What if Albert Einstein became an Investment Banker?

Every day, young people are graduating from high school, facing tough decisions about their future. Do they choose a career path in STEM with uncertain prospects or choose opportunities in a field with better financial outcomes like business? For those looking at STEM careers, there will undoubtedly be struggles to achieve notoriety, success, and to make an impact. For some their aspirations to affect the world positively may ultimately fall short and they may end up updating radiator cap specifications for the rest of their life instead of solving the world’s most prolific problems like cold fusion. Alternatively, recent graduates could pursue a corporate job in business like marketing, sales, finance, accounting, or human resources, where the prospects are much more certain – even for the mediocre. Admittedly, business is not easy by any means; however, by rolling up your sleeves and working hard you can achieve moderate levels of monetary success. To put this whole thing in context, let us take an extreme example and play it out as if instead of pursing science, he or she decided to choose a career in investment banking. Enter Albert Einstein.

If Einstein became a banker instead of a philosopher / physicist…

What impacts would this have on science?

Until Einstein, there was no explanation how act / react in the universe relative to one another. His intellect and contributions also led to key advancements in the United States arms race to the nuclear weapon, although he did not personally participate in the project. Modern science would have changed in a big way and it is debatable if many modern physical theories would exist today in 2017. Even today, his unifying theories are the underpinning of such concepts as string-theory, which aims to interconnect all physical theories of the universe.


What impacts would this have on the course of history?

Einstein did not directly work on the Manhattan Project; however, he did have significant contributions via his theories. Additionally, it is debatable whether the United States would have explored uranium options, if Einstein did not draft a letter to Roosevelt warning him of the German weapons program progress. If the nuclear bomb were delayed, the United States would have been on the opposite side of history. Undoubtedly, Germany and / or Japan may have established themselves as world powers and we likely would not have the EU as it exists today.

Would someone else have stumbled on the theory of relatively, potentially reshaping our understanding of the universe, as we know it?

This one really depends on your perspective. A fatalist would believe that Einstein himself would ultimately stumbled on the ideas eventually because that was his fate. I am not a fatalist and therefore, I do not believe he would have established his intellectual curiosity had he not worked in the patent office. The patent office, was a formative experience for Einstein and without it, one could seriously question whether he would have ever become the physicist that he became. Access to all that knowledge and insight, inspired him to create and run his own experiments and challenge existing hypothesis. Would he have gotten that experience and exposure as a banker? No

Would have been any good at banking?

This one is debatable. At points in his life, Einstein became incredibly isolated and reclusive. While this may work well for a while, it is a recipe for disaster in business, where people have expectations and interpersonal relations are expected. Banking may be one of the more individualistic fields, which may suit his ego well, but I am pretty he may have gotten bored charting basic formulas all day, and likely quit to become a trader. As a trader, he would be mildly successful and free to apply his own logic and intuitiveness to making decisions. I do not envision Einstein working for others for very long without autonomy to some degree. Monetarily, he would have done well for himself, although to what extent is hard to say.


While this example is extreme, the reality is that the next Einstein may be currently siting in a classroom somewhere weighing their options on what to do with their life. The sciences, particularly in the United States are no longer as attractive as they once were, and people are making point in time choices to choose careers with more certain prospects. In my opinion, this view point needs to change, and we, collectively need to provide better economic incentives to ensure that the best and brightest are funneling into STEM careers and not undervaluing their skills and potential in overserved fields. We cannot go back in time and run scenarios on what would happen if Einstein took a different career path, but we can help shape the future generations of inventors by encouraging and promoting intellectual curiosity and STEM professions.

I chose a career in business and am now trying to rekindle my interest and passion for the sciences through some home experiments (which I hope to share in future entries) and readings. I am not Einstein. Nor am I a banker. I am I. And I reserve the right to wonder what my contributions could have been in a different field. Virology, mycology, or botany may have been in the cards.

The Solution for Education is Simple. Implementation is not.

For most of my lifetime, I recall hearing through political coverage in the media that the educational system in the United States is broken.  Schools within poor socio-economic geographies are failing to meet the standards.  The standards themselves do not adequately cover the base of knowledge commensurate with a 21st century education.  Teachers are underpaid, overworked, and underappreciated.  Students do not have access to the tools necessary to learn.  The school systems cannot afford to provide the facilities and resources to offer a balanced educational experience. And the criticisms go on and on….

And then there are the proposed solutions.  On one hand, you have democrat politicians who want to double down on public schools.  After all, increasing the scale of public schools enables the districts to create larger schools and spread the fixed costs across a larger base of students.   In the long run, this ends up creating a genericized experience for students in a government oligopoly for education services.  On the other hand are the republicans with their school of choice and voucher based options.   After all, what is better than to create a market for educational services, where tax payers (aka the consumers), can choose the best school for their children. This has opened up a whole host of new options including for profit schools, charter schools, and private school subsidies for the well to do.  While this is great in concept, it truly undermines the public school system, potentially depriving them of the necessary student body to fund and finance their fixed costs.  After all public schools rely on “students in classrooms”.  For the last decade, we have gone around and around on the voucher / charter school vs. public school debate, and in this process nothing has truly changed.  American students continue to fall behind in STEM related professions relative to the rest of the world.

Before we dig into some of the solutions, I think we should frame a few questions to answer to understand the root of the problem instead of focusing on the symptoms.

What are some of the challenges we need to solve?

