Stanford GSB, Sloan, Entry 4: So, What did We Learn?

So what exactly have we been doing the past two weeks? As I mentioned in my previous post, we had three classes during this pre-term period – Managerial Accounting (aka Basic Math), Microeconomics (aka Graphs), and Strategic Management (aka Lots of Talk).

For each class, let me attempt to give you an overview of:
1) What it’s like to attend this class
2) What we’ve learned over the past weeks (not in detail, of course, you’ll have to pay mucho bucks to attend Stanford for that).
3) What (if anything) makes this class interesting, and what (if anything) really bothers me about this class. On this last point, I don’t mean “bothers me” in an everyday sort of way, but rather something about the overall subject which seems to give me a “nagging feeling” that while we’re learning what they’re teaching us, there are some things that are unsaid that are actually pretty important.

I'll start with our Strategy class and see how far I can get in this post:
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Strategic Management Class

This is one of the more popular courses we've taken so far, because of the free-wheeling nature of the discussion.

Professor Leslie walked into the very first class looking generally pretty relaxed. His Australian accent added to the casual nature of the classroom. He proceeded to tell us a little bit about his plan for the class: while the textbook (by Saloner, Shepard, and Podolny) would give us general principles, frameworks, and tools, the real medium for understanding strategy would be the cases themselves, of which we would read one each day.

During each class, Professor Leslie asks questions related to the case, and we contribute answers, dissecting the company that was described in the case and distilling out the features that made that company successful.

In our very first class, we were to have read a case about Equity Bank, a micro-finance bank in Kenya. These days, social entrepreneurship and micro-finance are part of the rage in business school. Ever since Mohammad Younas won the Nobel Prize for his work with Grameen Bank, this area has really attracted a lot of people.

According to Professor Leslie, many of the MBA students want to go into social entrepreneurship nowadays. Their reasoning is: if “I can make a lot of money and do good at the same time, I'm there."

While I think that social entrepreneurship is a pretty promising area, I’m worried that it’s becoming kind of a fad – with people jumping into it because it’s the “hot thing to do” – not because they are really committed to social development in the long term. This reminds me of how graduates rushed to investment banking in the 80’s, management consulting in the early 1990’s (when I graduated from my undergrad in 1992, working for McKinsey or such spinoffs was the hot thing to do), rushed to dot coms in the late 1990’s, and then back to banking and consulting in the early 2000s. Today it’s private equity and social entrepreneurship. What will it be in a few years?

It almost feels like the class is teaching itself because he is able to elicit the key points of the case. But of course, it’s not that simple at all, since Professor Leslie has a definite direction in his questions and points about each case that he wants to make.

Adding to the informality of the class is his general disarming ability to use everyday language (i.e. he talks like a real person, albeit with an Australian twist). On that first day, he declared, much to our surprise that “…we don’t really give a shit about Equity Bank, even though we were going to talk about it all day.” It was the characteristics of their strategy and the principles for their success that we were really interested in.

This would be true of all of our cases. So I’m going to give a quick summary of the cases that we studied and why (at least as far as I can tell why we studied them). Since all the cases are about real companies, you can look them up and find out about the strategy yourself if you want to follow along.


Case #1: Equity Bank of Kenya.
Why we discussed it: To see an example of optimizing an organization for serving the needs of a target market through culture.
What about it is important: One of the key ingredients to their success in Kenya was that they understood their local culture, and they tailored the organizational structure, bank policies for lending and opening accounts, and culture to serving their target market: who were the unbanked. For example, you could open a bank account without any collateral, just an ID card which is one of the few ID”s that Kenyans had. They had very little deposit requirements, and were very flexible on collateral when it came to loans. All of this allowed them to get huge growth rates vis a vis competitors like Barclay’s for a while. But now other competiors were starting to focus on this previously unbanked target market.
Why I think we really discussed it: micro-finance is hot – it wouldn’t do to not have one case about it.

Case #2: Capital One.
Why we discussed it: To show another example of how culture influences a successful strategy.
What's important about it: Capital One used heavy-duty analysis of data to find features of credit cards that were attractive to end users. One thing they did that was innovative was to combine the marketing and the credit risk departments together to optimize offers made to individuals based upon their credit history and any other information they could gather. Before Capital One, most credit cards were at the same fixed rate, without any variations. The ability to analyze data and make decisions based on what a particular prospect or customers needed was innovative in the banking sector in general. When Capital One introduced its balance transfer and low introductory nterest rate, its sales went through the roof, making it a major player in the US consumer credit market virtually overnight.
Why I think we really discussed it: The CEO is a Stanford GSB Alum, and this is a good example of a company that uses very analytical decision making.

