordan George:                 It’s paralyzing for some people.

Christina Lehman:           Like, feeling is crippling to me. So that’s a huge thing to have that trust in an organization. It’s like, “Okay, I’m going to tell a member this.” So I hope that what I’m saying someone’s going to back me up, because I’m putting my faith in what they told me.

Jordan George:                 Yeah.

Paul Jarley:                         Well, and that’s my understanding, your culture is really important.

Christina Lehman:           Mm-hmm (affirmative).

Paul Jarley:                         There are written rules and regulations, but the culture is about how the organization and the people in it really respond.

Christina Lehman:           Yes.

Paul Jarley:                         And what’s really important to them and what’s not really important to them. I remember being at a round table one day where someone said, “Culture eats strategies’ lunch.” That’s true. The second mistake that most people make is they don’t understand how the change is going to interact with the culture that they have, not the culture that they want. That’s a different thing. Any experienced leader worries the most about their culture. It’s the single most important thing.

Jordan George:                 Yeah, absolutely.

Kerby Pickens:                  And I think though, talking about how our cultural interacts with some of our strategies or things that we have coming down the pipeline, our enterprise board is a great tool for that, that forecasting, that planning of looking at, “Oh, goodness, here’s a big system change coming up within the next quarter. How have I prepared my people? Have I been communicating along the way, so it’s not two weeks before we go live and all of a sudden, Hey, everybody, the system we all know and love while we’re switching in a week. So get ready.” But really, as a leader, looking at that enterprise board and seeing how do these projects, how do these things that are happening interact with my area, and are going to impact my people’s day to day and planning for that. And setting people up for success ahead of time, instead of waiting for maybe that one email to say, “Okay, it’s in two weeks. Starts in a week.”

Jordan George:                 I think that’s part of any large organization. There’s so many things going on that it’s easy to get pigeonholed into just thinking about what your next day or week is going to look like and not understanding the broader perspective. And the enterprise board has a great way that we try to overcome that through communication. I know that our team and several other teams have done the same thing have adopted a version of that, where we do a weekly stand up meeting, 15, 20 minutes every Monday morning, which is just a quick update on all of our projects. So not something long and drawn out and protracted because I know it’s difficult to get entire teams together and you don’t want to sit down at the table, lets go around the table for two hours talking about updates, but just a quick 15, 20 minutes so that everyone knows what’s going on and his understanding of the other priorities.

Christina Lehman:           Well, you know what that provides? Is accountability.

Jordan George:                 Well, you know what, Christina? It’s like you read my mind because I saw the last bullet on the slide up here and I wanted to talk to the Dean about that, that lack of accountability. Because I think we see that sometimes within the organization, that is a huge killer to productivity, to trust, to the positive culture that I think leaders are trying to build. How do you overcome that lack of accountability at an individual or team level?

Paul Jarley:                         Well, ultimately it comes down to people being willing to make difficult choices when they have to make them.

Jordan George:                 Yep, I agree.

Paul Jarley:                         Those are never fun.

Jordan George:                 Nope.

Paul Jarley:                         Never ever, ever [crosstalk 00:36:38].

Jordan George:                 Yeah, speaking from experience.

Paul Jarley:                         Although sometimes I will tell you this, though. I have been in situations, too more often than not, that you have a person who’s underperforming or perhaps doesn’t fit. They know that.

Jordan George:                 Well, I think we’re doing a disservice not just to ourselves, but to the team, to the organization, and to that individual to allow them to continue to struggle in an environment that’s not right for them.

Paul Jarley:                         Well, yeah, there’s a few steps there too. The first one is fair notice and I think it’s the most important one. I don’t ever want to be in a situation where someone can come to me who were terminated. And they say to me, “I did not know I was having a problem.”

Jordan George:                 Absolutely. Yeah.

Paul Jarley:                         And frankly, there have been some situations where that was true. So, regular, honest performance evaluations, followed up by things like needs for changes in behavior or training or those sorts of things, if it’s going to get to termination, you want that to be the last step in a process where you’re at least convinced that you’ve done what you’ve could to make that person successful. But also I think you’ll find any change process, particularly the more fundamental it is, some people will opt out, you should expect some turnover. That’s going to happen in a process like this. And honestly, that’s not a bad thing. I mean, you want to understand why that turnover is occurring. But if the turnover is this is an organization that’s changed, and I’m no longer committed to the goals or values of that organization, yes, then you should move on.

Jordan George:                 Yeah, I always say we spend too much time at work to be miserable.

Paul Jarley:                         Oh, absolutely.

Jordan George:                 So if we as individuals are not feeling fulfilled and valued and aligned with where the organization is going, then don’t stay there.

Paul Jarley:                         Incredibly miserable place to be.

Jordan George:                 Yeah, right. And that’s not the kind of place that you want to go. I mean, I know that not everyone’s going to look forward to Monday mornings, and I’m realistic about that, but at the same time, you shouldn’t be dreading it either. You shouldn’t be just, “Urgh, I can’t do it. I can’t get out of bed today, I can’t go in it.” We need to be more honest about those types of things because that’s a that’s a difficult conversation to have is helping people recognize when this is no longer the right fit, which is after taking all the other steps that you talked about. Having a deeper understanding, having discussions to understand what’s going on, making sure that the communication is clear so that people can make an informed decision about what’s right for them and for their family and further their stage in life.

Paul Jarley:                         Treating everybody like they’re an adult sometimes goes a long way.

Jordan George:                 Yeah, imagine that. I wanted to touch on one of the things that you had up here that I really liked. So that second to last bullet point. And I’ll admit, I think this is an area I won’t say for the organization but that certainly I wish I had done a better job with right after the brand change, which was, and Christina, and Kerby, and Valerie, everyone else in the room that was here knows what a tremendous undertaking that was. Even just replacing the signage, there were like 6000 signs or so. John Thomas told me at one point. Updating all the materials, just every time there was a policy, a procedure, a job aid, a reference, a training course. And that’s just one piece of it, but everyone within the organization really was stretched especially the months immediately leading up to that brand change and immediately following because of the member reaction

Jordan George:                 One thing that I wish I had done differently was take a little bit more time to celebrate what a tremendous win that was for us and for the organization instead of so quickly moving on to, “All right, that’s done on to the next thing.” That’s kind of the pace that we move at, but it’s so important to recognize those things.

Paul Jarley:                         So I have a chief excitement officer. That’s part of her role. Those of you who are laughing know who she is. But no, I think it’s a mistake not to do that. Again, it doesn’t need to be a parade. No, I’m not suggesting that. But, a little appreciation goes a long way. I think we overlooked at some times, particularly, I think early in the change process, highlighting the early adopters and holding them up as role models for the kind of people that you want to have in your organization, can really help out. But I do want to go to the one you skipped over.

Jordan George:                 Yeah.

Paul Jarley:                         Okay. And that’s the failure to align reward structures with your new [inaudible 00:41:50].

Jordan George:                 Sure.

Paul Jarley:                         So, the most famous article in human resource management was written by a general and it was called Rewarding A While Hoping for B. And he asked two simple questions. How did soldiers get to go home from World War Two? Anybody know? Well, the answer was when we won the war. How did soldiers get to go home from Vietnam? When they had accumulated enough points to rotate back to the States. Which of those two wars did we win? His point being in Vietnam, we were hoping for victory, but we were awarded survival.

Jordan George:                 Yeah.

Paul Jarley:                         That’s what we got. And that’s a very dramatic example obviously.

Jordan George:                 Yeah, I know. I like that. It’s good.

Paul Jarley:                         But all organizations do this all the time. So if you’re going to go through a change process, it’s really important that you review your reward structures and I’m just not talking about compensation. There are all kinds of reward structure. And to ask the question, are these still the things that we want to reward? Are there new things we want to reward and how are we going to do that? Because your reward structures are the most powerful thing that you have, people respond to incentives. So you should think really carefully about what your incentives are because you’re going to get them.

Jordan George:                 I think a really good point is not just thinking about that as compensation. We so often do, we think of it as some sort of bonus or sales commission or something like that. It’s not just about the compensation. It can be how we reward people with time off or the flexibility.

Christina Lehman:           Or not even that, like what’s wrong with… One of my favorite things I receive are handwritten letters. I just want to feel seen. I want to feel that somebody saw that I did something that bettered the organization. And because I wasn’t feeling that way, I came here. So good people you want to stay in your organization will leave if they do not feel valued, or they see other people being rewarded for their bad behavior.

Jordan George:                 Oh, that’s the worst.

Paul Jarley:                         Different people want different things sometimes. Before I came to Orlando, I was in Las Vegas. I’ve been staying at UNLV for five years. My assistant at you and UNLV had a list of seven names on them, of which she could not schedule an appointment with more than two of them on the same day with me. And these were all high achievers. They were not problem employees at all. But their need for recognition and affirmation could be emotionally exhausting. Literally, I couldn’t do more than two. What was so striking about that is for most faculty, they’re the opposite. The last thing they want to do is see the Dean. So if I want to make their day a good day, I just don’t talk to them.

Jordan George:                 Just stay away.

Paul Jarley:                         But for these seven people, they wanted me to know in excruciating detail, what it was they were doing, and they wanted affirmation from me, even though at times I would have to tell them an hour and 35 minutes in, “I really love you and what you’re doing, but I’m not going to remember any of these details. And when somebody calls me and asks me about them, I’ll call you. Honestly, that’s what I’ll do.” But no, I think that’s really important, is understanding people work for different reasons. They really do. I mean, everybody got to eat, I’m quite sure. But yeah, understanding people and kind of how they work and what they really respond to, yeah, that’s an important part.

Jordan George:                 Well, and you can have a job at a lot of places.

Paul Jarley:                         Yes.

Jordan George:                 You talked about, everyone’s got to eat, well you can choose where you get your paycheck to put food on your table.

Paul Jarley:                         Absolutely.

Jordan George:                 There’s lots of options, we have to do more than just provide a paycheck for people. And I think understanding as a leader, what your team values as individuals is really critical, even as fellow team members understanding how your peer is on the team, like to be rewarded and recognized because again, it could just be something as simple as saying, “Hey, thanks. I really appreciate what you did today,” or a handwritten note. I know so many people when you walk around this building, and I know it happens out in the branches as well have little trinkets and things that they’ve collected over the years that they’ve received from people, received from members, that from a monetary sense have no value.

Jordan George:                 But from a pride and respect and kind of as a reflection of the things that they’ve done and accomplished and how they have helped somebody else, have a measurable value that they keep out in displayed that somebody has given them just because it’s a reminder that they made a difference, to Christina’s point, that they were seeing that they were valued and that they were appreciated for what they did. So even understanding that not just from the leader’s perspective, but as an individual on a team, and how you might be able to do some of that for those around you.

Paul Jarley:                         It’s impossible to have a shared set of goals and objectives if people don’t know and understand each other.

Jordan George:                 Yeah, I love it. Awesome. Well thank you Dean Jarley so much for being here. Thank you Christina, Valerie, and of course as always, Kerby it’s great to have you here.

Kerby Pickens:                  Thank you, Jordan.

Paul Jarley:                         And thanks to Addition for being such a great partner.

Jordan George:                 Thank you. Thank you.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

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Anand Krishnamoorthy:               This is something that many of us on the State side may not be familiar with. Eurowings is a German low cost flyer that doesn’t even tell you what your destination will be, before you pay up. You will not know where you’re flying to until you pay up.

Paul Jarley:                         Here’s a tip for value conscious holiday shoppers everywhere. You probably don’t want to buy two tickets on that airline. This show is all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, “Is this really a thing?” Onto our show.

Paul Jarley:                         Everybody knows that person who will go to great lengths to get a deal, but is a deal ever really a deal? We’re bringing back our retail guru, Anand Krishnamoorthyorthy to explain to you that a deal, well, probably isn’t really a thing. With pricing games, there’s always a loser and Anand explains, that’s usually you, listen in.

Anand Krishnamoorthy:               What I’ll do today is talk about three broad topics in pricing games. The first of which is what we refer to as opaque selling, where product attributes are hidden. Then we’ll talk about where pricing cues are hidden. We’ll start off with something that firms do a lot of, which is cost plus pricing. Some of you are familiar with this term, at least you’ve used it in the past, which is, you figured out your cost, tack on a markup, and then figure out your price based on that.

Anand Krishnamoorthy:               Many firms practices, but if you ask them, they will not admit to it because it’s a decidedly unsophisticated way to price. So why is it a problem? Let’s start one, you’re pricing based on things that consumers have no idea about. Consumers usually don’t know what a firm’s costs are. Even if they knew, why would you care? Why would a firm’s production process of manufacturing plant factor into how much you’d be willing to pay?

Anand Krishnamoorthy:               As a way of maybe channeling venture payroll’s book, it’s because costs don’t care about consumer feelings. Costs are based off of things that consumers don’t care about at all. It is consumers wanting benefits, consumers wanting other attributes, et cetera, rather than costs.

Anand Krishnamoorthy:               To put it another way, if I’m inefficient, and I work for you and I take three days to do a job that you expect done in one, would you pay me three times as much? No. Then why would you expect firms to pay for consumers in terms of costs? Consumers do not want to compensate firms for their ineptitude, why would you expect cost to drive pricing?

Anand Krishnamoorthy:               So then perhaps better ways to price would be, price based on consumer benefits. That is, figuring out what consumers want, price based off of that. Consumers would want that, ideally. The problem is, consumer benefits are very hard to figure out. In fact, many a time, consumers themselves have to be educated before they can learn the benefits of using products. If it’s hard for one consumer, it’s even harder for so many different types of consumers who want so many different things in products. So then perhaps, the right way to price should be based on what a consumer is willing to pay.

Anand Krishnamoorthy:               Problem is, you can’t sell everything at an auction. So short of that, how do you figure out what each consumer is willing to pay? And as an example here to the second point, let’s say I know that the people on the left side of the room are willing to pay $50 for something. The people on the right side are willing to pay $70 for something. If I were to charge $50, all of you will buy. But the people on the right have gotten a price cut of $20 when they did not need one. If I charge the price for the people on the right, none of you on the left will buy.

Anand Krishnamoorthy:               So the idea is to figure out what we can do so that everybody buys, but at different prices based on different tokens of attributes. That is what we refer to as, price discrimination or differential pricing. Understanding what consumer preferences are like and charging different prices based on their willingness to pay.

Anand Krishnamoorthy:               All right. So three topics I’ll take up here. The first of which is opaque selling. Many of you have experienced this. So a couple of examples to lead you through that. Opaque selling is where some product attributes are hidden from consumers. A common example is Hotwire with its Hot Rate hotel. You see that a number of choices are revealed to you, but, which hotel you’ll be staying at, is not revealed to you. You know the price you’ll be paying you per night. You don’t know, which hotel you’ll be staying at.

Anand Krishnamoorthy:               This is something that many of us on the State side may not be familiar with. Eurowings is a German low cost flyer that doesn’t even tell you what your destination will be, before you pay up. So you pay up and then you’ll figure out where that destination might be. Just so you know, it flies too many cities in Europe. It’s not just one or two cities. It’s flies to 50 cities in Europe, but you will not know. Their blind booking is where you will not know where you’re flying to until you pay up.

Anand Krishnamoorthy:               This is not just in airlines. It’s also common with service providers or hotels themselves. And you’ve seen many cases where bed type may not be guaranteed, or the type of room may not be guaranteed, with a rental car it’d be manager’s choice where the manager decides what kind of a car to provide and so on.

Anand Krishnamoorthy:               Anybody know what this is? So this is a case where what you get in the bag can be one of six different SpongeBob Minifigures. Squidward, different Spongebobs, well Mr. Krabs, what have you. The idea being, you will not know what is in the bag until you pay up and rip up the bag. It’s called a blind bag. You will not know what is in there. It could be one of any six of these. It’s not easy to figure out because these are all common small Lego blocks. You can’t feel and figure out what’s in there.

Anand Krishnamoorthy:               But if you have a kid, you know that the kid is not going to be happy with any one of these. The kid wants just one of these, perhaps the Squidward, or squiliam, what have you. So then the point is, how does one deal with this? Because are you going to buy hundreds and play the odds? Because they themselves tell you that some of these are ultra rare, mega rare and all that. So it’s next, and your kid wants that, that’s for sure. So how then do you play the game? That is what we call opaque selling, where product attributes are hidden from consumers. Only after you purchase, will you find out what you get in the product.

Anand Krishnamoorthy:               Usually, it works for what we call deal seekers. That is, if you don’t have strong preferences, that is, if you don’t care about the type of hotel you’ll be staying at, you only care about the price per night, or you only care about free breakfast, et cetera. When you don’t have strong preferences, that’s perhaps when this works. It enables firms to price discriminate. We’ll talk about that a lot in some time.

Anand Krishnamoorthy:               What are the challenges for consumers and for firms? For consumers, the biggest challenge is one, the satisfaction that is, invariably you buy something that you don’t like after the fact. So let’s say for on Priceline you book a flight and then you find out that it has two layovers in God knows where. So the point is then there’s a lot of dissatisfaction. You don’t get what you had hoped for. Usually, in all of these cases, there is no refund or return. So if you’re unhappy with it, you cannot return the product. Consumers don’t like that kind of uncertainty.

Anand Krishnamoorthy:               For the firm, a lot of pricing is predicated on product differentiation. That is knowing that one kind of offering is better than another so that it can direct consumers to different types of offerings. Here, since the product is opaque, it’s not differentiated.

Anand Krishnamoorthy:               How can we make it work? There are three broad ways how we can make it work. One is, you ask consumers what they want. When it comes to a flight, you ask consumers, “Are you willing to have two or more connections, layovers,” et cetera. So when you do that, consumers reveal what they want or perhaps what they don’t want and then dissatisfaction tends to be lower, and the firm can price accordingly. If the firm knows what consumer preferences are, perhaps pricing can be easier.

Anand Krishnamoorthy:               The other point, which you’ve seen a lot in our hotels and airlines is one of revealing some information, which is, when you go try to book a flight, you will innovatively see a line that says, “Only five seats left at this price,” or, “Only two hotel rooms left at that price.” What that does is it creates a scarcity mindset in the consumer. “So if I don’t buy now, perhaps I will not have anything tomorrow.” So that drives firm demand.

Anand Krishnamoorthy:               And finally, add on pricing or what we call option based pricing. Blind booking from Eurowings does this, which is, if you absolutely don’t want a layover and say Hamburg, then you can rule that out as an option. So if you have options that you absolutely do not want, you can rule that out for a fee. All right? So you pay a premium to be able to rule out some options. And for those consumers who want clarity in what they’re getting, the firm can leverage off of that.

Anand Krishnamoorthy:               This is something that you probably have observed on, I think, this is Priceline where you don’t know, which hotel you’ll be getting. It tells you that it will be one of maybe six brands. You’re also told where on the map these hotels will be located. It will be one of these three. You’re told that it’s one of these, you will not know, which. So then, if you’re smart, if you’re good with Google maps, for example, you could maybe spend 10 minutes and figure out what exactly these are. You will still not know, which one it is exactly, but you’ll be able to figure out which of these three they are. All right.

Anand Krishnamoorthy:               Where does that work? It works usually when consumer preferences are all over the map. For example, some of you want rating, you care about the hotel rating. The brand isn’t important. Some others are loyal to a brand. You care only about that. Some others care about free parking, free breakfast, et cetera. When consumer preferences are all over the map, then you see different levels of opacity, because firms can capture more value.

Anand Krishnamoorthy:               Opacity varies with time. Usually you see all of these opaque selling strategies, not three months in advance, not six months in advance, one week before things materialize. Because what usually happens is firms are under pressure to get rid of the present mentoree. If a hotel does not rent out a room on that date, there’s no revenue. If a seat goes empty on a flight, there is no revenue, when inventory is perishable and that deadline approaches, that is when firm can leverage this kind of opacity.

Anand Krishnamoorthy:               And finally, as we have hit on multiple times, not everybody can find out more about what’s going on with opaque products. On the map, for example, if you have no clue where about Boston, perhaps you will not know where these three hotels are, then it doesn’t matter at all that the firm is revealing those three hotels. If you’re good with maps and locations, et cetera, perhaps it benefits you. Then it is the uninformed consumers who tend to pay up more than those that are informed.

Anand Krishnamoorthy:               This is something that I want to hit on because this is work I’ve done that talks about when product attributes are well known, but prices are hidden from consumers. I’ll give you a few examples here. This is a TV from Amazon. So what it says up there is, “To see our price, add the item to cart.” You might think, “Well, adding the item to cart is just one button that I click there.” Not so much, because when you do this on Amazon, you’re forced to sign up for an account. Well, you might say that I’ve been a prime member since when Abraham Lincoln was president. So that’s it.

Anand Krishnamoorthy:               But the point is, is this something that only works with Amazon? No. Every retailer under the sun does this, which is, add the item to cart before price can be displayed. It’s clearly a cost for consumers to figure out what the prices are. Once you do this sign in and login, you’ll find that the price of that TV is about $1,097. Now, let’s go to Crutchfield, a well known audio video retailer. The price is the same. It’s prominently displayed on the website. There is no adding to cart shenanigans.

Anand Krishnamoorthy:               Likewise, with B&H, another popular photography and audio video website, the price is prominently displayed. Dell, has an even lower price that is displayed, not hidden. Why are different retailers hiding prices from consumers and some retailers not? So perhaps the argument is cost based. That is, if I were to hide prices, perhaps it’s less costly for me to advertise prices. Not the case, because in most of these cases online, how much effort and costs that’s putting a price there really take? Instead of putting this long texts that says, “Add the item to cart to find out the price,” just put a number in there. It should be much less expensive to do. So cost is not what is driving it.

Anand Krishnamoorthy:               This is something that really bothers us as researchers, which is usually the retailers that hide prices happen to be low price retailers who should be jumping up and down telling consumers about what their prices are. If you he low prices, tell consumers about it so that consumers can then buy at those low prices. Why are these retailers hiding prices? The most common reason for that is manufacturer gaming. That is manufacturers do not want retailers to advertise a price that is lower than a threshold because it reveals bad product quality, for example. It denotes a negative connotation.

Anand Krishnamoorthy:               So keep in mind, this is not the price being charged. Manufacturers cannot mandate that you charge a particular price, that’s illegal. What they’re doing here is they are forcing that a retailer not advertise a price lower than that MAP, not the price being charged. That’s not what we observe in our research. We find that in some cases that the hidden price is actually higher than the prices at other retailers. It’s not a lower price that’s being hidden. That’s one thing.

Anand Krishnamoorthy:               Two, as we signed the examples, the same price is being hidden by some retailers, but reveal by others. So retailers appear to be playing games in terms of whether to show the price or hide the price. So there may be something else going on here. So I want to talk about one aspect here, which all of you are familiar with, which is what we define as a retail service. That is retailers don’t want to just sell products to you. They also want to provide service. What does the service entail?

Anand Krishnamoorthy:               In the case of brick and mortar stores, it’s having tons of product on the shelf, on the floor, for you to look at. That’s expensive to do. It’s there for a reason because if you want to buy a TV, there is no way you’re going to buy a TV without having looked at the picture quality, audio system, and so on. So it’s not just the case that it only happens in brick and mortar stores. Even online, you know that some websites have dedicated chat agents who are well trained in product support and so on. It’s not just a thing that happens online or offline.

Anand Krishnamoorthy:               Anybody heard the term showrooming? You’ve experienced this, I’m sure, but it’s not something as a term you’re familiar with. So let’s define that for you. Showrooming is what we refer to as the free riding of service. That is, you go to a store, Best Buy, most frequently, you experience the product, you talk to the blue shirts to know all about what the product is about, get ideas, and then fire up your smartphone, buy the product from Amazon or some of the low price redone. That’s what is our showrooming.

Anand Krishnamoorthy:               In fact, I remember reading a quote from an analyst way back when a stock analyst was covering Best Buy stock that said, he would be having an awesome conversation with his clients, and the minute he would utter the words Best Buy, they will look at their watches and say, “I got to go, time’s up.” Because they thought Best Buy was going to go out of the market in no time. Amazon was eating its lunch. Best buy has been able to survive. Why? We’ll look at in some time.

Anand Krishnamoorthy:               But Best Buy faced a significant problem with showrooming, which is, all of us go to Best Buy to experience the product, whether it’s a phone, a computer, audio system, TV and then we shop around. It’s very easy to do with the phones these days and then Best Buy loses a ton of business that way.

