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The 4 Principles Of Delusional Economics

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When it comes to economic theories, there is plenty of fascination in the business world around how to explain what drives business and purchasing activities. Behavioural economics, the field of economics concerned with examining why people behave the way they do when it comes to their purchasing behaviour, is hot right now. Bestselling books like Freakonomics and Predictably Irrational dig deep into the psyche of people to try and explain seemingly illogical actions.

Here are the four key principles of Delusional Economics, and how you might avoid applying them to your own small business:

1. Change a customer’s worldview

2. Getting people to pay for something that is currently free

3. Basing a business model on revenue from nonexistent advertisers or customers

4. Overestimating a customer’s ability to appreciate value worth paying a premium for

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Source: OPEN Forum

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Radical Innovation Prediction #1

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China wants be the "plant of the world", while India wants to be the "back office of the world".

If you did not know, China has become the world's top producer of steel, small-sized motors, and home electrical appliances such as toasters, ovens, and refrigerators. How? They have achieved this due to two important factors:

  • 1) foreign investment in China
  • 2) high quality of the Chinese workforce

China has also been ‘buying' up companies just so they can learn and develop global management skills. In 2004 IBM announced they are selling their flagship personal computer business to the Chinese company Lenovo. In December 28, 2004 article, New York Times suggested that part of the reason they bought the IBM business was to acquire the experienced management team that came with the business from IBM.

On November 11, 2003, then the chairman of Toyota and head of Keidan-Ren, the most powerful organization of CEOs in Japan, said to his peers that

"China has become the world's top producer in many areas...and Japan cannot of compete with China in the production of like products. China has enormous competitive advantage in its quality of workforce. We must clearly understand that competition is not possible in the filed of "commoditized" products.

For India, the exponential growth rate of software export is clearly the most competitive advantage. In 1995 the export was $700Million, it grew to $15Billion in 2004, to $40B in 2008 and is expected to hit $50B in 2009.

This is not the only advantage in India, the second strength is in the manufacturing sector. Level of Quality of Indian industry has been increasing such that 111 Indian companies were TPM Award Winners ( between 1995 and 2006. Similarly 16 Indian companies won the Deming Prize and Japan Quality Medal. In the United States only two companies (Florida Power in 1989 and AT&T Power Systems in 1994) have ever own the Deming Prize. In Taiwan, only one company has (Phillips in 1991).

According to Ex-Indian President, Mr. Kalam India has three types of companies for the world to take advantage of:

  • 1) companies with an R&D capability to create unique technologies
  • 2) companies that license technology and do some design
  • 3) companies that do manufacturing according to a specification given to them

Bottom-Line #1: For every business , the question for companies elsewhere is...What type of breakthrough thinking is required for a business to grow and prosper in the future, knowing that China and India wants to be your plant and the back office?

Bottom-Line #2:For every individual, the question is what type of skills and competencies will be required to stay in the career you are in or prepare for a career that will be in high demand, knowing the new competitive global workforce?


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Should every organization work on innovation?

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For us at DeSai, the question resembles to "Should we allow a healthy and vibrant living organism to grow?" No doubt, the answer instantly should be YES. A company that ignores innovation is a company that is decaying and dying with slow death.

You might wonder, in light of explicit evidence, why do many of the C-Level executives do not take a more active role is establishing a climate and culture for their organizations to innovate, grow and prosper?

In our work with senior teams and organizations across the globe - the one consistent answer is because they lack the courage and confidence to take risks.

The cause of this "effect" might be that most C-Level decision makers are not strategist, but mere manager. Many people who climb the corporate ladder are just managers not innovators and as long as they are calling the shots, there is a de facto ban on innovation in their respective organizations. Period.

They will not take the role of authentic champions, agents, and advocates of innovation, they are very happy just managing decaying (or stagnant or even dying) operations. To be an innovator the leaders must ask:

  1. Are we doing all we can do to generate sustainable growth?
  2. Are we providing our clients with the best products or services that we can and the best price points?
  3. Are we creating long term value for the organization?
  4. Are we challenging our employees to generate breakthroughs and derivative projects?
  5. Are the leaders committed and aligned together with strategies and direction?

In today's climate, innovation cannot be ignored - independent of industries, geographies, or economic climate. Just like breathing in and breathing out - innovation must be the ‘natural rhythm' of every organization - else the future is well defined - you will land on Commodity Island and ultimately sink.

Do you agree?


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Role of Innovation for Individuals and Organizations- Part 3

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Welcome to Part 3 of the Q&A series on Innovation. Below is the final thought provoking question and answer on Innovation. We have saved the best for last- the answer will provide you with great insight into successfully overcoming the current economic crisis

Q: What are some critical trends individuals and organizations need to know for weathering the economical storm and beyond?