Professor Leslie told us in this class that Business Schools in general, and Stanford in particular, likes to think that success can be taught using analytical frameworks and that it relies not just on “gut feelings and “instincts”, which is one of the reasons they really like to use the Capital One example. I’ve touched on this topic on the blog before and will again as it is very near and dear to me. In fact, I think that gut feelings and instincts probably played a very significant role in both the Equity Bank and Capital One cases. In Capital One, the CEO was out trying to get many banks to sign onto his ideas while they all told him he was crazy (according to the case, one banker threatened to throw him out of the window). After he finally got Signet Bank to fund his enterprise, it took a lot of “churning” of ideas ideas and markets and analysis before they came up with the one that worked. In fact, they were very close to having the plug pulled on their group because it hadn’t shown any results for a few years when the killer tactic happened.

This is an underlying issue that’s been nagging at me as I’ve arrived at Stanford Business School – can success really be taught? Especially in the case of corporate strategic decisions? Most entrepreneurs operate almost entirely on intuition. Most MBA’s try to operate on analysis. Is there a middle road between these? We’ll talk about this more in the year to come, I’m sure.

The next two cases introduced us to the concept of explorers (“innovators”) and exploiters (who do something so well that they are more efficient at it than others).

Case #3: Wal-mart
Why we discussed it: Wal-mart is the biggest and most successful retailer in the US (and perhaps the World).
What's important about it: In this case, we were introduced to the idea of organizations that optimized operations as a competitive advantage, and to the idea of an evolving strategy. When Wal-mart first started, they targeted in towns where many of their competitors didn’t have stores. This idea of targeting an underserved market is one pattern that has come out in many of our cases. Then as they grew, they virtually created the concept of “economies of density” – by having stores close enough to each other they could supply them once and for all. Finally, as they grew and started to appear in areas with competition, they started to get buying power from their suppliers, and this added to them being able to negotiate the lowest prices, as did their heavy investment in technology. Their distribution centers, delivery trucks, and inventory were far more optimized than their competitors. One issue that came up was about internationalization – they weren’t very good abroad. Since we had students in our class from Japan, Russia, UK, Korea, India, South America, and other countries, we were able to get perspective on the Wal-mart strategy in these other areas and why it didn’t seem to work as well.
What we really got out of it: Wal-mart, while doing some innovative things, is primarily focused on operating better. Many of their ideas were just copied from somewhere else (Sam’s club, for example, was a copy of earlier large membership type clubs) or out of necessity more than foresight. Even their innovative distribution strategy came about because no one was willing to spend time supplying them. This is a good question to ask in any organization: are you an innovator or an execution oriented organization (explorer or exploiter?)

Case #4: 3M
Why we studied it: 3M is a great example of a company that encouraged innovation.
What's important about it: The culture of this company for innovation, at least from the case, was very interesting. They started back in the early 1900’s and have had a large number of products invented in their labs. They even tell stories of people (engineers) who were told by management to shut down a project because it didn’t show promise, but who continued to work on it anyways. Well before Google, they introduced the idea of bootleg time – spending 15% of your time on a project outside your immediate scope of responsibilities. They even had a requirement that 25% of their revenues come from new products (products which had been introduced in the last five years). If you think of the size of 3M ($14 Billion at the time of the case”), this requires, in the words of Professor Leslie, a “staggering amount of innovation”.

As we talked about culture, we were introduced to the ARC framework describe din the text – A=architecture, R=routines, and C=culture. This is a framework for talking about how an organization is structured formally vs. informally. Professsor Leslie spoke to us about how architecture of an organization can be changed very quickly – with an email you can change who reports to who. But cultures are much more difficult to change because they are much softer and often implicit. 3M in particular had a culture of innovation that rewarded those people (usually engineers) who came up with bright new ideas that led to products. Of course this culture of innovation sometimes led them astray to be doing too many things and not doing some things really well.

That concluded our looking at the internal context of individual firms. In the second week, we started looking at industries rather than just at individual firms. This led to doing industry analysis using Michael Porter’s now famous five forces – Buyers, Suppliers, Substitutes, Barriers to Entry, and Rivalry. There’s a lot about these in the internet.