Anand Krishnamoorthy:               But again, like I said, showrooming is not something that only happens in physical stores. Even online. Some websites spend a lot of effort and money having dedicated support staff that can answer questions before we buy. Some don’t. Okay. So you can do the same thing there. Go to a high end website, get information, and then fall back to a lower type website.

Anand Krishnamoorthy:               Why should prices be hidden at all? In general, you would never expect prices to be hidden, because what happens when you hide prices, you have to encounter additional effort in order to find out the price before you buy, because there is no way you’re buying without knowing the price. So consumers incur effort when a price is hidden. What does that do to demand? If prices are hidden, consumers have to work harder to find out price. Anytime you make consumers work harder for something, they will tend to pay less because they’ve incurred additional effort.

Anand Krishnamoorthy:               Consumers look at the entire utility, in terms of how much effort they spent searching for the product, how much effort they have to spend getting to your store, how much effort they have to spend checking out, and the price paid. So as long as you force consumers to put more effort into searching for price, the actual price they’ll be willing to pay will be lower. Okay, so keep that in mind. Demand will go down.

Anand Krishnamoorthy:               So then, how should things work if one retailer hides price and the other does not? What usually happens is that price competition is less of an issue. Now, what happens is if you hide prices, your prices have to be lower. If someone else reveals prices, those prices have to be higher. So naturally, prices are dispersed so that price competition is lower, works to the benefit of one of the retailers. Which retailer is that? Usually the one that does not force you to put in more effort. Is that a good thing? It depends on who is hiding prices.

Anand Krishnamoorthy:               So should a high service retailer, should somebody like Best Buy be hiding prices? Let’s understand what happens when prices are hidden. You know that when you hide prices, the price charge should be actually lower. Does it help? Because best buy is in the business, not just of pricing, but in providing service as well. If you know that your margins are lower, you will put in less effort in terms of service. Your blue shirts will not care as much. When services lower, what happens? You get hurt because your prices are lower. The other retailer can now not free rate as much because you are not putting in enough service effort to begin with. Both of you tend to get hurt.

Anand Krishnamoorthy:               Let’s look at the opposite side. Should a low service retailer be hiding prices? What happens when a low service retailer hide prices, the other retailer actually reveals its price. So then the higher price charge and the retailer helps because now higher price, higher margins, you tend to provide more service. Your blue shirts are probably compensated higher, let’s say on commission, or they see more of an incentive. What happens with that result? Both of them benefit. You get higher margins because your prices are higher. There is more free riding benefit because more people will go talk to the blue shirts and move to the other retailer. So both retailers tend to benefit from this.

Anand Krishnamoorthy:               It’s actually counter-intuitive because, low prices should actually be revealed because consumers tend to shop more on low prices. But it’s the opposite that we find, which is, these low prices are the ones that should be hidden, not reveal. And why does this work? Because of the showrooming benefits.

Anand Krishnamoorthy:               What is the most common response to showrooming? What did Best Buy do to respond to this? Anybody? You’ve all shopped … Yes. Price matching, right? So that is the obvious response at showrooming, that is, if you feel that price is the only reason consumers are jumping ship, take that out of the equation. Match prices, focus on other aspects.

Anand Krishnamoorthy:               Should higher service firms, should Best Buy be spending all this effort trying to price match and lower prices? Usually, when you look at work on price delegation, for example, you would never want to let a low priced, low service retailer take leadership of pricing, bad idea. In the case of Best Buy, now you’re providing at high service, you’re training your sales staff, you’re doing all that, you’re encountering so much in terms of expenses, and now you’re charging low prices? The math doesn’t compute, right? So your costs are higher, your prices are lower, how has Best Buy done this?

Anand Krishnamoorthy:               If you look carefully at what Best Buy has done, one of the easiest ways this can work is, cost-cutting. If your product costs are higher on this side, bring those costs down. What Best Buy noticed is the biggest wastage in terms of expense for Best Buy is, things getting dropped in the warehouses, TVs tend to fall, break and so on, radios waste is there. Put your blue shirts to greater use, not just upselling and things of that nature.

Anand Krishnamoorthy:               But more importantly, Best Buy has benefited from two things that other retailers tend not to benefit from. One, consumers have to walk into your store. The products you sell are such that they have to be experienced before purchase. There is no way you’re buying a TV unless you walk in and look at what kind of image is on the TV, the sound system and so on. The biggest problem for retailers is bringing people in. Best Buy has an easier time with it because all its products have to be experienced before purchase.

Anand Krishnamoorthy:               And then Best Buy has had the good fortune of seeing all its direct competitors go up in flames. Circuit City, no more. RadioShack, barely in existence. CompUSA, gone. Tiger Direct. So Best Buy, by some good fortune has had all its competitors go away. So this is not the answer to all your showrooming wars. It has worked for Best Buy because it’s in a business where competition has disappeared in and of itself. Something that does not usually happen in many other instances.

Anand Krishnamoorthy:               The last point I want to talk about, which is hidden pricing cues. Let me tell you what list prices then we’ll look at whether that is really true. Most of you, when I tell you the term list price, you think it’s MSRP, right? Manufacturer’s Suggested Retail Price. In fact, all the retailers make it a point to tell us that as well. But is it? Let’s look at this example here from a TV on Amazon. I want you to understand that this kind of work doesn’t just apply to TVs, doesn’t just apply to Amazon. It’s just a good illustration of what goes on. Any retailer, any consumer durable works just as well.

Anand Krishnamoorthy:               So if you look carefully, you see that the price being charged at about $698 the list prices $900. Let’s now go to Newegg, another popular retailer, same price almost. What is the list price there?

Speaker 3:                           1,300.

Anand Krishnamoorthy:               $1,300. How can the list price of an item be so different or two different retailers? Then you go to Samsung, the manufacturer of the TV, there is not even a mention of list price. There’s only one price listed there. So why are retailers playing games with list price when it’s such an important piece of information? Why is list price important? Because it’s the one of the prices that consumers make purchase decisions on. When you look at why you want to buy, one of the biggest arguments is, “How much of a sale there is on the item.” That’s why it’s important.

Anand Krishnamoorthy:               So what is the list price? It’s usually one of the three measures of central tendency from grade school math. Which is, it’s the most common price, which is the mode. It could be the median price, the 50% price, or it could be the average price. Turns out, it is none of these. All right. So in practice, none of this is what the list price is. Most of the prices on Amazon are higher than the prices of the same items are competing retailers. So then the bottom line is, nobody has a clue, not even the retailer, about how this list price should be determined.

Anand Krishnamoorthy:               Why is that important? Because having a list price drives demand in a number of ways. The higher the list price, the more of a deal you think you’re getting, the more likely you are to buy. List price signals quality. The higher the price of something, you inherently believe that it’s of higher quality, you tend to buy it more. The feeling of getting a deal. One of the biggest reasons for prices to come down is consumers searching. When you see that the gap is high, you know you’re getting a deal, hence you limit your search.

Anand Krishnamoorthy:               For a retailer, putting in a fake list price cost next to nothing. You can play games with list price, that probably benefit your sales, but it’s not very expensive to do at all. In fact, we have research that is shown that fake list prices are nearly as effective as genuine list prices. That is, if you put in a wrong … Fake list price, it actually benefits your demand just as much. How much it benefits clearly depends on, how knowledgeable you are as a consumer. We’ll talk about that in a minute or so.

Anand Krishnamoorthy:               I want you to carefully look at these examples and tell me whether this helps you make a purchase decision. So in terms of this providing a pricing cue, this TV here is 17% off of list. Something that you might look at when you want to buy. This TV here is 50% off of list. This is a whopping 11 cents off of list, all right. This here is something we observed a lot on Amazon these days, which is, there is no list price at all. How then are you going to know whether you’re playing a deal here? Probably not. This is what has happened on Amazon. If the next time you shop on Amazon, take a closer look. For many of these items, you will not find the list price mentioned. For the majority of items, Amazon has taken away list prices, probably driven by these lawsuits.

Anand Krishnamoorthy:               That is, there are so many lawsuits that take retailers to task, California has done that, Canada has done that, which is they believe that these list prices provide no benefit. It only inflates the bill consumers are getting when no sales happen at those prices. In fact, they found that on JC Penny, for example, that the California took apart, all of the list prices were such that not even one sale had happened at those prices. How then is it even a list price?

Anand Krishnamoorthy:               But the problem for consumers is, how then are they going to know they’re getting a deal? Absent a pricing cue to compare against, how do you know you’re going to be getting a deal? Are list prices credible? If I tell you that this is 90% off list, does that mean much to you? Some consumers may think it’s a great deal. Others might think you’re just playing games. Who sells for 90% off of list? So again, it depends on how informed you are as a consumer.

Anand Krishnamoorthy:               And finally, in the case of Amazon, when might not having this prices actually help? If you are neck deep in an ecosystem, for example, if you’re a prime shopper and the shopped at Amazon, anyway, if you have a ton of Alexa devices at home and the TV you’re buying, is Alexa enabled. So if you are neck deep in an ecosystem, this kind of a gaming really will not hurt you.

Anand Krishnamoorthy:               Who might get hurt from this? What will non-prime members do? The ones who lack information, for example, absent of lists price, where might you go? I want you to pay some attention to the New York Times pricing. This is the pricing from a few years ago, but the New York Times first launched its digital offering. So just to explain the pricing here, these are the prices for the d’etre version, that’s the paper version, and these are the prices for the digital or online version.

Anand Krishnamoorthy:               So you could get just the New York Times with a phone option for 375, with a tablet for five and digital, all of it for 875 or you could get the paper versions here. Not that … First, let’s understand why pricing is so different, because when you use your phone to read the news, it’s what we call a lean forward experience. That is, you have to put in more effort. It’s not as comfortable. Hence, lower priced. Tablet is more of a lean back experience like approximating reading the newspaper, hence slightly priced higher.

Anand Krishnamoorthy:               If you buy any of this, you get all of this for free. That’s how it was … So in other words, if you get any of these, you’ll get all of this for free. So you will then have to be a special breed of stupid, to do this when you can do this and get all of this for free. This is the New York Times, the nation’s most popular newspaper. Only in 2018, did it finally turn the corner and start making money. You wonder why? Because of issues like these.

Anand Krishnamoorthy:               But keep in mind, what does this pricing help you do? We are at the point of pricing cues. Although this price be dominated by that, you’re all told in survey design, in questionnaire design. If you have a dominated alternative, take it out, it biases consumers. Does it bias consumers here? What happens is consumers look at this and think this is a better deal. So even consumers that were here, might upgrade to that option.

Anand Krishnamoorthy:               So although these prices are biased in some manner, they actually help consumers make up their mind and go to a lower priced option. In the Times case, that is not a smart idea because what you’re doing is you’re essentially moving consumers from a digital option, where cost to serve are so much lower, because in the newspaper business, what is your biggest cost?

Speaker 4:                           Printing.

Anand Krishnamoorthy:               Printing, right? Production costs are almost half of your revenues. So why would you then move consumers from a low cost visual option to a high cost print option, not a smart movement in the case.

Anand Krishnamoorthy:               More generally though, how can news even be priced? If you have a hurricane approaching, if you have a school shooting, these are covered in pretty much the same manner at different places. So news is more or less a commodity. But is it though?

Anand Krishnamoorthy:               So I usually like to give the example of the precedent and this is going to play down the middle. All right? So it’s not going to lean left or right.

Speaker 5:                           [inaudible 00:30:40].

Anand Krishnamoorthy:               So let’s say President Trump were to walk into the rose garden and look at the sky and say, “Hey, the sky is blue.” One half of the news media, the fair and balanced network will tell you, “Hey, you know what? The sky is bluer than it’s ever been. In fact, when that guy with the funny name was president, the sky wasn’t even blue most of the time.” All right. So that’s one side. What are the liberal media tell you? “You know who else thinks the sky is blue? The Russians, pollution.” So the point is, even something that used to be a commodity, isn’t that anymore. How then should it affect pricing?

Anand Krishnamoorthy:               So we always tend to think of price discrimination. That is consumers having different preferences. Even moderates, even Republicans used to read the New York Times, not because of the opinion page, but because of the Sunday crossword, our cooking, what have you. But that is gone these days. If you are a particular kind, if you’re right of center you like they will never sniff the New York Times. In that case, is price discrimination even relevant? Perhaps not.

Anand Krishnamoorthy:               I’ll end with the what we usually see as the elephant in the room when we talk about pricing transparency, which is drug pricing. The Trump White House put out a proposal, I think a few months ago. This is very recent, this summer where the proposal was, “If you are a pharmaceutical firm and you’re advertising your drug accompanying that ad should be the list price of that drug.” Much like everything else the White House has tasked, this is also in the courts. It is not going anywhere anytime soon.

Anand Krishnamoorthy:               However, let’s see whether this proposal actually helps. How are drug prices set? Do consumers know that? There are layers and layers of middlemen that negotiate to arrive at drug pricing? Consumers have no clue how drug prices are set. So having a list price may not necessarily help them.

Anand Krishnamoorthy:               How does the list price of a drug effect what anybody in this room pays for the drug? Nearly everybody has insurance of some kind, a discount plan even if not insurance. So then the list price really doesn’t affect how much you pay. More troubling, try to buy prescription drugs when there is a problem. It’s not like they’re looking to party when you are shopping around for a drug. Who in his right mind actually shops looking for a deal on prescription drugs, right?

Anand Krishnamoorthy:               The list price argument works when you’re looking for a deal of some kind. That is the last thing consumers of the silk are trying to do. So if you rule out all obvious explanations, there’s only one explanation that still remains, which is, it is, political. It has nothing to do with what we know in terms of pricing. Election 2020 is nearing. If you ask consumers to list their four most popular enemies, what would they be? Used car salesman, drug manufacturers, insurance providers, big firms, big corporations. So it’s very easy to pick on any of them and make them an enemy.

Anand Krishnamoorthy:               Here you’re picking on drug makers to make them the enemy. And the goal is that, if you force these drug makers to put their list prices in an ad, perhaps they’ll be ashamed of the prices they are charging to save lives. That is the goal here. But the point is … Any pharma executives or people in the room? No, right? So let me speak my mind here.

Anand Krishnamoorthy:               If big pharma can be shamed into lowering drug prices, that would have happened 30, 40, 50 years ago. The reason drug prices are not going any lower is because, these people cannot be shamed into doing anything. All right. So the point is putting list prices on your ad does next to nothing other than just achieving the political goal. Let’s say you’ve spent all this time and you’ve not listened to much of what I had to say, and you’re thinking, “How best do I apply what we know here in terms of … To your context?”

Anand Krishnamoorthy:               First, let’s understand the sad part, which is, when you put on your manager’s hat, you are going to come with a pricing scheme that flies in the face of what your consumers want to do. Consumers and firms can never see eye to eye on pricing. All right, so that’s the challenge. So then, broadly speaking, pricing should hit on four aspects that mean different things to different people in different contexts to different firms. I’ll elaborate that in some time.

Anand Krishnamoorthy:               So let’s consider a simple example as we go through this exercise. Let’s say we are considering ticket pricing for the summer Olympics because of winter Olympics, I have no idea about. So the summer Olympics, you know that when it comes to the Olympics, there are many aspects that are different. Not all sports are created equal. There are some sports that are significantly more popular, track and field, the opening and closing ceremonies, gymnastics, swimming, come to mind. Some are much more popular. People will be willing to pay higher prices for those than others.

Anand Krishnamoorthy:               As with any sporting event or concert, some seats, courtside seats are much better than nosebleeds, for example. Some stages of these events are so much more interesting than others. Everybody wants to watch the finals, the hits, not so much. How then can you use these different aspects to drive a pricing? Let’s understand what these four terms here mean.

Anand Krishnamoorthy:               When you talk about pricing being fair in this context, at least, we are talking about the price that you pay for a given level of quality, that is, what are you willing to pay for this port versus that, and consumers have that in mind as well. There’ll be no fair consumer that tells you, “I want the best for next to nothing.” Consumers are willing to consider quality when it comes to pricing.

Anand Krishnamoorthy:               But when it comes to tickets and things like we deal with in this area here, hospitality, allocation is just as important. That is if you have limited seating, you want to ensure that all consumers have at least some shot at getting into the event. Prices have to be affordable. What does that mean? Clearly, it depends on different offerings that you have in mind. So not everybody would be willing to pay the same for a given kind of offering. This is extremely important. That is, you don’t want to put out an offering that nobody cares about and charge less money and call it affordable.

Anand Krishnamoorthy:               I’ll give you a couple of examples here. Way back, centuries ago when the railroads began operating, some genius came up with, “Hey, let’s have first-class coaches and third-class coaches.” But then when they thought about it, they had no idea how to differentiate these two, because there were no amenities to speak off their differentiators. So one idea was, “Let’s chop the roof of the first class coaches. So make the third class coaches travel without a roof on their heads.” Again, subject to all kinds of weather problems.

Anand Krishnamoorthy:               That is not what we are talking about here when we talk about different offerings. That is, in other words, there is a reason today automakers have backup cameras standard, not just in luxury automobiles, but automobiles across the board. Why? Because you don’t play games with safety in an effort to differentiate on products. So again, this has to be offerings that people care about, not just offerings that nobody cares about.

Anand Krishnamoorthy:               When it comes to simple pricing, what did we talk about? You shouldn’t have a math degree to figure out whether it’s a deal. So if you look at a theory alone, it’ll tell you that how hundreds of different types of pricing, where you can clearly break different consumers. It doesn’t work very well. It confuses consumers. So what you would rather do is take away some of this in an effort to keep it simple, clear the confusion.

Anand Krishnamoorthy:               And finally, how can pricing be transparent? Let’s look at that issues here. One, price has to be known. More importantly, how you allocate tickets, for example, needs to be clear to everybody. All right. So that’s the second part. And then there’s a reason the Superbowl, the masters, all of them have lotteries for some tickets. It is because of this fairness principle in terms of pricing being transparent. That is, even if you do not receive a ticket to something that’s high demand, you should know someone else who did. You should be able to read about someone in the news getting the tickets, a layman, for example.

Anand Krishnamoorthy:               So that is the reason that we have these four principles, that is it can apply differently in different cases for you, but broadly speaking, you have to hit on four of these aspects when it comes to pricing. Believing that leaving some money on the table to eliminate customer confusion may actually be to your benefit.

Anand Krishnamoorthy:               Thank you for being here. Thank you.

Paul Jarley:                         The internet has allowed companies to learn about consumer preferences in ways that just wasn’t possible a few years ago. Back in the day, price-sensitive shoppers revealed themselves by clipping coupons and waiting for the January white sales or the blue light special. Today, companies can offer you a plane ticket without telling you the destination or a hotel room without telling you the hotel. You can get a deal if you don’t care about where you’re going or where you’re staying, and the seller can generate revenue from excess inventory.

Paul Jarley:                         The internet also gives consumers access to many more choices today on where to buy a product. If you’re a price sensitive consumer, you can search many sites and price compare. You can also go check out the product in the store and then buy it online from someone else. Both sides have more opportunity to learn more and game the other side. In this sense, price games are most certainly a thing.

Paul Jarley:                         Whenever you’re playing a game, the side that does their homework and has superior information, well, they usually win. The real question is whether you’re willing to take the time to make sure you’re getting the bargain you’re looking for. Rest assured, the retailer, well, they’ve done their homework. What do you think?

Paul Jarley:                         Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show. Special thanks to my producer, Josh Miranda, and the whole team at the office of outreach and engagement here at the UCF College of Business. And thank you for listening. Until next time, charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

The post Are Good Deals Really a Thing? appeared first on Barry S. Miller College of Business.

Paul Jarley:                         The economy is a thing. The national election is a thing. But, the stuff politicians talk about on the way to Election Day? Well, those aren’t always things. We’ve assembled a panel of experts. Listen up, people.

Paul Jarley:                         This year was all about separating hype from fundamental change. I’m Paul Jarley, dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? On to our show.

Paul Jarley:                         This podcast comes from an event where we were celebrating Glen Hubbard, and his gift to endow a professorship in economics. Listen in.

Paul Jarley:                         I didn’t want to resist the huge opportunity I had today to get together a panel to talk a little bit about the relationship between the economy and the political election that’s coming up. So we’re going to talk a little bit about whether a number of things are sort of a thing, or not in as non-political a way as we can here.

Paul Jarley:                         I have three panelists with me today to help me understand some things. Most of you know Glenn Hubbard. What you may not know is Glenn Hubbard is a graduate of our economics department at UCF. He studied here. He is currently the chairman of the board of MetLife and is the former dean of the Columbia Business School. He is still a professor there, and I like to joke with Glenn, after you’re a dean, the comment that you always make is you get to go back to be part of the problem, right, and then, the part of solution, and he’s enjoying that a great deal.

Glenn Hubbard:               Totally. Totally.

Paul Jarley:                         Right now.

Paul Jarley:                         Next to Glenn is John Solow. John is new to the college this year. He spent many years at Iowa. In fact, John and I were assistant professors together many, many years ago. And, he sits in the White, Xander endowed Professorship in Economics that Glenn and Glenn’s wife, Constance, has funded.

Glenn Hubbard:               [inaudible 00:02:01].

Paul Jarley:                         And, it’s not named after them. It’s named after the two faculty members, who were most influential to Glenn while he was here becoming an economist. That’s really awesome, and we’re really glad to have John with us today.

Paul Jarley:                         My last guest is Sami Alpanda. Sami is an associate professor in the Department of Economics and spent four years?

Sami Alpanda:                   [inaudible 00:02:22] there? Yes.

Paul Jarley:                         Four years at the central Bank of Canada. So I thought he would also bring kind of a really interesting perspective to what we’re going to talk about today.

Paul Jarley:                         And at the end we’ll give you a little time to ask questions. I hope I ask some things that are on your mind, but if not, we’ll give you a little bit of an opportunity to do that.

Paul Jarley:                         I’ve been watching the news, like all of you, and some of the debates and the things that are being brought up. So I’m going to do a little bit of a lightning round with the panel, where I’m going to bring up a particular issue that the politicians have been talking about. And I’m not so interested here in getting a political take on the issue. That’s not what I’m about. Instead, what I’d like that panel to talk about a little bit is, how important is this issue to the economy in the short-term, and the long-term.

Paul Jarley:                         Let’s start out with rising income inequality, particularly at the top. Is it a concern from an economy standpoint? Is it not a concern? What do you think?

Glenn Hubbard:               To me, the concern in inequality is the bottom, not the top. So I’m extremely worried about the earnings prospects of millions of Americans, who don’t seem to be participating in an economy dominated increasingly by technological change, and globalization. I’m less worried about how many billionaires there are. The only reason that one would be worried about how many billionaires there are is, if you think there somehow monopolizing the political process. You told me there was one billionaire on the stage the other night at the Democratic Party debate, I don’t think he’s the most influential. So I’m more worried about the poor than I am the rich.

Paul Jarley:                         John?

John Solow:                       I think it’s a long-term problem. I agree with Glenn that I’m more concerned about, so what economists call absolute poverty, is the ability of the poor people to have a standard of living that they can … They can support a family, and they can enjoy, rather than the disparity. If everyone were richer so poor people could afford the necessities of life, that would be a good thing, even if there were rich people, people who are richer than that.

John Solow:                       I am concerned about the ability of the very wealthy and the very organized to influence policy. The impact of money on the political process, I think that is causing problems. I think, we’ve just seen a lot of it, and you can argue on both sides of the political spectrum, but there seems to be an awful lot of what we just think of as corruption, wealthy people using the political system to increase their incomes, not to do what’s best for the country as a whole.

John Solow:                       Yes, there’s only one billionaire, that we’re aware of, running during the debates, and there’s obviously a billionaire already running on the other side, but that’s not where I think the problem is. It’s not so much that they hold the offices, but that they pull the strings behind the scenes.

Paul Jarley:                         Sami?

Sami Alpanda:                   I do agree that, in principle, there shouldn’t be a worry that we have more billionaires, or anything like that, but as long as the pie is growing at an enough pace, and that, that pie is being evenly, or at all levels, that growth is being shared. But currently, that’s not the situation. So at the very top, at least in the last 30, 35 years, there has been an increase in the income share of the top 1%, from about 10% to 20% of total income.

Sami Alpanda:                   Now, most of this reflects capital income, especially entrepreneurial income, dividend income, but … And for the top 0.1%, actually, I think the income share of the 0.1% has increased from about 4% to 9%. So this type of economic gains are not being shared, especially in the middle-income categories, and that … In the long run, this is going to be worrisome because it will have political implications. It’s already started to have political implications.

