I’d gone to business school after a decade in journalism-laced-with-consulting out of Mexico City. My (meager) income doubled when I jumped from regular journalism to business writing, from United Press International (UPI) to Business International and McGraw-Hill World News. So when David Kreps asked the question “what’s the value of business information,” I raised my hand. I said:
I’m not sure, but it’s a lot. Information is worth a ton of money. Big companies paid my last employer thousands of dollars for economic projections, inflation and currency updates, and so on.
Prof. Kreps said no, that was way off. Here’s the answer:
Information in business is worth the difference between the business’ bank account balance. Take the cash in the bank with the information, and subtract from that what it would have been without the information, and that’s the value.
Sure, that’s a bit hypothetical. But it’s also stark reality. It was hard for me to absorb, because I tend to like touchy-feely vague definitions and case-by-case answers; also, this cold hard money definition felt like a reduction. But there it is.
Why scary? Ask yourself: how much time, trouble, and money do I spend on information I don’t use? How much do I research beyond what I need to make a decision?
On the bad days, in off moments, it seems like my two years in business school were mostly about learning the definitions of a few key buzz words to use in meetings.
Stands for return on investment, as in profits divided by total investment. For fun in boring meetings, think of it as “run out of interest.” So you say: “What’s our ROI on that?” That sounds like you know what you’re talking about and care about the discussion. But what you mean is “how long before we totally run out of interest on this topic?”
Another fun ROI trick is to make the R and I impossible to calculate. That’s trendy these days. Blow up the analysis by including status or branding or improved productivity or socio-economic gains as part of the return, or time and effort or creativity as part of the investment.
Variations: return on assets (ROA) is another good detour for a group; just redefine assets to mean anything you want that’s good for the company.
Take a whiteboard or a piece of paper and divide it into rows and columns. Look at the picture here. I know, it’s no big deal, basically something like tic-tac-toe. But it works. Divide whatever it is (competitors, markets, problems, people) into groups that you can cut into boxes on a matrix.
The cool thing with the matrix is that it can make the most obvious classifications and categories look deeply analytical.
Extra credit: the plural of matrix is matrices. Points off: if the word matrix reminds you of the movie.
That’s when you get less bang for the buck as you put in more bucks. You can also apply the same phrase to a meeting, as in “I think we’re at the point of diminishing returns for this meeting,” supposedly suggesting that we got a lot out of it in the beginning but now the value is waning. It’s like less value per minute when you put in more minutes.
In economics, diminishing returns (also called diminishing marginal returns) refers to how the marginal production of a factor of production, in contrast to the increase that would otherwise be normally expected, actually starts to progressively decrease the more of the factor are added. According to this relationship, in a production system with fixed and variable inputs (say factory size and labor), beyond some point, each additional unit of the variable input (IE man*hours) yields smaller and smaller increases in outputs, also reducing the mean productivity of each worker. Conversely, producing one more unit of output, costs more and more (due to the major amount of variable inputs being used,to little effect)
(Meeting image by Steve Weaver, cc license on Flickr. Matrix image is my own drawing.)