  1. Education outcomes are highly dependent on your socio-economic background
  2. Students learn at different paces
  3. Students have varying levels of capacity to learn
  4. Education problems are not only financial problems
  5. Teachers are undercompensated for their contributions
  6. School related violent incidents continue to occur (increasing pace or otherwise)
  7. Incentives are not effectively aligned with outcomes for students, teachers, and administrators

When looking at the list of main issues, it is clear that the whole public, private, charter, voucher conversation is really not going to address any of these problems.  Basically by giving people options, they will ultimately re-assimilate in a different setting with mostly the same outcomes – the only difference being that those schools are likely to be selectively less diverse.  Therefore, logical objectives should include the following:

  1. Educational classroom settings should be focused on instruction and not lecturing
  2. Education must be technology enabled to adapt content and materials to students
  3. Students must be able to proceed through their educational experience at their own pace
  4. Educational standards must be universal in nature
  5. Educational experience must be the same regardless of socioeconomic background
  6. Incentives for students, parents, teachers, and administrators must be in alignment (and focused on outcomes)
  7. Education environments must be safe places to share ideas (whether you agree with them or not), represent personal authenticity and creativity, and free of violence.

What exactly am I proposing?

As you may note, I have placed a lot of emphasis on the educational experience. I believe this experience starts at home, segues into transportation to and from school, continues into the class room, into a nutrition based lunch, into physical activity and fitness, and into safe social environment that encourages exploration of ideas and concepts.  No proper education system in the 21st century is complete without technology enablement.  The vast number of resources available on the internet to shape and design a curriculum, educational content and delivery, and course pacing are astronomical.  And on a per student basis, these systems are incredibly cost effective.  One of my favorite examples in particular are the resources available on Khan Academy or academic earth.  By leveraging these scalable technology tools, education systems are able to increase the number of students guided and advised per teacher, reduce the overall classroom size and footprint, and increase the overall investment in salaries per teacher.  Additionally, by aligning students and teachers around advancing intellectual capacity, teachers then can then be incentivized further to expand their educational base and earn more by progressing students and assisting students with overcoming their conceptual challenges.  The tools and the resources are there; however, the barriers are not in educational capabilities in resources but in the bureaucratic process of transforming education.  Additionally, to keep environments safe, incentives for students should be drawn around collaboration, team building, and complex problem solving along with thinking through the potential role that firearms have in schools.  In regards to firearms in schools,   the level of accountability to keep a school environment safe should fall on the same people or person who is ultimately responsible for the outcomes of the school – the principal.  In my opinion, principles and vice principals should be trained to use a firearm and have several lockbox sites throughout the school where they are able to access a firearm in the case of an attack on the school.  Much like a ship captain, someone must be prepared to defend children in case of an emergency.  I am not particularly fond of the concept of unmitigated or uncontrolled access to firearms – this could potentially lead to escalation of issues which do not require weapons.  Nonetheless, I think my school proposal for the future solves many of the issues of the future. And note that I did not mention anything about private or public or charter schools.  Quite frankly. It doesn’t really matter.

Why is execution of my solution such a big challenge?

Like all controversial topics, education reform is one of those things that is highly politicized.  On the left side of the aisle, you have significant constituencies of unionized teachers who have professional incentives aligned with the maintenance of the status quo.  The status quo being tenure and education based compensation, minimal accountability for student outcomes, and general public institutional norms.  On the right side of the aisle, you have a free markets philosophy which believes the best way to drive outcomes is through economic incentives.  This may be the case, but realistically the incentives are drawn around increasing the leverage per teacher, hitting and exceeding state mandated targets by any means possible, and reducing cost.  These market driven incentives are quite in conflict with the notion of achieving a universal educational experience and quite frankly the verdict is out in regards to whether these institutions “add value”.  Either way, both sides have principally vested interests in keeping things the way they are without change “maintaining the status quo”.  They both view the educational experience as a primarily financial decision working within the same parameters they always have.   There are some really technology enabled alternatives which could really improve the educational experience for all students regardless of socioeconomic background, unfortunately, this would require politicians to think different, think dynamically, and understand individual student needs.  So where should we start…

 Rethink the role of the teacher and the classroom

–        Shorten instructor time by half (use for knowledge application)

–        Leverage computer based learning for labs / content consumption

–        Leverage home for follow up, deep dive, and problem solving

Rethink the complete learner experience

–        Point of entry to point of dismissal

–        Lifestyle and living (health and fitness)

–        Self-paced learning, progression, and peer groups

Rethink educational safety

–        Safety of ideas and perspectives

–        Non-intrusive physical safety

–        Conflict avoidance / mitigation

Rethink accountability through incentives

–        Alignment of student, teacher, and administrator outcomes

–        Protection of educational experience and safety

–        Culture of continuous education

Once these priorities have been planned and laid, administrators should then focus on deciding the best platform for driving the agenda – whether that can best be promoted with public institutions, private institutions, or both.  Additionally, the method of payment, either through vouchers or direct government funding, really does not matter all that much once you have defined the core of the educational system.  My only recommendation would be to choose the approach that best aligns with the solution.   This type of transformation could take decades to accomplish, so in my opinion it is probably best to get started on this…..yesterday!

For those exploring several of the concepts identified herein in more detail, please feel free to visit the following links for additional perspective.




Life Hack: Taking Control of your Email Box and your Life

I am probably one of the few people on the planet who maintains a 100% read email box with absolutely 0 files at the end of the day left in my Inbox. For those of you in the business world, you may be thinking to yourself things like “that is absurd!”, “why would you do that?”, “wtf!?”, or “how does that even happen!?” Over the course of my 10 year career I have learned how important it can truly be to manage communications with customers, colleagues, leaders, and friends and family. If you think about it, often times email is the only communication that you may have with someone, and therefore it is key to be responsive and self-aware of your digital presence. With that in mind, let me share a couple of relatively simple tips that help with sorting through the noise and focusing on the email communications that matter the most.

Why is it important to maintain your email box?

As I stated, often times, email is the only communication channel with which people may engage with you. By not maintaining minimum levels of attentiveness, people may feel as though you are intentionally ignoring them or are not valuing their contributions, workload, and insights. Important tasks, follow up items, and inquiries can get buried in your email if you are not up to date or attentive. At one of my previous employers (a sales job), employees were taught that all customer inquiries must be responded to within 8 hours (1 business day) – no excuses. If more people treated their colleagues, peers, and friends / family with this same level of professional respect, I truly believe that productivity levels would spike quite precipitously and the overall level of personal frustration would diminish significantly. Aside from common courtesy, it is also important to know where to spend your time and resources as well – a messing email box can make it very difficult to sort through the noise.