Paul Jarley:                         Sure.

Sami Alpanda:                   And that is a worry.

Paul Jarley:                         Go ahead.

Glenn Hubbard:               I think these things are all really important. I think your question’s probably one of the biggest long-run questions for our country. I don’t think we live in a world where the system is depriving people of gains from productivity, whoever those people are. I think, we have a lot of Americans, who do not have a marginal product that would lead to the wages that John is describing.

Glenn Hubbard:               If we want to fix that, and I think it’s critical that we do, we have to use social insurance programs more aggressively than we’re doing today, and we have to decide on our nation’s priorities, is that what we want to do? We’re running a government that’s, principally, about old-age entitlements, things like that, and should we be investing more in working Americans. I think, we should. I think, it’s a huge question.

Glenn Hubbard:               Who pays for that is a separate question. It could be the rich. It could be somebody else. But prioritizing those programs, I think, is critical.

Paul Jarley:                         Because here’s what I worry about. I graduate 2,000 students a year from the College of Business, and I’m trying to prepare them for a future where data says to me, there going to have maybe two, or three careers. And we’ve seen, and I think, we’ll continue to see a lot of technological disruption of a lot of those careers, and perhaps, a lot of structural unemployment. Biggest risk, you think?

Glenn Hubbard:               I think, it’s a very big risk, and I think that there are two familiar ways to deal with it, and our country has done both in the past. One would be a sort of battering ram approach on opportunity, and I think there about Lincoln era policy. People associated the president with the Civil War, obviously, but remember the Transcontinental Railroad, the Homestead Act, the land-grant colleges, Lincoln had a almost maniacal focus on opportunity. The other in American softening of capitalism has been more Rooseveltian. It’s social insurance programs that keep everybody in the boat.

Glenn Hubbard:               We know how to do this, and we need to. The structural unemployment is real, but our labor market policies were designed in an era where you lost your job for a temporary period of time, then you came back to the same job, like a layoff, or a strike. That is not the world we live in.

Paul Jarley:                         Because when they perfect those autonomous trucks driving, I’m going to drive [crosstalk 00:08:48] a job, so that …

Glenn Hubbard:               Well, yeah. When the president said he was worried about Mexican truck drivers, I said, I was worried about no truck drivers. I think, that’s really the issue.

Paul Jarley:                         Yeah. John, what do you think?

John Solow:                       The question of automation in technology has been with us for a long time. About 55 years ago, President Johnson had a commission on automation and the economy. I still have a copy of that report. My father was one of the members of the commission. It was headed by Howard Bowman, who was the president of Indiana University at one point, and the people wanted included Edwin Land of Polaroid, and Thomas Watson of IBM. So these were serious people.

John Solow:                       This issue’s been around for a long time, and yet, we still have very, very low unemployment rates. I’m more concerned about, and I think Glenn probably is, too, about the wages. I think, what we’re talking about is the wages of the people, whose jobs are replaced by technology.

John Solow:                       Technology is complimentary to people like us. This is a tool that we get to use that makes us much more productive, but there are people for whom it is a substitute, and those people, who are losing their jobs, and yeah, I think its r- … We always talk about how education is the way to solve this problem. Exactly as Glenn said, there are people who don’t have much productivity, and we need to figure out ways to solve that. It’s not just, “Well, I need money so I can survive,” but what skills can we develop in you, where you can do something to help us.

John Solow:                       I’m not trying to blame the poor, but I do think that part of the game is finding ways to make less-skilled people more productive. I just came from the Midwest, where rural America is struggling very badly. The world has just changed dramatically. These little towns that used to support an agricultural community, and everyone knew everyone, and kids could ride their bikes after school on the streets, and idyllic ’50s, that is just going away. The world is changing, and we have to figure out some way, either for those people to, not so much the people, who live there now, but their kids, and their grandkids to do something different. They can’t look back to the way, and say, “I want it to be the way it was in 1955.” That’s just not going to happen.

Paul Jarley:                         Sami?

Sami Alpanda:                   Well, the unemployment rate is at a all-time low, 3.5%, so jobs are being created, but where are they being created? They are being created at the very high end, so high-income jobs are on the rise. So there’s a lot of job growth there, and there’s, also, a lot of job growth in the bottom end, but a lot of middle-income jobs are being hollowed out, essentially, most through a technological change, to some degree by trade, and off-shore.

Sami Alpanda:                   So this is an ongoing problem. This problem is, probably, not going to go away. If anything, it’s probably going to become more severe, so machine learning and artificial intelligence is with us. I’m not sure if self-driving trucks are around the corner. I think, we’ve been a little bit too optimistic about that, probably.

Paul Jarley:                         Marketing’s ahead of the reality there?

Sami Alpanda:                   I think that’s, probably, the case. We probably will need to wait another two, three decades, perhaps, for that to happen, and it’s not clear whether it’s going to happen as we envisage that it would happen.

Sami Alpanda:                   But, nevertheless, you see this type of automation even in the high-skill jobs now. A lot of finance jobs are being automated, and even healthcare jobs, so basically, machines diagnose, or making diagnoses, or reading X-rays on their own, and doing a better job from humans at that.

Sami Alpanda:                   I think, this is with us, and I agree with the panel that we’ll need to find remedies at some point, in terms of redistribution of some sort of the gains from all this type of technological advancements.

Paul Jarley:                         Is there a country in the world, currently, that we can use as an example there? Americans like to think that they’re exceptional, and different, and need different solutions, but is anybody doing that right? Or ahead of that game?

Glenn Hubbard:               Well, Germany has for years had apprenticeship programs and training programs. To many Americans, they all look unusual because they are tracking children from quite a young age and to jobs, something we would, or wouldn’t want to do socially, but I think the U.S. could learn a lot from its own past, too. We used to have very strong vocational education in the country. We have outstanding institutions in community colleges that are doing a lot of the training that’s needed by local business, but are woefully underfunded. There’s just lots of things we could be learning from.

John Solow:                       So long as it’s a matter of choice, I don’t have a problem with that, all right. I remember being a schoolboy in England at the age of 10 for one year, and they have this exam called the eleven-plus, and if you do well on it, you get to go to the high school that leads you to college, and if you don’t, you get on the high school that leads you to baking. And I was petrified, as a 10-year-old, that if I screw up this exam, that’s my life.

John Solow:                       Of course, I was an American. I didn’t even have to take it. My mother had explained to me that, “Oh, it’s not for you,” but my classmates had this sense that at some age we’re going to track you, and part of what makes America a great place is this notion that you can be whatever you want to be, if you’re capable of doing it. You’ve got to do it. You can’t just say, “I’d love to be the starting shortstop for the Boston Red Sox, but I can’t hit as well as Xander Bogaerts. Or even a bad shortstop.

John Solow:                       But I think, we would like … I think, it is important that people have opportunities. But what I do worry about, well, it’s sounding the same, which is the middle is hollowing out. David Autor at MIT has done a bunch of work on this, and where the jobs seem to be being lost are in the middle, not the low end. We have lots of low-end, low-paying jobs, and we have good high-paying jobs, but the middle is hollowing out. And I think that, that’s very tough. But it used to be that you could move up the ladder, and now the leap goes from burger flipper to coder, or junior Wall Street executive, and that’s a huge leap.

Paul Jarley:                         Sami?

Sami Alpanda:                   The worry is that, as these trends are happening to the middle class, there is a lot more pressure to, perhaps, limit immigration because the immigrants-

Paul Jarley:                         That’s my next point.

Sami Alpanda:                   The immigrants [crosstalk 00:16:07]-

Paul Jarley:                         But you’re not required to talk about it. Yeah, immigration is next.

Sami Alpanda:                   Or it’s about trade, so we should, essentially, close down our borders to trade, or not allow off-shoring. So that’s sort of the worry. So, if you want to get … I mean, there aren’t calls yet to sort of destroy the robots, but maybe, that might be the next thing, if actually robots take over.

Paul Jarley:                         That didn’t work out for the Luddites, too well.

Sami Alpanda:                   [crosstalk 00:16:33]. Exactly.

Paul Jarley:                         Yeah.

Sami Alpanda:                   So I mean, obviously, all these things are a net positive for the economy. We don’t, actually, want to get rid of either automation, or immigration, or trade, but if we still want to keep them and make this politically feasible, then we would need to find the solution as to how we keep the middle class, or the former middle class happy.

Sami Alpanda:                   We have to, perhaps, ensure them in some way, or it could be income, for example, in terms of healthcare, or educating … promising to educate their kids for the better jobs in the future. That’s not something we do, necessarily, a very good job, especially in poorer neighborhoods. I mean, rich neighborhoods have pretty good schools, but not necessarily poor neighborhoods.

Sami Alpanda:                   So we have to find, ultimately, a solution to that.

Paul Jarley:                         So what about immigration? How big of an impact is it on the economy in your estimation? Is this something we should be worrying about from a macroeconomic standpoint, whether we’ve limited, or-

Sami Alpanda:                   So I s-

Paul Jarley:                         … let it be open?

Sami Alpanda:                   Well-

Paul Jarley:                         I mean, from a … Go ahead. Yeah. We’ll come back this way.

Sami Alpanda:                   I think, the literature is pretty clear on this that immigration has been a net positive, both high-skilled immigration, especially high-skilled immigration, but also, low-skilled immigration, too. I mean, it has pushed production possibilities, and also, productivity.

Sami Alpanda:                   Now, a lot of the low-end jobs, actually, have been filled by foreign-born workers in the U.S., and ultimately, that has increased the welfare of native-born people, but there has been some wage impact. So there is some in the picture that looks at the wage of high school dropouts in particular, and there has been some negative wage impact in that particular part of the labor market.

Sami Alpanda:                   But again, this is to say, immigration of both kinds have been a net positive for the economy.

Paul Jarley:                         John?

John Solow:                       This is not a literature that I follow, so I’m going to defer to the person, who knows something about the literature, but everything that I’ve heard, read or heard, says pretty much the same thing. I mean, remember, we’re now down to, even the legal immigration, a limit of 18,000 people in a country of 300 million, right? This seems like … This is as close to zero as you can get. I find … I don’t think that this is an economic problem, but I think it’s a social problem. It points to a darker side of our society.

Glenn Hubbard:               I completely agree with that. We have two immigration stories, and they’ve already been well told. One is about a high-skilled, one low-skilled. High-skilled, half of the students I have at Columbia in the business school are not Americans, and I would love it, if they all wanted to work in my country, and could. Not because I’m a nice guy, but because I’m fundamentally selfish. They’ll add to our productivity, and frankly, we should want all foreign-born grad students, maybe, maybe not lawyers, but everybody out here-

Paul Jarley:                         Well, I agree with you.

Glenn Hubbard:               … who hadn’t … Apologies if there’s … We should work these people.

Glenn Hubbard:               So low-end, there is an issue. There will be legitimate disagreement. The studies are, actually, mixed about the effects on the wages of native-born Americans, but if we care about this, we have to treat it as a social issue. I think, that’s absolutely right.

Glenn Hubbard:               Our country isn’t going to have as bright a future, if we restrict immigration. We know that, and everything points that way, but we can’t just blithely say that as economists. We have to address the concerns of people, who feel left behind. They’re being told by some forces to point the finger at immigrants and the other, but instead, we need to help them. And if we don’t do that, the immigration discussion will get worse, and worse, and worse.

Glenn Hubbard:               I recommend to everybody a book one of my teachers at another institution wrote, Ben Friedman, called The Moral Consequences of Economic Growth. Societies that are growing, and well distribute their gains are more placid societies, where you see racism, bigotry, anti-Semitism. That usually comes about in struggling, slow-growth societies. We don’t want to be that.

Paul Jarley:                         Lack of hope is a bad thing.

Glenn Hubbard:               It is.

Paul Jarley:                         Really bad thing.

Paul Jarley:                         You touched on this a little bit, Glenn, but the next one on the list, of course is trade wars. Talk about that a little bit and the impact it’s having.

Glenn Hubbard:               Well, it’s interesting because I, actually, would start off by giving the president a little bit of credit. China has been a bad actor in the global trading system for a long time. As one of the people, who tried to push President Bush toward WTO accession for China, I always thought, and I think other people thought that China would ineluctably reform because it would see it in its own interests. That is wrong. China’s still massively subsidizing credit, [inaudible 00:21:37], so the real question about whether China should be in the WTO, as it’s currently structured.

Glenn Hubbard:               Having said that, everything we’re doing in the trade wars is, from an economic perspective, bizarrely wrong. Why wouldn’t you unite your friends against the common enemy, rather than picking fights with everybody at the same time. If there’s any hope for WTO action in China, it would have to be multilateral. So right diagnosis, but the treatment seems odd.

Paul Jarley:                         John?

John Solow:                       I think, Adam Smith is rolling in his grave at a very fast [inaudible 00:22:15]. So I absolutely agree. Yeah. China has misbehaved in a lot of ways, but I do think that the focus … We were not going to get to political, I hope, but I don’t think our president understands trade. I think, he’s focused on two things. He’s focused on bilateral trade balances. So what we sell to China, and what China sells to us.

John Solow:                       And we’ll just leave the rest of it aside and focus on that, those numbers. And that’s a pretty meaningless number in a very interconnected multi-country economy. If we buy things from China, and China spends that … This a loose example, but if we buy things from China, and they spend that money on things from Brazil, and then Brazil spends that money on things from us, we gain. Everyone has specialized what they do best, but our bilateral trade relationship with China looks like we send them millions of dollars, and their stealing our wealth. And this is just a meaningless thing.

John Solow:                       The other thing is that the determinants of trade are not result of deals between presidents. They’re the result of economic forces. We import a lot because we don’t save very much, and we’re a good place to invest, and so people, rather than buying things, they invest in American companies, and American assets, and stocks, and bonds, and things like that. So I don’t think he understands it very well. That’s not to excuse China for being bad about intellectual property, for being bad about selling substandard products, and cheating on dog food that poisons dogs, and fluorine that poisons people, and things like that. But I don’t think that getting into trade wars all over the world, with our allies as well as the Chinese, makes the world a better place.

John Solow:                       If you ask … And people have done this. If you poll economists, the one thing … Look at all these jokes about economists not agreeing with each other. Right?

Paul Jarley:                         This is one.

John Solow:                       But one of the Roosevelts said something … I think it was a Roosevelt, who said that, “I want a one-armed economist,” so he wouldn’t say, “on the one hand, and on the other.” It’s an old, old joke. The one thing we all agree on is that trade is a good thing, that free trade … 99% of th- … I think, the 1% that doesn’t is somebody named Navarro.

John Solow:                       We’re not going at this very well. This is, again, in the Midwest, this is … In Iowa, where I used to live, this is hurting the agricultural economy badly. Yeah. So we give them money to prop them up, but that’s not really the solution. We cause the problem, and then we throw taxpayer revenue at them to help mitigate the problems. It’s not a good thing to be doing.

Paul Jarley:                         Some of you want to beat that dead horse just a little more. Go ahead.

Sami Alpanda:                   I, probably, agree with everything that has been said.

Paul Jarley:                         How about rising healthcare and pharmaceutical costs? Concerned about that as a headwind on the economy?

Glenn Hubbard:               Definitely. And it’s related to some of the other discussion we had, too. If you look at pay and compensation, which are two different things, pay is your wages, compensation’s your total package, a lot of what is happening to a middle, lower wage workers is higher healthcare costs are taking a lot of that. So a lot of the labor market discussion we had, it’s actually linked … It’s actually part of the healthcare discussion.

Glenn Hubbard:               We, also, know that we’re paying way too much, that if we look at outcomes in the United States versus outcomes in our peers, and then compare that with the spending as a shared GDP, we’re paying too much. The causes are many. There’s no silver bullet. They have to do with the huge importance of third party pay. When economists use the words like insurance, we mean something specific. We mean catastrophes. What’s called insurance in the United States is tax-subsidized prepaid healthcare. It’s not surprising that, that would lead to over-consumption, public programs that have poor incentives. There’s a lot that we could do there.

Glenn Hubbard:               And you are starting to see action on drug costs, too, where we’ve seen patents pushed too far. We’ve seen other areas, and I think the, both the right and the left, from different mechanisms and different perspectives, are trying to come at that. So this is an issue I expect to be a big one.

Paul Jarley:                         John?

John Solow:                       I agree. I think that all the polls suggest that healthcare is the single most important thing on voters’ minds, of the five things that were on our list. What voters are really s- … What’s impacting people in their daily lives is healthc- … They’re not thinking about automation, and … I mean, they may at some level, but what really matters to people is healthcare. And I agree with everything that Glenn said about that.

Sami Alpanda:                   John, I completely agree, too. Healthcare is a very, very important part of the welfare of people, and obviously, high costs are of a major concern, and that should be a politician’s priority, I guess, to try to fix that in some way.

Sami Alpanda:                   I would add though, I think we should rethink the fact that we have a system of employers … So we expect, essentially, employers to give healthcare. I mean, we don’t expect them to give, I don’t know, to pay for our rent, or pay for our cars, or anything like that, but we do expect them to pay for our healthcare. I think, we probably have to move away from that system. That system, probably, has been a negative, in terms of labor market mobility, too. I mean, you have to think about what’s going to happen to your healthcare, if you decide to change jobs, or geographic locations.

Sami Alpanda:                   And then, maybe, start from that point, whether you go on the one hand to single-pay, or whether you go to a much, much more private-based, but perhaps, with some insurance about catastrophic healthcare expenses, for example, is going to be a political concern. But I think, we have to, probably, move away from this employer-based healthcare.

Glenn Hubbard:               It’s interesting. On that point, the system we have was an artifact of wartime wage and price controls. So what the dead hand of policy that most Americans don’t even understand what it was, it was so long ago, has really shaped the healthcare system in odd ways.

Glenn Hubbard:               It’s striking that the political discussion is just completely unrelated to what we’re talking about. So one side would say, “Medicare for all,” a $30 trillion spending expansion over 10 years. The other side says, “That’s socialist. We want nothing.” Where are all the ideas, the actual economic ideas. There somewhere in between all of that. There’s no reason we couldn’t have universal catastrophic health insurance. There’s no reason we couldn’t help low-income people through the funds that we currently put in Medicaid.

Glenn Hubbard:               There’s solutions here. They’re just not being talked about.

Paul Jarley:                         Last question. So with respect to the economy, what aren’t politicians talking about that they should be talking about?

Glenn Hubbard:               To me, the biggest is an undercurrent in several of your questions that the anxiety, the economic anxiety that many Americans feel, that their futures are in peril, particularly for low and middle-skilled people, no politician is talking about this. We’re hearing a discussion on one side about universal basic income, or throwing money at it. On the other side, we’re hearing nothing. This is unsettling, as this problem’s not going away, and it’s going to get bigger. That would be my suggestion.

Paul Jarley:                         John?

John Solow:                       I agree with Glenn. I might put it a little bit differently, but I think, you mentioned earlier on sort of American exceptionalism, and I think this is a problem. I think, we think that we deserve to be the wealthiest people on earth because we are the wealthiest people. We’re America, darn it, and we just deserve it. You earn it. It’s not written in stone anywhere that we’re going to be the most successful country on earth. Other countries want to succeed, as well, and they put effort into it.

John Solow:                       I’m going to plug something that … It sounds self-serving, and of course it is, but China has said at different times they want to build 20 MITs by the year 2050. Our state governments are cutting education budgets. That doesn’t sound like a very smart policy. Well, we just deserve it. You got to work for it. We’re not entitled to it. We have to earn it.

John Solow:                       That’s something that worries me, that our … A hundred years ago, I sometimes put this up for students, a hundred years ago the country that was the world super power, whose currency was the world standard, that was the most innovative and creative on the planet, and the list goes on, and on, in 1900, that was England. The hundred years later, 120 years later, you wouldn’t put England in that category. It’s a nice place to live. Don’t get me wrong, but it’s not the world leader.

John Solow:                       Things change, and we can’t expect just to coast on our laurels, and say, “Well, but we’re the greatest country that the world has ever seen.” You got to earn that every day.

Paul Jarley:                         Sami?

Sami Alpanda:                   Perhaps income mobility across generations could be more a bigger type of conversation. I think, one of the biggest worries that middle-income people now have is not only that they are falling behind, but they’re seeing, also, their children falling behind, so I think we have to preserve and sustain equal opportunity at least.

Sami Alpanda:                   We don’t, necessarily, we don’t want equality of outcomes. We’re all capitalists, I think, here, but we do want to preserve human capital formation at the highest possible level, and also, make sure that every strata of the community actually have resources to get a good education, especially the Pre-K to 12 level. I mean, there’s a lot of emphasis at the college level, but I mean, for some of these kids, it’s actually too late by the time they get there.

Sami Alpanda:                   There’s a lot of effort. I’m not trying undermine the effort, but we are ranked, I believe, like 25th out of 35 OECD countries, I think, in terms of math scores, science scores, reading, and that’s a shame in the richest country in the world. So we have to do something about that.

Paul Jarley:                         Take a walk through any college of engineering and see where the bulk of the students are from. That’s all you really have to do. Yeah.

Paul Jarley:                         So I know Tiffany wants to give time to mingle, but I promise I’m going to take two questions from the audience.

Paul Jarley:                         Carrie?

Paul Jarley:                         The mic failed to pick up a question from Carrie, but it was about the deficit and monetary policy.

Glenn Hubbard:               Thank you. No one talks about that. Right?

Audience:                           Yes.

Glenn Hubbard:               Then no one talks about the deficit. You had two really big questions. I’m not sure we have a new monetary policy. I think, the Fed had gone a little too far in its rate increases. I think the president hectoring them doesn’t help matters, at all. I think, the Fed is in a fine-tuning mode. I’m more worried, the subject may be for another time, that the Fed is not clear enough with the public about where True North lies for its balance sheet, or its policy. I think, the communication’s just very poor. So I would give the Fed pretty poor marks at the moment.

Glenn Hubbard:               On the deficit, we’re running a trillion dollar budget deficit in, essentially, a good time. We’re at, or above our potential growth rate. That strikes me as odd. More to the point, we have massive accrued liabilities in our entitlement programs, so we really are on a fiscally unsustainable path. Politicians say, “Well, look at the 10-year interest rate. It’s under 2%, so what’s the problem.” There will be a problem one day.

Glenn Hubbard:               Unfortunately, our political system can’t really cope with this outside of a crisis. The major fiscal adjustments we’ve had have been in manufactured, or real crises, so I think of the Greenspan Commission in the early 80s. We’re about to have another manufactured crisis because the Medicare trust funds are going to run out of money.

Glenn Hubbard:               So I think, it’s a huge problem, and no one is talking about it. And that’s bipartisan. No one on either side is talking about it.

John Solow:                       Yeah, I’ll add to that a little. So when I was in graduate school, oh, so long ago, we read a book called The Social Security Crisis by … And that was what? 50, 42 years ago? This has been coming for a long time, and we all know, there is no magic bullet. The answers are either you cut benefits, you increase taxes, or some combination of the two, and the longer we wait, the worse it’s going to be when things really get tough. If you had made choices, modest choices earlier, then people have time to adjust their behavior. They have 30 years to save a little bit more because you know that you can’t count on quite as much in the way of Social Security, and so forth. But we don’t want to do it.

John Solow:                       I think, the answer to a lot of this is just politics. Neither side … I think, both sides know what the right answers are. They may differ about the balance a little bit, but nobody wants to let the other side win by solving the problem, so we just don’t do anything, and we have this sort of paralysis.

John Solow:                       I think, the same thing is true about the budget deficit. You either raise taxes, or cut spending, but neither side wants to let the other side win, so we go on, and on, and on.

Sami Alpanda:                   If another country was running these types of deficits, we would, probably, think that this is definitely on a unsustainable path, and there’s going to be an imminent crisis, and the currency will depreciate by so-and-so percent. Now, we’ve seen this many, many times in Argentina, Turkey, other emerging market economies.

Sami Alpanda:                   Our luck, or benefit is that we, actually, own the reserve currency in the world. So the U.S. dollar is the reserve currency of the world. We run deficits, we finance them by issuing treasuries, and the world gobbles it up, and at very, very low rates. They are, basically, renting us free cash.

Paul Jarley:                         [crosstalk 00:37:36] we could pay our debt in our own currency. Correct? That we print. Yeah.

