The Economics of Knitting a Sweater

My mom has a new passion: knitting. And that means my kids get unique, gorgeous hand-made knitted sweaters that we will cherish for years. While watching her entangled in yarns, needles and loops, I started pondering: why is knitting a rare sight today?

The answer is simple -- its costly. Today's woman do not have the time to indulge in such laborious activity. And, there are alternatives: she can simply walk into a store and buy a decent machine-made sweater at a very reasonable price. Also, she does not need to spend a month to get a new sweater; she may not have the time or patience to do so. Even if she had, she may not want to do it -- knitting is laborious and repetitive and will detract her from doing other things that she wants to do. Finally, knitting requires skill and not everyone can acquire it.

Organizations behave no different -- if a task at hand is costly to do in-house, they choose a partner to do it. For example, Apple chooses to buy chips from its suppliers instead of investing in R&D and production plants. The reasons are similar to knitting -- if Apple started focusing on electronic chips R&D, the company might be  distracted from  its core business.

For a minute, lets assume the company will not be distracted. Are there any other reason to go outside the company boundaries? Definitely. A chip maker can produce million of chips for multiple consumer product companies and leverage economies of scale to be cheaper than the individual companies. Also, chip maker is the expert -- it possesses the skill to do it right.

Then why do some companies bring activities in-house? Continuing on Apple's example, the company designs its products hardware, software and even owns the retail stores. Now it has been rumored to invest or buy a chip company. This is a classic example of what's called vertical integration -- Apple owns most of the value chain. Why? Perhaps for competitive advantage and need for tighter control.

If a company builds products in a secretive fashion, like Apple, it might make sense to do as much in-house work as possible. If it is dependent on a supplier  for a critical component, the company may not be first to market or keep a secret on the new product launches. However, it will be costly to do so.

Not every company is or can be Apple; majority of the companies sales numbers are a fraction of Apple's cash reserve: $137B. Most companies will do fine by picking and choosing between in-house and partner activities. There in lies the secret sauce -- choosing the right combination that supports the overall strategy and vision of the company.

Bottom line: do not choose to knit your own sweater, unless it is important to you, you have the time and you are passionate about it. My mom fits all the criteria : it is important to her (the sweater is for her grand kids), she has the time, and she is passionate about it.



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Copyright (2013) Ashish Arora. All rights reserved.This post is my personal opinion. It is not intended to reflect my employer's or any of its affiliates' opinion. Of course, this post is not meant to be a legal advice.

Winning

I was hiding behind a barracade while bikers were zooming in front of me. The crowd was appluading, the banners were up flying and the loud speakers were echoing the Chicago suburban streets. It was the Grand Prix of a cycling event in my town. The bikers had an interesting pattern – three of them were leading the pack and were ahead of a big “herd” of bikers by nearly twenty seconds. I was amazed by how the top three bikers had left everyone behind, and now were working extra hard to make an extra inch of lead. The story of the herd – fifty or so bikers – was a little different. The herd leader was putting the most effort, rest of them were almost cruising along. The tail ender had even slowed down sometimes as it had no way of overtaking anyone. Soon enough, the thirty laps were over and the yellow jersey biker raised his hands to beat the other top two bikers. The winner took it by less than a second margin.

As the crowd congratuled the winner and consoled the runners up, I started walking towards my home. I felt the race had a interesting parallel to how the world works – in any game, there are top performers, average performers, and non performers.

Take American population for an example. If we consider monetary wealth as a yardstick, the american population have super rich, middle class, and poor people. As per one statistic, super rich (top 1%) control more than 34% of total private wealth. And as our top three bikers, they are working really hard to maintain their top position, and enjoy a huge gap between themselves and the herd – the middle class. To be fair, the middle class works hard too, but they see a huge gap between themselves (more than twenty seconds in the bike race) and the top three. A gap that is so big, that the herd only compete within the group. Sure, there are upper middle class, middle middle class, and lower middle class, but they stay together in a big mass. Finally, there are non-performers. In the bike race, I did not see any, and for a good reason. Perhaps, they exited the race already and had stopped in between and were not visible anymore. In my analogy, poor people belong to this category.