How to go about cleaning an email mess?

For me, the simplest way of managing my inbox is by following a few simple rules which help me to keep on top of my emails, prioritize tasks, and set expectations with people as to when I will be able to respond to their request or inquiry. My tips and tricks for reducing complexity are as follows:

    1. Index Recurring Communications – While those daily, weekly, and monthly newsletters may contain useful information, they are not critical to performing day to day responsibilities. Therefore, I set up rules within outlook to send them to a folder or folder(s) for discretionary / non-critical emails. If I get around to reading them……great…..if not……no harm no foul. It is important to sort the noise out of your inbox to avoid bogging down the important and critical messages and actions.
    2. Respond to Set Expectations – When I receive an email for a request, I add it to my queue and respond immediately or within a reasonable amount of time with the expected completion time frame based on my understanding of my resources available. If you let people know when you will get around to their request, it can help to significantly reduce email volumes down the road. When you don’t respond the number of contacts increases 10x with follow up emails. People should not have to worry about whether or not you received, read, and are processing their request. Everyone sleeps a little better when you respond. Once you respond though, it is critical to follow through on your committed time frames or else those follow up emails will continue to flow. If priorities change, it never hurts to send another email to reset expectations.
    3. Leverage Task Lists – For emails that require action, it is always important to document the request as a task in outlook. This helps to clear inbox and move your actions into a more manageable queue. Nobody wants to spend a lot of time interpreting and reinterpreting emails, so try to do the interpretation quickly and move it into an action list. With the task lists you can also change priorities, dates, and scope of the requests.   Also, for managers, it is a very helpful tool to set reminder notes and document outstanding actions from your team. The important take away here is to move things out of the mailbox into a more manageable and controllable list.
    4. Get the Quick Wins Out of the Way – Occasionally, requests that require minimal effort on your end but create maximum impact on the senders side of the equation can get lost in your email box. Small priorities / tasks with maximum impact should not be overshadowed by the larger priorities on your list of ‘to dos’; in fact, in most instances these smaller activities should take priority. Imagine that you have a team who needs a deck or example to get going their client deliverable, their progress is entirely hindered by your ability to respond with relevant content and examples. The 5 minutes it takes to pull examples is well worth delaying a higher priority item to get the team on track. Again, the importance of maintaining a manageable inbox really all comes down to how effectively you help others reduce their anxieties and uncertainty.
    5. Maximize Email Recipients – One of my biggest peeves is when someone sends a note to one person and then the nearly exact same note to 4 or 5 more people. By using the functionality in various email tools, you can send the same request to multiple people without each of them knowing. For scenarios where it is not critical that recipients don’t see each other’s contact information, crafting a well thought and organized email to all involved can help to reduce the amount of follow up email flow. This is critical and essential to ensuring that you don’t compound the overall correspondence within your email box. Fortunately, in this scenario, even if the responses are compounded, it is much easier to move read emails into various folders because they are all indexed with the same title. Being logical about the downstream impacts of correspondence is key to taking control of yur email.


I know I sound a little bit obsessive compulsive about communication management, particularly when it comes to email, but I find that this is an area where folks are completely inefficient. When my Inbox is empty and my task list is full, I find that I can sleep a little bit better at night. I also find that others are much more productive and efficient with their time as well. Taking control of your email box not only helps you simplify your work but it also helps you to take control of your life. Closing the loop can give you back wasted time and allow you to focus on what really matters to you!

If you find these tips helpful or if you have any that have worked well for you personally, please feel free to share. I am always open to life hacks.

Ethical Considerations for Technological Advancement

Knowing my deep passion for reading, a friend and colleague  gifted me a copy of the book In Mortal Hands: A Cautionary Tale of the Nuclear Age by Stephanie Cooke.  While nuclear proliferation is a topic with which I am fairly inept, I am able to some extent to decipher and extract many of the themes which are not only relevant to topic of nuclear proliferation debate but also are relevant and applicable to other technological advancements as well.  Not knowing what to expect from this author, nor from the subject matter, I found the book to be extremely informative as well as disheartening.  There are a couple of things that stand out quite vividly to me regarding this subject matter.  The first is the constant perpetuation of nuclear development even after acknowledgement of the lack of understanding regarding the externalities. The second is the explicit damage that the pursuit of nuclear developments have had on the global environment and human health, and the third and final point is more broadly related to inherent ethical questions regarding pursuits of technology advancements which we have little to no understanding of.  The last point is equally if not more important today as it was 70 years ago, as advancements in artificial intelligence, genetic engineering, cloning, and financial engineering continue to accelerate beyond our comprehension of the risk.  Underlying all of these points, however, is a fundamental assumption that humanity, will adapt and resolve problems fast enough to ensure the continuity of life.

Without going into to many details of the book, there are a couple of implicit questions that I think, we, collectively as a moral society, should ask ourselves as we continue to pursue technological advancements which exceed our ability to mitigate and resolve the risks.

  • Should technologies be broadly promoted and implemented without technological capability to reverse engineer or return compounds to their simplest, biodegradable form in nature?
  • For technologies with significant and broad impacts around the globe, who is responsible for assessing and minimizing risks associated with implementation?
  • Who weighs in and resolves issues of global survival? Is it an issue of morality or sovereignty?
  • What controls can be put in place to avoid externalities with which we truly may have no fundamental understanding of the impacts?

Unfortunately, I do not have an answer for these questions.  In my opinion this is something that collectively as a society, we must demand higher standards from our leadership in public and private enterprise, and look beyond our borders to set moral and ethical standards on a global basis.  With that in mind, I do, however, strongly believe that the future of industry lies in de-engineering or deconstruction (i.e. the process of breaking down complex compounds, systems, and processes into their simplest form).  It is interesting how as a species, we can define the most complex and robust processes to develop advanced organic and chemical compounds, however, our solution for breaking them down is as simple as burying it in the ground for hundreds or thousands of years.

