Power-Law Distribution

 

“Do right, use your head.”
— Blind Faith, “Do What You Like,” 1969

The business phrase “power-law distribution” is borrowed from the physics field, where it defines both probability patterns and particle distribution. An example might be predicting networked behavior or defining patterns on a magnetic surface that’s been peppered with steel shavings. In business terms, power-law distribution explains, among other things, why some enterprises succeed and others fail, or my favorite question — why the world’s wealth is so unevenly distributed. It’s also used to explain Web behaviors.

Economists diagram power-law distribution numbers into an L-shape graph in which the vertical (back) line represents the successful few. Theoretically, the horizontal line, the one representing less-than-stellar results, can extend outwards indefinitely. In business, it symbolizes multiple niche markets that may have a communal value — copy shops as viewed by Boise Cascade, for example.

New York magazine writer Clive Thompson, in his February 20 article “Blogs to Riches,” associates power-law distribution to blog sites and explains why some sites draw more attention than others. However, Thompson adds that the power-law theory isn’t restricted to the Web. It also inhabits social and business systems. He believes quirky human behavior fuels power-law distribution; other analysts add preternatural facets to the mix.

Curious, after having read Thompson’s article, I researched how to master the power law, to get to the top. After all, every theory has an anti-theory — so how does one leverage the power-law distribution theory? Thompson said being first to market helps, but this isn’t the only answer. And, we’ve all seen successes that include odd circumstances — the preternatural part. There’s also luck. And hard work.

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In a March 27 U.S. News and World Report story, “Maxims in Need of a Makeover,” writer Justin Ewers quotes Stanford University management professors Jeffrey Pfeffer and Robert Sutton’s new book, Hard Facts, Dangerous Half-Truths and Total Nonsense: Profiting from Evidence-Based Management. Contradicting the power-law distribution “be first” rule, the professors remind readers that Windows® is a copy of Mac, Internet Explorer followed Netscape, and that Apple wasn’t the first to sell MP3 players. Nor was Wal-Mart the first discount store. Coming in second, they said, may be the most cost-effective method.

Thompson’s story has a singular focus. In an almost home-business view, he tells of blogs gaining profits through clicks and links, but, as it is with such enterprises, he doesn’t address such unexceptional measures as marketing or advertising, even though, for a corporation, these — along with quality products and excellent performance — are the obvious power-law antithetic, the ladder to the top.

It all goes back to leadership — the CEO’s personal philosophies and methods for running the company. He or she determines the R&D budget, the component and parts grade levels, manufacturing methods and quality control. On these, a manager can run up or down scale and thereby affect a product’s quality.

A excellent example is Durst’s glass-enclosed clean room in Lienz, Austria, where uniformed employees test, classify and incorporate Spectra’s piezo-electric nozzle plates into Durst’s special-use Quadro™ Array printhead system. Obviously, Durst’s top executives weren’t happy with an “out-of-the-bin” system and made a costing decision that improved their product.

Roland DG’s new plant (Hamamatsu, Japan) uses a super-flexible, work-flow system — one that comprises wheeled tool and supply bins – carts – that can be moved, arranged and organized to fit a particular product’s assembly needs. In Japanese, yatai means “cart” or “stand.” Roland calls its system “digital yatai.”

Each station is also equipped with an instructional computer system, a benevolent helper, if you will, that, by displaying visuals, clearly informs the fabricator of each, progressive assembly step. It’s a progressive, quality-control system that also counts and orders supplies.

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A further Roland, quality-control upgrade, each yatai station includes a set of electric, torque-set screwdrivers with a built-in, radio-frequency-identification (RFID) system that monitors the screwdriver’s torque output (via its electrical current demand) to verify that all screw fasteners are properly installed. Simply put, torque equals amps.

The screwdriver’s RFID system is designed to respond to a specific amp load over a predetermined period — this says the device has produced the required torque. If unsatisified with the result, the RFID transponder emits a signal that alerts the fabricator that a specific screw’s torque isn’t correct. The system also verifies that all fasteners are in place.

Roland builds its new, 104-in.-wide, Advanced JET AJ-100 six-color, high-volume (968/484 sq.ft./hr.), grand-format printer with these systems.

Research and development is another carefully monitored cost, and, interestingly, you’re seeing — but perhaps not noticing — that several progressive, digital-print-machine companies implement not only product improvements, but also applications that may increase business or profits for the product buyers. Roland and Durst do this. Roland also encourages its staff to interact on Internet-based chat rooms, to search further for applications and, if necessary, to act quickly on complaints. These, too, are invisible (and absorbed) costs that bring better service to product buyers.

When looking at overall costs, is adding extra quality or service a true, or calculated, risk? There is no solid answer.

Although engineers make the suggestions, the cost decisions required to create a printhead-redesign facility or implement an extraordinary quality-control system comes from the top, because it adds to the company’s overall cost picture. A proper business manager will regain the extra cost, either by adding it to the printer’s price (which may hurt it competitively) or somehow absorbing the increase, which affects the company’s overall profits. Because buyers will pay more for bonafide quality — the success of the luxury-car market proves this — keen managers will rachet the price up to regain the added expense, but not past their product’s price-range ceiling. They’ll regain the rest through increased sales.

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Business writer Peter Drucker (1909-2005) always had amusing, but appropriate viewpoints. In one of his last interviews, Drucker said, “I was a securities analyst 70 years ago in London, so I can say that no financial man will ever understand business because financial people think a company makes money. A company makes shoes, and no financial man understands that. They think money is real. Shoes are real. Money is an end result. What is a business? The only function of a business is to create customer [value] and to innovate.”