I could probably think of few more examples, but my point is already made. In any race that you are in – think about which of these three categories do you belong to. Non performers have a good view – they can observe the herd and the top performers, so they see the big picture. But hopefully, you don’t want that view by being a non-performer. Top performers too know they are leading. It’s the middle pack that may be obscured from the big picture view – they see so many bikers around them that they feel content about their position.

Talking about positions, did I mention that I only remembered the guy in yellow jersey who actually made it to the top? The second and third were umm….you get the point!

Any Commuters there?

We used to have desk spaces in our offices. Can you believe that? And to make to those offices, every morning, we would hop on our cars, and spend an average of 25-minute on the commute alone. What a waste! Not only did we junk this time from our lives, but as a nation, we were depleting natural resources and adding to greenhouse emissions.

The commute was not limited to local offices. Professional like salesmen and consultants flew to different states and were out of their home cities for full work week. Though it fueled economic activity, travel was always considered tiring, but necessary nevertheless.

On the other hand, corporations also found travel hitting their bottom line negatively. Seating was expensive. Changing employee workforce was always a challenge. New employees used to sit on temporary seats for few weeks until their seats were allocated. And as business needs changed and teams restructured, reallocating spaces were a political fight. Collaboration with teams in different geographies translated to yawn filled, multitasking conference calls. Yikes!

Then came My Team. The virtual location kit manufacturer revolutionized how people go to work. The kit transforms anyone’s home into a virtual desk space. Superviors can walk through the corridors just as they used to in the physical buildings and see the employees working. The can stop by in anyone’s office and get the status in real time. There is no instant messaging or phone calls – simply face to face interaction. Moreover, old managers have architected their work floor akin to the physical workspace they used to have in the historic times, so they don’t feel nostalgic.

Mr Ben recalls, “I used to get special permission from my boss to work from home for one day a week. Work from home (WFH) was considered unsexy and coworkers laughed away the idea as they imagined you sitting in jammies and watching TV alongside being logged in. The scope of your promotion dwindled as you took more WFH days.” He continues, “Thank to My Team, I can now work from home with the reassurance that my boss knows how much efforts I put in.”

Workers have embraced the concept well and have dedicated spaces in their homes for a quiet, peaceful areas. “I can no longer have my husband walk in my virtual office and ask where the can opener is. If he walks in, he quickly turns away letting me have cooler talk with my colleagues,” admits Karen who recently started using My Team.

Business gurus are still contemplating the impact to the travel industry. There is no concept of rush hour on roads now. People rarely drive their cars. Grocery shopping and leisure travel are the only compelling reasons to drive.

Personal Diaries

In good old days, youngsters used to pen their daily experiences in much coveted personal diaries. Some did it for the sake of it; others found writing as the perfect vent for their oozing thoughts. In today’s world, diaries have transformed into digital space. Except, these are not personal. Far from it.

Blogs, posts, discussion forums seem to be everywhere for everyone. Actually, even these seem outdated. People want to tweet – “publish” – and “follow” – what they ate two minutes ago, and which pizza corner they ordered from. Sure it’s a cool thing to share with your family, friends, or may be colleagues. And sure, it is dream come true data for marketers. Now they know what time a pizza ad should air on your iPhone.

Apparently, people want to stay connected. As with any such new technology, one of the first thing that crosses my mind is privacy and security concerns. You can write something stupid and your boss can read it. Or you may be a youngster publishing details about your road trips, only to be preyed by solicitors. Whether that is a valid concern or not, I try to think in terms of an analogy.

Few years ago, people were shy in giving out their credit card numbers for internet commerce. The fear was someone could steal and use them for personal buying. Smart web retailers like Amazon calmed their users by breaking the online buying into two steps. Customers did the research, filled their shopping carts and placed their orders as the first step. They felt comfortable doing so. Second step was to provide sensitive information -- credit card numbers, for which users called a phone number and talked to a human. Gradually, people became comfortable providing card numbers online and skipped the second step.

Today, some people may have similar concerns about privacy, perhaps only for a short-term. Such “reluctants” may only be sharing – if at all – non-personal stuff sparing intimate details for in person talk. But it is only a matter of time when they’ll skip the second step -- if they haven't already. In today’s world, our bank accounts, credit card numbers, social security numbers – all are floating somewhere. We have definitely past the second step.