We can do better.

Artificial Intelligence – What are we really talking about?

Lately, I have been hearing a lot of chatter about the future of artificial intelligence (“AI”) and the implications that developments within this space may have on front-office, middle office, and functional operations. While I am not much of an expert on this subject matter, I have become somewhat enamored by the thought of artificial intelligence, spending quite a bit of time absorbing as much content on this subject as possible. Over the last several months I have rekindled my love for all of my science fiction favorites, in addition, to checking out a few interesting new selections, including Ex Machina, The Singularity, and the anime classic Ghost in the Shell.

Unfortunately, this post is not about my love of sci-fi flicks. It is however, about the reality of artificial intelligence in the workforce, and what this will likely mean for the worker of the 21st century.

To explore this topic we must first answer a couple of rudimentary questions about artificial intelligence, which in the context of the workplace is oft referred to as autonomics or robotic automation.

So what exactly is meant by the term Artificial intelligence?

The AI from the movies, is better known in the biz as general AI. This is the type of AI which is intended to replicate human-like intelligence, movement, emotion, and dare I say it – even consciousness. Given that we are likely centuries away from mastering the human brain and body, I think it is safe to assume that we won’t be “playing god” any time soon. Let’s take manufacturing souls off the table and focus primarily on the type of AI which is developing at quite a rapid clip.

The type of artificial intelligence that is referred to in the context of business automation is called specific AI. This is the type of AI which creates rule base machines capable of learning and adapting behavior to perform a specific task. With specific AI, you should be thinking less Terminator or Johnny 5 (love Short Circuit) and more Watson – the IBM omnipresent computer.

Despite being disappointed that Watson defeated my man Ken Jennings, the future of fairly routine processes, is definitely going the way of Watson. Specific AI, will create learning computers which are capable of performing routine or rules based tasks which require learning to alter or change behavior. It is likely that this type of AI will be more programmatical and less mechanical, although, if you are comparing this to manufacturing processes, specific intelligence may be able to perform some pretty interesting manual processes – although this will require significant advances in the area of robotics and material science.

Imagine smart systems in your home which monitor and record your behavior as you come and go. This “smart” home built around specific intelligence would be able to up the heat or air conditioning without the home owner even having to lift a pinky. I think this type of AI could also be referred to as intelligence for the lazy man. But for corporations who hire a lot of people to do routine work, this type of technology is and will become very economical.

What kind of work would this intelligence do?

Since the intelligence of the next decade will be primarily rule based, intelligent systems are mostly constrained to solving very specific problems. To date, there are a couple of very interesting “intelligent” like applications which we use on a regular basis. For example, the airline industry is built around the auto-pilot. Without the software to essentially guide and fly the plane while you are in the sky, I imagine that the pilots may be putting in a lot more work hours. The fortune thing about flying is that the plane, takes in environmental parameters which trigger a series of decisions. This type of automated system is really the beginnings of “intelligence” v1.0. Think of systems capable of making decisions based on external outputs.

If you think of Watson as the next evolution of AI, you end up with a computer that is capable of processing information faster than the human brain. Essentially Watson is capable of taking unknown inputs and quickly querying data sets to produce a statistical model for answering questions. Again all rule based, but Watson’s primarily logic is based on probabilities and sequencing of questions. This type of AI would be incredibly useful for linear input and output type equations.

When we start talking about specific AI today, we are talking about computer systems which are capable of making decisions. These decisions are not made based solely on programmed “logic” nor are they based solely on probabilistic expectation. Instead these machines would base their decisions on “experience” along with probabilistic expectation. As these machines continue to perform tasks, they will continue to get “smarter” and more efficient at their jobs – similar to the way that human beings become more productive today. This is where modern Ai, what I would call v3.0, is distinguishing itself from previous examples of adaptive and smart technology.

Ultimately later phases of this type of specific AI would start to incorporate new features including mechanical and digital integration to not only perform tasks which are codified but also those which are manual or physical in nature or even those that require some moderate level of intuition.

What are the implications of artificial intelligence?

The future of artificial intelligence will have significant implications to the social, economic, and political fabric of the world and the people / institutions that make it up. Today, while aspirational, we are still quite a ways away from having humanoid robots walking the earth. I would venture to guess, however, that we are on the cusp of focused implementations of artificial intelligence for rudimentary process oriented or rules based work. Think any type of transactional type processing work which may happen at home or within a business. Further down the line, we may see more advanced implementations like autonomous vehicles or fully integrated smart systems – although these types of intelligent systems may require significant upgrades to underlying infrastructure.

Ultimately, artificial intelligence will continue cross over between logical and physical systems via integration, however, the future of humanoids is really a long way away. I do not imagine that we will have walking, talking, humanoid surrogates roaming the earth within my lifetime or even several lifetimes thereafter. I do expect, however, that many of the advancements made in manufacturing automation and intelligence to make their way deeper into the workplace and even our homes – ultimately, making our lives much more convenient. On the other side of this coin, I could be way wrong and we could be looking at a dystopic future similar to that of The Matrix. I guess the point here is that if artificial intelligence can be thought up, it will ultimately become a reality – at least under conditions where it is commercially feasible and ethically bound.

For additional examples of robotics and artificial intelligence please feel free to visit the following hyperlinks:

Paro the Therapeutic Seal

Pleo the Robot Dinosaur

Aibo the Robot Dog

Machine Intelligence Research Institute

Artificial Intelligence will not take over Businesses


Airlines: Love to Hate Them

Whether you are a road warrior, navigating the airport weekly, or a jet-setter, taking long weekends abroad, or even a member of a family, enjoying an annual vacation in Florida, I am sure you have noticed that air travel is an unpleasant experience – often so much so that it may generate a reluctance to ever travel again.

