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Business Genius Can Be Borrowed

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When Elon Musk was looking to overturn the business models of the auto industry, one of his crucial inspirations was not a car but a computer. Musk has described the all-electric Tesla Model S sedan as his Macintosh.

As different as they might appear, both products faced the same basic challenge, says Professor Luis Martins, director of the Herb Kelleher Center for Entrepreneurship, Growth, and Renewal at McCombs. “At its core, Tesla was dealing with the question, ‘How do you go up against the dominant technology?’ Apple was going up against Intel and Windows machines.”

Like Apple, he says, Tesla’s answer was to compete not on price or functions, but on aesthetics. It created a cult following through obsessive attention to upscale design, from aerodynamic lines to pop-out door handles. It added cachet by building its own network of showrooms — designed by none other than the man who had masterminded the Apple Store.

Call it a case of creative copying. In new research, Martins and former McCombs colleagues Violina Rindova and Bruce Greenbaum find that some of the boldest business models of recent years have been borrowed from other industries.

What’s more, they say, such extreme innovation doesn’t require the genius of an Elon Musk. Instead of the traditional understanding of new business models — as reactions to economic forces — they use concepts from cognitive psychology, which analyzes the structures of everyday thinking. With that framework, they lay out a visioning process anybody can follow to create new business models.

“We wanted to provide reliable examples of processes that are based on a solid psychological foundation,” says Rindova, now chair in strategic entrepreneurship at the University of Southern California Marshall School of Business. “There’s no way to take creativity out of the business innovation process, but we wanted to provide a bit of scaffolding.”

Method 1: Cloning

According to cognitive psychology, what we call creativity is actually the process of reorganizing old models into new ones. Says Martins, “To come up with a whole system of meaning from scratch is quite difficult for the human mind.” Borrowing concepts and applying them in new ways, however, isn’t.

He and his colleagues focus on two common methods for doing just that. One is called analogical reasoning — as in making analogies or comparisons — and it maps the structure of a whole system from one realm to another, as from Apple to Tesla.

As another example, take Aravind Eye Care, a chain of 11 nonprofit hospitals in India. When founder Dr. Govindappa Venkataswamy wanted to cut the cost of cataract surgery for low-income patients, he took his template from a pioneer of fast food: McDonald’s. He went so far as to attend the company’s Hamburger University in Oak Brook, Illinois.

“What he borrowed were processes for standardization, cost reduction, and ensuring quality,” Martins says. “But he made sure to tailor them to eye care.”

Like a McDonald’s kitchen, Aravind’s operating rooms are set up for efficiency. Each has two tables. While one patient goes under the knife, nurses are prepping the next one on the other table. When the first operation is done, the doctor turns around, sterilizes hands, and starts the second procedure.

The trick in analogical reasoning is to pinpoint your chief problem, then look for a business that’s already solved it, says Martins. That’s also the chief stumbling block. “You have to be careful what problem you’re trying to solve,” he says. “If you get that wrong, you pick the wrong analogy.”

As an analogy gone bad, he points to Better Place, an Israeli electric car company that tried to emulate cellular carriers. Just like cell phone customers add new minutes, they designed a model where car customers would load new miles as their electric batteries depleted their charge. The plan was to swap out batteries every 100 miles at charging stations, which were dispersed like a network of cell towers.

After six years, though, the company folded. It turned out that stations were twice as expensive to build as cell towers and that long-distance drivers found it inconvenient to seek them out. “The key flaw in the analogy was that miles don’t just come to you, like minutes on a phone,” Martins says. “Acquiring miles involves the effort of driving to a station and getting your battery changed.”

Method 2: Combining

When Howard Schultz reinvented a once-small Seattle coffee chain in the late ’80s, he didn’t import an entire model from another industry. Instead, he plugged in elements from several different sources — a process the researchers call conceptual combination.