Sami Alpanda:                   So as long as that continues, there doesn’t seem to be a problem, but there will … I mean, if you do continue this for- … You cannot continue this forever and ever. And given, as Glenn mentioned, that we have this unsustainable debt path, and obviously at some point, there has to be some correction to it. I guess, the markets do believe that we will, eventually, wake up to the point where politicians will, “Well, we’ll fix this.” So there are adults in the room, but if that doesn’t occur, then I think, we are probably going to crash hard. And we might even lose the reserve currency status, which would be sort of the big tail event that we probably don’t expect it will happen, but it’s possible that it could.

Paul Jarley:                         Okay. Last question. Merrell.

Merrell:                                   So I’m a CPA and I’m, also, a lawyer.

Glenn Hubbard:                         Sorry.

Merrell:                                   I deal-

Merrell:                                   So I deal with taxes all the time, but I also deal with the elderly, and my estimates for my clients is that they don’t recognize that they’re going to get old. They think they’re going to be healthy forever. They’ve saved nothing, and they don’t think that things are going to cost a lot.

Merrell:                                   And so, when you take that and look at the budget of so much in entitlements, and then you look at, well, how many people are, actually, paying for taxes, yeah, we got to cut spending, or we have to raise taxes, but I don’t know on whom. Because we can’t cut the benefits for the old people, and we can’t really squeeze that much more out of the 50% that are paying taxes because it’s, generally, the middle-class because low-income, in like what I see, low-end aren’t paying taxes, and the high-end have all the wisdom of the lawyers that bring it down. So it’s the middle-class that’s getting hit more and more, and may end up keeping their elderly in their home with ruining their lives, and their economics paying for it. And I don’t know how to fix it.

Glenn Hubbard:               I, actually, think Social Security is fixable. It just requires political courage. And there are a couple of fixes that would go a long way. One would be to take up retirement ages because the ability of most Americans that we already discussed, the service sector’s the dominant thing, not manufacturing, or heavily physical work, so that’s part one.

Glenn Hubbard:               Part two would be something more akin to what economists would call progressive indexation of benefits. So currently, everybody gets their benefit growth at the same growth of real wages. That could be slower for more affluent people, or an even more sensible system might be to raise the minimum benefit, but then flatten it, so that it’s much less generous for middle and upper income seniors.

Glenn Hubbard:               We’re going to have to make these choices because when you say we can’t old people’s benefits, the law is that we will. So in 2034, the secretary of the treasury, whoever he, or she happens to be then, is going to have to start cutting Social Security benefits, unless we do something, and that may sound like it’s a long way away, and I suppose it is, but it strikes me as one we ought to think about.

Paul Jarley:                         Well, thank you all for the panel, and thank you all for your attention.

Paul Jarley:                         We’ve covered a lot of ground, so what’s the thing, and what isn’t. Or in these cases may be, what’s a good thing, and what’s a bad thing. From a purely macroeconomic standpoint, growing income inequality at the top isn’t really a thing. It’s the bottom that’s the real issue.

Paul Jarley:                         People not having a productive skillset that allows them to share in the fruits of our economy is a bad thing. Technological disruption and changing economic forces are hollowing out the middle. Trade wars and immigration limits aren’t going to solve this problem and are net drags on the economy. They are decidedly not good things.

Paul Jarley:                         Don’t get me wrong. Losing your job hurts, and the playing field needs to be fair. China has been a bad actor, but the solution involves investment in human capital that will help people compete, not putting up barriers to trade, or mobility.

Paul Jarley:                         Rising healthcare costs are most certainly a thing. Our employer-provided healthcare system is a historical artifact of a bygone era, hurts labor market mobility, and has shaped the healthcare system in odd ways. It is especially a thing for lower-income groups where it is taking up a larger and larger share of their total compensation, and from an international perspective, the results of our system, well, it just hasn’t been very great. Politicians need to talk more about creative solutions here.

Paul Jarley:                         More generally, the economic anxiety of the electorate is real. People are concerned about their long-run future. We need to invest in our people to bridge the income and equality gap and improve the future of our children, especially for those at the bottom of the income distribution.

Paul Jarley:                         And while interest rates are low and financing the debt is not an issue now, those IOUs will come due. We are mortgaging our future, while limiting our ability to use fiscal and monetary policy to help us cope with the recession when it comes, and it will come. That is most certainly going to be a thing. What do you think?

Paul Jarley:                         Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from this show. Special thanks to my producer, Josh Miranda, and the whole team at the Office of Outreach & Engagement here at the UCF College of Business.

Paul Jarley:                         And thank you for listening. Until next time, charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

The post Billionaires, Border Walls and Self-Driving Trucks: Are They Really a Thing? appeared first on Barry S. Miller College of Business.

Paul Jarley:                         Tom Ford, fashion designer, gets three; Donald Trump says he gets three to four; Martha Stewart, under four; Jack Dorsey, founder of Twitter, four to six; Barack Obama, six. Successful people tell us if you want to get ahead, you need to work more and sleep less. It’s the price of success, but is it?

Paul Jarley:                         This show is all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? Onto our show.

Paul Jarley:                         Today’s podcast is from a Dean’s speaker series talk by Jeff Gish. Jeff is a professor in our management department and is an expert in entrepreneurship. He hasn’t just studied it. He’s actually lived it. As an entrepreneur, he spent a lot of sleepless hours trying to get his business off the ground. His insights are really meant to be an intervention for my chief of operations, Tiffany Hughes. You all know a Tiffany. She’s that person who never sleeps. She sends you calendar requests at three in the morning. She responds to your emails overnight. And she’s at work before you are. If you plead with her to stop, she answers you with something like, “I just have to get this done.” Mercifully, my Tiffany doesn’t really understand Twitter, but does it really need to be this way? Or is this workaholic culture that we’re all in just getting in our way? Listen in.

Jeff Gish:                             Let’s get into this talk about sleep and entrepreneurship. And I’ve titled it, money never sleeps, but entrepreneurs should. That’s very prescriptive. I hope that you agree by the end of this presentation, and I’d like to start off the talk with this quote from Ben Horowitz. Ben Horowitz is co-founder of Andreessen Horowitz. It’s a VC firm over in the West Coast, but he’s a former CEO too, a former founder. When he talks about his CEO experience or his founding experience, he says, “When I was a startup CEO, I slept like a baby. I woke up every two hours and cried.” I share this quote because it’s a little bit funny. It gets people engaged, but it’s also very true. I had a business with 57 employees before joining the academic realm, and I felt a lot of pressure when I was an entrepreneur. And this person felt the pressure too, it was hard to sleep.

Jeff Gish:                             And on top of that, you feel like your business is so important. There’s this tension in entrepreneurship that your business is so important that how can you sleep when you’ve got to keep things afloat and keep things moving. Ben Horowitz picks up on that in this quote, and I picked up on this with my coauthors that wrote this paper that was just recently published. Just the fact that entrepreneurs are of this culture that I’ll sleep when I die, or sleep is for weaklings. I was a person who touted those messages as a small business entrepreneur. I always knew that there might be some ill effects of that, but I just kept doing it because I felt my business is really important. I think a lot of entrepreneurs fall into that category. I feel like this context is a good place to study sleep restriction and how that affects pursuits that are unique to entrepreneurial ventures.

Jeff Gish:                             All right. In order to talk about this, I’ve got to get through the theory part. All right. This is the academic portion. I draw on structural alignment theory, and I use a cliche picture of an iceberg, but it really fits in this instance. Structural alignment is how researchers have posited that expert entrepreneurs, and they do this by talking to entrepreneurs, how expert entrepreneurs make decisions about evaluating opportunities. If you think about alignment, you can think about two things. One thing being the market and a new technology that might be sold, commercialized to that market. Structural alignment talks about how similar those are to each other.

Jeff Gish:                             There are levels of similarity. The first level is superficial. These are just the features, objects and people. This market sort of looks like this business, or the people who are founding this business, so that’s really superficial. That is not what makes the business go, all right. That’s not what’s important for the business, but superficial alignment that exists.

Jeff Gish:                             The next one is first order of structural alignment. That’s the how and why a business might work for a particular market. And then even deeper than that is the potential benefits and potential problems that might exist. And if you can get to those deeper levels, you can do a better job at assessing whether an opportunity will be successful or not. That’s the idea in structural alignment theory. So, remember this iceberg diagram because it will come back several times during the presentation. And if you can click once… The top, when I say superficial, I’m talking about the superficial alignment between a technology and market. And on the bottom we’re talking about structural alignment, both first order and higher order. Those are both structural considerations about a market and a technology that is intended to be commercialized on that market.

Jeff Gish:                             I’m going to give you an example because that’s really abstract, that theory. This example is asks you to look at, it’s a business example, and I’ll get to what the business is in a moment. What are some similarities between these pictures? Just think in your head. There aren’t a whole lot. It’s kind of a trick question. There is some orange in each picture. They’re both walking toward us. But, excuse me. If you look at this picture, these are individuals who… They’re NASA astronauts. They’re shuttle pilots. And over a long period of time, they’d been selected over and over again as the best of the best of the best. So these are really long-tail individuals who have shown excellence over time. This is a middle school or high school, kids walking down the hall. You might have some brilliant individuals in there, but you probably have the whole spectrum of abilities and performance. As far as similarities go, there aren’t many between the two. And so, superficially, on the surface, not much is going on there. However, I want to tell you about an example of where business from this area came over to the field of K through 12 education. All right. This slide or this picture, if you can’t see it, it says, “Back to school special: Ritalin.” I am by no means- Woo hoo.

Speaker 3:                           [inaudible 00:06:24] in a 12-step program.

Jeff Gish:                             That’s great. I am by no means speaking derisively of Ritalin. It’s helped a lot of people through a lot of, a lot of things, especially ADHD. But there are parents who would like to see a nonmedical solution to their kids’ struggles with ADHD. I’m just setting that up as a context.

Jeff Gish:                             All right. Over here at NASA, these people do a very technical and demanding job. And when you’re flying a shuttle, I know the shuttle programs have been canceled, but we’re going to send people to space again. And when you’re flying some a spacecraft, it’s important that you pay attention. And so engineers who, I mean, there can be some catastrophic events that happen if you don’t pay attention. Engineers developed a simulation tool for NASA pilots that put an EEG helmet on their head and monitored their attention. And in the simulator, if their attention wandered, it would make the controls harder to operate the shuttle. All right, so there’s a real penalty when your attention wanders.

Jeff Gish:                             And so one of the engineers that developed this technology said, “Hey, are there other markets that this could apply to?” This person was thinking structurally, not superficially, and went over to these kids experiencing ADHD and parents who wanted to see a solution that was not medical. And so what he did was he partnered with the Sony PlayStation platform, and they still have to wear the helmet to… These are fairly expensive treatments, but they put the helmet on the kids and he developed a racing game where a kid’s attention wanders. They have to go back and the controls become harder and they have to keep their attention focused on the screen in order to keep the car going down the road and driving appropriately and have the controls that they want to win the race.

Jeff Gish:                             Now you can argue whether that’s a good idea to have kids who have ADHD to play more video games. I mean, I don’t know. This was commercialized that received venture funding, and there was a strategic partnership made with Sony. All right, so this is an example where superficially kids and teens are not similar to NASA pilots, but structurally where it’s important for the business to be successful, attention deficit is roughly analogous with pilot vigilance. And, again, here’s the the iceberg. At the tip, it doesn’t match. And at the bottom, it does. So that `NASA engineer who developed this technology was looking at the structural alignment. And we’ll come back to this example in a little bit.

Jeff Gish:                             I want to look at whether sleep influences the ability to look at different parts of the iceberg for business opportunities, right? And so I do it in three different ways. There’s three different studies I want to talk about today. First, is an entrepreneur survey just to see is there something going on, totally correlational. Next, I talk to entrepreneurs in a daily entrepreneur study over a period of two weeks and measure their sleep and ask them to evaluate an opportunity each day. And then finally to to isolate sleep as a cause of this phenomenon that I’m investigating. I do a sleep deprivation experiment where people are randomly assigned to condition sleep deprivation and enough sleep at least seven hours.

Jeff Gish:                             The first one I’m going to talk about is a field observation. In this field observation, I surveyed 784 entrepreneurs, talk to them about their sleep quantity, how many hours they slept the previous night, and then ask them to rank three business opportunities. The way I did that as I served them executive summaries for three different business opportunities, all of these business opportunities were superficially aligned. So tip of the iceberg, everything matched. But there was one that did not have structural alignment. If you get down beneath the surface on the iceberg, this third place business did not have structural alignment. I asked them to rank the opportunities and my measure of success was whether they ranked the third one in third place or not. And what I found was that that people who were sleep deprived actually had a harder time recognizing that that third one should be in third place, and there was a statistically significant difference. But, again, this correlational was a lot of noise in this type of design. But it said, “Yes, Jeff. Go forward, and do some more. Spend some more money, and collect more data. There’s probably something going on here.”

Jeff Gish:                             The daily entrepreneurs study is interesting and it was a heavy lift for me to do and collect because I’ve been talking to entrepreneurs over a two-week period, checking in with them twice per day. These are entrepreneurs and six different continents. I’ve got to figure out time zones and deliver the surveys at the right time. I can automate some of that, but I also want to make sure that everything’s going well and check in with them and make sure I keep them engaged. But this helps me answer the question of, or at least the concern with the previous study, of that’s not me. There might be some of you in the audience saying right now, don’t people need different amounts of sleep? And to a certain extent, yes, that’s true. You know, somebody might need only an average of six hours of sleep, other people might need an average of eight hours of sleep. And this study helps me pit an entrepreneur against him or herself on subsequent days. It’s not comparing entrepreneurs to each other, it’s comparing an entrepreneur to him or herself.

Jeff Gish:                             All right. This is just a histogram. I won’t spend much time on this slide, but it’s a measure of how many hours of sleep you got over the period of the study. Each entrepreneur has 14 times to get onto this chart, and it shows that entrepreneurs perhaps surprisingly sleep about as much as the American public at 6.7 hours per night. There’s a wide range of variation. What I want to point out here is that between person variance, that is my difference from Tiffany and how much I sleep, is less different than how much I slept last night compared to the following night. I’m more different from myself on subsequent days than I am from how much sleep Tiffany needs, and she’s a short sleeper.

Jeff Gish:                             This chart just looks at… What I do with those ideas, as I eliminate all the between person variance. The way I do that is if you’re a person who over two weeks only needed five hours per night on average: when you slept six, you get a plus one; when you slept four, you get a minus one. If you slept five, you get a zero. The person who needs seven hours of sleep: if you sleep eight, you get a plus one; you sleep six, you get a minus one; if you sleep seven, you get a zero. So that takes between person differences out and just measures your deviance from your own sleep on average. Okay. And that’s what this chart is.

Jeff Gish:                             These are three different individuals. This first individual has pretty decent sleep hygiene, but you can see that there’s wide variation. They average a little over seven hours of sleep per night, but there’s wide variation. Sometimes they’re doing recovery sleep, sometimes they’re staying up late and working. These are all practicing entrepreneurs, remember, around the world. This person needs less sleep on average, but there are times where they’re sleeping only three hours and then maybe this is a recovery night for that person. Even though they need less sleep, they’ve still got variance within person. And then this person had a couple of nights where they slept three hours, and then this is probably like a weekend night where they’re recovering or something, that did not work for them. they’re getting sleep.

Jeff Gish:                             The reason I put these up is just to show you that that among the participants, this is not unique. This is how we all sleep more or less over time. All right. So what I did with those entrepreneurs in this, in this daily study is I took opportunities like that NASA opportunity. There were 14 of them over the two week period, so 14 different opportunities, and each day an entrepreneur could be served into one of these conditions. Let me tell you how these conditions work. The one that I pitched to you before with low-superficial and high-structural alignment, that’s the NASA example, but you can adapt this to show higher superficial alignment and high-structural alignment.

Jeff Gish:                             In that case, what I did was I changed it from a NASA engineer to Stanford child psychologists. So Stanford child psychologists make this technology to monitor attention, and it would make sense to apply it to K through 12 education, that’s superficial alignment. And so the structural alignment was still there. I modify that. And then so you can also modify it so that there’s low structural alignment. And so let’s just stick with the NASA example. In that situation, you might change it so that this tool that was developed is to monitor pilot’s stress as opposed to attention and that changes so that structurally those aren’t aligned. I modify those to make four different cells for 14 different opportunities and each day you just get served into one of these cells. You don’t look at each manipulation, but over the 14 days you get multiple chances in each cell through the random assignment that I did.

Jeff Gish:                             What I want to say about the iceberg, again, is bringing iceberg back up. And so on the tip of the iceberg, if you can judge an opportunity to merit on the tip of the iceberg, you don’t need to go deeper than superficial level. Here when it’s low superficial and low structural and up there where it’s high superficial, high structural, I don’t expect to see a difference from sleep because you don’t have to get deeper than superficial level of scanning to evaluate that opportunity. I expect the differences to exist on this diagonal where you have to go beneath the surface to evaluate whether it’s a valid opportunity or not, how high quality it is. Sure enough, what I find is that there’s no difference based on sleep on evaluating these opportunities, whether you slept less than you normally do or not. You evaluate those similarly because you don’t have to go deeper than superficial level is my proposition.

Jeff Gish:                             What we see here is that with the NASA example, for example, where it’s low superficial alignment, high structural alignment, the more sleep you had, the higher you rated that opportunity. And so if you didn’t have sleep compared to yourself, you made an error and rated that lower. Down here, if you have more sleep, this is a non-obvious poor quality opportunity where it’s superficially aligned but not structurally aligned, so you wouldn’t want to give that an up vote. And sure enough, people who had more sleep rated those opportunities lower. All right, so saw the results that I expected to see there.

Jeff Gish:                             I developed a relationship with a local business in Eugene, Oregon, where I was when I was doing this study. And this business does business planning software for small- to medium-sized businesses and they allow me to survey their customers. The CEO sent out an email on my behalf saying, “Hey, there’s some entrepreneurship research going on. Would you be willing to participate?” That was how I gathered the first 780 entrepreneurs sample and then in a different collection, different about a year later. Did the entrepreneur sample here.

Speaker 4:                           One other question. What about the level of sleep? Not the amount of time, but you know some people they don’t sleep deep.

Jeff Gish:                             Yeah, that’s right.

Speaker 4:                           Did you account for that in this?

Jeff Gish:                             Did I account for it? Usually when you are sleeping, that’s a good indication that you’re getting some of the recovery that you need. But we also measured sleep quality, so people’s subjective assessment of how well did you sleep last night? How restless was it? And those results hold with this too. So he used that as a predictor as opposed to sleep hours. Same type of result, same pattern of results. Does that make sense? If I get one more hour of sleep than I did the previous night, I could consider that a higher-quality level of sleep, but it is a little bit different estimation than quality just without any leveling up. So I would have loved to have done a sleep deprivation experiment with with entrepreneurs. But I asked, they said, “No.” I can do it with undergrads, though. This was all on the up and up. I got it approved by our IRB. I basically pitched it such that undergrads are going to pull an all-nighter anyway. And so I said they’re not asking him to do anything that they wouldn’t do on their own volition, and I didn’t ask them to do anything that I wouldn’t do myself. I stayed up with them, too. Along with the help of four RAs who made sure people weren’t falling asleep.

Jeff Gish:                             Two different conditions, one that slept at least seven hours, one that did not sleep at all, zero hours. You can imagine quality assessment of sleep the previous night is like none. And everyone reported to the lab at 9:00 AM and answered the same questions that that first sample did of entrepreneurs about ranking those three business opportunities. So they’re looking at executive summaries and ranking them. I also had them give an open-ended response about a novel technology and I said which type of markets would you apply this to? In that exercise I’m looking at are they focusing on superficial relationships, are they focusing on structural relationships? I’ll tell you how I do that in a moment. Go ahead.

Jeff Gish:                             This is the two different groups. On the left is the sleep-deprived group on the right is the well-rested group. And what I want to call out here is that an error in ranking is when you rank that low-quality opportunity in one of these buckets, higher is better here, so either in first place, second place. The sleep deprived group had a lot more people and in fact they were two 2.6 times more likely to make a false positive vote for that low-quality opportunity. All right. And very few people did that in the well-rested group that had at least seven hours. This is the open-ended assessment where I had them write about here’s a new technology and the technology was a video tracking software where it looks at video and sees how long somebody stands in a certain area in a space where they’re moving to where what they’re looking at. It measures their head and where their eyes are pointed, and it says whether they come back to that space. All right. I just sort of laid out that technology in a paragraph and said, “Which markets might you apply this to to these participants?” I had them write as much as they want. They could come up with as many ideas as they want and write as long as they wanted. I didn’t regulate their time.

Jeff Gish:                             And so what I’m looking at in there is are they focused on the deep level stuff, the structural alignments, or are they focused on superficial? I trained some RAs to code the open-ended responses, and they were blind to experimental condition. They’re randomly given to the person who’s doing the coding. They don’t know whether this is the person who slept or not. What we found was that when someone had not slept in the sleep-deprivation condition within group, they were less likely to talk about structural alignment. This is first order higher order thinking, so structural alignment than they were to talk about superficial alignment.

Jeff Gish:                             There’s also between group… This is the well-rested group over here. There’s a between group difference between the amount of structural thinking that is incorporated into the responses and over here with the sleep-deprived group, how much structural thinking they have. So within group and between group differences, and importantly we controlled for word count and number of ideas because you can think of that sleep-deprived group reporting to the lab. They’ve had at least 24 hours of sleep deprivation where they actually incentivize to go forth and write something. Word count was not significantly different. So they on average they use the same amount of exposition and the number of ideas was not significantly different. So importantly they’re still, the people who are sleep deprived are still doing writing. It’s just not as on point or it’s not as germane to the opportunity as what the people who are well rested we’re doing.

Jeff Gish:                             What does this all mean? Where does this take us? A couple of years ago I gave the presentation before I had actually done the diary study, I had just done the survey with the entrepreneurs. And I had a group of 250 angel investors and entrepreneurs at this angel investing conference. And I had a couple of people come up to me afterwards and go, “Well, that’s not me. That’s not how I am. I only need three hours of sleep per night.” This person actually is an angel investor who mentors entrepreneurs and he advises people to sleep less. He’s participating in that culture. He critiqued my sample size, and I’m like, “Well, how big is yours? It’s one. Right?” I didn’t actually say that. That’s just what I was thinking in the back of my mind.

Jeff Gish:                             He critiqued the sample size and he said, “That’s just not me. I only need three hours of sleep per night.” And I said, “Well, you have variance. And so, perhaps, you’re successful despite the fact that you only sleep three hours a night, but I can also say with this additional data collection that I did where I measured an entrepreneur against him or herself, that that person who only needs three hours of sleep per night, when they get four, they’re better at opportunity evaluation than when they get three.” That’s why I think that particular portion of the study is important. And then I highlight a causal mechanism with the sleep-deprivation experiment showing that this is what’s going on. It’s their ability to access those structural relationships between a technology and a market that it’s intended for, and that’s where the evaluation happens.

Jeff Gish:                             The title is prescriptive. As I said, “Money never sleeps, entrepreneurs should.” My recommendation is not to talk to a group of entrepreneurs and say, “Hey, just sleep more.” I think that’s sort of like looking out at the ocean and telling the waves to stop crashing to the shore. I don’t think that’s going, I’m going to have much traction with that type of recommendation. However, what I want entrepreneurs and people who advise entrepreneurs to do is to to educate them on their sleep equation. Thinking about that second study, how much sleep do you need per night and are you more or less than that when it’s time to make a big decision like entry into an entrepreneurial venture?

Jeff Gish:                             This deep-level thinking stuff applies to much more than just ideation or evaluation activity. It could be pivoting your business or taking on a strategic partner or making a key hire. These are all things that entrepreneurs do on a frequent basis, and sleep has an effect on all of those activities. And so I’m not asking people to stop hustling and stop grinding. I want you to do that, and I’ve lived that life. But if you are trying to make one of those decisions and you are short on sleep, don’t just wear it like it’s a badge of honor and say, “Well, I don’t need sleep.” Ask for extra time to sleep on a decision. And I think your future self will thank you when you’re down the road and reaping the benefits of that decision. Any questions? That’s it. Please.

Jeff Gish:                             I haven’t investigated the effects of too much sleep. There is research out there that says that once you get to seven or eight hours, the National Sleep Foundation recommends seven to nine hours. Once you get to seven or eight hours, there’s diminishing returns on more sleep than that. And in this instance, it could be actually negative returns. If you’re getting 10 to 12 hours of sleep, you can be lethargic the next day. I don’t do research on that, but that’s an interesting notion. Yeah, please.