Below I am going to organize the 3 key areas that airlines fail to deliver to their customers and outline a few recommendations to improve the glaring service issues:

Customers Have NO Leverage
Unfortunately like many other products and services, there really aren’t very many unique options when it comes to the airlines.  The cost economies, size, pricing, and service quality for all of the major airlines is almost indistinguishable.  If you do not want to pay carry on baggage fees, the cost just gets buried somewhere else in the total cost of the ticket.  Change fees for flights regardless of the total cost can range anywhere from $0 to $200, irrespective of the cost of the ticket – forget any flexibility.  It can be extremely discouraging when dealing with the airlines because their service model is truly based on moving bodies throughout the sky and not creating a model that favors customers.  If your service is really that bad you can change airlines with no guarantee that the service will be any better.

Ticketing Woes

Loyalty Programs Alienate
For the 1% of frequent travelers, airline loyalty can be an extremely valuable, for those that do not fall into that category, you will be treated as a second or third class citizen regardless of your true loyalty.  In order to make it into the 1% you need to travel multiple times a week, consistently, and with the same airline – even for road warriors this can be daunting.  For those that travel frequently, you achieve basic benefits like security and boarding line priority.  This feature sounds like something fantastic, however, most business travelers generally travel during the same times during the day, often diluting the overall value of the loyalty.  Overall, the rewards programs are extremely generic and the rewards do not offer much value unless you manage to make it into the very select group that achieves lifetime status, point bonuses, and club access – otherwise, you are just in the same bucket as everyone else.  Hopefully in the near future, airlines begin to reward frequent fliers and loyalists who migrate to a different airline and potentially shift the reward incentives to a miles based system to a price model.

Why Loyalty Programs Alienate Great Customers

Lack of Transparency
Unlike other modes of transportation, the airline industry is uniquely susceptible to cancellations and delays due to degraded weather and safety compliance.  The safety record for the airlines is impeccable, particularly compared to other modes of transportation, however, despite this incredible safety record, the airlines delay and cancel flights daily.  Every airline delay or cancellation is always best explained by a concern for passenger safety: maintenance, random inspections, acclimate weather, etc.  Unfortunately, regardless of what they say, not all cancellations and delays are due to passenger concerns for safety.  There is an implicit premium paid for air travel to ensure that customers get to their destination safely and in time, else, why would anyone travel via airlines when they could drive or take the train in the same amount of time. In order to avoid a mass hysteria, it is preferred for the airlines to keep any mechanical or human error issues to themselves; however, under circumstances where customers are impacted by service blunders, they should be deliberately transparent.  It is often the case that airlines try to cover up or hide their operational failures.  Additionally, many of the fees that are charged by the airlines are incremental and offer little to no transparency to the customer as to what exactly they are paying for.

Air Travel Consumer Report

Overall, the airline service model has a long way to go in order to compete with what I believe is superior service and pricing offered by other modes of transportation.  Once you buy a ticket with an airline you are essentially at their mercy with little to no control over the outcome – from door to door.  I hope that in the near future, given most of the consolidation occurring in the industry, that the airlines increase transparency, restructure their loyalty programs, and reduce customer vulnerability.

Application of the Prisoners Dilemma: 3rd Party Contracts

Today I brainstormed a method to apply Prisoner’s Dilemma to 3rd Party Contracts.  For those who are not familiar with the Prisoner’s Dilemma, I recommend reading the book entitled “Prisoner’s Dilemma” by William Poundstone”.  The Prisoner’s Dilemma is defined as follows:

A paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome. The typical prisoner’s dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result of following a purely logical thought process to help oneself, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process. – Investopedia

Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated the prisoners, visit each of them to offer the same deal. If one testifies for the prosecution against the other (defects) and the other remains silent (cooperates), the defector goes free and the silent accomplice receives the full one-year sentence. If both remain silent, both prisoners are sentenced to only one month in jail for a minor charge. If each betrays the other, each receives a three-month sentence. Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act? –Wikipedia

Similar to the Prisoner’s Dilemma, within 3rd party contracts, the optimal outcome for both parties is to mutually cooperate.  This outcome when applied ensures a healthy business relationship through operating efficiency, mutual profitability, effective communication, and shared outcome.  Unfortunately, much like the Prisoners Dilemma, mutual cooperation is least like to occur naturally, specifically when evaluated over many iterations.  In the context of contracting, defection amongst each party is probably the most natural outcome, and will result in conflicts, disputes, service reductions, scope changes, employee turnover, errors, etc.

Below I have outlined the Prisoners Dilemma assumptions and scenarios in the context of 3rd party contracting and recommended several considerations that firms can apply to optimize iterative outcomes.


  • Contractors and customers want to maximize their own benefits
  • Singular defection between the contractor and costumer produces the most severe penalty for the cooperative party
  • Mutual defection between the contractor and customer produces the most severe outcome for both parties
  • Cooperation produces mutual benefit


Cooperate / Cooperate: 3rd party relationships are often most effective when both parties cooperate.  Cooperation can be defined by the contractor and customers mutual collaboration in service delivery, planning, and conflict resolution.  Each party has a mutual understanding for the needs of the other, including their demands for profitability, quality of service, knowledge development, and talent retention.  This outcome is often difficult to accomplish with 3rd party contracts because it requires a level of transparency which most firms are likely to be wary of, particularly in the context of divulging too much information critical to the livelihood and long term strategy of each firm.  A contractor who cooperates, adapts to the client needs, is proactive about identifying areas of improvement, yields a healthy profit to achieve the objectives of the firm, and still satisfies the expansive needs of the client.  A client who cooperates, proactively works to resolve issues internally to alleviate conflicts, yields the appropriate value for the services delivered, and continuously works to build a longstanding and healthy relationship.  The contracts in a cooperative vehicle are the guidelines for engagement and not the rules.  This scenario is also the least likely to occur because self interest and changing business needs may require one party to temporary sabotage the cooperative benefits.  On an iterative basis, once defection has been implemented by one party, it is difficult to return to mutual cooperation.  Well structured 3rd party contracts can help to alleviate the probability of defection; however, cooperation is never guaranteed.