Most of business schools and teachers consists of slightly nerdy people, said the Professor, but Michael Porter has become somewhat of a “rockstar” among those who follow business school type guys. In this week we studied:

Shimano. We studied Shimano and the industry for high end road bikes. Shimano provide some of the key components used by Lance Armstrong in his bikes when he won all of those Tour De France victories. Shimano is also a great example of how one firm (a supplier in this case) can capture much of the value of an industry’s value-chain (what does value-chain mean? I’m not entirely sure but it has something to do with suppliers and buyers). Shimano, like “Intel inside” in the PC industry has developed a brand for their integrated set of components that fit into a Bike, and Bike Manufacturers basically all use the Shimano components (with some slight competitors). I knew nothing about the bike industry so this was an eye opening experience that one firm had caputred so much of the value from the High End Biking industry.

Rockwell. This was by far the most boring case – and I think that is the only statement that none of my classmates will argue. It was about the market for water meters in the 70’s and 80’s. This company had an innovation that they used to their advantage for slightly better and more durable water meters which were sold to munipicalities throughout the US. Despite many of us starting to yawn, Professor Leslie called this an almost “perfect” industry to make money – low supplier power (raw materials were the inputs), high switching costs, and a very cozy relationship between buyers (municipalities, of which there are many tens of thousands) and vendors. There was pretty significant barriers to entry as well. Turns out this was a very profitable industry, just not a very exciting one.

One interesting thing we discovered during this case was professor Leslie’s ability to estimate, based on the economies of scale, the number of likely serious competitors in a market. If you took the total market size, divided it by the costs and units produced by a Bronze foundry (which was an important barrier to entry for new firms) you likely came up with an oligopolistic structure.

Dell. We had a case about Dell computer and the rest of the PC industry from the late 80’s to the late 90’s, and some of the challenges faced by Dell and others in this industry, including players like Compaq, IBM, HP, and Sony. During this time period, Dell had lower prices than most and was perceived as better quality than most as well. This brought up the idea that all the many millions spent on branding could be part of the barriers to entry for other firms to get into the marketplace. We also look at how to estimate the margins and costs for individual parts of the manufacturing process.

Airborne Express. This case looked at the third largest overnight shipping company in the US, behind Federal Express and UPS. Airborne became successful by keeping their costs lower than either of the other two, and focusing in on a market that they felt was underserved: businesses of a certain size. By ignoring the consumer market entirely, and developing long term relationships they were able to focus in and be successful in this market. Airborne was also an example of a company with lower fixed costs but higher variable costs than its competitors- meaning they used people to do a lot of the sorting that Fedex used computer software to do. This meant airborne didn’t have to invest, like Fedex did, hundreds of millions of dollars in software.

Finally, on the last day of our first two weeks, we talked about internet companies – eBay, Google, Yahoo/Overture (which is what the written case was about) and Facebook, The concept that was introduced was the idea of DSIR (demand side increasing returns), better known as the network effect being a barrier to entry to others. The perfect example of this was eBay. Once it had a critical mass of buyers, the sellers wanted to go there. Once there was a critical mass of sellers, the buyers wanted to go there. Once buyers and sellers both spent a lot of time on eBay and built up reputations in each area, neither wanted to move.

The network effect requires there being a coordinated effort of people to really move off of one company’s platform and onto another. The case for the day was actually about Overture, an precursor to Google’s AdWords, which sold advertising based on keywords on searches. It was very successful in the early days, because it partnered with Yahoo and others to get the traffic. According to Professor Leslie the company’s expertise quickly became “how to receive checks and deposit them in the bank” because the money was flowing in so quickly. Of course Google extended the idea and perfected it, leaving Overture (and Yahoo, which acquired it) in the dust.

And this took us on a discussion of Facebook and the changing landscape of Social Networking and whether it has effective DSIR or not. I’ll have a lot to say about this landscape since I have some experience in social networking companies, but this post has already become very long. I guess we’ll have to leave what we learned in other classes for another day!

So I’ve said a lot about what we’ve learned. I like this class a lot – particularly the case and free discussion format. I’ll even venture that this has been my favorite class, thus far at the Stanford Business School.

However, the thing that’s been nagging at me is that we (and Business Schools in general) seem to be brilliant at analyzing a firms strategy and figuring out what their competitive advantage is – in hindsight. The question is by ignoring intuition and gut feelings, and doing the MBA-type analysis, are they really blinding themselves from being able to effectively study how firms create competitive advantage and future using foresight?

It’s a loaded question so I’ll leave it out there for now.

And once again this post has gone long, so i'll have to talk about the other classes in other posts...

San Francisco Employers - Mandatory Transportation Benefit Coming

The San Francisco Supervisors passed a new ordinance requiring certain employers to provide certain commuter benefits. The ordinance is here. Here are the highlights:

Covered employers: employ 20 employees or more (anywhere, not just in SF).