Speaker 4:                           As an entrepreneur myself. I find that I’m actually measuring the amount of sleep that I get every night-

Jeff Gish:                             via actigraphy or a Fitbit, Apple Watch.

Speaker 4:                           Just my clock.

Jeff Gish:                             Just thinking about it. Okay, that’s great. That’s the way we measured it here, too.

Speaker 4:                           I noticed that what happens is I might be waking up every hour. I’ll go back to sleep after 15 minutes or so, but it’s not a solid sleep. And that’s why I was asking you about the quality of sleep. And if I get anything over six, I definitely feel a more positive of that.

Jeff Gish:                             Yeah, there are noted effects on moods. I mean there are thousands of papers out there on sleep and how it affects cognition and decision making. This is the first of those about sleep and opportunity evaluation. It was just published in our top entrepreneurship journal, and I’m thankful for all the help from my coauthors. And actually I gave this presentation to the faculty here and they helped me develop the ideas and make it even better for the preparation to submit it to the journal.

Jeff Gish:                             I think quality and quantity are correlated. As you get more sleep you also have higher quality, but they aren’t perfectly the same. Paying attention to both I think is important. In this study we talk about quantity, like I mentioned, the the results are robust to to when we measured quality as well. I think each plays an important role, how soundly can you sleep. I think when you’re ruminating on things, there’s an opportunity to be in bed, be asleep, but your mind is still cranking on some stuff that you had going on and that wakes you up. And when you wake up, shoot, you lost opportunity to sleep because you just had a little bit and now you’re on fire. That’s how my brain works anyway. In the back, you’ve had your hand up for a while.

Speaker 5:                           Ignorance was bliss until my husband got me this Apple Watch, and now I know exactly how much I don’t sleep. I would think that would be great to get you more accurate information, have you been using the Apple Watch to [inaudible 00:27:06]?

Jeff Gish:                             There’s research that uses, not Apple Watch technology, but there’s things called ActiGraph, and it’s like the same technology. It measures motion. Some of them even measure breathing patterns and they’ll listen to that. There’s also research that correlates or that looks at whether self-reported sleep matches what the ActiGraph says or what the Apple Watch says, and they’re very close-

Speaker 5:                           They did it.

Jeff Gish:                             … which is good. Yeah, in that research, it’s very close. Several papers that say that, but what you hinted at is that you’re getting more information. Is that always a good thing? There’s some recent research that comes out from one of the coauthors on this paper, University of Washington. He just published a paper about how when you find out this information and you’re paying attention to your sleep patterns, paradoxically it can cause you to sleep less because you’re like, I mentioned rumination before. You’re thinking about it too much and you’re not able to get to sleep because it’s like, “Oh, gosh, I know the importance of sleep, and I know I need to get to sleep. I’m looking at the clock, and the minutes just keep ticking. So where does that put me in there?” There can be some negative effects as well.

Jeff Gish:                             Well, I think you can coach people to understand their sleep equation. I think it’s just hard to tell somebody who has invested his or her life savings into a business, perhaps, has asked their friends, family, and other investors to back them in this venture. It’s hard for them to say, “No, I’m never going to let forego sleep in order to make this business go.” I guess I’m trying to give more balanced advice. And I think coaching could give that balanced advice, just to understand.

Jeff Gish:                             Because what happens is, and the reason I make this recommendation is because there’s a recent paper in 2017 that looked at risk-taking propensity and your willingness to dive into a risk. It’s a psychology paper. They serve these risky activities that people, and they look at people who are well rested, at least seven hours of sleep. People who are sleep restricted between four and five hours, and people who have total sleep deprivation. And which do you think takes the biggest risks. I’m curious, what do you think? [crosstalk 00:29:06] Maybe some people say the middle. That’s right. The people in the middle take the biggest risks, and I think it’s because these people did not sleep the previous night. That’s really salient in your mind. You’re like, “Okay, I’ve got to focus on what I’m doing right now. I know that that’s part of that’s exactly what happened last night, and it’s affecting the way I think.”

Jeff Gish:                             These people like entrepreneurs perhaps who were lack of sleep as a badge of honor are marching forward as though everything’s fine, and I think that that’s why people need to understand their sleep equation such that you’re not just marching forward as though everything’s fine. You understand that if you haven’t received enough sleep or the amount of sleep that you need, then you’re going to have these cognitive deficits that exist with sleep deprivation or with sleep restriction.

Jeff Gish:                             I love this notion of looking at diet and exercise and how these play a role. The people in the sleep-deprivation experiment were not allowed to take naps. We asked them about that to make sure that there was continuous sleep deprivation. Naps have a restorative effect, especially if you’ve lost sleep the previous night. You can immediately go back into the deep sleep when you take a nap. I don’t look at naps in this paper, but I think they hold the promise to have some of that restorative capacity that absent a good night’s sleep, you can take a nap and maybe recover from that. But there are other ways you can recover from it, too. And this gets back to what Paul was saying about, you know, mindfulness meditation. One of my good friends Chuck Murnieks at Oregon State University just published a paper about… They looked at both mindfulness and sleep, and showed that mindfulness can help entrepreneurs fix some of those ill-cognitive effects that exists with sleep deprivation. So mindfulness practices hold great promise to, in the absence of good sleep, because it nothing beats a good night of sleep, but if you’re trying to repair that and mindfulness practices hold promise in that area, too. Yeah.

Speaker 6:                           Is there something to look at where even if you get the same amount asleep, if I end up sleeping earlier than I’m used to or later I still get that seven hours, I still feel like myself the next day. So even though I’m getting the same quantity, the time that I’m going to sleep tends to affect me the next day.

Jeff Gish:                             Something in the future, I’ve actually got a paper that looks at both the homeostatic process of sleep. Homeostatic is trying to keep your body in stasis, getting enough sleep so that you can… This is more of a homeostatic paper looking at balancing out the amount of sleep that your body needs and then getting that amount of sleep. What you’re talking about is more of a circadian process. So people have these 24-hour clocks, and so if you sleep at the wrong period in that clock, it can throw you off. There are some similar effects that exist, especially for people who are, let’s say, morning people, and they’re asked to work in the evening. Or if you’re an evening person and you’re asked to work in the morning.

Jeff Gish:                             I have a teenage son. Those of you who have kids out here can attest that they’re starting the high schools at like seven o’clock in the morning. And my teenage son getting up at six is like not a good thing. Even if he’s got the same and appropriate amount of sleep the previous night, he’s off his game because he’s not a morning person. So chrono type and these circadian processes can also play a role. Again, that’s not what I looked at here, but I think there’s potential there.

Jeff Gish:                             You can accumulate sleep debt. Some people tell themselves, well this is how much I’m sleeping, so this is how much I should sleep. And that’s not always the case. It’s hard to know. Like I said, especially if you’re wearing lack of sleep as a badge of honor, it’s hard to know whether… You’ve got all this extra time. Great. I want to keep practicing this. Unless you do some activity that gives you disconfirming information you don’t know, but you can accrue sleep debt.

Jeff Gish:                             And in fact there’s some papers out there that they recognize that five days of sleep restriction, this is less than five hours of sleep. People in a driving simulation are just as bad at driving as somebody who’s over the legal limit of being drunk. It has real cognitive deficits that exist. You can fix that in less than five days of recovery sleep. I think that’s because when you’re, when you’re sleep restricted, the homeostasis process that happens, your body wants to recover. And so when you fall asleep, you fall into a deeper sleep quicker than you would on a normal night. And some of you, maybe if you’ve worn yourself out over a week and you get the recovery sleep on the weekend, you might have seen this, you lay down on your head, it’s the pillow and you’re out. It doesn’t take as long to recover from accruing a sleep debt. But you need to do that if you’re not sleeping as much as you should. Again. Yeah.

Speaker 4:                           How do you know how much you’re supposed to sleep if you’re chronically not sleeping?

Jeff Gish:                             Well, you can do sleep studies. The reason I studied this topic is because I’m bad at sleep myself. I haven’t done a sleep study, but I’m thinking about going in and doing those. They will actually monitor your brain waves and how well you’re sleeping and seeing if you got enough sleep overnight. That’s one recommendation. That’s an expensive recommendation. But I’d like to go try that and see. But you also have a feeling, this subjective feeling of I’m getting enough sleep or I’m not getting enough sleep. Each of us sleeps. Very few of us go with no sleep. Well, nobody goes with no sleep. We’re humans. And so we’ve had a lot of experience that we’ve accrued over time in our lives that tells us, “Yeah, I got a good night’s sleep last night,” or “No, I didn’t.” And so you’ve got to just listen to that, short of going in and doing a sleep study to find out what’s good for you. If you’re paying attention to it, I think we’re pretty good judges of how much sleep we need. Yeah.

Speaker 7:                           I heard somewhere at one time that a power nap should never be more than 45 minutes. Is there any research done to prove that?

Jeff Gish:                             If you’ve got more than 45 minutes to take a power nap, I want your job. I think this gets back to the comment about the lethargic feeling that you have. If you’d sleep for more than 45 minutes, you have an opportunity to go into REM sleep, and the phases that your body goes through when you’re going through sleep can have an effect on the ability to wake up and be productive after you wake up. There’s the guy that I talked about before, Chris Barnes at University of Washington, he advocates for strategic naps. These strategic naps are more like 10 to 15 minute naps as opposed to 45 minute naps. I mean he first argues for a good night of sleep, but absent a good night’s sleep, take a shorter nap such that you can wake up and be productive afterwards. Because I think the lethargy does set in if your body gets into a wave where you’re into a deep sleep after 45 minutes, or maybe not even that long.

Speaker 8:                           Is the sleep-deprived culture something that’s here in the United States among entrepreneurs or is it a global phenomenon or is there another country that does it better?

Jeff Gish:                             That’s a good question. The culture, does it exist other places? I think that the notion to hustle when you’ve got a business on your back exist anywhere. For entrepreneurs, I think particularly, it is pervasive around many different cultures. I didn’t measure that in my study, but sleep attitudes would differ in a whatever your culture is and your organization. If you have a less individualistic organization and more collective country that you live in or the culture that you live in, perhaps you’re better at sleeping in the normal amount. If it’s not as competitive and your job, maybe you sleep more. This sleep problem and people sleeping less than they need is a worldwide phenomenon, and it’s particularly salient to the United States and other cultures where competition is a big deal. I can think of some East Asian cultures where people don’t get enough sleep there either. Japan as an example. Yeah.

Jeff Gish:                             Thanks. Well, Hey, I really appreciate everyone coming down and getting breakfast, listening to me drone on and on about sleep and learn about your sleep equation. Know how much you need to sleep, and I appreciate you coming today. Thanks.

Paul Jarley:                         Price. How skeptical Jeff is that his research will change people’s behavior. Maybe it’s because people control their behavior more than they do outcomes and think that more work is always better than less. Maybe it’s because technology has put us all on call 24/7. Maybe entrepreneurs believe investors see a willingness to forego sleep as a proxy for commitment and shy away from those who don’t seem to be all-in. There are exceptions to this rule of course, Bill Gates and Jeff Bezos come to mind, as successful people who highlight the importance of sleep. But my guess is that nothing’s really going to change unless we instill better sleeping habits in our children.

Paul Jarley:                         How many of you have kids who have longer days than you do as they go to school, participate in sports, build a resume by volunteering and engaging in extracurricular activities, and then have to go home to do homework just before they go to bed. Many college students have the same cycle but at a part time job on top of it. It’s not just entrepreneurs who are victims of this logic. Will snoozing your way to success become a thing or will people just drink more caffeine? My money is on the latter. What do you think?

Paul Jarley:                         Check us out online and share your thoughts at business.ucf.edu/podcast can also find extended interviews with our guests and notes from the show. Special thanks to my producer, Josh Miranda, and the whole team at the Office of Outreach And Engagement here at the UCF College Of Business. And thank you for listening. Until next time, charge on.

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Paul Jarley:                         George Jetson, a man created in the 1960s to depict what life would be like in 2060. He lives in a city in the clouds. He drives a flying car that neatly folds up into a briefcase that he can carry into work. When he drops his kids off at school, he releases them in a pod that gently guides them to their destination. But when Jane, his wife, wants to go shopping, he tries to give her some cash. She takes his whole wallet. Cash, really? It’s 2065 and George is still using cash. Maybe it’s because nobody thought banks would innovate, or maybe it’s just George’s way of trying to control Jane’s spending. Either way, it seems woefully out of date. George, my friend, do we have some stuff solutions for you. This show is all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? On to our show.

Paul Jarley:                         Today’s podcast come straight from our Dean’s Advisory Board meeting where we spent the afternoon talking about FinTech. The College of Business has partnered with the College of Engineering and Computer Science to launch a master’s program in financial technology. Many of our board members have a keen interest in this topic. So we brought together a panel to talk about one of the many innovations in this sector, open banking. Today we’re going to talk a little bit about a subject that I don’t know very much about. I stumbled upon this a few weeks ago, which is often how we come up with ideas for the podcast, called open banking. And I have three people here who are going to help us understand what open banking is and whether or not it’s going to be a thing going forward. So I’m going to ask each of our panelists to start off just by introducing themselves, and I’ll start with Christo. Christo?

Christo Pirinsky:               My name is Christo Pirinsky and I am a professor at the finance department, and I’m also the co-director of the FinTech program that we just launched.

Paul Jarley:                         Sumit?

Sumit Jha:                           Yeah, I’m Sumit Jha. I am professor in the computer science department, and co-director of the FinTech program from computer science, and my area of research is artificial intelligence, and we work on a variety of problems funded by DARPA, National Science Foundation, and a variety of other agencies that do not want to be named.

Paul Jarley:                         Charlie?

Charlie Lai:                          Hi, I’m Charlie Lai, I am the CIO of Fairwinds Credit Union. I’m responsible for all technology and innovation for the credit union and ideally staying ahead of trends like open banking.

Paul Jarley:                         And Fairwinds has been a very strong supporter of our FinTech program. They’ve contributed a million dollars towards a professorship in FinTech and so we’re happy to have you all here. All right, well let’s start at the beginning. What the heck is open banking?

Charlie Lai:                          Actually, the year 1985 is apropos for this conversation because I think that’s the last time that a bank has created something that’s truly innovated. Maybe the debit card. It’s probably inaccurate, but that’s a good starter for a conversation around open banking. From our perspective, the conversation starts with level setting with what the definition of closed banking is. Banking as an industry hasn’t really evolved out of a hundred year old, 200 year old model, where we have products and services that we think are important that you must have. And we make you come to us for how we’re going to deliver them to you, and you must pay for them, and you have to like them, and you have to tell your friends that they’re great so that they get them too.

Charlie Lai:                          That’s changing pretty quickly, what we all have seen over the last 10, 15 years with the evolution of Apple, Facebook, Google, the power of technology has democratized the economy, much less financial services. And through technology, you actually can deliver financial services that are meaningful to the customer in a way that’s much different than what banks deliver today. So, we see this as kind of a tremendous door opening to competition and evolving to something that’s ultimately better for our customer.

Paul Jarley:                         Gentlemen, either of you want to weigh in?

Christo Pirinsky:               Op banking also more specifically refers to the idea of sharing of information, personal information of individuals across different… Information from different institutions. So, obviously data is very variable because there is information in it. If we observe how people shop, maybe we can advise them better about new products in the marketplace. If we observe how they spend money, or how they save, maybe we can advise them better to make better investment or consumption decisions. Unfortunately most of the data and information that people leave in the space out there, it’s very dispersed. It’s not concentrated. You have a credit card that you use and there is something variable in your statements that tell something about you.

Christo Pirinsky:               You have a bank account, you shop in Target, but this information just spread all over the place, and value could be created if this information is somehow concentrated, and if people are able to aggregate and consolidate all of the information that they leave here and there, and use it for data analysis. So that we can learn something better about them. And my understanding is that this is behind kind of the idea about open banking, how to create… It’s more like a platform, similar to the internet, and refers to the idea of enabling people, individuals, somehow to aggregate and consolidate the information trays that they leave in the world out there so that it could be used for better intelligence.

Paul Jarley:                         I’m still having trouble getting my head around this, if I might. Why do I care if my data is concentrated? Go ahead, yeah, yeah.

Sumit Jha:                           Why open banking now? Why not in 1985?

Paul Jarley:                         Yeah, what’s pushing for this? I mean-

Sumit Jha:                           Open banking is really now an opportunity. For the first time you have the internet, which is allowing you to move data very fast. You have mobile phones, which are allowing an average consumer to have access to this internet, and to move data around. So open banking is really providing us an opportunity to use data as the new oil. So now data is now the source of riches, and so now people have the power to use this data to actually create value from it. So I have been a user for an open banking platform for a couple of years now, and it is amazing to see the kind of data it had mined from multiple bank accounts, about you.

Sumit Jha:                           It can tell you that you are paying for the streaming service that you are never using, and I had been paying for the service for quite some time. So that level of data analysis is only possible when you have these multiple accounts coming in one place, going through very rich data aggregates, which is happening right now for two reasons. One, the internet and other massively parallel computing. So rise of GPUs, and neural networks, and AI is what is providing these companies the power to analyze your data better than in 1985.

Paul Jarley:                         Okay. Ultimately though, this is going to allow me the consumer to make better choices about the financial products that I’m participating in? Is that where this is at? Because who’s pushing for this?

Charlie Lai:                          Yeah, and it really is stemming from this sense of competition, enhancing competition, and ultimately doing something better for the consumer relative to what’s being provided by traditional financial institutions today. Today banks offer products and services, we create innovation, we create things that are really good for us, and sometimes they’re good for the customer. The concept of this, making data available more democratically, now opens up a level of transparency that you can do some really interesting use cases, for example.

Charlie Lai:                          So, what if I had a view of all of my spending patterns, but also behaviors, things like I pay my rent on time, I go to school, and I get good grades, and that becomes potentially a proxy for a different credit scoring model that I’m using in lieu of traditional credit scoring models, and it’s based on an aggregation. That’s just one use case. The beauty of… I think if anybody looks at open banking on the surface, get it. But if you start to look at the use cases that you could potentially solve by opening up, democratizing, and also protecting the data, and then applying some innovation to that, then you start to get some really interesting power.

Paul Jarley:                         Can I get you to work through steps here that will help me and maybe my listeners understand what’s really going on here. If I get this right, I can give permission to third parties to have access to my accounts, including maybe my bank account, that they would then be able to analyze my spending patterns, my investment patterns, my savings patterns, and provide me with either financial advice, or with opportunities to save money, or to purchase new products that are of interest to me. Is that right?

Charlie Lai:                          That’s accurate. And that’s one use case.

Paul Jarley:                         Okay. But if only I do that, that’s not very helpful, I suspect, right? So you need millions of people to do this. Now I’m going to tell you the story of my father. My father is 83, okay? Depression-era baby. And every month, the social security administration deposits a check in his account, and he walks down and withdraws all the money. He doesn’t have a lot of faith in that system, is that a fair statement to make? So why are millions of people doing this, or are millions of people doing this in a way that makes this effective?

Sumit Jha:                           So if we look at what has been going on in the London and Europe, they have-

Paul Jarley:                         They’re ahead of us in regulatory.

Sumit Jha:                           The regulatory mechanism has forced them to develop IT infrastructure, which is different from their traditional IT infrastructure. With the idea that these third party companies only have access to data, not actually to moving money from the bank accounts. And these third party providers have access to what is called a scale-out systems. So even if millions of people enroll in this program, the servers are not going to crash.

Paul Jarley:                         Yeah, let me make sure I heard something right here. Charlie, I’m glad you’re participating here. I’m being devil’s advocate, a little bad, right? But banks didn’t push for open banking.

Charlie Lai:                          No, actually, if given their preference, this is the furthest thing from what banks want.

Paul Jarley:                         Point number one. Point number two, I’m not sure consumers did. I think governments did. Is that fair to say?

Charlie Lai:                          That’s fair to say.

Christo Pirinsky:               But consumers influence the government through the consumer protection agencies and advocacy groups, in a way. So I completely agree. So incumbents, it is large banks they are not quite interested in shaking, changing the space quite a bit. I think the two major forces driving it are startup firms and on the supply side, people see new products which could be helpful, they could create value, and they start working on them. And the other side is the consumers possibly through the government, advocating for certain types of regulations and oversight.

Paul Jarley:                         Because the banks have the scale by which to make this feasible though, right? Because that’s where the deposits are and where all the customers are.

Charlie Lai:                          The largest banks do.

Paul Jarley:                         Right? Yeah, yeah.

Charlie Lai:                          And kind of the devil’s advocate position there is, besides consumers pushing for that, why would government push for this? A view that I have is they look at the banking model that exists today and they’re looking a little further out, and they see problems ahead. They see the consolidation that’s happening in the industry, and they see this constant battle around the edges of other entities trying to get into similar and like businesses, and they’re kind of… This concept of open banking, and opening the competition forces the industry to innovate itself. And it also raises the capabilities of your mid-size, small institutions to compete potentially at the same scale as some of the largest institutions without the largest institutions just using that scale to really dominate the entire marketplace. So, it may not be an accurate perspective, but it’s an interesting perspective.

Paul Jarley:                         In the United States, as I understand it, you’re not forced to play in this [crosstalk 00:13:21]. Correct?

Charlie Lai:                          We’re not. And that’s the interesting take is, so with the advances in Europe and U.K., and in Asia and Australia, our perspective is that your largest financial institutions are paying attention and if they’re not already doing that in those markets, they’re learning lessons that they’re getting ready to bring to the United States with the intent of protecting their market share, protecting their revenue streams, and what that does is that further compresses any of the mid-size, small, regional institutions who aren’t paying attention, and that just will weaken them further.

Christo Pirinsky:               And it’s interesting that their cultural differences across the world actually shaped this process differently. And the way the data space changes is different in Europe and different in United States and different from Singapore, for example. Because the local values and cultures are different. Europeans, they’re very friendly towards regulations, so that’s why most of the changes there happened from top down. U.S., not so much, and the culture here is such, people are pro-market, and very unfriendly towards regulation. As a result, all of this innovation that happens, takes place in U.S. It is not top down, it’s more like bottom up. It’s driven by startup companies, and entrepreneurs, and they exercise certain pressure, and not as much from the consumer side I would argue and through the regulatory side, as it is in Europe. So, Europe is much more friendly.

Sumit Jha:                           So as a consumer, when a bank does not play very well with a FinTech firm, and I don’t have the data need to do what I need to do, what I did was just stop depositing my money into that bank account, because I have no transparent access to that system. So I think that consumers have a power and they have a desire to use their money in a more visible manner. Those institutions who do not start adopting this, run the risk of losing their consumers, particularly the younger people, particularly people who spend their lifetime on a cell phone, and people who are on Instagram for whom privacy is probably not the same thing that it used to be 50 years ago.

Paul Jarley:                         Or for my dad, right?

Sumit Jha:                           Yeah.

Paul Jarley:                         What’s your favorite app in this space, so far? Do you have one?

Charlie Lai:                          Not a single one, but there’s a lot of innovation happening. Some interesting examples illustrate the power of this. There was a video that it’s been around for a few years, it’s called How China’s Changing the Internet, and it showcases some of the capabilities within somebody’s day in the life of using WeChat. And the payment illustration, or the banking illustration is in this person’s everyday life. They’re going to lunch, and they’re paying for lunch, and they’re socializing, and they’re doing normal daily tasks. I think one of the things they do is get their dog washed and then they pay for that, but they do all of this activity within the app, and what it illustrates for us is that we have to be cognizant of where consumers want to be, and how they define convenience, and don’t make them come to us for the things that they want to do every day.

Charlie Lai:                          If they have to do that, once they have a better alternative they’re immediately going to choose that. That to me is what open banking embodies. If we can, through the technology, empower that and create new experiences, then we’ve got a different future and more relevance.

Paul Jarley:                         Sumit, you got a favorite? Got a favorite app?

Sumit Jha:                           I have one, I better not name it.

Paul Jarley:                         What does it do? Can you tell me what it does?

Sumit Jha:                           So it has all information about my bank accounts, my credit cards, if you have a car loan or a house loan, that information is in there, and it takes my fingerprint and then immediately it goes to all the accounts, gets the data at that point of time, and it displays the summary for me to watch. So it takes me like half a minute to find out how I am doing. And then, if I need to make a transaction, it has the power to make those transactions. I don’t use it for security purposes, I prefer to make those transactions myself. But in terms of just observing the data, it is very helpful. It sometimes provides useful insights. It says that you spend so much money on flights or on [inaudible 00:17:52], or something like that. So, it has a lot of AI built into it to analyze my behavior and say what I should be doing.