But have we shared everything? May be not. Services like twitter still operate in the text world. People still have to volunteer the information. Then there is all this information that we give out "involuntarily." For example, what songs do we listen to and at what time, or what websites we visit and how often, is all recorded. I put involuntarily in quotes as we do accept the terms and conditions of all the services that we use, even if we do not read them line by line. Even if we try, yawns take over and we quickly scroll to the bottom to quickly click on "I Accept" buttons.

The result is a new kind of market place. There, our email addresses are sold in megabytes; bank details by the dozen, and … you get the idea. Continuous evolution of technology will enable us to share even more about ourselves. Blogs and YouTube are probably dated information. Twitter like billboards are probably up-to-date, but it still is a lot of text. Next, we will be sharing live video about ourselves. Youngsters in love will find that very appealing.

May be there is a merit in this abundance of shared information. Companies like Google can spot trends and find what people are up to. It knows which regions have more flu patients than others. Similar analyses can be and is being done on online trends and used to determine what people do -- or would like to do. As I ponder about my weekend, may be I should ask Google what I should be doing. But it may ask me what I ate yesteday. Or which pizza place do I go to. I always wonder how gen-xers feel comfortable publishing all bits of information about themselves. May be I am getting old.

The new license plate

Note: this article is based on fiction.



The voter turnout in South Carolina has been amazing, though its not clear if Mike Clinton got the much anticipated hispanic votes. Clinton and the likes will have to wait for the DNA reports to find that out. Physical looks no longer reveal one's race -- thanks to iChoose(TM).

iChoose technology has transformed the way we live today. People no longer live with the looks they were born with; instead, they now chose their own looks. The company has commercialized the projection-based gamma rays technology to appeal to masses. No expensive cosmetic surgeries, no pills, just few mouse clicks in a photoshop and you can walk away with a new look. The Inderlok based company has revolutionized the way we chose our looks -- or avatars -- and how easily we illusion ourselves into a new set of physical attributes.

The company offers a basic plan of $490/ month, that allows simple changes like complexion, nose shape, hair color, etc. The basic plan has been immensely popular with the younger kids -- who have little control over money -- but has prompted legal action against the company due to lawsuits filed by some parents. Youth, on the other hand, has been the company's favorite. The company charges exorbitantly for advanced plans that offer changes in body shape and custom shaped organs.

The company has actively partnered with online dating sites which are now able to suggest physical profiles based on a user's dating history. "Such synergistic partnerships are key to our growth in the following years," says Narada, the company's CEO, and continues "Never before had we thought that job sites like nomster will approach us. Every one, including job seekers, wants to look better."

The company has rekindled the once hot topic of racism. With virtually everyone being i-"changed", one can longer guess anyone's race. With identity concealing comes confusion. Are there clear patterns of what complexion are people chosing? The company spokesperson refues to divulge any details -- "We fully respect our customers' privacy."

One company that is furious about iChange is Facebooks. "People no longer are interested in our site, face -- as they say now -- is fake," accepts the company's spokesperson. The product has made social life more complex. Companies are complaining about workers productivity as they find it difficult to work with their peers who frequently changes their looks. Moms are anxious waiting at bus stops as they are not sure in what looks would their kid return.

Amidst all this, the federal government is proposing that everyone must clearly display one's identity -- at all times. Would that be the "new license plate" that we hang around our neck? Will it have an expiration date?

My visit to a coffeeplace

As someone who seldom likes any hot drink, I was skeptic about visiting Starbucks. However, tonight, I decided to give it a try. Conveniently, there are three Starbucks within walking distance of my home: I chose the one inside the Barnes and Noble bookstore -- simply because I already go there very often.

Inside was a familiar scene: cushioned chairs with tiny round tables, young students littered over plush sofas, soft jazz music in the background, unique travel mugs stacked up in a tiny bookshelf. What was unfamiliar was the menu itself. Yeah I had heard about mocha, latte, ..ccinos, but what is what is what I did not know. I stood behind a tiny stand and stared at the menu, as if the barista would not notice me. She did notice, indeed, but gave me all the time I needed. The extra time, however, did not help. Realizing this, I took the courage to step out, and approached the counter. There were two baristas -- young ladies wearing tidy, green aprons -- at the counter juggling the espresso machines and the cash register. One of them probalbly sensed that I may be a little confused; she continued working on what she was. The other one on the rescue:

Barista: (smiling) "Can I take your order?"
Me : "Yes, (avoiding eye contact, staring at the menu) .... do you serve tea?"
Barista: "Sure"
Me : "Great, is it the one with milk and sugar?"
Barista: "No, but you could add it yourself as you wish. (pointing me towards the counter)
Me: : "Umm, actually, I want the one in which you prepare it with milk and sugar, the one which you boil it for me."
Barista: "Sir, tea only comes with hot water and tea bag, but you may want to try Tazo tea. We can prepare it for you with milk added.
Me: : "I think Tazo tea is the one with spices... I don't like tea with spices."
Barista: "Yeah, that does come with spices."
Me: : "OK, how about some coffee, then. I've seen a coffee that you serve in a tiny cup."
Barista: (the lady takes out a big mug from below the counter) "Sir, you mean this one?"
Me : "No, this is too big."
Barista: (Takes out a smaller mug, but still too big) "This one?"
Me : "No it is really small, like a tea cup."
Barista: (Moves over the counter, and brings a white porcelain tiny cup that I had in mind) "This?"
Me : (with a child like smile) "Yes! exactly! Which coffee do your serve in this cup?"
Barista: (smiles, and names the beverage) This is very strong shot, sir, .. very large amount of caffeine.. (chuckles, correctly sensing that I, a coffee rookie, may not like it)
Me : "Umm, then lets not go there, what about a coffee with a lot of froth?"
Barista: "Sure, we have capuccino, that has bottom half coffee and top half milk froth"

At this time, the other barista intervenes, pokes her, and points to the cash register, where a customer is waiting to be rung. This lady quietly steps away, takes payment from the other customer, and swiftly comes back.

Barista: "Sir, and there is another flavor that has lot of froth, but not the milk one...."
Me : "No, I think, I'd like the capuccino."
Barista: "What size, sir?"
Me : (gazing at the menu) "Is tall really mean small? What is grande?"
Barista: (smiles again) "Yeah, these names are really other way around, tall is the smallest of tall, grande, venti"
Me : "Ok, I'll have a tall. And can you not serve it in a paper cup. I hate these."
Barista: "Sure, "
Me : "I'd like the big porcelain mug that showed me, ... Could you ...?"
Barista: "Sure. That is not a problem."

While she is taking my payment of $3.10, the other one appears and ask me "All right, do we a decision, NOW?"
"Yeah, Capuccino, tall," I reply with added confidence.

I wait behind the pick up counter and enjoy the swoosh sound of froth maker. In less than a minute, the polite barista presents me with my capuccino -- in the mug that I requested.

"Sir, enjoy."

What you want is what you get

Disclaimer: This article is based on fiction.


Build-A-Baby: "What you want is what you get."

“My daughter Sharon looks exactly like me”, chuckles first-time mom Karen, “the eyes, the nose, even the complexion. Further, my family does not have any history of diabetes or high blood pressure, so apart from the physical beauty, we chose a healthy life for our daughter. Thank you Build-a-Baby.” When Karen and her husband David needed to make the decision three months ago, they chose Karen’s attributes.

Entrepreneur and a long time health industry maven, CEO Josh Sanders feels proud of such client testimonials and his company. He was among the first to pioneer the DNAcopier© technology – the latest breakthrough that helps to choose your baby’s biological composition. The company has generated rave reviews. “We helped over 6000 families last year, and gave them what they wanted. And the numbers are expected to grow much larger.”, said Mr Sanders in his company’s last investor conference. Researchers at John Hopkins university share Mr. Sanders enthusiasm. A recent study by Research scientist Wellworth concluded that over 60% of Americans are interested in choosing their offspring’s looks.

Though currently the technology is limited to offer the options from within your family, research studies are underway that study use of “borrowed” genes। Teenager Shyam is excited about the developments. “I hope by the time I chose to have an offspring, the “borrow” technology would be mature enough. I’ll chose Tom Hanks looks for my baby boy.”

Not everybody shares the enthusiasm. Religious bodies oppose such developments and have vowed to lobby against any federal grants towards such research. A large population still objects to the idea of “interfering” with nature’s composition. Nobody still knows all the implications.

A recent study also showed a trend of rising disputes among couples due to advent of such tecnhnologies. People are becoming more and more obsessive about customization – even when it is about having a baby.