Eligible employees: non-exempt employees who perform 10 or more hours of work in SF per week.

Benefit: The employer can either (1) enroll in a "commuter check" program where pre-tax funds are taken out of employees' paychecks so they can purchase transportation with pre-tax dollars or (2) buy employees transit passes worth up to $45.00 per month or (3) operate a "van pool" to take employees to and from work.

Effective Date: On about December 8, 2008.

"Never mind."

The California Supreme Court dismissed review of Harvey v. Sybase, discussed here.

Stanford Business School, Sloan Program, Entry 3: The First Week of Class

We just ended our first week of classes at the Stanford Graduate School of Business (GSB) in the Sloan Master’s program. The Sloan program, as I mentioned in my first post about arriving here, is a one year, full-time Master’s program that is kind of an “accelerated” MBA for people who have significantly more experience in the real work world.

Although it’s only been a week since classes started, it feels much longer – that’s because during this “pre-term” we have the same three classes each day, every day, for three weeks before the fall quarter “officially begins” at the end of September.

The three classes during this pre-term aren't graded. Professor Flanagan, our econ prof, told us on the first day of class that there are three distinct languages he could teach the class in – words, graphs, or mathematics.
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I would actually say that’s a pretty good way to describe the three classes that we’re taking during this pre-term:

• Managerial Accounting – mostly math (budgets, income statements, balance sheets – the math itself isn’t that difficult but knowing which number to plug in where can be tricky)
  




• Microeconomics – mostly graphs (demand curves & supply curves – they look pretty simple – two lines on a graph, but reveal much more than meets the eye)
  




• Strategic Management – mostly words (in-class discussion about real-world company case studies on what made them successful).
  

I’ll say a lot more about each of these classes below, including what we’ve learned (which is quite a bit, especially for only one week!), what our professors are like, and what I think of the material. But first, some general observations about the first week of class:
What’s it like to take classes at Stanford Business School?

It’s actually very unlike any of my undergraduate classes. For one thing, the classrooms aren’t big lecture halls, nor are they little breakout rooms. They’re more like a mixture of a trader’s pit in a stock exchange, and a movie theater that has stadium seating.

There are rows of tables and chairs, each one slightly higher than the last one, with the professor standing in the middle of the room. It’s also a lot more high tech than I remember undergrad classrooms being - instead of blackboards, there are white-boards, and there is a built-in projector and screens for showing slides and videos from a laptop.

Moreover, we have very nice plush green chairs, and the tables on each row have slots in the very front for our name-tags (Nice, no worrying about my butt getting sore after sitting in those old wooden chairs we had in undergrad for an hour and a half).

Taking classes is a little bit like a cross between high school (“Suzy, you sit here, next to Johnnie, that’s your assigned seat”) and the United Nations Security Council, with our nametags very prominently displaying who we are and what delegation (er, I mean company) we are representing. In fact, this last bit about the UN is doubly true in the Sloan Fellows program since almost half of our classmates are international, so we can get a pretty good perspective on an issue from around the world.

What is a Case Study Anyways and Why Are They So Important?

In Business School, much of the curriculum centers around Case Studies. WhenI first heard this term, I thought it sounded a little mysterious, since during undergrad, we only had “problem sets”, “exams”, and “group projects”, but never "cases". There are, as far as I can tell from the first week, two kinds of “case studies” in business school:

· A problem set disguised as a “case”. In much of our classes, including accounting, microeconomics, and our modeling with excel class, what biz schoolers (er, I mean, GSB’ers) like to call a “case” is really just a problem scenario followed by a set of questions about it.

Think of those old wacky groups of SAT questions that start with some kind of introduction: “Suppose Tom is in Denver and Fred is in Houston. Suppose also that Tom starts jogging east at 20 miles per hour, and Fred starts jogging west at 20 km per hour.” After the introduction there is a group of questions associated with the scenario: “When, if ever, will Tom and Fred collide with each other?” and “If so, which city will it be in?”.

OK…OK, maybe SAT questions weren’t quite that outlandish, but you get the idea. Now think of pretty much the same thing but with a company as the subject of the scenario and not dorky guys named Tom or Fred. Simply making the case about a company makes it seem like we’re studying “real business” and handling “cases”, not just really learning arithmetic, graphs and spreadsheets. One Example is our Davis Kitchen Supply Case that we got this week in our managerial accounting class, which started with a company that makes ovens. In fact, it makes 6,000 of them per month (with the recent housing slump, not sure exactly how they stay in business, but that’s beside the point). The costs associated with making these ovens (actually, they weren’t ovens at all, they were stoves; oops!) range from $50 for variable labor, $60 for fixed overhead, to $95 in marketing costs, including variable and fixed costs. That’s the “setup”.