One source was the neighborhood bar, where people socialized over mixed drinks. Schultz’s Starbucks mimicked that and dubbed its counters “coffee bars,” and the bartender became the barista, a job title borrowed from Italian cafes. Says Rindova, “They originally trained baristas to remember the names of all their regulars, to remember their drinks and how to customize their drinks.”

For ambiance, however, Schultz borrowed not from bars but from art galleries, hanging java-themed paintings and photos. He added in ideas from specialty retailers, too, by selling beans with brewing tools and accessories.

That sort of mixing and matching is the essence of conceptual combination, Rindova says. “Analogical reasoning reflects a whole structure. Conceptual combination allows you to modify specific bits and pieces.”

A Checklist for Creativity

Can any CEO develop innovative business models in the same vein as a Steve Jobs or a Herb Kelleher? The answer is yes, the researchers say. They suggest a four-step process for applying both analogical reasoning and conceptual combination:

  • Choose a business concept you’d like to copy.
  • Compare it to your company; see what’s similar and what’s different.
  • Select which elements to borrow.
  • Modify them to fit your business context.

The process is not just theoretical. Both Rindova and Martins use it in their teaching. In one of Martins’s classes, students borrowed an analogy from the dating app Tinder and applied it to the problem of finding tennis partners.

To him, that’s the beauty of both types of reasoning: Anyone can use them. “You don’t have to wait for ideas to strike out of the blue,” Martins says. “You could use this process to come up with hundreds of ideas. It’s a structured process for thinking outside the box.”

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About the Author

This article was written by Steve Brooks of Texas Enterprise an organisation created to share the business and public policy knowledge created at The University of Texas at Austin with Texas and with the world. see more.

Entrepreneurship

Will Financial Liberalisation Trigger a Crisis in China?

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The People’s Republic of China (PRC) has been liberalizing its financial system for nearly 4 decades. While it now has a comprehensive financial system with a large number of financial institutions and large financial assets, its financial policies are still highly repressive. These repressive financial policies are now a major hindrance to the PRC’s economic growth.

The PRC is at the beginning of a new wave of financial liberalization that is necessary for supporting the country’s strong economic growth. The country’s leaders have already unveiled a comprehensive program of financial reform, which includes 11 specific reform measures in three broad areas: creating a level-playing field (such as allowing private banks and developing inclusive finance), freeing the market mechanism (such as reforming interest rate and exchange rate regimes and achieving capital account convertibility), and improving regulation.

But could financial liberalization lead to a major financial crisis in the PRC? What would be the consequences for financial stability as the PRC moves to further liberalize its financial system? If the PRC repeats the painful experiences of Mexico, Indonesia, and Thailand, then it might not be able to achieve its original goal of overcoming the middle-income trap.

International experiences of financial liberalization, especially those of middle-income economies, should offer important lessons for the PRC. In our new research, based on cross-country data analysis, we find that financial liberalization, in general, reduces, not increases, financial instability. This powerful conclusion is valid whether financial instability is measured by crisis occurrence or by fragility indicators, such as impaired loans and net charge-offs. The only exception is that financial liberalization does not appear to significantly lower the probability of systemic banking crises, although it does lower the risk indicators for banks. These results have higher statistical significance and are greater in magnitude for the middle-income group than for the entire sample.

The insignificant impact on banking crises, however, should be interpreted with caution. One of the possible explanations is that under the repressed financial regime, the government supports banks with an implicit or explicit blanket guarantee. This reduces the probability of an explicit banking crisis, although the banking risks may be even greater because of the moral hazard problem. In fact, government protection of banks could also increase the probability of a sovereign debt crisis or even a currency crisis before financial liberalization.

If financial liberalization significantly reduces the likelihood of financial crises, especially in middle-income economies, then why did some middle-income economies experience financial crises following liberalization? We further investigate whether the pace of liberalization, the supervisory structure, and the institutional environment matter for outcomes of financial liberalization.