Paul Jarley:                         Christo, you got one?

Christo Pirinsky:               I personally don’t use one yet. I’m considering. Mint is one of the early players. Well they do personal financial advice, whatever you just described. So they could link a couple of different accounts, and then they follow your activities, and they alert you of behavior that could be potentially suboptimal. So they literally give you an advice. You’re probably-

Paul Jarley:                         So what’ll make you do it or not do it? You said you’re considering it.

Christo Pirinsky:               That’s a good question. So, I’m not a first adopter, so I’m not somebody who jumps, but I’m not the latest adopter either. So, I’m kind of very interested in the technology and I just maybe need to see the experiences of some of my friends and people I know and collect a little bit more information about it. And then I’m still not sure about the benefit that I’ll get relative to the cost that it will take to set it up-

Paul Jarley:                         Spoken like a true economist. Keep going.

Christo Pirinsky:               But I’m intrigued by the technology. I think that has definitely a potential, and I can see how it could evolve very quickly and at some point soon, probably I’ll jump and participate in some of those.

Paul Jarley:                         Are we seeing the end of traditional banking as we know it?

Charlie Lai:                          I think so. An interesting analogy that I’ll add onto the favorite app isn’t in the banking industry, it’s about Uber. And so think 15 years ago or 20 years ago, if you’re in any major metropolitan city and you get off your flight and you go out to the street and your options are really hoping that the time of day, right? There’s a taxi driving around. And if you hail them, you’re hoping that you catch their attention. And if you ask anybody 15 or 20 years ago, what type of innovation would you imagine for that industry besides more taxis, or longer arms, or something like that, you’d be hard pressed to identify how you would actually innovate the space. So the idea behind not really just open banking but technology innovation powered by FinTech is really thinking about creative ways to find unmet needs or unserved needs.

Charlie Lai:                          And if you think about Uber, they’re not a transportation company, they’re a data company. And what they’re really just doing is connecting a need through data to a solution. And they’ve evolved into Uber Eats and whatever they’re imagining to do next. And it’s really about solving for an unmet need. I see that same parallel for open banking through the FinTech industry as the creativity explores use cases for consumers that can be solved through technology. There’s things we can’t imagine today that will resonate, but they’ll have that same impact as as Uber is doing.

Paul Jarley:                         So will banks eventually turn around and buy some of these FinTech companies and incorporate them into their structures? Is that a viable path forward? I mean, if I’m a bank, I’m a little worried about what I’m going to be left with. I mean, one way that I can think about this is that all these FinTech companies are going to pick off all my high-margin services and drive those values to zero and I’m going to be left with the part of the business that no one wants.

Sumit Jha:                           So we should try to answer that question with another question. Did IBM buy Microsoft? So, software has value. It might seem that from a very traditional perspective, that software and software systems or data systems have no intrinsic, or have limited intrinsic value but maybe times are changing, and these systems have intrinsic value and they may replace some of the traditional systems.

Christo Pirinsky:               And also, the technology makes the pie bigger, so banks will actually get a piece of the pie so they could actually profit from it. And I’ll just give you examples. For example, one of the major applications of this big data analytics, it’s actually the ability to extend credit to a lot of unbanked people who currently actually are outside of the banking system simply because the system is not capable to screen them well and evaluate the risk level. But the new-

Paul Jarley:                         But they’re going to be open bankers, is that what you’re telling me?

Christo Pirinsky:               But the open banking actually allows for people to screen them, to screen people much better. And even somebody who’s virtually outside of the major financial space, they still could leave actually a lot of information based on where they show what they do, and this information would allow actually someone to evaluate their credit worthiness and risk level much better and extend them credit. So there be a lot of new people actually joining the financial system as a result of that. The pie gets bigger, banks could actually get some of it, so they could be actually interested in maybe supporting some of these.

Paul Jarley:                         What do you see as government’s role in all of this? It seems a bit like the wild, wild West to me. We got a bunch of people out there running around developing a bunch of apps that are going to connect to my bank account or promise to connect to my bank account. I need to trust all of them, or at least some of them. I’m not sure I know what the definition of a bank is anymore. What’s the role here?

Charlie Lai:                          Well, in the European markets, the role of government with regulation, is to drive standards, drive standard data practices, standardized security measures. Third parties that are going to connect to the APIs are vetted. That structure adds safety and soundness to the ecosystem.

Paul Jarley:                         We’re regulating the highway here, right? That’s the word. Yeah. Any others? Your time at the SEC, Christo, give you any insight?

Christo Pirinsky:               Yeah, it gives me, at least the way I see it, I mean, I think U.S., I mean, this could develop and could go a long way without severe government intervention, but one place where actually this government could step in and be very helpful is in order to standardize the information because a lot of different banks, institutions, they could simply keep this data in different formats, and which would make it very difficult to integrate and use-

Paul Jarley:                         They’re being passive-aggressive about it? Is that what you’re suggesting?

Christo Pirinsky:               Maybe imposing some type of standards. I think that’s one of the biggest benefits of the Securities and Exchange Commission is exactly standardizing disclosures and making companies use the same language. I think this could be very important in the data space because just to make sure that everybody is recording and keeping data using the same formats, the same kind of definitions. This would make it much easier for anybody to use it in, and it’s more difficult for companies to agree on that much easier if we have some type of regulatory body. It could be self-regulatory agency, maybe it doesn’t need to be a government agency, but I see this definitely could add a lot of value.

Paul Jarley:                         We got a lot of smart people in the audience today. Anybody got any questions on this? Yeah, George?

Speaker 2:                           So the question was what’s the single most problem being solved by open banking and who’s problem is it?

Charlie Lai:                          Well, on the surface it’s the consumer, is the source point for the initial problem, and it’s really about increasing choice, increasing convenience just by exposing other avenues for them to control through their access to their data, how they’re provided financial services. More interestingly, the other entities are the banks themselves, kind of untouched the industry within an open competition market, the bigger guys are going to get bigger and they’re going to get stronger. Their scale that enables so much. The smaller to mid- size financial institutions will have a tougher time competing. And what that really means is less choice too.

Speaker 2:                           So the question has to do with cybersecurity and financial transactions and whether it will become bigger or be reduced by this.

Sumit Jha:                           The first time that customers lose money, or even lose their data, which has privacy issues there will be a big backlash. And I think, since there are multiple number of players, multiple types of apps, it is more likely to happen than not. And then there will be a need for some sort of either a standardization, or some sort of a body that comes and says, “Well, these are the good guys, these are the sort of all right guys, and these are perhaps people you should not trust. So cyber security is going to be a big challenge, and not just from individual players. It could be more much more serious. Well organized, nation-state type of actions for cyber security.

Paul Jarley:                         Is it crazy for me to think about the rogue app that’s put on merely to steal the money out of my bank account?

Sumit Jha:                           No, it is not crazy to think about a rogue app that steals your data because I think that is feasible, once you install an app, give it the permissions. If you choose to install the app, it is possible to do this today, but an app that actually moves money out of your account is much harder because all the banks have hardened their cybersecurity parameters. You have to have a one time password, and other mechanisms. It can probably be duped into doing this, but that will require-

Paul Jarley:                         That’s what I’m thinking, yeah, actually that is what I’m thinking.

Sumit Jha:                           But that would require some collaboration from our part.

Paul Jarley:                         Or the North Koreans maybe have their own app? I don’t know.

Sumit Jha:                           Stealing data is definitely possible. That I think is very easily done. Once you trust a system, it has your data. So if you choose to trust it, it will have your data.

Paul Jarley:                         The question of ransomware on your FinTech app.

Sumit Jha:                           So ransomware is also going to be a serious problem, depending upon what is there in the data, of course you’d be made to pay for it, or to pay for it not to be released.

Paul Jarley:                         What about the idea if these fin companies are benefiting from getting my data, why don’t they buy it from me? It’s mine. Why should I just give it to them?

Sumit Jha:                           That’s a very interesting view. And the same view also holds about social networks like Facebook, or Google+, or Instagram. We are data creators for giving data to these companies for free and they are benefiting from it. There are arguments to be made on both sides. There is some value in the argument.

Paul Jarley:                         So I think, hasn’t Europe gone farther in that?

Christo Pirinsky:               They’ve gone farther. But my immediate response in reaction to it is that your data has value zero because-

Paul Jarley:                         By itself.

Christo Pirinsky:               By itself. Your data has only value if it’s put in a pool of 1 million other people so you can actually see [crosstalk 00:29:21] exactly. I mean even your blood pressure, your cholesterol, they’re just numbers. They have no meaning if you don’t compare them to a large group of people. So that’s why it’s hard to… How much would you want, will you charge for your data? It’s hard to vet it. It’s a kind of very interesting [crosstalk 00:29:36]. It’s a very interesting phenomenon.

Paul Jarley:                         Give it to a data exchange, they can sell it in bulk and I get cut.

Sumit Jha:                           You know, in blockchain, it’s not very hard to imagine that your data can be coupled with millions of other data points, even in a very anonymized manner and can create value for you. I think that’s going to happen sooner than later.

Christo Pirinsky:               Europe is moving in this direction. It gives you a property rights, in a way. It gives you more rights over your data. So if you would like to take it out of a bank, put it somewhere else, but they’re not monetizing that right. So there’s no market in which you can actually sell your data to the largest bidder or something like that.

Paul Jarley:                         So I’m going to get more Google AdWords now every time I used the word bank in an email?

Sumit Jha:                           So if you don’t want to do that, you just need to change what browser you use. Install the Tor browser and be anonymous, and incognito, be behind an anonymous proxy, and I know some computer scientists who do that, because they just want to be a private person.

Paul Jarley:                         Because these apps, right, will have information to some really interesting information on you that companies would really want to purchase. So the role of big tech and all of this. Yeah, well Facebook’s been talking about creating its own crypto currency, for example. Back when I was in graduate school, I taught in a maximum security federal prison. And one of the ways that people got into it is they created their own currency. The government really, really frowned on that, as it turned out. But what about that?

Christo Pirinsky:               I think they’re very good questions. And this is something which makes U.S. very unique and different from Europe is big tech. So, as much as the government might not be as involved in this process in U.S., big technology firms are, and they actually serve in a way perhaps similar role. And if it, as you mentioned, like Apple was technically in a war with Visa and MasterCard over Apple Pay, and they were able to actually push it forward. And so in some sense big tech here because it’s so big and so powerful, it’s almost serves the role of a government in a way, right? So there again, it is a powerful entity which plays with banks in this field, and Europe doesn’t have that. And I think it will continue to be very important.

Christo Pirinsky:               In Amazon simply because we talk about open banking, but it’s not just about banking. I mean, Amazon probably has more information about all of us than any bank in the world. So it’s about hospitals, and it’s about health care, and online, and Facebook, and social media. So they are actually in this space. They are very important, the big tech companies, and they would push a lot of innovation in this.

Christo Pirinsky:               Yeah and most of our big tech companies are very big into AI, and not all AI is created equal. So some of this AI is going to be much more intelligent than others. So they would know more about you than say a startup that has just made its own AI. And then someone was giving me a problem that I want to find out if my consumer is going to leave my bank. If you are a tech company and you have access to their social network and you know four of his friends have already left this bank, you know that this person is more likely to leave this bank than from his financial data.

Paul Jarley:                         What’s going to make or break the open banking initiative? What’s the biggest threat faces to just go down in flames?

Charlie Lai:                          In the U.S., lack of regulation.

Paul Jarley:                         Tell me more about that.

Charlie Lai:                          I think that’s the power for this to thrive here. If that doesn’t happen, then there’s really no motivation for the industry to embrace a standard that’s adopted by really everybody. I think the biggest entities will pursue this, and they’ll innovate for their own benefit, for their own objectives, and that really stifles a lot of the spirit of competition, what’s behind the sense of open banking.

Sumit Jha:                           So you do not really need to have standards in place to enable open banking. It is harder to do it without standards, but it’s not impossible to do it without standards. There’s real demand from people, and people leave their banks because the banks are not helping the [inaudible 00:34:04], show them what they want to see. Then even without regulations there could be some push in that direction.

Paul Jarley:                         Time to make a bottom line assessment, each of you. Is open banking really a thing, or is it a passing fad? Christo?

Christo Pirinsky:               It is. I’m positive on that. I would bet on open banking, and I think it’s going to go beyond banking. So it would be perhaps expand in other areas, in other fields, and that would be my evaluation. And I agree that, regulation, there could be a lot of obstacles, but there is a potential that creates a lot of value, there is a lot of money on the table. Usually people find ways to to extract it. And there would be some type of intervention and collaboration may perhaps, that would enable this to happen.

Paul Jarley:                         Sumit?

Sumit Jha:                           I think by the end of next five years, more data requests will originate on third party open banking platforms than from the websites, or apps of individual banks.

Paul Jarley:                         Yeah, that’s a thing. Charlie?

Charlie Lai:                          I think it’s a thing, and we’re certainly trying not to play defense in our industry with our position. One of our initiatives that we’re going to be focusing on the next couple of years is really around how to create banking as a platform. One of the first ways is for us to produce and publish our own APIs with the intent of exposing that for intent development.

Paul Jarley:                         Here’s how I think whether it’s going to be a thing or not for me personally. I have two kids in college. I want an app that when they use their credit or debit card at three in the morning at a bar, it automatically sends a message from me that says, “Go home. Nothing good happens at three o’clock in the morning. You have an exam tomorrow.” With that, thank you all.

Paul Jarley:                         George Jetson might very well want one of those same apps to monitor household spending. He’s likely to get one along with a lot of products that will help him understand his own finances better than he knows himself. My guess is that marketers, even in 2065, will covet this information, and crooks will be scheming to get into George’s accounts. Keeping both groups out might be the ultimate key to success. What do you think? Check us out online, and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show. Special thanks to my producer, Josh Miranda, and the whole team at the Office of Outreach and Engagement here at the UCF College of Business. And thank you for listening. Until next time, charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

The post Is Open Banking Really a Thing? appeared first on Barry S. Miller College of Business.

Paul Jarley:                         There are certain moments in time that stay with you. I remember where I was 50 years ago today. I was 10 years old. I was on the beach at a lake near my hometown, clutching a radio, and listening to mission control. It was 4:18 in the afternoon when Neil Armstrong said-

Neil Armstrong:                Tranquility Base, here. The eagle has landed.

Paul Jarley:                         The beach erupted in applause.

Paul Jarley:                         This show is all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, “Is this really a thing?” Onto our show.

Paul Jarley:                         The race to the moon was a race to glory that brought a much needed boost to democratic capitalism in its Cold War with totalitarian communism. But this was not the first time a group of explorers had set out for glory and to assert the political power of a government patron. Christopher Columbus comes to mind. There what started out as a search for glory, quickly turned to commercial interests complete with conquistadors searching for gold and pirates looking to steal it. Colonization and wars followed. Will history repeat itself? Is space ready to be the final commercial frontier? If so, can space pirates and colonization be far behind? Listen into my conversation with Tory Bruno. He’s CEO of United Launch Alliance. In other words, a rocket man. He spoke to a group of business and engineering students earlier this year in The Exchange.

Paul Jarley:                         So how cool is that? So, for my engineering students, this is The Exchange. And the idea behind The Exchange is that we have a speaker in here every day talking to business students about careers, about their career path. About how they might become part of an industry, if that’s what they’re interested in doing. And today we have kind of a double purpose. So, for those of you who don’t know me, I’m Paul Jarley, I’m Dean of the College of Business here. And my job is largely to think about what the college should look like five years from now and 10 years from now and how we’re going to get there. All right? So I get to do this kind of a lot. I get to sit down with really interesting people who have interesting things to say and provocative ideas. And it’s frequently the case that I’m sitting there during our conversation thinking, “Yeah, is that really a thing? Is that something that my students really need to know about? Or is this person just blowing smoke at me?” All right?

Paul Jarley:                         And so that’s sort of the idea behind our podcast. I go out, I talk to people about various kinds of things and whether or not I think they’re really a thing or not. And so Tory, who’s with us today, who is the guy who runs that organization has graciously agreed to have that kind of a conversation with me along the way. So welcome to the College of Business, Tory.

Tory Bruno:                        Thank you. Happy to be here.

Paul Jarley:                         So I like to talk about people’s careers. I think students get confused a lot. People think their careers are going to be really linear. And how I always tell them that that isn’t going to be the case. Walk up to any five-year-old kid and ask them what do you want to be when you grow up? And if they say dean of a business school, you should run from them. Right? I mean, nobody says that. That’s not how you get to be me. So I want to know, how do you get to be in charge of a rocket company, rocket man? How does that path work for you?

Tory Bruno:                        Well, I’ll start out by saying I really had no interest in management when I started. I just want to be a rocket scientist and that’s what I did for about the first 10 years of my career. And I always did want to be a rocket scientist. So if you had asked me when I was at a kid, I’m just old enough to remember seeing the first moon landing. And I was very inspired by that. So I always wanted to build rockets and I built rockets my whole life. I built my first rockets out of some 80-year-old, moldy dynamite I found in the back of my grandmother’s barn. 10 fingers, for everybody in the room who can see. And so I went to work for Lockheed and I was just a rocket designer. I worked in structures, I worked in control systems. I was a ballistician. Then about 10 years in I thought, well maybe I will sort of reluctantly go into management. Because I could probably have a greater impact there and maybe help other people in their careers, as well.

Tory Bruno:                        And then it was a very traditional career progression after that. You know, I did program management and systems engineering back and forth of increasing complexity. But I’ll say the one unique thing about it was that I always wanted to work on the most difficult problems. So I felt very inspired by the missions that we served. And so, if something was really in trouble and struggling, maybe other people were kind of fleeing that project because it was going pretty rough.

Paul Jarley:                         So, just to clarify for students, right? This was your missile bay period. Right?

Tory Bruno:                        Yes, that’s right.

Paul Jarley:                         You were involved in missile projects?

Tory Bruno:                        Yeah. Yes I was.

Paul Jarley:                         And I think it’s really helpful, right? In any kind of project like that to develop a mindset where… Things are going to go wrong. Right? And a lot of people do run from that. But the people who understand kind of that, “Well, that’s just part of the journey.” And solving those problems is really important.

Tory Bruno:                        Well, that’s right. And especially if you’re doing something that is technically challenging, or even just programmatically challenging, because there’s an urgency or a need. Your country needs it, your team needs it, whatever it is. Then it’s going to be hard and there will be setbacks. That’s okay.

Paul Jarley:                         So ULA is a joint venture between Boeing and Lockheed? Could you tell me a little bit about how that came about and why?

Tory Bruno:                        Sure. So, first, let me start kind of at the back end of that with what does that mean? It does not mean that this is a combination. ULA is a stand-alone company. 12 years ago, people who worked at Boeing had to quit their jobs and be rehired by ULA. Same was true for Lockheed. And then Boeing handed over the factory and handed over the drawings to the Delta rockets. Lockheed did the same for Atlas, and a new company was stood up. There is a board of directors between us and those owners, but there are no commingled employees, facilities, anything like that. The intellectual property created afterwards belongs to ULA, it’s just owned by our two… You can think of it as two shareholders. How did it happen?

Paul Jarley:                         Yeah, what drove that decision?

Tory Bruno:                        Yeah. So once upon a time there was an idea that there would be a gigantic telecommunications industry based in space. And so lots of companies facilitized for that. Lockheed developed the Atlas V, Boeing developed Delta IV, they still had Delta II. Spacecraft companies stood up whole divisions. And then people discovered that you can build out fiber optics on earth instead a lot more cheaply and the bottom kind of fell out. And there wasn’t enough business for all of these companies. And Lockheed and Boeing consolidated what they had into this joint venture in order to make one viable launch business. It was also done at a time that the government desperately needed that. So what is not well known is that our country’s sort of space infrastructure has fallen into a pattern of sort of all the satellites go up at once in a short span of years, which means they all age out at about the same time. And then they all have to be replenished and so on.

Tory Bruno:                        And, at that time, we were right at the back end of the life of everything that was on orbit then. And all the replacements were late and there was a crisis coming. There would of been gaps in capability. There would have been soldiers in the field calling for help and nobody on the other end of the phone. Gaps in GPS, which you take for granted today, it’s on your smartphones. But there would have been places where you couldn’t have it, where it wouldn’t have worked. And so there was kind of a crisis. And the government said, “Hey, we need ULA to sort of step in and never be late. And don’t lose one in 10 rockets anymore, which was the normal back in those days. We in fact have never lost a launch. 130, never failed to take our mission to space. And so the two things came together to create the company.

Paul Jarley:                         So was there a boom-bust cycle? Did I hear you right then?

Tory Bruno:                        Yes, you did.

Paul Jarley:                         In terms of employment and a number of other things that kind of went with it?

Tory Bruno:                        Absolutely.

Paul Jarley:                         So let’s talk about the current economics for the industry. Because we’ve seen some new entrants, right? By some pretty big names, with big egos I would imagine. So talk a little bit about that competitive landscape.

Tory Bruno:                        Yeah. So for the first time in several years there actually is a mature enough launch industry, kind of grew up around us, in order to have more than one source to go to space and to have competition. That’s a good thing. It’s healthy for the industry. You can’t make investments in new technologies and new capabilities if it doesn’t change your business outcome afterwards. And competition is one of the things that causes that to be true. So that’s good. It’s why it’s healthy for the industry and it’s good for the country to have a broader lift industrial base. Maybe what you’re really getting at is how about is it viable for as many companies to enter this market space?

Paul Jarley:                         Yeah, I’m a little curious about that.

Tory Bruno:                        Yeah. So the answer is no, it isn’t. There’s enough work here for two or three major launch companies. And right now it’s a gold rush, in a way. There’s dozens of companies that are trying to get into lift. And, in the end, all of them will not be there on the other side. That’s a fact.

Paul Jarley:                         Is that where the money is in the industry? Is it in the launch?

Tory Bruno:                        No.

Paul Jarley:                         I figured not.

Tory Bruno:                        It’s not.

Paul Jarley:                         That’s probably the most commodity part of the whole operation.

Tory Bruno:                        Yes it is, yeah. So the main… When you look at at a marketplace and you try and see where the centers of value are. In this particular case, you would probably say in the services that are provided. The closer you get to your end customer, typically the more attractive the economics.

Paul Jarley:                         So I would have guessed, and we had a little chance to talk this morning. I would have guessed that the advances to greater commercialization of space would have been dependent upon reducing launch costs. And you know, we’ve got one guy out there who’s doing miraculous things, reusing vehicles. And I assumed that it was being driven by that. But you sort of bursted my bubble this morning. Talk a little bit about that.

Tory Bruno:                        Well, yeah. So what we’re really talking about, since this is a business school environment, is a principle called elasticity in a marketplace. Where, if you can lower the cost of something, then the total volume in that market would grow. Smartphones is a great example. That’s not really true for the launch industry because, as it stands today… And we’ll talk about trajectories, but as it stands today, lift is never really more than about 10% of the value of any given mission. So the price of the satellite, the cost of operations and so on really swamp out lift. Lift is bought separately at the end of the process, so it’s more visible in a way. But the fact that it’s such a small portion means that there has not traditionally been elasticity present. Now, if you get a new mission in space that could create a different economic equation that could change. Otherwise you’ve got to drop the price of lift by at least an order of magnitude to create that elasticity.

Paul Jarley:                         One of the reasons I was asking is we have a business plan competition in the college called The Joust. And a few years ago we had a rocket scientist in The Joust. And he had proposed a very cheap, reusable rocket for micro-satellites. And he projected that to be, if I remember right, a $20 billion industry by year three. And he didn’t win The Joust and, to this day, he doesn’t understand why. Because he couldn’t possibly have met that demand in that period of time.

Tory Bruno:                        That’s right.

Paul Jarley:                         But it, again, brought up the question of well how cheap do you think launch costs can go? Are we near the bottom of that? Do you think there’s advances there coming?

Tory Bruno:                        So we’re near the bottom of the cost structure. That doesn’t mean we’re near the bottom of the price of lift. There are businesses for which fixed costs are a dominant factor. The launch business is one of those.

Paul Jarley:                         I would think so.

Tory Bruno:                        And so there is a rate curve, right? And economic order quantities have a tremendous effect on lift.

Paul Jarley:                         Think marginal costs here, right?

Tory Bruno:                        Think… Yes.

Paul Jarley:                         Think marginal costs, for my students in the-

Tory Bruno:                        I keep forgetting I’m in the business school.

Paul Jarley:                         Yeah, yeah, yeah.

