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G100 Network Notebook | April 2012

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How You Can Cut Your Health Care Costs

On May 31st, G100 will host a discussion about how business can manage its health care costs – regardless of how the Supreme Court rules on ObamaCare.  With us will be Ezekiel Emanuel, former White House advisor on health care, and G100 member Joel Quadracci of Quad/Graphics.  When I spoke with Emanuel last week, he told me that Quad/Graphics was “the model for every company that wants to cut health care costs.”  This recent article profiling the company echoes that sentiment:

The company claims its health care costs are a third below the industry average. What’s more, QuadMed has worked so well that the firm now operates clinics for other major employers with 1,000 or more employees on-site, including Northwestern Mutual, Briggs & Stratton Corp. and MillerCoors.  “We have the data to show preventative health care works,” Quadracci said. “We are practicing medicine the way it should be practiced.”

Is Stanford Too Focused on Business?

Stories about how Stanford University has become a breeding ground for future tech millionaires are plentiful.  Ken Auletta offers this useful dissent, arguing that the university has lost its focus on intellectual training:

Stanford’s entrepreneurial culture has also turned it into a place where many faculty and students have a gold-rush mentality and where the distinction between faculty and student may blur as, together, they seek both invention and fortune. Corporate and government funding may warp research priorities. A quarter of all undergraduates and more than fifty per cent of graduate students are engineering majors. At Harvard, the figures are four and ten per cent; at Yale, they’re five and eight per cent. Some ask whether Stanford has struck the right balance between commerce and learning, between the acquisition of skills to make it and intellectual discovery for its own sake.

Does Data Decide Everything?

Superb article on how A/B testing – the data-driven decision model popularized by Google – is now driving everything from headline writing to political campaigns.  The article offers this concise description of how A/B testing works:

Over the past decade, the power of A/B testing has become an open secret of high-stakes web development. It’s now the standard (but seldom advertised) means through which Silicon Valley improves its online products. Using A/B, new ideas can be essentially focus-group tested in real time: Without being told, a fraction of users are diverted to a slightly different version of a given web page and their behavior compared against the mass of users on the standard site. If the new version proves superior—gaining more clicks, longer visits, more purchases—it will displace the original; if the new version is inferior, it’s quietly phased out without most users ever seeing it. A/B allows seemingly subjective questions of design—color, layout, image selection, text—to become incontrovertible matters of data-driven social science.

Japan is Shrinking

At our G100 dinner last fall, Blackrock’s Larry Fink casually mentioned that demographics were going to doom Japan’s economy.  Now demographer Nick Eberstadt, who also spoke to our meeting last fall, provides the details:

Japan is now a “net mortality society.” Death rates today are routinely higher than birthrates, and the imbalance is growing. The nation is set to commence a prolonged period of depopulation. Within just a few decades, the number of people living in Japan will likely decline 20 percent.

China’s Economic Model is Unsustainable

Meanwhile, China’s demographic challenges are mounting.  The Economist offers this detailed report on how China’s aging population has already started to create social and fiscal pressures:

Between 2010 and 2050 China’s workforce will shrink as a share of the population by 11 percentage points, from 72% to 61%—a huge contraction, even allowing for the fact that the workforce share is exceptionally large now. That means China’s old-age dependency ratio (which compares the number of people over 65 with those aged 15 to 64) will soar. At the moment the ratio is 11—roughly half America’s level of 20.

How to Engage China Differently

Stanford economist Michael Spence argues that a new model is needed for the Sino-US relationship – one that recognizes that China’s economic needs are changing.

China’s role is changing: once the West’s low-cost supplier, it is now becoming a major customer for Western products. This represents a major opportunity for advanced economies to rebalance their growth and employment, provided that they are positioned to compete for the appropriate parts of evolving supply chains.

How Western companies can both cooperate and compete with China will be a major theme of our June 1st Spring Meeting, which will include discussions with economist Ian Bremmer, Harvard Business School professor Michael Porter, Wendell Weeks of Corning, and Brian Krzanich, the new chief operating officer of Intel.

Why Business Is Leaving California

Earlier this month, The Wall Street Journal published this devastating portrait of the California economy and the politics that make its prospects remain bleak:

As progressive policies drive out moderate and conservative members of the middle class, California’s politics become even more left-wing. It’s a classic case of natural selection, and increasingly the only ones fit to survive in California are the very rich and those who rely on government spending. In a nutshell, “the state is run for the very rich, the very poor, and the public employees.”

The article goes on to note that “millionaires pay a top rate of 10.3%, the third-highest in the country. But middle-class workers—those who earn more than $48,000—pay a top rate of 9.3%, which is higher than what millionaires pay in 47 states.”

Honeywell’s Productivity Story

This glowing profile of Honeywell in The Economist offers a detailed portrait of how “old-economy” manufacturers have become extraordinarily productive over the last decade:

It used to take 42 days to make and deliver a sophisticated toxic-gas detector, for clients including Intel and Samsung; now it takes ten. The production process used to consume the factory floor; now, it uses merely a quarter of it. This has freed up the rest of the factory to make lots of other products.

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