A: There are several trends. For instance, the future of jobs does not look good for traditional jobs or regular activities performed in exchange for payment, including computer programmer, bank teller, customer phone representative, nurse, certain lawyers, doctors. Those jobs, according to research we have conducted, will be either enhanced or eliminated within the next 5-10 years due to two major trends: Information Automation and Globalization.
Another trend is that most businesses today are ‘wired' to create profits, not create new jobs. This is a critical point that is much forgotten. It means businesses will do whatever is necessary to make a profit. They will automate every job task and overlook the passion behind the job - the human element.
The only solution to the profit challenge versus maintaining valuable jobs is for individuals in various jobs to re-innovate themselves. This can be achieved by applying more human skills to existing jobs or developing new skills that cannot be automated or outsourced in the face of these major trends.
In our applied research, we have discovered that for most organizations considering automation over people, the answer is the same. In order to survive in business, organizations must rethink how to attract, retain, and grow talent pools with skills that cannot be automated - discovery, creativity, influence, resilience, implementation, and mindful action. These are some examples of competencies, which we believe will be in greater demand in the future. At DeSai, we call these the new ‘Hyper Skills' needed in every future job.To compete effectively, businesses will have to focus on the importance of the quality and readiness of their talent. Finally, I believe millions of new jobs will be created, not by organizations, but by creative and innovative people themselves. Those who can figure out how to re-invent their own jobs to keep them from being ‘automated or outsourced' will greatly benefit. The period when employers only designed new job positions are about to go, with more opportunities for those who can create their own job roles and activities to help their organizations.
One last point. I believe a large percentage of workers will need to seek a living outside the corporate umbrella in the future. I think that individuals who can consciously, directly or indirectly, generate income and profits outside the organization will see the most success in the future. We will definitely be more of an entrepreneurial society.
Your feedback, questions and comments are more than welcomed...
Jatin DeSai

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Role of Innovation for Individuals and Organizations- Part 2

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Welcome to Part 2 of the Q&A series on Innovation for Individuals and Organizations! Below are next three questions (and answers!) on Innovation by Jatin DeSai, CEO of the DeSai Group. Feel free to ask and discuss any thoughts, comments or questions you may have...

Q2: What are some myths associated with innovation?

Answer: Among the myths about innovation is that most people think of innovation as an invention or breakthrough products like the iPhone, hybrid cars, green computers, GPS in cars, etc. Another myth is the belief that innovation is only for large companies.Other myths associated with innovation include the idea that innovation is too risky, eccentric, and time consuming to achieve. Some think innovation is only for R&D areas or for high-tech companies and consumer product industries only. Some believe that innovation is too costly and it takes too long to identify areas in need of innovation and implement solutions. All of these ideas and many more are all unfounded. Every organization, for profit or not for profit, large or small, in every function and at every level can greatly benefit from innovation. The key is to understand it, define it for their respective business, and point all innovation efforts towards one of three value-generation business outcomes - to grow revenue, to grow profits, or to grow market reputation.

Click here to read the book 'The Myths of Innovation' by the well renowned author Scott Berkun.

Q3: You say innovation is a critical driver of growth. Isn't all growth done by innovation or do you mean folks stick to tried and true methods for growth?

Answer: Most businesses are designed to make profits alone. In our, more than 25 years of experience, senior executives seem to pay more attention to the bottom line(profits) and ROI metrics then to top-line growth. Top-line (sales/revenue) growth is much harder to achieve then the bottom line. Most incentives and compensation plans are primarily tied to the bottom line and stock value. I believe this is the primary cause of much of our financial system failure. Motivation to grow the top-line with innovation rarely exists in the business ecology. Innovation, by definition, requires allocation for ‘mindful failure' (planned projects for purpose of trial, error, and learning), experimentation, and courage to withstand financial performance pressures. When there is no incentive to grow by innovation, only those real leaders with highest moral integrity are willing to do it. Here lies the irony of our current economical situation.

Click here to read how the world's largest technlogy company HP is riding the recession wave using Innovation.

Q4: How can innovation help discover what your customers (internal and external) really want?

Answer: Innovation has very specific management processes. It can be organized and managed similar to every other organizational capability. At our firm, we have created training programs, courses, tools, and methods to teach our clients how to be more creative and strategic for future growth. One of our tools is designed to discover everyone's own "Innovation StyleTM"; i.e. what stimulates creative thinking and how people approach problem solving (click here for more). By understanding this ‘human side' of innovation, it is absolutely possible to identify a client's deeper intent (beyond the needs). Once everyone learns how to bring out the best 360º thinking in themselves and from others, the organization can achieve extraordinary success and generate maximum value with assets they already have. This sounds simple, but learning to ask questions tailored to an individual's style is a much more complex. However, once individuals and management in organizations learn the skill of asking the right questions, they will become more successful in determining what customers ‘really' want and need.



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