Tory Bruno:                        Yes. So, because there’s a large fixed cost, there is a big effect on marginal costs. So if you can go from 10 launches a year to even just 20 launches a year, it has a profound effect on pricing.

Paul Jarley:                         Yeah, yeah. And today that’s still largely around satellites, I assume, both military and commercial.

Tory Bruno:                        Yes, that’s true.

Paul Jarley:                         So when you read, maybe, futurist sorts of things on the commercialization of space. And I noticed in your video you mentioned the moon as an example of this? Three things usually come to mind, right? One is space tourism. And I guess there’s a list of like 250,000 people worldwide who have put money aside to be in a launch. Think about that, right? There’s pharmaceuticals, because of zero gravity as I understand it. And then there’s mining, particularly of the moon, which comes up fairly regularly. So which of those three do you think has the most promise going forward?

Tory Bruno:                        As a sustained economic activity?

Paul Jarley:                         Yeah. Yeah, yeah, yeah. Not a side show, right. Which I think the tourism probably will be for awhile.

Tory Bruno:                        Yeah. So the space tourism still is so expensive. We’re really talking about billionaires. There’s only so many of those and they’re probably only going to go once. So what we’re really looking for is a more widespread activity, if we’re going to have a self sustaining economic sort of zone. And I look to natural resource development. I think one of the things that people are unaware of are the discoveries, over the last decade to decade-and-a-half, relative to the quantity of natural resources that reside just between here and the moon. Not even necessarily the moon itself, but the near Earth objects, or asteroids as they’re commonly called, that are in between Earth and the moon. There is about a thousand years worth of the entire planet’s production of industrial metals in 1,700 asteroids that reside between here and there. So we’re talking about a level of abundance that defies human imagination.

Paul Jarley:                         Wow, you’ve made space a much scarier place than I thought, to be honest. Are we concerned that all at any of those are going to kind of get jarred from their orbit and land on our lap.

Tory Bruno:                        We actually understand those objects pretty well.

Paul Jarley:                         I would hope so.

Tory Bruno:                        You do have an object encountering Earth almost every day.

Paul Jarley:                         Yeah.

Tory Bruno:                        Yeah.

Paul Jarley:                         So is the idea there to capture those and bring them back to Earth

Tory Bruno:                        No, it’s-

Paul Jarley:                         Is that? Or is it?

Tory Bruno:                        It’s to mine them there. And do as much-

Paul Jarley:                         Using robots and whatnot?

Tory Bruno:                        Using robots initially. And eventually people will be involved because of the scale of what we’re talking about.

Paul Jarley:                         Who are the big players there? Thinking about doing that?

Tory Bruno:                        These are all startup companies now. And they are waiting for a practical transportation infrastructure to be available to them. So companies like Planetary Resources, for example, Astrobotics. We’ve actually gathered them. At ULA we’ve gathered about a hundred of these small startup companies together into a community to help them mature their business plans and understand their needs and requirements.

Paul Jarley:                         Is it also a vehicle by which you buy talent?

Tory Bruno:                        No, I have not raided my future customers for their talent.

Paul Jarley:                         Okay. Okay. But are you helping to ensure that industry then, in a sense? I mean, I know Google does this, for example.

Tory Bruno:                        Yeah. No, we are absolutely doing our part to facilitate that.

Paul Jarley:                         How far away do you think that is?

Tory Bruno:                        Oh, that’s within two to three decades. You’ll see at least a thousand people living and working in space, in that economic zone.

Paul Jarley:                         Are we going to get to Mars in the next 10 years? What’s your take on that?

Tory Bruno:                        Yeah. Yeah.

Paul Jarley:                         Humans on Mars?

Tory Bruno:                        Yeah. Visit. We’ll go and visit within a decade.

Paul Jarley:                         How many people are game for that ride?

Tory Bruno:                        All right.

Paul Jarley:                         Look at that.

Tory Bruno:                        Okay. That’s an exploration mission. That’s not a… So let’s be clear, there’s no terraforming happening. There’s insufficient C02 on the planet to do that. So there’ll be first exploration, then there’ll be a permanent presence. But you will not see a terraformed Mars.

Paul Jarley:                         So what keeps you up at night?

Tory Bruno:                        Oh, what keeps me up at night? So we have a challenging, ongoing mission. Every time we go to space, it is some person’s life work of research at NASA. It is some soldier’s life on the line. It is some commercial company’s entire business plan. And they depend on us to be on time and to not fail. And this is a very difficult job. You know, you’ve got to think about the nature of the technology we use. A rocket is not an airplane. You know an airplane is a big machine with a little bit of fuel in it. A rocket is all fuel, 90% propellant. All propellant, little bit of machine wrapped around it. It is a physics-defying act every time we go to space. No one has the reliability record that we have. It is not by accident and it is very fragile and takes constant diligence to maintain that.

Paul Jarley:                         So what do you see as your role in that process as CEO?

Tory Bruno:                        Well, as CEO, I am responsible for a couple of things. Specific to that, it’s making sure our culture of mission success stays in place. Because culture is the most powerful aspect of a business. And then, of course, I have my traditional CEO role, which is the strategic direction of the company and making sure we stay a viable business for the long run.

Paul Jarley:                         Okay. And here’s where the twist is going to happen, when I read Tory’s bio. So explain to me how the Knights Templar fit in to that view that you have.

Tory Bruno:                        We put the most obscure things in my bio.

Paul Jarley:                         Because usually when I’m seeing something about the Knights Templar it’s a conspiracy show on The History Channel.

Tory Bruno:                        So, yeah, nothing that interesting. So I’m a history buff. I’ve written, what the Dean is referring to is I’ve written a couple of books on the Knights Templar. And it’s a really about how they operated as a business.

Paul Jarley:                         That’s what caught my eye.

Tory Bruno:                        So maybe the thing that’s relevant to the launch industry, and the changing marketplace is the big picture of the Knights Templar. When you look at their, the grand sweep of their history, they came into a particular place in history. They did a very specific job. They were very, very successful at it for 187 years. And then the environment changed. They refused to adapt, and seven years later they were gone.

Paul Jarley:                         Well the King of France had something to do with that.

Tory Bruno:                        He did.

Paul Jarley:                         If I remember correctly.

Tory Bruno:                        Yeah, well, he absolutely did.

Paul Jarley:                         Why the Friday the 13th is-

Tory Bruno:                        Very good.

Paul Jarley:                         I know my stuff, yeah.

Tory Bruno:                        Yeah. Yeah. October-

Paul Jarley:                         Bit of a history buff myself.

Tory Bruno:                        Friday the 13th of October, 1307.

Paul Jarley:                         That’s why it’s considered unlucky.

Tory Bruno:                        Yeah.

Paul Jarley:                         Tell the story. Go ahead, Tory.

Tory Bruno:                        Oh, sure. So the Knights Templar were based in the Holy Land and the European colonies in the Middle East. And, eventually, that was taken back by the native inhabitants there. And so there was no European presence. They didn’t have a relevant mission. They had a lot of money. They had a lot of special privileges. They didn’t pay taxes, for example, anywhere. They didn’t pay tariffs. They didn’t contribute to the incomes of the social and economic structure of Europe. And the King of France owed them a lot of money. And he wasn’t going to be able to pay. And the next best thing to repaying your debts is to arrest everybody that you owe money to and taking the money they have. And so he organized a mass arrest at midnight on Friday the 13th. Orders sent out months in advanced, unsealed at midnight. Go arrest the Templars, they’re all heretics, and make sure you don’t forget to grab their money. And that was pretty much the end of them. Because they weren’t relevant, they were vulnerable to that particular.

Paul Jarley:                         And that’s what drives your thinking?

Tory Bruno:                        Yeah.

Paul Jarley:                         Very much.

Tory Bruno:                        Stay relevant.

Paul Jarley:                         So what do you think is the most important thing business students should know about commercialization of space? If you wanted to leave them with one thing? Then I’m gonna open it up for questions, I want to hear what you think.

Tory Bruno:                        Well, I’d say probably two things. First, you should be excited about it. We are on the very threshold of a new human epoch in history where there will be a giant economy in space. The second thing is be realistic. It’s not going to happen overnight and it still will follow all the normal rules of economics and business. Do not let it be a bubble. Do not let it be the Silicon Valley of 2001 of the Tulip bubble of 16-whatever it was.

Paul Jarley:                         You think there’s a real risk of that?

Tory Bruno:                        Oh, absolutely.

Paul Jarley:                         Yeah.

Tory Bruno:                        Yeah. Anytime there’s that much excitement and free capital available in the economy to be invested by unsophisticated investors unfamiliar with that particular activity, you have the potential for a bubble.

Paul Jarley:                         Because my sense is, right? These are really big bets that you’re playing over really long periods of time.

Tory Bruno:                        Yes. Yeah, and it’s not a small incremental business. Everything we do in space comes in very large increments of investment and cost. And it’s an extremely difficult, high-consequence business. So if you take, for example, just the satellite and I’ll zero in on the launch piece of that for a moment. A satellite will spend five, 10 years getting designed and built, it’s going to spend 10, depending on the application, even 20 years on orbit doing a mission. There is literally 15 minutes in that entire lifespan when it can die in a ball of fire on top of a rocket. And pretty much everything has to go right and nothing can go wrong. There aren’t a lot of other industries like that.

Paul Jarley:                         After my interview, we took some questions from students in the audience. Some of those questions are a little tough to hear. So I’m going to repeat each question before Tory’s answer.

Paul Jarley:                         Our first question: Do you anticipate building things in space to avoid loss during launch?

Tory Bruno:                        Yeah, yeah, I do. So I think of this eventual sort of cislunar, cislunar being the space between here and the moon. As a journey. So we kind of jumped right to the end state of people living and working there. And mining nickel and titanium, more platinum than has ever been mined in the history of humankind and all of that. It doesn’t start there. It starts, probably, with specialty manufacturing and research in low Earth orbit and microgravity, for things that are very valuable that can’t be made here. Ultra-pure materials would be another example.

Audience Member:        So it’s a process? I know I’m thinking way out.

Tory Bruno:                        It is a process, yeah.

Audience Member:        But I just wonder if you ULA had a vision for how they wanted to-

Tory Bruno:                        We do. We call it the CisLunar-1000. And you can read all about it and watch videos on our website, ulalaunch.com.

Paul Jarley:                         So is your strategic plan projecting a hundred years into the future?

Tory Bruno:                        No, I’m only gone about 40 right now.

Paul Jarley:                         Okay. Because it’s just not worth it after that? The change and whatnot would just be too great to kind of even think about?

Tory Bruno:                        In this particular environment?

Paul Jarley:                         Yeah.

Tory Bruno:                        Yes, the uncertainty grows.

Paul Jarley:                         40 years is a long time.

Paul Jarley:                         Our next question came from a young real estate student who asked: How do you see real property rights being involved in space?

Tory Bruno:                        So what a great question. So no one imagined 40 years ago that there would be real economic activity in space. And so the outer space treaty and the lunar treaty regime really doesn’t address economic activity. Now the US passed its own law, a couple of years ago, that said, “Hey, you can actually go to space and mine something or develop something, own it, bring it home, and sell it.” This is a going to require an international treaty regime. So that was just a very small beginning. So I will say that the Space Council, which was recently stood up chaired by Vice President Pence, I serve on the Space Council’s User Advisory Group is jumping in.

Tory Bruno:                        But they are jumping in at the beginning, so they’re streamlining regulation on how you get to space and who controls which regimes in the government to try and foster businesses to get going. But there’s a long ways to go. If you’re going to have a business mining platinum or rhodium on an asteroid, you need to have the ability to have a claim, not have somebody else wait until you’ve invested in all the prospecting to then jump on you. You’ve got to be able to extract it, take it home, own it, and sell it, obviously. And you need regulation to make all of that safe and responsible. It is a little different than activities here on Earth, in that everything is in orbit at incredible velocities and irresponsibility has catastrophic results.

Paul Jarley:                         Another student brought up a partnership between Blue Origin and United Launch Alliance. The two companies are working together on ULA’s Vulcan Engine. She asked about what it’s like to team up with your competitor.

Tory Bruno:                        Sure. Yeah. So, for the rest of you, what she’s referring to is we have two engines on our new rocket. We’ve just selected Blue Origins BE-4 for the first stage. And we had also selected, about a month earlier, Aerojet Rocketdyne’s RL10 for the other stage. And you’re asking about, “Gosh, you have a competitor in your supply chain.” That is the nature of the aerospace industry. It’s a very small community. And we have a phrase that we use that is called “competimates.” So you are very often in each other’s supply chains. You compete while having them as a supplier. You compete while being their supplier. That’s not unusual, but it does drive certain unique things in your relationship. It’s important to feel like there’s some symbiosis or mutual dependency there.

Tory Bruno:                        So they will eventually compete with us with their New Glenn rocket. That’s really designed for a different… I’ll say centered on a different market segment than we are centered on. All you’ve got to do is look at a picture of it to figure that out. It’s Saturn V-sized. And it has a lot of engines. And, without our order rate, it is not very affordable because the engines would be very, very expensive. So they need us, we need them because they’re our engine supplier. And we’ll compete in slightly different places with overlap. And so all of that is pretty typical in our industry. I already have competitors elsewhere in my supply chain and vice-versa.

Paul Jarley:                         So that’s why you bought rather than made, if I understand it.

Tory Bruno:                        That’s why we buy rather than make. Now engines have a very large initial investment threshold. I won’t talk about the numbers involved in our deal, but the rule of thumb in rocketry is if you want a brand new liquid rocket engine, be prepared to spend one to two billion dollars to develop it. So that’s part of that equation as well.

Paul Jarley:                         Our next question: have there been any attempts to develop insurance for spacecraft?

Tory Bruno:                        There is actually, and has been for many decades, a big… Well, big industry. An industry around selling insurance. So everyone who is not the United States government that puts a satellite in space insures. You insure the spacecraft and the lift. And, on rare occasions, they may also insure some portion of the revenue stream. And that is actually a factor in the price of the launch service. Because, as we talked about a minute ago, that’s the big risk when you’re a satellite operator. And so, for example, if you’re a commercial company and you’re going to put up a big geostationary communication satellite and you choose to fly it on an Atlas? Your insurance will be about $12 million cheaper than if you flew it on somebody else’s rocket.

Paul Jarley:                         That’s just an experience rating that they’re using, right?

Tory Bruno:                        Yeah.

Paul Jarley:                         Because it’s been so safe, yeah.

Tory Bruno:                        Yes. And that’s also an interesting economic discussion, since we’re in the business school. At present, there’s a little bit of oversupply in the insurance market. Space is sexy right now and everybody wants to be in it. So the insurance rates are actually depressed a little bit below where they should be.

Paul Jarley:                         Interesting.

Tory Bruno:                        And narrowed a little bit more. If that industry ever rationalizes, these differences get bigger.

Paul Jarley:                         So did I hear you right? You wouldn’t launch without them having insurance?

Tory Bruno:                        They won’t launch.

Paul Jarley:                         They won’t launch.

Tory Bruno:                        Yeah.

Paul Jarley:                         The next question: does ULA have any plans to develop a heavy lift rocket?

Tory Bruno:                        No, we don’t because we don’t really see a market there that is attractive to us. So other people are designing rockets that are centered on lunar architectures or Mars architectures, for example. We’re really centered on Earth-orbit architectures. Not to say we couldn’t. So the Delta IV Heavy has a heavy variant that is a three cores, literally three rockets bolted together. It’s very impressive, if you ever had a chance to come out and see. We don’t plan to do that with Vulcan, but there’s no inherent reason why you couldn’t if there were a marketplace. But we just don’t see one. So it’ll be a single stick. It will have more capability than a Delta Heavy. So the cool thing about that is you get heavy performance, in fact about 30% more lift than a Delta IV Heavy, in a single stick configuration which collapses the price of heavy lift. And honestly, we just don’t see a need for more than that at this time.

Paul Jarley:                         One student wanted to know where Tory Bruno saw the space industry headed when he started his career.

Tory Bruno:                        Honestly, when I started I didn’t pay a lot of attention to space launch because I worked in missiles and in hypersonic re-entry systems. And so I sort of took lift for granted in a way.

Paul Jarley:                         The next question asks for an elaboration on components versus propulsion. Yeah, I don’t know what that means.

Tory Bruno:                        Yeah, sure. So when you look at a booster, and we’re talking about the first stage. The second stage is its own animal because it’s orbital. Okay? So we’ll talk about the booster. You have sort of this difference where you can bring the whole booster back propulsively, because that’s what it takes. In other words, you are going to first re-enter the atmosphere, hypersonically, experiencing really, really high temperatures. And then you’re going to light your engines off. And then you’re going to coast back down to the ground and you’re going to land. You’ve seen that on TV. Right? You get to recover the whole value. Some of the time there’s a 30 to 50% performance loss. In other words, on certain missions, you can only take half as much mass to orbit. So you can’t do it every time. But every time you do do it, you get the whole value back.

Tory Bruno:                        Then there’s component. So, when you look at a booster, it turns out that two thirds the cost of a booster is just one part. It’s just the rocket engine. You take the rocket engine out from under a booster, what’s left? A giant empty gas tank. And so that’s a different approach. And our approach is to do that. We’ll burn all of our propellant, no performance impact, burn to depletion. Then we’ll separate the engine section. Re-enter behind NASA’s Mars 2020 inflatable heat shields, so no high-temperature environments. Scoop it up with a helicopter and bring it home. So we only get two-thirds of the value of the booster back when we do that. But you get to do it every time. So, business student, given the marketplace it really just matters on how often are the spacecraft so large that you can’t do propulsive versus how often you can do our technique. So is it better to get all the value back some of the time or two-thirds of the value back all of the time? It depends on that mix of customers. And we’ll find out.

Paul Jarley:                         There’s an excel spreadsheet, though, that can solve that for you.

Tory Bruno:                        Definitely.

Paul Jarley:                         And our final question from the audience was: why does ULA exist?

Tory Bruno:                        Why do we exist? Oh, okay. Well, believe it or not, we are still the world’s premier launch company. We’ve launched everything that is important to our country that is on orbit now, or nearly everything. We touch your life every single day. Use GPS recently? That was us. You check the weather to see where that hurricane might be coming in? That was us. We’ve been to space 130 times. We have never failed to get our mission there, that is unprecedented. We’ve been to Mars 18 times and every celestial body of every significance in the solar system and beyond. We have the experience and the expertise to continue being the market leader and we will be.

Paul Jarley:                         It’s my podcast so I get to go last. This just might be our geekiest podcast to date. So I feel compelled to offer a science fiction reference in relation to the question of whether space commercialization is really a thing. Resistance is futile. It’s already happening in launch vehicles and satellite communication. The competition between ULA, Blue Origin and SpaceX has reinvented the Space Coast and brought a lot of funded research to UCF, a place that was founded to support NASA in the race to the moon. I suspect space tourism and space mining won’t be far behind. And, as our young real estate student noted, that will put the question of property rights in space front and center. Maybe the first space real estate program will be right here at UCF. That seems fitting, but that will probably be an assignment for a dean a few deans after my time here at UCF.

Paul Jarley:                         What do you think? Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show. Special thanks to my producer, Josh Miranda, and the whole team at the Office of Outreach & Engagement here at the UCF College of Business. And thank you for listening. Until next time, charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

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Paul Jarley:                         FTU became UCF in 1978. Since that time would become the Knights, the Golden Knights, and the Knights again. Kentucky Fried Chicken became KFC in 1991. Backrub became Google in 1997. Deloitte added a green dot in 2003. Tropicana changed the packaging of its orange juice in 2009 and then changed it back. CFE Credit Union became Addition Financial in 2019. In all but the first case, I’m pretty sure some rebranding genius got paid a fortune. But seriously, does any of this really matter?

Paul Jarley:                         This show is all about separating hype from fundamental change. I’m Paul Jarley. Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, “Is this really a thing?” Onto our show.

Paul Jarley:                         I’ve been known to tell staff in meetings that I’m not the dean of that. It’s my way of letting people know that I think their issue isn’t worth my time. I hit upon this phrase back in my days at the University of Kentucky. The college had just gone through a rebranding effort, and one of my colleagues didn’t like our new stationary. He was refusing to use it, and he wanted me to tell the dean that he should get a pass. After listening to this for 20 minutes I told him that I refuse to be the associate dean of stationary and asked him to get out of my office. The phrase just stuck with me.

Paul Jarley:                         My marketing colleagues, on the other hand, would disagree with me. They think a company’s brand is its most important asset and that any rebranding campaign is a process that is fraught with peril, like employees not embracing the change. Meh, maybe. Or maybe it’s just a way for consultants to charge big bucks to help you design a new logo that they claim with rival the swoosh and make you the darlings of consumers everywhere.

Paul Jarley:                         A few weeks ago we hosted our last dean speaker series of the academic year, and given that our sponsor, CFE Credit Union, had just changed its name to Addition Financial, we thought it was the perfect time to have Dr. Caroline Massiah address the whole rebranding thing. It was such an engaging discussion that we decided to turn it into our latest podcast.

Carolyn Massiah:             I’m going to begin with a quick, funny travel story, and it will help us lead into the discussion.

Carolyn Massiah:             This past weekend I had to go, not had, I wanted to, I went to Boston. My goddaughter got married and, first of all, for those of us in Florida, when we travel anywhere, we forget that the rest of the world doesn’t have the same weather all year around, so I experienced three seasons in three days in Boston.

Carolyn Massiah:             The other thing that happened, we get to the airport to return home and my teenage son and I, my husband was staying behind for business, my teenage son and I, we board the plane. We get on the plane. We do what I think is probably the slowest taxi ever. I’m thinking at this point I can walk to Orlando quicker. We get all the way to the end of the runway and then we sit there, and I’m thinking there must be many planes. But at the point the pilot has not said one word to us. All of a sudden you feel the plane make a deep U-turn, and I thought, “Oh my gosh, a delay, maybe a mechanical issue.” We get back to the gate. When we’re pulling up to the gate we see flashing reds lights, they open the door of the plane, Homeland Security gets on the plane. They take a man and a woman off in handcuffs. I can’t even make that up. I’m like, “Oh my goodness.”

Carolyn Massiah:             Then then pilot comes on and says, “Well, I don’t know if you know, but since 9/11 we run the flight passenger list until wheels up, and we take a slower taxi if for some reason we are not able to clear a passenger’s name from that security watch list, and if we still aren’t able to clear them, Homeland Security has us return. We’ve deemed there are two people on the flight weren’t safe to fly, and that’s why we had to return.”

Carolyn Massiah:             We finally took off, were supposed to land here Monday night at 10:00 PM, landed at 1:30. The best laid plans of travel. Why do I say that? We have several companies, including our host today, who have gone or are about to go through rebranding, and it’s a journey.

Carolyn Massiah:             Most times when we travel we think about the point B, the destination. However, we find that when we travel, sometimes it’s not the where, where we end up, the location where we end up, that will cause us the angst, the most pain, hopefully the most excitement and happiness as well, but it’s the what of the trip, the why of the trip, and the how of the trip.

Carolyn Massiah:             When we talk today about navigating, rebranding, that’s what I want to focus on. The first thing, whenever you go on a trip, you want to make certain that we’re all on the same page or will go with the same map, if you will. I want to start with first talking about what is rebranding. The reason I say that is because, and I know I have a couple of marketing practitioners in the room and we all at times think, “I know, we’re doing it now, I know what rebranding is”, but sometimes we take a different view where I just want to help expand the view of what rebranding is.

Carolyn Massiah:             Then I want to talk briefly about some reasons why we would choose to go through this experience of rebranding, and then I’m going to finish up with five very quick toolbox methods you can take with you as far as how to do it in the most painless processes possible.

Carolyn Massiah:             In order to get on the same map let’s first talk about brand. When I say brand to some people they immediately think of the logo, they think of a name, and we’ll see in a moment that it’s so much more than that. But what’s important are two words here, the brand of your company, and we’ll talk about what all that entails in one moment, the brand of your company identifies your company, the value that you’re creating for your customers, how you’re delivering that value, that’s the brand, that identification. Even as important as identifying your own company, remember that a big role of your brand is to differentiate yourself from the competition and hopefully in a positive way.

Carolyn Massiah:             I just said that brand is a little bit more than a logo, so let’s talk about some different elements of the brand when we’re talking about brand because when I talk about rebranding, once again, I want to make certain we are on the same map.