Defect / Cooperate:  This scenario represents the most likely scenario to occur amongst 3rd party contractors and customers.  Within complex business relationships, each party from time to time will exercise their right to pursue their own self interest, resulting in a scenario that is not necessarily favorable for their counterpart.  In 3rd party contracting, defection / cooperation may be marked by reductions in service, commitment, resources and an increase in escalation, exception, and dispute.  Unlike the defect / defect scenario, which produces a disruptive stalemate, the defect / cooperate scenario generally represents a give and take relationship that occurs between 3rd parties and their customers.  When a self interest becomes a critical issue, either the customer or 3rd party will exert their defection position to satisfy that need.  In general, 3rd party contracts should be structured to provide a framework for managing defection.  Well written contracts and documented processes by nature produce relationships in equilibrium.  Equilibrium scenarios produce an outcome, whereby, the customer defects in one iteration and contractors defect in the following iteration.  Defection / cooperation does not have to occur on a sequential process; however, over time the defection / cooperation procedures should converge at a natural balance point (ideal would be 50/50).

Defect / Defect: Mutual defection outcomes are the most destructive to the customer and 3rd party contractor on an iterative business.  This scenario can be identified by legal ramifications, constant disputes, high employee turn over, irreparable relationships, unacceptable service quality, financial penalties, or breach of contract.  Mutual defection is the least desired outcome and is most likely the result of a contract that either provides way to much rigidity that the 3rd party cannot deliver on their expectations or the customer cannot accommodate expansion in their business portfolio.  Defection can also be defined by limited capabilities, capacity, or poor financial performance, which results in each party sabotaging the performance of the other.  Mutual defection would most likely result in contract termination or renegotiation and is often a direct result of poor or ineffective contracting procedure.


  1. Understand your contractors likelihood to defect (retaliatory or instinctive)
  2. Understand your own likelihood to defect (retaliatory or instinctive)
  3. Establish minimum requirements to align with desired outcome
  4. Identify and define cooperative processes and benefits with 3rd parties
  5. Create 3rd party contracts that reward cooperation and penalize defection

Follow-up Questions:

  • What are a few examples of cooperation amongst customers and 3rd party contractors?
  • What are a few examples of defection amongst customers and 3rd party contractors?
  • How do I evaluate the likelihood of defection or cooperation amongst contracting parties?
  • How do I create cooperation amongst defect / defect iterative loops?
  • Can defect / defect relationships be managed back to a more manageable scenario?

Part 3: Are Newspapers Buggy Whips?

As a continuation of my previous posts on the newspaper industry, I aim to provide additional insight into the business fundamentals at the firm level.  Thus far I have provided a brief over view of industry trends via circulation and advertising, in addition, to providing a broad overview of the publishing industry in aggregate.

Gannett Corporation (GCI)
Business Summary:
Gannett Co., Inc. operates as a media and marketing solutions company in the United States and internationally.  It operates in three segments: Publishing, Digital, and Broadcasting.  the Publishing segment publishes 83 U.S. daily newspapers with affiliated online sites, including USA TODAY, a general-interest daily newspaper; USATODAY.com; USA WEEKEND, a magazine supplement for newspapers; Clipper magazine, a direct mail advertising magazine, bi-weekly Nursing Spectrum and NurseWeek periodicals; and military and defense newspapers.  the Publishing segment also includes 17 paid-for daily newspapers; approximately 200 weekly newspaper, magazines, and trade publications; and approximately 650 non-daily publications, as well as involves in commercial printing, newswire, marketing, and data services operations.  The Digital segment owns and operates CareerBuilder, an employment Web site, which offers job postings and related products to employers; provides multi channel shopping and advertising services; digital marketing services and technology; hosted search and advertising services; scheduling solution for high school athletic departments; and social media technology and services; scheduling solution for high school athletic departments; and social media technology and services. The Broadcasting segment operates 23 television stations and affiliated Web sites, which produce local programming, such as news, sports, and entertainment programming.  This segment also includes Captivate Network, a news and entertainment network that delivers programming and full-motion video advertising on video screens located in elevators of office towers and select hotel lobbies.  The company has strategic business relationships with online affiliates, including Classified Ventures; Topix, and Metromix LLC. Gannett Co., Inc. was founding in 1906 and is headquartered in McLean, Virginia.

Business Summary:
The McClatchy Company operates as a newspaper publisher in the United States. The companys newspapers include the Miami Herald, The Sacramento Bee, the Fort Worth Star-Telegram, The Kansas City Star, The Charlotte Observer, and The (Raleigh) News & Observer.  As of December 27, 2009, it owned 30 daily newspapers and approximately43 non-dailies in 29 markets.  The company also operates local Websites that offer users information, comprehensive news, advertising, e-commerce, and other services, as well as engages in direct marketing and direct mail operations.  In addition, it owns a portfolio of digital assets, including 14.4% of CareerBuilder LLC, an online job site; and 33.3% of HomeFinder, LLC, which operates the online real estate Website HomeFinder.com, as well as 25.6% of Classified Ventures LLC, a newspaper industry partnership that offers classified Websites, such as the auto Website, cars.com and the rental site, Apartments.com.  The McClatchy Company was founded in 1860 and is headquartered in Sacramento, California.

