Q & A

How do markets work in your industry?


Jeff Plewes '07
Senior associate, Energy & Environment, CRA International Summer internship: Prizim

A: If there are going to be limits to the emissions of greenhouse gases, the most efficient and logical way to do it is through the markets. A lot of companies are going to reduce their emissions on their own: it makes a lot of sense for companies to focus on energy efficiency as a cost-saving activity. But once all those low-hanging fruits are knocked off, then you need regulation to cause them to take the next step, and actually to create a market. There will be many business opportunities created by these markets if they are designed well, with both business and society in mind.

Martin Boroson '88
Organizational consultant and speaker

A: I have a slightly oblique take on the question. I've noticed that although we take the efficiency of the free market for granted, most organizations are structured internally like command economies: agendas are set in advance, information flows from the top down, and new ideas have a hard time being heard.

Over the last couple of years I have been providing a form of organizational change facilitation known as Open Space Technology. This is way of organizing a conference for up to several thousand people that is based on the idea of a marketplace — except in this case it is a marketplace of ideas, and an extremely efficient one at that!

An Open Space conference is held to address a carefully determined question, problem, or project, but beyond this, there is absolutely no agenda. At the start, everyone is encouraged to post any idea, related to the topic, about which they feel real passion and will take some responsibility. Within an hour, even a large group can "self-organize" a dynamic conference of up to three days duration.

There are several guiding principles that help this work efficiently. The most important is "The Law of Two Feet," which says that if at any point in a discussion you feel bored — i.e., you're not contributing or learning — just leave: go wherever you feel most engaged. Thus people vote with their feet, and the system selects those issues that are most important. The first thing that tends to happen is a dramatic emergence of new possibilities, and then gradually, there is natural convergence on a few most important ones.

This is a true marketplace of ideas: rather than chaos, there is spontaneous self-organization. The "distributed intelligence" of the entire system is discovered quickly. The inherent potential (which command structures so often inhibit) is released. And people are empowered to take personal responsibility for their ideas and their work.

It's remarkable how rarely senior managers rarely trust the concept of the market within the little economy of their organization. But I believe that system can solve its own problems…if managers learn how to get out of the way.

Jeff Russell '08
Summer Internship: Momentum Group
Pre-MBA employer: PACCESS

A: Nonprofits compete in a "funding market" for funds from institutional sources and smaller private donors. Institutional donors tend to support larger nonprofits; private donors gravitate towards smaller nonprofits, because they like to be big fish in smaller ponds. Those small nonprofits are needed to fill niches in society, but they have almost no economy of scale, so they spend disproportionately on administration. And if they grow and achieve some scale, they begin to neglect the niches that they originally sought to serve — and private donors become less interested because their impact is more dispersed. This schism in the market has created an inefficient market for funding nonprofits.

One simple solution is to create third-party service providers to consolidate services, creating economies of scale for small organizations and allowing them to continue to stay small and innovate.

Kenneth Kring '82
Managing Director, North American Education Practice,
Korn/Ferry International

A: I am afforded an interesting view of the market for leadership in academic institutions. Leadership tenure in higher education has extended and the population of leaders has been getting older. This is certainly different from the corporate sector, where tenure in most industries is trending to shorter stints. A few things seem to be occurring to influence this protraction in higher education: The requirements of leadership have grown more complex and, therefore, more demanding — leaders not only need increased fundraising and financial skills, but are expected to lead an unwieldy institution, almost with a kind of omniscience. And, academic institutions are typically not geared towards succession planning, so change is dreaded and, when possible, transitions are avoided. As baby boomers who hold these top jobs age, academic institutions are required to go beyond traditional talent pools to find suitable experience and capabilities. Decision makers — trustees and academic search committees — are beginning to show more interest in candidates whose principal experience comes from outside of the academy. Over time, I believe that sheer demographics are going to necessitate a shift to a more open mindset.

Charlotte Kaiser '07
Citi Community Capital

A: Markets can be tools for changing firm behavior. Traditional command-and-control environmental regulations don't capture the benefits of environmental protection. For example, there is an environmental benefit associated with high-density development that might not be captured in the price of the home — watershed quality or habitat protection. If you can create a structure that allows businesses and people to be paid to protect those goods, to bring them into the market, then that will change behavior.

Tiffany Hunold '08
Summer internships: Sesame Workshop; André Soluri, Architect
Pre-MBA employer: Tiffany Hunold Creative Consulting

A: Art is becoming more and more an investment tool — for better or for worse. Many people talk about art as a tool for portfolio diversification. The unique thing about the art market is that we're talking about unique pieces: one painting is not the same as another. Unlike the stock market, which is a unified market, the presence of galleries, auction houses, and private dealers means that there is no one real price. In the art market, timing, experience, connections, and up-to-date knowledge are crucial. There are indices and websites, and prices have become a little more transparent, but I wonder how efficient the market in (contemporary) art can really be.