Once the scenario is set up, we are supposed to answer a group of questions about them. Suppose some slimy mafia guy came to Davis Kitchen Supply and said that he could “take over” making their stoves for them, at a cost of only $215 per stove. Should Davis Kitchen let this guy (ok it wasn’t really a slimy mafia guy in the case, I made that part up) take over manufacturing of those stoves?

I think you get the idea. Basically you have to add up all the variable costs, and fixed costs, and figure out at which price it makes sense to outsource stove-making vs. doing it yourself. The econ “cases” involve a little less math and a little more graphing of supply and demand curves– for example there was one this week about US farming associations telling their members to dump (or simply destroy their wheat or rice or corn or fruit crop) in order to get the price of that item to stay high. We had to figure out whether this was a good idea or not, and under what circumstances it would make sense to do these.

The only real complications in these cases is 1) figuring out the right answer, and 2) making a presentation to the class (using powerpoint or excel) as a group (“study group”) about the answer that you found. We’ve had some pretty creative ones already.

· A full case study of a real-world company. The second group of cases are more like the “case studies” that I had been told about by my buddies who had already gotten their MBAs. Before I got here, I thought it odd that you could learn much by sitting in a room where the students all opined with each other about what they think a company should or shouldn’t do. But this has actually become the dominant form of teaching in the best Business Schools today.

These case studies are usually put together by Harvard Business School, or by Stanford GSB, range from 10 to 15 pages, and include the fully history of a company and some of the challenges facing the CEO of the company. In the first week alone, in our strategy class, we did cases related to Wal-mart, Capital One and a few others. It turns out that talking about the strategy of real life companies is actually quite fun. In fact, it hardly feels like we’re in school at all … so Case Studies like this give us a level of engagement that other subjects don’t.

What is a Study Group and How Late Do You Study?

So I finally figured out what a study group is – a pre-assigned list of “friends” that you have to work with during each term that cuts across all classes in that term.

In fact, I’m beginning to think that working in study groups is not just about the classes themselves, but about learning how to work with diverse groups of people that we had no choice in being involved with. This must be a common case in the business world; but as an entrepreneur, I have almost no experience at working so closely with people that I have no control over, so this has been an interesting experience.

Part of the reason for a study group is so that you can all help each other get through the term – by preparing for class together, sharing notes, and doing group assignments. However, thus far I have to say that the study groups seem to be as much of a source of stress as the classes themselves – almost no one I’ve talked to is really happy with the way that their study group has decided to do everything, though everyone (including me) likes some aspect of what their study group is doing.

One fundamental question each study group had to answer was how often it’s going to meet and when. For our group, which was larger than other groups, this little question, which should be easy to answer, has been the hardest one to answer.

A few of us in the group, like me, are not morning people. As an engineer and a writer, I tend to go to sleep well after midnight every night, so I would prefer evening meetings. In one of my software companies, I even had an explicit rule: “no meetings before 10 am”.

But, many of the members of our study group are morning people, so they would prefer to meet before our first class in the morning, which is at 9:15 am. So something like 8:15am. Ouch!

We decided on what seemed like a good compromise, our first meeting would be in the afternoon, after the first day of class, which was the Tuesday after Labor Day. After all, the pre-term wasn’t being graded, so we could afford to take it easy in the mornings, right?

Wrong! Before I knew it, while I was wandering around the San Jose Art Festival on Labor Day (Yes, this would mean I was enjoying myself and relaxing before we started our high pressure classes with no grades), my iphone started buzzing with emails from study group members about how they’re worried about all the reading over the weekend, and want to meet at 8:30 am to discuss it (Yes, this would mean we were doing study group meetings before classes had even started; I guess we were really worried about not being prepared for our classes with no grades).

The next day, because the group didn’t have enough time to argue every point in the reading from every angle, the time was moved even earlier, to 8:15 am. The next day, we had suddenly somehow decided that we were going to meet even earlier, at 7:45 am every single day! Double-Ouch!

I came to business school with memories of my undergrad days - staying up late, ordering pizza, discussing problems and working collaboratively with my classmates, with more than an occasional philosophical discussion thrown in each night.

I had heard that the Bill Clinton White House was kind of like that – with all night policy study session and lots of creativity and free flow of ideas. When George W. Bush came into office, this changed, since Bush rarely stayed up past 10 pm.

