[MUSIC] Hi everybody. My name is Rolf Strom-Olsen. I'm a professor here at the IE Business School in Madrid. I'd like to warm warmly welcome you to the class. I'm very happy that you're taking the class. And so what I'd like to do in this in this introductory video is just very quickly to run through the syllabus and talk a little bit about what you can expect to see during this class. I'm also going to talk a little bit about the evaluation procedures that we have for this class. And finally, I have a little story for you which will explain something of the methodology that we'll be using in this class. So if you'll stick with me, I'll, I'm going to go run through the syllabus very, very, very briefly. [MUSIC] The first two weeks are drawn from the same reading. This is er, a, a reading that that I wrote about the Roman grain trade of all things. We're going to go back 2000 years ago and look at how the Romans managed to bring grain to the city of Rome which was a, a very large city. The first week we're actually going to use that that topic to discuss the very fundamentals of what a market is and what a firm is in the context of a, of a market. So we're going to understand a little bit about the mechanics of a market, and we're going to ask some very basic questions about the firm. We're going to set out some basic terminology about the firm. Why does the Roman green trade matter to us. It probably surprised you to see that the Romans had this kind of tax credit policy in order to encourage certain kinds of of trade. So if you predicted that a market that doesn't have information cannot actually bring green to Rome. What's the precondition for capitalization, knowing something about the returns your capital is going to generate. That question was relevant 2,000 years ago. That question is still relevant today. [MUSIC] Following that, we're going to be picking up on one of the themes that we considered in the first week. And so in the second week we're going to be looking at a scheme that many firms employ today to monitor their employees, which is a way of controlling what we call agency costs. And we're going to be looking at the mechanism that firms use called the force distribution ranking scheme. Or is it the force ranked distribution scheme? I can never remember. Well, one of the two. Anyway, we're going to be looking at that, and we're going to be evaluating it to see what kinds of outcomes it generates for firms informed by actually the Roman case that we have still before us. It's known as the forced distribution ranking scheme. But many of you will know it as up and out. Stack and Rank. Rank and Yank. How many of you in this room have been ranked and yanked? Hands up. Okay quite a few. Since the 1930s, the average life expectancy of a firm has fallen by more than half. So there seems to be any number of reasons why, perhaps you might end up with sub-optimal outcomes as a result of a scheme like this. It's a critical question for our general capitalist economy. And it's a critical question we will be considering over the rest of this class, indeed. [MUSIC] In the third week, we're going to be turning attention to perhaps what is the most over used buzz word in business today, innovation. We all know about innovation. You have to innovate this. You have to innovate that. We're going to be asking a very simple question. What on earth is innovation? What does it mean? Can we define it? So in that week, we're going to be turning our attention to a reading called the box, which is a very interesting history of, of all things. The shipping container. I know it doesn't sound very interesting, but trust me, it's actually a fascinating story. And we're going to be using that particular example to try and unpack the meaning of innovation. And see what what comes out of that in terms of devising a way of thinking for a good strategic management outcomes. I've made the choice, I've make, I've made, I've made the commitment. I'm going to innovate. Where do I start? What do I do? Innovation is a nice term for us, because innovation is prescriptive. It tells us if you innovate, you will grows [UNKNOWN]. Because the story that we attach then to the rise of the shipping container is in a way the very story of globalization itself. [INAUDIBLE] Without the innovator, you don't actually have the innovation. Is Malcolm McLean, outside perspective, relentless focus on solving problems, tremendous appetite for risk. A classic story of an innovator. Achieving great success and transforming the world. What's the problem with that reading of this change? [MUSIC] In week four, we have a bit of a bundle for you. In week four we're going to be doing everything from watching a very brief snippet from a Hollywood film to looking into the Bible. To exploring the behavior of home buyers in a housing bubble. The purpose of this is to try and develop a concept of what I call narrative. And to use that concept then to explain a little bit about some of the problems that can sometimes afflict us in terms of the decision making that we bring to to issues. If I give you the word entrepreneur, who do you think of? Okay, in one week, Paul and Karen are getting married. [LAUGH] What kind of a movie is this? What kind of a person is it who says, why have you betrayed me? So this is taken from the so called four conical gospel. To put this in perspective, Bernie Madoff was only giving his clients six, seven in change. Only an idiot would not take this investment opportunity, would they not? That was the story that San Francisco's were telling themselves about their market. Was it true? No. Did it support their market? No. One of the things that we find, Allan Green's been saying. This is a new market. There are new ways of dispursing risk, more effecient than ever. And we should just leave it alone. And everything will be fine. [MUSIC] Week five the homestretch. We're going to be looking at the issue of the shareholder value paradigm. Shareholder value theory is the dominant governance mechanism for many firms today. We're going to be looking at where it came from, whose interests it serves, and whether it's a good idea. But I'm also interested in why things occur when they occur. Why is it that it takes the 1970s to drive shareholder value as an idea? If that is true, what it means is that we're looking at an entirely new form of corporate governance that was occasioned by essentially a demographic accident. Competence, what was Sarah Lee's core competence, it was in fact a brand. If you'd like to find out what happened to Sara Lee, it's been in the news recently. You can Google Sara Lee, you can find out where it is today, What's good for the country is good for the firm and vice versa. Is