The Washington Post (WPO)

Business Summary:
The Washington Post Company, together with its subsidiaries, operates as a diversified education and media company in the United States and internationally. It provides a range of educational services, including postsecondary and career programs, English-language programs, and tutoring offerings, as well as operates fixed-facility colleges.  In addition, it provides cable television services consisting of video, Internet, phone, cable modem, digital and basic cable, and other services to subscribers in the midwestern, western, and southern states.  Further, the company publishes and distributes The Washington Post, a morning daily and Sunday newspaper in the Washington, D.C. metropolitan area, including portions of Maryland and northern Virginia.  Additionally, it produces washingtonpost.com, which features news and information products.  The company also conducts television broadcasting operations through its six VHF television stations serving the Detroit, Houston, Miami, San Antonio, Orlando, and Jacksonville television markets; and engages in commercial printing business.  The Washington Post Company was founded in 1877 and is based in Washington, the District of Columbia.

Part 4: Are Newspapers Buggy Whips?

While I do not believe that in their current form that newspaper companies will exist in the future, I believe that many of the “newspaper” organizations are well positioned to profit from what I would consider to be a major trend on the internet that I prefer to identify as ‘localization of content’. By this, I mean that customers require news content, advertisements, job postings, classifieds, coupons, obituaries, and periodicals pertaining to issues and events that are occurring within their particular community.  The medium and form is with which individuals choose to receive their content is clearly shifting. Without credible  and localized content developers there is no credible source for information at the community, city, or state levels.  All businesses require a feedback loop with in their operating areas so that they can ensure that the customers in the primary markets that they serve have access to the appropriate products and services.  A world absence of localization could become very expensive for businesses advertising on the web and extremely inefficient.
With that said, it is important to acknowledge that many of the large newspaper firms have struggled to take their nationalized news brands to the internet.  Niche newspaper providers like the Financial Times and Wall Street Journal have been a lot more successful implementing an online pay model.  This success can be atributable to the specialized nature of their content and ability to charge for this based on consumer demand.  The demographic for specialized newspapers varies from national papers like the Washington Post, USA Today, or New York Times.  Generally audiences appear to be younger and much more technology saavy, which lends itself to the implementation of a pull content model.
It should be noted that over the last several years, the larger traditional newspaper providers have been diversifying their businesses through the acquisition of internet based information services platforms.  Gannett specifically has increased its position in Careerbuilder several times, in addition, to making additional investmetns in websites like Shop Local.  It has yet to be seen whether the traditional newspapers can integrate these web services into their news content delivery and advertising model.  Fully integrated sites like Google and Bing pose serious competition to advertising revenues; however the decoupling of advertising and content, makes it difficult for those sites to provide the kind of value that newspapers can potentially deliver.Overall, like everyone else I continue to remain skeptical about the ability of the newspaper industry to transform itself into a modern day goliath.  The lack of responsiveness to a changing market, which could have been predicted nearly a decade ago, aging and legacy management, and a lack of direction, indicate that news paper firms are not a viable option in a long term investment portfolio.  All of the firms previously listed are trading at discounts to both book value and earnings, which tend to make them somewhat attractive; I however, view these opportunities as value traps.  Continual erosion of market share, lack of barriers in an online environment, poor management, and major business strategy flaws make me extremely concerned.  News papers are not going to go away in my life time; however, they will certainly operate in an entirely different fashion than they are currently.  Technology and content production and dispersion methods have changed entirely from the good old days .  I am thankful that I no longer have to get my hands dirty with running ink nor trip on the brick of a newspaper in the driveway on my way to leave for work.

Calling newspaper companies buggy whip manufacturers may be a bit extreme, particularly since the do produce and provide more valuable services.  It may not be more than a few years before a physical newspaper is all but history.

Part 2: Are Newspapers Buggy Whips?


Either this is a game of battleship or someone is reading a newspaper.  Yep…definitely a newspaper.

Before making my final conclusion pertaining to the industry, it is important to take a deeper dive into the financials of the publishing industry.

Trading Multiples
From 2006 to 2010, the performance of publishing sector stocks have been anemic.  At first glance, it may appear as though multiple expansion is a positive development for shareholders; however, a closer look reveals that this expansion is not indicative of investor sentiment towards future industry prospects but is more or less a result of rapidly declining earnings compared to market declines.

  • From 2006 to 2009, publishing TEV / Revenue multiples contracted from 0.9x in 2006 to 0.8x in 2009.  During the latest period, TEV / Revenue multiple remained at 0.8x.
  • From 2006 to 2009, publishing TEV / EBITDA multiples contracted from 8.9x in 2006  to 5.6x in 2009.  During the latest period, TEV / EBITDA multiple was 6.0x, representing a slight expansion from 2009.
  • From 2006 to 2009, publishing TEV / EBIT multiples contracted from 13.3x in 2006 to 9.7x in 2009.  During the latest period, TEV / EBIT multiple was 10.9x, representing a slight improvement from 2009.
  • From 2008 to 2009,  publishing P / E multiples expanded from 4.5x in 2008 to 5.0x in 2009.  During the latest period, P/E multiple was 12.9x, representing a significant improvement from 2009 levels.
  • From 2006 to 2009, publishing P / BV multiples remained relatively flat

Profitability and Margins
Unlike many of the trends pertaining to the marketability of publishing stocks, publishing organizations are actually improving profitability metrics across the board.  The market crash and subsequent recession in 2007 and 2008, has caused the industry to take drastic steps to reduce headcount, discretionary spending, and capital expenditures; however, this is most likely not the appropriate rationale for sustainable profitability and long term performance. As we will see in other operating metrics, the returns in the publishing industry are mostly likely attributed to operational efficiency instead of margin expansion or growth.  The table below indicates that the publishing industry has improved asset and capital based profitability measurements and has faced issues in terms of equity based profitability.

  • From 2006 to 2009, Return on Assets (ROA) declined from 5.0% to 4.4% respectively.  During the latest period available, ROA modestly increased to 5.3%.
  • From 2006 to 2009, Return on Capital (ROC) declined from 7.1% to 6.25.  During the latest period available, ROC increased modestly to 7.4%.
  • From 2006 to 2009, Return on Equity (ROE) declined from 13.6% to 5.3%.  During the latest period available, ROE increased from the 4 year low to 5.4%.