I suddenly felt like I had shown up for work thinking I was going to work for Bill Clinton, but when I met my boss on the very first day, it turned out to be George W. Bush instead! Triple-Ouch!

Let's just say I missed more than my fair share of early morning study group meetings in the first week; in the real world I wouldn’t show up at 7:45 am even if I was being paid good bucks to do so – and in this case I’m paying Stanford, not the other way around.

Well not to belabor this point, but I get the sense that our class is really taking this pre-term a little too seriously. I was speaking with one of the Sloans from last year and he said that we’ll have plenty of pressure in the fall – we should be enjoying the pre-term, perhaps enjoying the world famous Stanford Golf Course.

Actually, that is exactly what a few of our classmates did on the Saturday after our first full week. See, at least some of our classmates in Business School know how to relax: Sleep in, play a few holes, enjoy the California sunshine. Right?

Wrong. it turns out that their tee time was set for 6:30 am on Saturday (Yes this means that they had to get up even earlier on the weekend than on the weekdays!).Quadruple-Ouch!

Anyways, after a little bit of early heart-burn our study group has now settled into a rhythm. Now that some of our meetings are in the morning and some of our meetings are in the evening, I’m relatively happy with our study group. We’re also finding ways to be more efficient in our overly high reading burden.

What Have You Read for me Lately?

For someone with an engineering background (we’re called “Quants” in B-school, as opposed to the “Poets”), Business School isn’t really that difficult, though it can be hard. I mean hard in the sense that adding up 10,000 numbers isn’t conceptually very difficult. It just takes a lot of tedious work no matter what path you take – whether you type in 10,000 numbers into a spreadsheet, into a calculator, or calculate them by hand.

In the same way, we are required to read several chapters of our textbooks, do some problems, read and review cases, and be prepared for the next class, every single day. In querying the Sloan administration, I was told that the program is designed so that it’s really not possible to read every single thing we are supposed to read by the time we need to read it, while still having a life.

So, the reading can be a great source of stress, if you let it be. But that’s what the study groups are for. In our group, one guy had gotten an MBA before and told us that it might be helpful if we break up the reading, assigning different chapters to different folks, who would prepare summaries for the rest of the team of their assigned chapters.

I think the reason they designed it this way was that they wanted us to find ways to juggle the reading by prioritizing what is essential to study, and what can just be read casually. I actually think that this one of the keys to business school success.

What we learned.

OK enough of my general observations. Let’s get to what we actually learned this week. Wow, this post has already gotten long – and I haven’t even started on my reading for this weekend. I’ll have to tell you what we learned in the next post...stay tuned.

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.

Brinker - Petition for Review filed

The plaintiffs in Brinker v. Superior Court (discussed here) filed their Petition for Review in the California Supreme Court. Docket is here.

New EEOC Guidance on ADA and Performance Standards

The EEOC issued an FAQ-style document explaining employers' obligations under the ADA with respect to enforcing performance standards. This is a helpful document that should clear up some confusion regarding whether and when a disability requires employers to ignore performance and conduct standards applicable to all employees generally. Here is the EEOC's publication.

Sloan at Stanford, Entry 2: Models and Modeling

I’m going to have two types of blog entries during my year at Stanford’s GSB – the first type will tell you what it’s like to attend this top-ranked business school. Those posts will go over what happened during a given day, week, or month (like the first post). We’ve now had our first official day of classes – and I'll soon be writing that kind of post if you're curious to know what classes are like.

Other posts, like this one, are reflections on something that occurred during the program which gave me pause and made me think about larger issues relating to the business school, the business world, and life in general.

Two things happened during our first week here that took me down some unexpected philosophical train tracks: Interestingly, they both involved modeling, though of completely different sorts – one was about the limits of financial modeling, while the other was about modeling for photographs.

Food For Thought: Are we all Models?

During orientation, a photographer came in and took individual pictures of all the Sloan Fellows. Nothing special, just a routine thing, but it was funny in its own way. The cameraman positioned us just so, telling us to turn diagonally away from the camera, facing sort-of forward. “Now, Smile.” “Now turn to the left.” “Now give us a more natural smile.” “Now turn away from the camera.” For a (very) brief instant, before they said “next”, I felt kind of like a fashion model and expected him to say "work it!".

These pictures, referred to as “face photos”, will end up hanging on the wall near Sally Pierce’s office on the fourth floor of the Stanford GSB building, forever capturing the Class of 2009 as we were (are). If you look at the Sloan wall today, there are pictures from classes starting in 1958, coming up to the present day class of 2008 which just graduated (Yes, the Stanford Sloan program just celebrated it’s 50th year).