that good for the country? Is that good for the firm? And if it's not, it suggest that there's a failure. [MUSIC] Finally, week six before we all get to go home. We have a couple of case studies for you. We're going to be taking a look at two companies that are in the news. And we're going to be looking at their experience and using the experience of those two companies to try and wrap up many of the themes and threads that we've that we've woven during the course of the of the class. And try and develop a kind of summary of the material that's that we've put into play and see what kinds of conclusions we can draw in general about about management. The move to renew investors love affair with Apple stock came as the the company announced it's first profit decline in a decade. What is one of the biggest questions facing Apple? This should not surprise us having now gone through this class? What does Apple need to do in order to survive going forward? >> Innovate. >> Innovate, right? Because if it doesn't innovate, it will die. Who at one point in their life has owned a Nokia phone. 'Kay, keep your hand up if you still have a Nokia phone in your pocket today. What, so there's our case. That's why we're considering Nokia. What happened? Never think you know the answer. There is never a good time to stop asking questions. The people who stop asking questions don't end up very long around in the marketplace. [MUSIC] The evaluation for this class is going to consist of two things. At the end of every week, you're going to have a short multiple choice quiz consisting of six questions based on both the reading and the lecture material for that week. And at the end of the class, there's going to be a slightly longer exam 14 or 15 questions, again multiple choice. That's going to give you a total of 50 questions then that will make up the entirety of the evaluation for the class. The passing grade for the class, for those of you who are doing it for certificate is 50% or more, so if you get 25 correct answers you'll get your certificate. In addition, we also have some ungraded in-class or in-video quizzes. They're there to help you and ensure that you're following along the material. So they're designed to help make sure that you're understanding what's being developed in the class. So I hope it's fairly straightforward. I should note that the quizzes, the questions are, some are easier, some are more harder but they will require that you follow both, that you do both the reading and that you follow, that you follow the the lectures fairly closely. [MUSIC] Finally, I'd like to talk a little bit about the methodology of this class. Unlike many classes in management which follow what's known as the case study method, in this class obviously we're going to be departing from that model. We're going to be looking at a a sort of wide, even bizarre array of material. Shipping containers, housing bubbles, Roman green trade. And I'd like to explain a little bit the methodology that explains or maybe even justifies why we can use all of those kinds of materials to inform an evaluation of management. It's because this class is fundamentally a humanities class. I'm a historian by training and so the methodology that I'm bringing to the class is a methodology that comes from the humanities. And as such, I think it's instructive to perhaps tell you a very short story about about where the humanities comes from. The, helps explain a little bit some of the stuff that we'll be doing in our classroom. There's a very famous book by the Greek philosopher Plato describing the trial of his teacher, Plato's teacher Socrates called the Apology. And in the Apology, Socrates lays out to his fellow citizens his defense. And the story that he tells is of a friend of his who has gone to the oracle at Delphi. So his friend had gone to the oracle and had asked the oracle who the wisest person was in Athens, and the oracle had replied that the wisest person in Athens was Socrates. So Socrates was confused by this because on the one hand, the oracle was known for its truth telling. It was a place you could go to find the truth of things. On the other hand, Socrates knew that he was not the wisest person in Athens. He knew in fact that he didn't have wisdom. So he set about to go and disprove this idea that he was the wisest person in Athens. And he did so by going around to other people in the city who he thought would be wiser than him. So he went to the politicians, and he went to the poets, and he went to the artisans and the craftsmen. All these people that he thought had wisdom and had knowledge. And what he found was that, when he came away from having talked to each group of people, that in fact, far from having disproven the Oracle, he became more and more convinced that the Oracle had told the truth. That in fact, he, Socrates, was in fact the wisest person. And the reason he found that was that was because even though these different people in the city knew many things that they, none of them had the wisdom to know that they were not wise. That was the wisdom that Socrates had, that he was the only one who understood that he was not wise. And so, from this, we get that original Socratic gesture that informs the humanities. True wisdom consists of knowing you're not wise. The true knowledge is knowing that you do not know. And the point about that is then, there's never a point where you stop asking questions. There's never a point where you stop interrogating the world around you. You should never be satisfied with the answers at hand, must always be maintaining a kind of critical perspective on things. An so he saw himself in this role as somebody whose job it was to question the assumptions that people had. To question the status quo. To question the basic beliefs and premises of what we, of what people held to be true. That's why he was put on trial. Because you can imagine a lifetime spent going around annoying people by questioning everything you know is not perhaps the way to win friends and influence people, but as a methodology I think it's fundamental and critical. Certainly it is the methodology, the methodological impulse that informs our class. And so what we'll be doing across the next six weeks is taking very core assumptions, very core beliefs about what informs management practice and asking, why do we hold these to be true, are they in fact good? Are there different ways to evaluate these things? So as we are going through the classes, you are going through the class keep that in mind, that, as we're looking at these different issues, what we're really doing is we're taking that initial Socratic gesture, and we're applying it than to the practice of management. [MUSIC]