Carolyn Massiah:             First and foremost, a big part of brand is the brand name, the brand name. We think about some brands that we see and we automatically have a thought about, if I say Nike you automatically think competition, sports, aggressiveness, achievement, winning, so already just in the brand name there is identification and definitely a differentiation from the competition. Here’s the thing though, when we talk about brand we are going to expand our view because it’s so much more than that.

Carolyn Massiah:             In this day and age we also have technology, social media, digital media marketing being such a big part of the brand. We’ve taken a URL and made it into a verb. Now in the Merriam-Webster dictionary Google is a verb. I’m actually putting money on the fact that within the next two years Uber will be a verb. We already use it that way, right? When we talk about google.com, amazon.com the URL is a very important part, a very important part of the brand.

Carolyn Massiah:             Logos and symbols. I’m [inaudible 00:09:03] talk about product and we’re going to talk about people here. I talked about Nike. First, anyone know that way that we became a Nike school instead of Adidas school, UCF? I’ll tell you really quickly because it’s actually pretty interesting. It’s truly a marketing story. We were an Adidas school and then two young men came to play here, came to play basketball, and their last name happened to be Jordan. Michael Jordan’s sons came to play with us briefly. We were Adidas school, which mean Adidas had to tow. When the first Jordan player, the first Jordan son, playing his first game said, “I’ll wear Adidas everything but I’m wearing Nike shoes. I’m Jordan.” Adidas gave us an ultimatum, should the Jordan player take the court in anything but Adidas shoes, they’d pull the sponsorship. Talk about a marketing dilemma there for us, for Jordan the son, Jordan the father. Can you imagine the PR that will come from having the Air apparent be wearing Adidas shoes on the basketball court? Oh my goodness.

Carolyn Massiah:             The young man did take the court in Jordan shoes. Within 24 hours Adidas pulled their sponsorship. Nike got to come in like the knight in shining armor and pick up that sponsorship and that’s how we became a Nike school. A little bit of trivia for you to take with you. That brand is so powerful we only need to see the swoosh.

Carolyn Massiah:             I said product, let’s talk about people. I’m a big fan of music, and actually one of the artists I absolutely love, love, love, and I was very fortunate to see him in concert at one point was Prince. If you don’t know the backstory behind that period where he was not Prince but the symbol, and we’d called him the artist formerly known as Prince. His original record label, he wanted to separate from them, and they said, “Okay, you can go but the Prince name belongs to us.” He said, “Okay, well this is my name from now on until my contract expires.” Once the contract expired then he became Prince again. A symbol, even for a person, is a big part of a brand.

Carolyn Massiah:             Characters. We live in the land of characters. Whenever you fly into the Orlando airport, you have the Disney greeters, and they have the white Mickey glove on. You don’t need anything else, all you need is that white glove and children just loose their minds, “Mickey! It’s Mickey!” We live in the land of characters.

Carolyn Massiah:             Slogans. Going back to Nike. Nike says, “Just do it.” We don’t know what it is but we’re going to get on it. Just do it. Slogans become very powerful.

Carolyn Massiah:             I’m a veteran of the U.S. army, I was a combat medic, joined when I was 17, seems like another person lived that part of my life, but it was wonderful experience. Why do I say that though? Actually, U.S. army has really struggled with what their slogan is. When I joined it was be all you can be. I was like, “Okay, I’m on it. I’m going to be all I can be.” In the late ’90s, early 2000s they went to army of one. Well those of us who had served… Any prior military people? Any prior military? Those of us who have served in army realize, “Well, they train you from day one that you’re not a one person. Now, all of a sudden, they’re telling me I’m a army of one? That’s kind of strange.” Now it’s army strong, which I think is a good one. The other one is soldier for life. I don’t know if that one is going to stick with the army strong, so they’ve really struggled with their changes in their slogans.

Carolyn Massiah:             Last but not least, a big part, which is underestimated, colors and any relevant sounds. Those of us who grew up in the original AOL time period… Okay, so I have some friends. You were waiting for that sound and telling someone, “Don’t pick up the phone, I’m on.” It’s like, Okay.”

Carolyn Massiah:             Colors as well. Sometimes we don’t realize we’re rebranding just when we change a package, but in the consumer’s mind we’ve rebranded. In the consumer’s mind we have rebranded. Colors and symbols are so extremely important.

Carolyn Massiah:             Talk about the value of brand, I saw this one time and I said, “I’m going to have to keep this in my slides because it’s just funny.” Because it’s so true. Here we have a wonderful teapot. Put a price on it, $25. Everyone is like, “Ooh, okay.” I change it just a little bit. We’ve went from a teapot to a ipot. It’s radical, it’s innovative. I bet it has a charging USB port on it too. It’s so funny because it’s so simple because it’s so true. That’s how powerful your brand is. We form relationships with brands. We form relationships with brands.

Carolyn Massiah:             Why do consumers form relationship with brands? Let me talk about your grocery shopping for a moment. You go grocery shopping in the store. We put on our track in our mind, “Grocery shopping track, put it on.” Then we shop according to that, “Okay, I get my Pop-Tarts, I get my Kellogg’s, I get my…” We shop according to brand. Now, and you’ll all relate to this when you go grocery shopping, all of a sudden you get to that aisle… I love my raisin and spice Quaker oatmeal in the morning. I’m a creature of habit, so raisin and spice Quaker oatmeal in the morning. I get to the aisle where the Quaker oatmeal is and I see the apple one, “Eh, I don’t like that one.” I see the maple and brown sugar one, “Eh.” I don’t see the raisin and spice one. It’s not there, but above it they have a different of the raisin and spice. “Oh, but I don’t know, that’s not the one I usually get.”

Carolyn Massiah:             Honest to goodness, how many of you have done this? You were standing right there in the aisle, you don’t see your brand there, what do we do? We step back like it’s magically going to appear because we did that. Then we actually may stand there and we’ll look to the side like maybe they moved it because we are that linked to that brand. A lot of times that link to a brand isn’t out of loyalty, it’s out of ease. I don’t want to have to think. Can you imagine if you had to make a decision about every individual product every time you shopped? You think about if you get a new roommate or a new significant other, a new spouse, and you go grocery shopping together and all of a sudden they’re reaching for something and we’re just like, “Oh we don’t buy that.”

Carolyn Massiah:             Brands help our consumers make the right purchase. It helps us make an easy purchase as humans in general are what I like to call cognitive misers. We don’t want to really put a lot of thought into this. This should be easy for us, which why when we rebrand we want to make certain we don’t confuse our customer.

Carolyn Massiah:             One of the main things, one of the main values behind a brand is that it helps facilitate that purchase. It helps establish loyalty because I know I always buy. We always say that, “Well no, I always get that.” You’re saying you’re loyal. “I always get that.” Which means then that if we’ve done well with our brand to begin with we’re protected from competition because when I’m standing there in the grocery aisle I can’t even fathom sliding down or up to the next brand because that’s what I always buy. That’s the one I can count on. That’s the one that’s reliable. It helps protect from the competition. Some of you, I bet, have made a stop at an additional store on the way home to get that brand. I see heads shaking, I have friends. That means then our brand is an asset and impacts our market value.

Carolyn Massiah:             Now we are all on the same page, the same map on this journey of rebranding. That’s the what of the travel. Let’s talk about the why. Why would we rebrand? Perfect, our host today, Addition Financial, a little backstory.

Carolyn Massiah:             As of June 1st, I’ll have been at UCF for 14 years. 14 years.

Speaker 6:                           Woohoo!

Carolyn Massiah:             Yeah, that’s a woohoo. At 20 years at UCF they give you this big desert-size plate of medallion you can wear to graduations, so I’m six years away. Six years away from the medallion. When I came here on June 1st, I immediately joined the Credit Union. At that time it was UCF Credit Union. That’s actually how I saved it in my Quicken, UCF Credit Union. I’m a creature of habit, it still says UCF Credit Union in my banking software. As time and geography spread, it went from UCF Credit Union to Central Florida Educators. Now, as the company has grown in such a positive way, we’ve moved now from Central Florida Educators to Addition Financial.

Carolyn Massiah:             One of the first reasons you might rebrand is because of growth. Whether it’s growth domestically or internationally, that is one way, one reason why you might go on this journey of rebranding.

Carolyn Massiah:             Walmart originally was always low prices, “We’re the value-based store. Always low prices.” When, in 2003/2004, the country went through a recession, and there were those customers who stepped down from other brands to shop at Walmart, they wanted to be able to hold on to them when the economy improved, so they repositioned themselves from always low prices to save money live better, so that hopefully then they weren’t perceived always as, “that’s the bargain basement low-value option” for those who had switched down during the recession. So, sometimes we might do a rebrand because of just repositioning to either gain or keep new audiences.

Carolyn Massiah:             Another reason we might rebrand? New CEOs. 50% of our largest American companies will see a change in CEO within the next four years. The why of that doesn’t always mean success, and I’ll tell you a little story about JCPenney. I see some heads shaking, so some of you know the story.

Carolyn Massiah:             JCPenney decided to let go of their CEO. They hired a new CEO. Anyone know the company where that CEO came from? Apple. That’s going to be important to know in just one moment. I will tell you that JCPenney has made their bread and butter on door buster sales, on coupons, on Saturday door buster sales. Their most loyal customers live for the sale. Their most loyal customers live for someone circling their receipt at the end saying you saved this much. That’s what they live for. They hired a new CEO. The new CEO said, “We’re not going to do sales anymore.” Everyone was like, “What? No sales?” Remember he came from Apple. What does Apple not do? Sales. He said, “No, we’re not going to do sales anymore. Instead, what we’re going to do is we’re going to mark all the clothing at the lowest price it would eventually sell for anyway, and we’re going to call it fair and square deal pricing.”

Carolyn Massiah:             If you remember JCPenney implemented that square in their logo and everyone was like, “I don’t know, what’s the square?” Fair and square pricing. So they said, “Okay, no sales. Lowest price possible, yay.” They introduced it. Customers come into the store. “Where is the sales rack?” “No, we don’t do sales anymore. It’s marked at the lowest price possible. You’re already going to pay the lowest price.” “So you’re not having a sale?” “No, you don’t understand, we are saving you more than you probably would have saved before with coupons, and we…” “So, there’s no sale is what I’m hearing.” In two months they lost 30% of their sales. They’re like, “No, you don’t understand!” So then they enlisted different actors and spokespersons saying, “No, it’s a fair and square deal. No sales. You don’t need a sale. We are selling it to you cheaper than if you were searching for the coupon.” And they’re like, “But that’s what we like.” So they let go of that CEO. They went back to the original CEO and said, “See, what had happened was…”

Carolyn Massiah:             Other times we may decide to change because of an outdated image or we want people to think of us as more than what we are. Dunkin’ Donuts. Another interesting thing about being in Massachusetts. Massachusetts is home to them. So, if you’ve ever gone to Seattle and every three feet there’s a Starbucks, it’s like that in Massachusetts. Dunkin’ Donuts is everywhere, except they’re not Dunkin’ Donuts anymore. As of this year, it’s just Dunkin’. Why? Because they want to reposition themselves as having more than donuts. They’ve expanded their menu option, and they want people to think of them that way. Unfortunately, a Donuts just rolls off my tongue, because I’m like, “Dunkin’ Donuts, Dunkin’ Donuts.” So they’ll have a little bit of time with that, but overtime they’ve changed quite a bit going from focusing on coffee to the coffee and donuts, and now you see they’ve even actually moved the coffee out of their logo and just Dunkin.

Carolyn Massiah:             You could have changed because you’ve had a rough time with the current brand. Altria is actually who?

Speaker 3:                           Philip Morris.

Carolyn Massiah:             Philip Morris. Enough said. In 2003, because at that point the conglomerate was Philip Morris and Kraft, but they’d eventually sold off Kraft, but they were like, “Well we don’t want that halo effect from Philip Morris onto the Kraft brand.” So, they went to being the Altria Group.

Carolyn Massiah:             Mergers, acquisitions and demergers. Another big rebranding that’s happened here in our area, Florida Hospital moving to AdventHealth. A lot of that came out of different purchases that they’d made that has also expanded them beyond the geographical area of Florida. You don’t want to be in Tennessee and you’re like, “This is Florida Hospital? I’m confused. Did I take a wrong turn?”

Carolyn Massiah:             Changing markets. Now, this is a pretty interesting one with Mastercard, and it has a lot to do with different readers. The more that they’re using mobile payment in things, Mastercard actually first of all figured out by having this lettering in the middle and the placement of this logo, it would impede processing of mobile payment. So, what they did first of all was make this a smooth logo and then move the Mastercard down in order to answer to that changing market. That happened at the beginning of this year.

Carolyn Massiah:             Corporate identity development. I’ll talk about two different ways there.

Carolyn Massiah:             First of all Gap. Gap decided, “Maybe we need to differentiate the different brands.” You go to the mall and you see right next to each other Gap, Gap kids, Gap baby, Gap dogs, I don’t know, but it’s the same logo. Well they decided, “Well now we’re gonna switch it up. We wanted to differentiate it.” That lasted for six months, and then they are like, “Oh we realized the identity that people know is that square gap.”

Carolyn Massiah:             When I was in the military there were two financial organizations that served us. You have young individuals, particularly on the enlisted side, and twice a month they give you what we thought was this huge amount of money, and we’re like, “Wow! What do we do with it?” Well, they made it mandatory for us to go see one of the two organizations. One of them was USAA, which is still obviously a very powerful, very large financial institution. The other one at the time was named USPA. Here’s what they figured out. USAA was the older of the two companies, but USPA figured out what? We were confused. We thought it was the same company. So, USPA actually went through a total rebrand in the mid ’90s, and they’re now First Command because they figured out that the military people were having, we were having difficulty differentiating between USAA and USPA. In particularly, when you have the same target market of one group and you’re marketing the same services, they needed to really grab that corporate identity, and so they became First Command.

Carolyn Massiah:             When Pandora chose their new logo, the one P, the single P, PayPal had a little problem. One of the biggest complaints people got was if you have both these apps on your phone… I see some heads are shaking, I have friends. When both of those apps are on your phone, you get kind of confused. Actually, PayPal sued Pandora over that, and that’s why your Pandora logo now looks like sort of a rainbow logo to differentiate that.

Carolyn Massiah:             Last but not least, when you have a company, Procter & Gamble sort of the golden calf, if you will, of marketing and consumer packaged goods in this country, when you have a company like Procter & Gamble, such a long history, 1863. When you have a company like them that overtime they’ve acquired so many different brands, they had a big choice to make as far as branding goes. Do they put P&G on everything or do they maintain those individual brands? Both of them were the pros and cons. Obviously they chose to, on the very, very, very back of every products there’s a small P&G. Most American consumers don’t realize that, so they think, “Well I’m buying Gain because Tide tries to rip you off” and P&G is like, “It’s okay, you have choices.” They’re both P&G.

Carolyn Massiah:             In that particular case they’ve kept the individual brands. Of course those of us those who are marketing practitioners know that they are the world’s largest single spinder on advertising because of that, because they have those multiple brands that they have to support because of that.

Carolyn Massiah:             I want to wrap up with a toolbox-kind of thing to take with you. When you’re going through rebrand or even thinking about going through rebranding, first of all hopefully you’ve gone through that list of why and your why shows up on that list because you never want to undergo a rebranding effort without having a really good reason why that’s happening. You don’t ever want to go on a very long trip unless you know why you’re doing it.

Carolyn Massiah:             How do we do it? I’m going to go with my favorite be nicer during your customers during the rebrand. Be nicer to your customers. What do I mean?

Carolyn Massiah:             First of all N. Notify your customers as soon as possible that there might be a change coming. I had a good friend of mine, we did our MBA program together, and he went on to work for an advertising firm. He was not on this particular account, yay, with Tropicana. Tropicana decided they wanted something fresh and new for their containers. They spent right at about $35 million on this redesign and here is what happened. Remember when you go grocery shopping we are cognitive misers and we’re on the shopping track and we’re like, “Grab this, grab this”, get to the refrigerator aisle, “Where is the Tropicana? I don’t see the Tropicana. I don’t see my orange with the straw. Where is it?” I always tell my students that for me, going to the grocery store, I can spend an hour or so even more in the grocery store. You know why? It’s just so much fun watching consumers, and this was when I almost wanted to take and have a long island iced tea and a little seti chair and just sit at the refrigerator and watch people go through this because you see that process. Then they ask the grocery store person, “Oh you don’t have Tropicana in?” “Oh yeah, no, there’s Tropicana.” “No, that’s not the Tropicana I buy.” “Oh, no, it’s the same, it’s the packaging.” “No, it’s not.”

Carolyn Massiah:             Over two months, they lost 20% of their sales just because they changed the package and they didn’t tell them. They didn’t tell customers the change was coming. They had to pull all those packages, so not only beyond the money they spent on the redesign, the sales they lost, they then had to pull all the rest of the packaging.

Carolyn Massiah:             When the new container came out, the clear one, all of you remember seeing the Tropicana commercials where they’re like, “A new, clear container! Look, the oranges are going in! Look, it’s Tropicana!” As soon as we think there might be a change, let our consumers know.

Carolyn Massiah:             Introduce that new brand with a clear explanation why. You don’t like change. We don’t like change. I’ll tell you how much people don’t like change. I was telling this story to someone the other day, and I could write books on my students, but one time I had a quiz due on a Friday. I always have quizzes due at 11:55 PM on Friday. Not midnight, learned my lesson, people don’t know what midnight is, so 11:55 PM. I realized there was a home game on that Saturday, also we were in the middle of a religious holiday Sunday, on that day was going to be the start of a religious holiday, so I was like, “Well, okay, well go Knights. Let me extend that date out to Tuesday.” I sent out an e-mail and you think the expression or the comment you would get would be, “Oh wow, great, thanks”, and one student e-mailed me and said, “But I planned on it being due on Friday. You really messed up my schedule.” I e-mailed back, I said, “Well it’s open, you know, you can go ahead and do it. Just pretend that it’s due still today.” And he wrote back and he said, “I can’t, I now know the truth.” I can’t make that up. I’m going to write a book, I’m going to write a book.

Carolyn Massiah:             Introduce the brand, the new brand, the new logo, the new symbol, the new color, whatever it is as soon as possible. I had the very good fortune to work with OUC when they were going through their rebranding efforts several years ago as they were focusing more on being an environmentally conscious company, and I was working on doing some focus groups for them. Never during that time did we enter the focus groups even thinking about the actual logo. It was more about the tag line underneath. Thank goodness we did that though because when we introduced the concept of environmentally friendly company to the customers, seven out of the ten focus groups someone noted, if you remember, the old logo had a water drop, and it bothered people, and they said, “Well how can you say you’re environmentally friendly? You have a leaky water faucet.” We would never have thought of that. We would never have thought of that unless we had introduced that before, which is why now the OUC logo does not have the water drop. So, introduce that logo as soon as possible.

Carolyn Massiah:             C. Co-brand if at all possible. Many of us have had BrightHouse as a service provider. Of course our wonderful football team plays in the BrightHouse stadium, played in the BrightHouse stadium. They went through a transition and over a time period they told us, “We’re becoming Spectrum. We’re becoming Spectrum. We are becoming Spectrum.” Once again, remember, we don’t want sudden change because it will be a problem. Customers equate that consistency with reliability.

Carolyn Massiah:             Get the customer engaged with the new brand, and fortunately we have wonderful social media to help us with that. I’ll tell you a story. Old Spice is a Procter & Gamble brand. Old Spice is one of their older brands, and it got to the point where most people said, “Oh, Old Spice, that’s like my grandfather’s cologne.” That’s [inaudible 00:35:33] Old Spice. Their sales were plummeting, they were on their way to try to decide whether they put that brand in sleep status, but then they did some focus groups, and they figured out that 60% of men’s personal care items are bought by women. Makes sense, right?

Carolyn Massiah:             They decided then to reposition and rebrand and target that audience.

Old Spice Ad:                     Hello ladies. Look at your man. Now back to me. Now back at your man. Now back to me. Sadly, he isn’t me, but if he stopped using lady’s scented body wash and switched to Old Spice, he could smell like he’s me. Look down. Back up. Where are you? You’re on a boat with the man your man could smell like. What’s in your hand? Back at me. I have it. It’s an oyster with two tickets to that thing you love. Look again. The tickets are now a diamond. Anything is possible when your man smells like Old Spice and not a lady. I’m on a horse.

Carolyn Massiah:             They started that campaign and saw a 300% increase in their web traffic and their sales doubled from the previous year. Now, they have a whole social media campaign around that. They now started a new one, which is great. I can relate as a mother of two older sons. They have one of mother’s whose sons are going off to college and everything and how you deal with that. They just started engaging the customer with the brand. But that’s a rebrand.

Carolyn Massiah:             Last but not least in being nicer to our customers, we want to reassure them. We want to reassure our customers that in the changing of a brand, the changing of a logo, the changing of a tag line, the changing of a company name, we are still delivering the same, if not more, value to the customer.

Carolyn Massiah:             UPS, company that’s been around a long time, and then throughout the ’70, ’80s and ’90s they had the UPS with the package on top because they’re like, “We’re a delivery company.” But then they said, “Well, no. We want to focus less on delivery and wider on logistics overall.” So, they started that new campaign what can brown do for you. In that they told consumer both B to B and B to C. They told consumers, “What can we do for you besides just put our hands on your package and get it from point A to B?” They made certain to reassure customers, “Don’t worry, we’re still doing that, but we want to do more for you while we are doing that.”

Carolyn Massiah:             Sort of a tool/chest kind of thing to take with you while you’re working through a rebrand or even thinking about going through a rebrand, be nicer to your customers. Notify them that it’s coming as soon as possible. Introduce the new brand. Co-brand with that existing brand if at all possible. Engage the customers in some way, and fortunately, as I say, with social media we have that capability to do that unlike any other time in marketing history. Reassure them you’re still the same company and you’re giving more value, not less.

Carolyn Massiah:             I’ll finish with my own rebranding story, and actually dean Jarley kind of prepped that when he talked about how many students I’ve had, and they really kind of take Dr. Massiah to a whole new level, so it’s like me, I even look at the person going, “Wow! Dr. Massiah.”

Carolyn Massiah:             Two years ago, almost two years ago I got remarried, and before that we were engaged. My husband is from Brazil, very strong, Latin man. We were having a conversation one day and I said, “Well you know, I don’t, I don’t… Carlos I’m really sorry but I don’t think I’m gonna be able to change my name. I mean, I’m Dr. Massiah.” He says, “Well, no. I want you to be Parera, I want you to be Parera.” I said, “Oh, okay, well let’s just table that conversation. We’ll come back to it.” “I’ll sell you on it. I can sell ice to Eskimos. I’ll sell you it.”

Carolyn Massiah:             We go out to breakfast one morning. The manager of the restaurant who had me in class several years ago. He came over to me and he says, “Oh hi Dr. Massiah, it’s so great to see you.” I said, “Oh, let me introduce you to my fiance.” He never even turned to him. You would think I just told this man Santa died. He said, “You’re not gonna be Dr. Massiah anymore? What are you gonna be? I mean, you have to be… You’re Dr. Massiah. You’re gonna change your name? How are you gonna [inaudible 00:40:16]?” I was like, “No, it’s okay, it’s okay. I’m still gonna be Dr. Massiah. I’m gonna keep Dr.” He said, “Oh, okay, okay. Oh my goodness, because you’re Dr. Massiah.” And then I said, “Okay, so once again, here is my fiance.” He walks away, my husband turns to me and says, “I understand.”

Carolyn Massiah:             So, in order to follow my own, I’m slowly co-branding.

Speaker 5:                           In a happy home.

Carolyn Massiah:             Exactly, exactly, slowly co-branding. Thank you for letting me share a little bit of my wisdom and knowledge with you this morning.

Paul Jarley:                         I still don’t want to be the dean of stationary, but Carolyn provides a convincing case that names and symbols matter. Would UCF have achieved regional dominance if it had remained FTU? It’s hard to say. Rebranding is clearly a risky business. The downside seems to outweigh the upside in a lot of cases, and if you have to explain the rebranding to people, well, you’re probably losing. This is why I don’t think it’s an accident that many of the most radical rebranding efforts had been motivated by a desire to escape a negative association in the minds of customers. You want them to forget that bad experience and have little to lose in becoming something different. It’s the one time you want the marketing to be out in front of the reality. What do you think?

Paul Jarley:                         Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show.

Paul Jarley:                         Special thanks to my producer, Josh Miranda, and the whole team at the Office of Outreach and Engagement here at the UCF College of Business and thank you for listening. Until next time, charge on.

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