What jolted me a bit more than it should have, perhaps, was that the men in the class were required to wear a suit jacket and tie for these pictures. I guess I shouldn't have been surprised: After all, the previous students on the Sloan wall all seemed to be wearing a suite and tie. For another, I am attending business school, and that is the formal dress of business for men, so what’s the big deal?

For one thing, the last time I remember wearing a suit and tie was in 2005 at my brother’s wedding. For another thing, I almost didn't bring any suits or ties with me to school. As I left Boston, something told me to dig out an old suit (it still fit, thank god!), just in case. Now I’m glad I did.

One of my classmates found this surprising since I’m a high tech entrepreneur and have run several companies. “Haven’t you had to raise venture capital or other investment for your companies or visit clients? Don’t you have to wear suits when you do that?”

Yes, but the dress in Silicon Valley is pretty much sports-jacket, khakis, and dress shirt for men. If you’re a technical guy, you can even get away with wearing sneakers and jeans (Yes, believe it or not I wore black Nike sneakers to my most recent VC meetings). That’s it – no ties, no suits, no cufflinks, even the sportsjacket is optional on a hot day.

This got me wondering – have I really been in the “real” business world all these years? Or have I been isolated from the reality of business, hiding in a virtual bubble all these years? A bubble called Silicon Valley (in the broadest sense of this term since I haven’t physically been in California but rather in Boston for most of my career).

Maybe, but hasn’t the business world changed in a lot of ways where cosmetics aren’t as important today as they once were?

Recently, I spoke with a fellow entrepreneur from New York City who was raising money for his company, which makes software that will be sold to lawyers. He’s a former lawyer himself.

“Do they still wear suits in New York?” I asked, honestly surprised to see him in a suit.

“Oh yeah, all the time.” He answered, looking at me as if I was from another planet. Maybe I was – I had just flown out from California.

“Didn’t they stop doing that in, like, 1998?” I asked. “I remember reading that even conservative bankers like JP Morgan stopped wearing business suits and went to business casual dress.”

“Nope,” He continued, “After the dot com crash of 2000 and 2001, suits were back with a vengeance. They still are.”

This might sound like an obvious thing to some of my classmates and some readers of this blog, but I was genuinely shocked by his answer.

It’s kind of like when you’re in 70 or 80 degree weather on the west coast, and you go back to visit New York or Boston or Chicago in the winter to find the city in the middle of a snowstorm.

Sitting here in the blazing warm sunshine of Palo Alto, California, I honestly cannot remember what it felt like to be in a snowstorm. I remember it intellectually, I can look at pictures, but I just can’t seem to recall the exact feeling. Similarly, I honestly cannot remember what it was like when I had to wear a suit to work everyday – I know I did it, I can see pictures, but I had assumed we’d put that era of business behind us.

I began to wonder if some of my other assumptions about the business world were wrong too. Maybe I should’ve gone “Across the Street” (which is the Stanford GSB’s terminology for other parts of Stanford, such as the main campus, engineering school, med school, etc.), to be with my “own” kind – engineers and software guys?

But appearances can be deceiving. If you do wander by the Sloan wall in the GSB fourth floor, and see our pictures staring at you in some future year, what you will not know is that it was a very hot day, and most of us were wearing jeans, some of us shorts and some even wearing flip-flops on our feet. They are after all just head shots.

At least the men were. What about the female Sloan fellows?

There was no formal dress code specified for the women. I was surprised to hear this. When I asked Nikki, a classmate from Scotland, about this, she answered pithily, with a smile: “the only requirement is that we wear clothes”.

Is this simply a legacy that most Sloan fellows have been men until a few years ago? Could it be that today, when women are running for President and running large Fortune 500 companies that there are no formal guidelines for what is considered business-like for women?

By my count, there are only 11 women in our class of 57 future "business leaders". I guess that’s surprising too – I thought we’d left the era when there were only men in suits in the boardroom behind us as well. We had a higher percentage than this in engineering school. I wonder if the demographics in the two year MBA program are different?

But it’s not just a matter of gender – this whole suit thing got me thinking about “maintaining appearances in the business world” and what we do to "fit in"

One of my classmates told me that she naturally has a bubbly, enthusiastic personality. She was told by people in her company (a very large, well known corporation, I won’t say which one) that being this way wouldn’t help her move up into management. She should come across as a bit less bubbly a bit less enthusiastic, and much more serious, and this would help her case. In other words, don't be yourself. So, she played the part, suppressing some of her natural personality, in order to advance and was promoted in due time.