Margin analysis paints a picture that is much less hopeful than that offered by the profitability measurements.   Based on the results below, it is apparent that the publishers are effectively managing their cost of goods sold and operational expenditures to the best of their ability; however, they are accomplishing this at the risk of deploying leverage.  Future implications of leverage is unknown; however, recently The Chicago Tribune filed for bankruptcy, mostly due to leverage, which crippled the business as advertising and circulation declined immediately prior to the “mortgage crisis”.

  • From 2006 to 2009 gross margins expanded from 40.9% to 41.5%.  During the latest period, gross margins were listed at 41.0%.
  • From 2006 to 2009 sales, general and administrative (SGA) margins contracted from 30.9% to 29.4%.  During the latest period, SG&A margins were listed at 29.5%, reflecting an increase of .1%.
  • From 2006 to 2009, EBITDA Margin % increased from 10.1% to 13.8%.  During the latest period, EBITDA margins were lsted at 12.8%, a decrease of a 1.0%.
  • From 2006 to 2009, EBITA margins increased from 6.7% to 8.0%.  During the latest period, EBITA margins were listed at 7.1%, a decrease of .9%.
  • From 2006 to 2009 EBIT margins increased from6.7% to 8.0%.  During the latest period, EBIT margins were listed at 7.1%, a decrease of .9%.
  • From 2006 to 2009 earnings from continued operations declined from 4.0% to 2.0%.  During the latest period, earnings from continued operations were listed at .9%, reflecting a decrease of 1.1%.
  • From 2006 to 2009, net income margin decreased from 3.7% to 1.9%.  During the latest period, net income margin was listed at .9%, reflecting a decrease of 1%.

Similar to the profitability and margin trends, the solvency picture for publishers is also becoming a major problem for the industry.  From 2006 to 2010, debt to capital ratios have nearly doubled, indicating that many of the publishers have increased their debt burden amidst an unfavorable economic environment and limited industry prospects.  Additionally, this has caused interest coverage ratios to decline and debt to profitability ratios to rise.  Due to industry wide reductions in capital expenditure, measurements based on profitability adjusted for capital spend are declining at a much lower pace than traditional solvency metrics.  Many of the competitors in the publishing industry will become insolvent within the next 10 years as the decline in newspaper sales are offset with increased debt burden.

  • From 2006 to 2009, total debt / equity increased form 28.5% to 102.2%.  During the latest period, total debt / equity was listed at 99.1%, representing a slight, however, anemic improvement.
  • From 2006 to 2009, total debt / capital increased from 21.7% to 41.0%.  During the latest period, total debt / capital decreased to 40.9%.
  • From 2006 to 2009, long term debt / equity increased from 37.4% to 83.8%.  During the latest period, long term debt / equity decreased to 78.8%.
  • From 2006 to 2009, long term debt / capital increased from 21.6% to 25.6%.  During the latest period, long term debt / capital decreased to 25.3%.
  • From 2006 to 2009, total liabilities / total assets increased from 46.4% to 69.8%.  During the latest period, total liabilities / total assets declined to 69.1%.
  • From 2006 to 2009, EBIT / interest expenses declined from 5.7x to 3.4x.  During the latest period EBIT / interest expenses declined to 2.9x.
  • From 2006 to 2009, EBITDA / interest expenses declined from 8.7x to 5.8x.  During the latest period, EBITDA / interest expenses declined to 5.2x.
  • From 2006 to 2009, total debt / EBITDA increased from 1.5x to 2.5x. During the latest period, total debt / EBITDA increased to 2.7x.
  • From 2006 to 2009, net debt / EBITDA increased from .4x to 1.6x.  During the latest period, net debt / EBITDA increased to 1.7x.

To reiterate many of the common themes that the publishing industry is facing, lets look at the growth trends over the last 5 years.  From 2006 to 2010, publishers have seen moderate hope in terms of total revenue, gross profit, EBITDA, and EBIT.  It is arguable whether the declines of 2006 to 2007 are a result of decreased pricing power or increased cost of goods; however, it is expected that pricing power will erode into the future and input costs (i.e. ink, paper) are expected in increase exponentially over the next 5 years. Additionally, the increased leverage that many of the firms have deployed over the last 5 years has drastically impacted net income and free cash flow performance.

  • From 2006 to 2009, total revenue growth has improved from -6.3% to 2.4%.  During the latest period, one year revenue growth increased to 4.8% (unadjusted for seasonality).
  • From 2006 to 2009, gross profit has improved from -4.3% to .9%.  During the latest period, one year gross profit growth increased to 2.0%.
  • From 2006 to 2009, EBITDA growth has improved from -2.9% to 10.3%.  During the latest period, one year EBITDA growth declined to 7.1%.
  • From 2006 to 2009, EBIT growth has improved from -1% to 17.9%.  During the latest period, EBIT growth declined to 11.4%.
  • From 2006 to 2009, levered free cash flow growth declined from -15.5% to 20.5%.  During the latest period, levered free cash flow growth declined further to -21.5%
  • From 2006 to 20009, unlevered free cash flow growth increased from -18.3% to -11.6%.  During the latest period, unlevered free cash flow increased further to -10.7%.

Reviewing the financial data of the publishing industry has confirmed the industry outlook supported by circulation and ad revenue trends.  In addition, the financial measurements previously stated support many of  criticisms made by analysts and the media, particularly in the context of additional debt burden and margin contraction that many of the publishers are facing.  While this analysis has pointed out several major issues plaguing publishers, it is important to note that an additional analysis is necessary to truly understand the distinct financial and operational trends facing newspaper publishers explicitly.  In Part 3, I intend to evaluate several major newspaper publishers including Gannett Corporation, The Washington Post, and The McClatchy Company to isolate these trends in large organizations and determine whether or not newspapers are truly “dead” or whether or not there are value opportunities for conservative enterprising investors.

Data as of 8/28/2010