We obtain three main findings. First, an excessively rapid pace of financial liberalization may increase financial risks. The net impact on financial instability depends on the relative importance of the “liberalization effect” and the “pace effect.” In essence, what the “pace effect” captures could simply be the prerequisite conditions and reform sequencing that are well discussed in the literature. Second, the quality of institutions, such as investor protection and law and order, also matter. International experiences indicate that investor protection can significantly reduce the probability of financial crises. Third, the central bank’s participation in financial regulation is helpful for reducing financial risks during financial liberalization. This is probably because central banks always play central roles in financial liberalization, especially in the liberalization of interest rates, exchange rates, and the capital account. If a central bank is responsible for financial regulation, its liberalization policies might be more cautious and prudent.

Our research findings offer important policy implications for the PRC. (1) Further financial liberalization is necessary not only for sustaining strong economic growth but also for containing or reducing financial risks. (2) Gradual reform may still work better than the “big bang” approach, and sequencing is very important for avoiding the painful financial volatilities that many other middle-income countries have seen. (3) The government should also focus more on improving the quality of other institutions, especially market discipline, to contain financial risks. (4) It is better for the central bank to participate in financial regulation. The new regulatory system should focus exclusively on financial stability and shift from regulating institutions toward regulating functions. It should also become relatively independent to increase accountability.

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About the Author 

This submitted article was written by  and  of Asia Pathways, the blog of The Asian Development Bank Institute was established in 1997 in Tokyo, Japan, to help build capacity, skills, and knowledge related to poverty reduction and other areas that support long-term growth and competitiveness in developing economies in the Asia-Pacific region.

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Entrepreneurship

Women on Top in Tech – Chrissa McFarlane, Founder and CEO of Patientory

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(Women on Top in Tech is a series about Women Founders, CEOs, and Leaders in technology. It aims to amplify and bring to the fore diversity in leadership in technology.)

Chrissa McFarlane is the Founder and CEO of Patientory, a patient-centered enterprise solution on the blockchain to store, secure and access healthcare information in real-time. She is a leader and an entrepreneur with a passion for creating cutting-edge healthcare products that transform the face of healthcare delivery in the United States of America and abroad.

What makes you do what you do?
I am passionate about helping people, especially when it comes to their healthcare. This is my daily motivation for pushing forward in one of the most challenging industries to innovate.

How did you rise in the industry you are in?
Through my networks and maintaining a strong advisory board, I am able to make an impact.

Why did you take on this role/start this startup especially since this is perhaps a stretch or challenge for you (or viewed as one since you are not the usual leadership demographics)?
I took on the role and decided to start this startup primary to follow my passion and be an inspiration for other women who are seeking to start their own business.

Do you have a mentor that you look up to in your industries or did you look for one or how did that work?
I have multiple mentors. I met them through my networks.

How did you make a match if you did, and how did you end up being mentored by him/her?
Through introductions and after speaking with them I saw a character alignment that prompted me to ask them to by my mentor.

Now as a leader how do you spot, develop, keep, grow and support your talent?
Through one on one meetings, and team building.

Do you consciously or unconsciously support diversity and why?
I consciously support diversity because a diversity of thought breeds success in the workplace. It is important to have different lenses of thought to be represented. Our company is a representation of the people we serve.

What is your take on what it takes to be a great leader in your industry and as a general rule of thumb?
A great leader in healthcare is equipped to serve the people. Unlike many other industries, healthcare is centered around sustaining the health of the human being. You certainly need to encompass a passion for seeing individuals live and lead healthy lifestyles.

Advice for others?
In building emerging technology, education is always key to success.

Our first Inaugural Blockchain Healthcare Summit will take place on May 31st in Atlanta, GA where we will discuss the current state of blockchain projects and opportunities for the future.


If you’d like to get in touch with Chrissa McFarlane, please feel free to reach out to her on LinkedIn: https://www.linkedin.com/in/chrissamcfarlane/

To learn more about Patientory, please click here.

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