The bigger question is: How much of business in the “real world” is “putting on an appearance”?

In other words, how much of being in the business world is about acting like a fashion model that puts on the designer outfit, and struts her stuff on the catwalk, with just the right amount of swagger and hip movement. Why? Because she knows that’s what the audience wants to see. That's why we go to fashion shows. But is the business world one big fashion show?

I think we’re all guilty of this to some extent. Certainly I play up the “founder of an internet company” role when I go on the road, sometimes intentionally wearing sneakers and jeans to emphasize the role I’m playing.

The other day, I took a quick look at our class to see if I was the only one with a beard. At the time I counted only one other guy in our class with facial hair, Aaron, and it turns out he was a software guy, just like me (I’ve since counted at least one more, so we're up to three). I remember reading that Ross Perot at EDS would fire you back in the eighties if you had facial hair, or long hair for that matter... but that changed a long time ago, didn't it?

Another of my classmates who works at the financial industry showed me that she had a little tattoo on her wrist. It was a rather unobtrusive little tattoo. “Oh of course I cover it up with a watch when I’m at work,” she said. “Tattoos don’t work so well in the boardroom, you know.”

My question is, why don’t they? Is it OK to show our individuality in business school and then cover it back up when we get back into the business world? The bigger question is: Do we have to become someone else to be successful in corporate America, hiding our normal personality, creativity and individual need for self expression?

I guess a lot of my assumptions about how “business” has changed over the years may not be so true after all.

Food for Thought #2: What Can Modeling Really Do For You and Me

The other thing that really made an impression on me during the first week was a completely different kind of modeling, using Excel to model a business scenario. The model would then be used to come up with some quantitative predictions to help a business manager make decision, ranging from how many units to produce of a product, to how often to run recycling plants, to how many employees to hire or fire.

Professor Moore, who taught the class, explained during the Excel workshop (we’ll have a whole class dedicated to this in the fall term, so I’ll be writing a lot more about models I think) that models were only as good as the constraints we imposed on them.

In other words, if we ask a financial model to tell us, as one of our cases did (“Peninsula Recycling Services”) how many days we should run a set of recycling plants (one was located San Jose and one in Redwood City) to keep the costs at a minimum, what will it tell us?

The model, without being fully formed, will return an answer of zero days. In other words, to keep costs low, Peninsula Recycling Services should simply shut down all of its recycling plants. This obviously isn’t an acceptable solution to the case, since we were expected to produce a certain amount of recycling output. Without the proper constraints in place, our financial models aren’t very good models of reality. If the citizens of Redwood City suddenly find their recycling shut down, maybe you can blame it on a financial model!

But this raises an even larger question – since much of business world, and much of business school, rests on developing models and frameworks, how effective can these models really be in helping us to make decisions in the “real” world? There is, after all, no way to put all of the constraints of the real world into a financial model.

Even Professor Moore, who is a co-author of our textbook, “Decision Modeling with Microsoft Excel”, showed us a diagram where financial models are only part of the process – the other half consists of the manager using his/her intuition after seeing the results of the model to make a final decision.

But this raises the question, how much emphasis should managers put onto their own intuition (based on their experience) and how much should they put on their spreadsheet models? 30%? 50%? 75%? 25%?

One of our classmates in this workshop asked, during one of our cases, “So, what is the conclusion? What should this company do?"

Professor Moore, who has obviously dealt with this issue before, answered something to the effect of: “I don’t know what the company should do. I don’t even know what the right answer is for this particular business. I can only tell you what the financial model says. If the models always gave the right answer – then we could remove human decision-makers from the process. But you can’t. You, the manager, have to see if the answer makes common sense. You have to use your intuition – that’s why they pay you the big bucks, after all.”

Amen. I think too often companies rely too much on one side of this equation – either the analytical models (for larger organizations), or intuition (for smaller startups like the ones I’ve been a part of), and rarely are organizations able to include a “proper” mix of both. Nor is there even a definition of what is the “proper mix”.

So, if you’re thinking of shelling out the big bucks to go to business school, remember this. B-school is not going to give you some formula or algorithm for decision making that you can blindly follow in management scenarios to come up with the “right answer” – in fact there often is no single right answer.

I’ll be writing a lot more about modeling as we get into the school year. In the past, I’ve written a lot about intuition, but finding the balance between intuition and rational thinking is I think a much more philosophical question - one that 10 months in business school may not be able to answer. But I’ll let you know if I get any closer during the year!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.