InSights
A newsletter from the Albers School of Business and Economics the Center for Leadership Formation Fall 2014
Back to Boom: Why Economic Drivers Make Graduate Education More Important Than Ever Marilyn Gist, PhD & Cindy Hamra, JD
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espite the Great Recession, graduate education remains important. This is true for both individuals and companies as we return to economic growth. In this article, we review data that demonstrates the implications of graduate education in general. Then we turn attention to business education having emerged recently as the top program of study.
The Value of Graduate Education Today Among the variety of reasons that people choose to pursue graduate education are (1) increased earning potential; (2) better job prospects and security; (3) intangible benefits; and (4) overall high return on investment. The primary reason that many people choose to pursue graduate education is the increase in earning potential and in actual earnings. Evidence shows that education still predicts significant employment outcomes. For example, U.S. Department of Labor data showed that, for 2013, individuals with graduate degrees had an unemployment rate (3.4%) that was far below the national average (6.1%), and less than half that of people who had some college but no degree (7%). The pattern was similar for median (midpoint) earnings. Those with graduate degrees earned far more each week ($1,349) compared to the national average ($827), and roughly 83% more than those with some college but no degree ($727). (See chart 1 on page 4.) Although this data reflects median earnings
across all occupations, the pattern is equally strong for high-achievers across occupational groups. Those in the 90th percentile of earnings who have advanced degrees earn 91% more ($2,911) than the weekly earnings of those with an associate’s degree ($1,522; source: Bureau of Labor Statistics). (See chart 2 on page 4.) Continued on page 4
Letter from the Executive Director
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all always brings a feeling of new starts in academia, with the influx of new students and the return of continuing students and faculty. This fall, the Center for Leadership Formation welcomes our 17th cohort of the Executive Leadership Program, our ninth cohort of the Leadership Executive MBA and our fourth cohort of the Health Leadership Executive MBA. Simultaneously, we are surrounded by news of growth and health of our national and regional economies. We see the implications in the businesses and industries that are part of the Puget Sound community. Our fall 2014 issue of InSights examines the topic of this return to boom by asking, “What’s different this time?” We open with an article focused on the value of higher education, and specifically how economic drivers make graduate education more important than ever in this time of returning economic strength. We provide evidence of the strong link between education level and earnings in the short-term and longrun. We also report evidence that the MBA degree is increasing in popularity, in large part due to the perceived value to individuals and employers and the return on investment. Two of our faculty contributed pieces for this issue. First, Professor Greg Magnan suggests that business must be a force for change in his article, “Are Growth and Sustainability Compatible?” Steve Brilling focuses on how intra-preneurship contributes to growth in his article, “’Cracking the Egg’ or If you don’t Crack the Egg, Someone Else Will.” Alumnus Bill Lyons (LEMBA ’14), Director of Global Research & Development Strategy for Boeing Research & Technology, also
What’s Inside Are Growth and Sustainability Compatible? / 3 Graduate Education (Cont’d) / 4 Back to Boom: What’s Different this Time for Boeing? / 8 “Cracking the Egg” or If you don’t crack the egg, someone else will! / 10 CLF Board & Alumnus Spotlight: Harvey Kanter / 12 Considering the state of the Seattle-area housing market / 16 Trendwatch / 18 Upcoming Events /20
Center for Leadership Formation Staff Dr. Marilyn E. Gist, Associate Dean, Graduate Programs; Professor, Department of Management; Executive Director, Center for Leadership Formation Cindy Hamra, Associate Director Sommer Harrison, Manager of Graduate Programs Outreach Lorri Sheffer, Programs Manager Henry Garcia, Programs Coordinator
contributed perspective on our subject. His article addresses how the uptick in the economy looks different this time around for Boeing, the largest employer in the state of Washington. CLF had an opportunity to interview two leaders in the Puget Sound region. We report on a conversation with Harvey Kanter, CEO, President, and Chairman of the Board of Blue Nile. Harvey is a member of the Center’s leadership advisory board and a 2000 alumnus of the Executive Leadership Program. We also share our interesting conversation with Dr. Stan Humphries, Chief Economist at Zillow, on the state of the housing market generally, and in the Seattle area in particular. As in every issue of InSights, we asked an important question of business leaders in the Puget Sound area. Our concern this time is how the recent runup in the stock market will affect the business climate in the short-term future. TrendWatch provides brief insights from several of these leaders. Together, these articles add to the conversation around the impact, sustainability, and implications of this economic recovery. We hope you enjoy this issue of InSights. Sincerely,
Marilyn E. Gist, Ph.D. Associate Dean, Graduate Programs; Professor, Department of Management; Executive Director, Center for Leadership Formation
Center for Leadership Formation Fellows Phyllis Campbell, Chairman, Pacific Northwest, JP Morgan Chase Martin Coles, CEO, HaloSource Jim Dwyer, President and CEO, Delta Dental of Washington Allan Golston, President, US Program, Bill and Melinda Gates Foundation Rod Hochman, President & CEO, Providence Health & Services Jim Sinegal, Co-Founder & Retired CEO, Costco Wholesale
Susan Scott, Founder, Fierce, Inc. Brian Webster, President & CEO, Physio-Control, Inc.
Center for Leadership Formation Advisory Board Lindsay Anderson, Vice President Quality, Boeing Commercial Airplanes Sallie Bondy, Director, Sales Operations, Boeing Commercial Airlines Pat Callans, Senior Vice President, Human Resources and Risk Managementt, Costco Wholesale
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Are Growth and Sustainability Compatible? Greg Magnan, PhD
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ong term? It seems unlikely, barring dramatic technical advance. How about medium term? Many would provide the same response. Personally, I’ll say, “it depends.” In Jared Diamond’s book Collapse: How Societies Choose to Fail or Succeed, he cites five contributing factors to societal collapse: selfinflicted environmental damage, climate change, hostilities with other societies, friendly trading relations with other societies, and cultural attitudes/adaptability. (Self-inflicted environmental issues identified by Diamond, include deforestation/habitat destruction, soil problems, water shortages, overhunting, overfishing, and the buildup of toxins.) Diamond asserts that his fifth collapse factor—cultural attitudes/ adaptability—can be considered a failure of group decision-making and offers a four-stage sequential roadmap for understanding: 1) failure to anticipate a problem before it arrives, 2) when the problem does arrive, failure to perceive it, 3) after they perceive a problem, they may fail to
Mike Ehl, Director of Aviation Operations, Port of Seattle Aaron Howes, Vice President, Risk Management & Insurance, Expeditors International David Jackson, HR Director, Online Business Groups, Microsoft Harvey Kanter, Chairman of the Board, Chief Executive Officer and President, Blue Nile Jim Klauer, Senior Vice President, Non-Foods Merchandising, Costco Wholesale Paul Lambert, Founder, Forum Solutions, LLC Butch Leonardson, Senior Vice President & CIO, BECU
even try to solve it, and 4) they may try to solve the problem, but not succeed.
Carbon Emissions One change since the preindustrial era of the 1850s is the release of anthropocentric carbon, the carbon historically stored in fossil fuels and released as emissions when they are burned. According to co2now. org, as of June 2014 the amount of CO2 in the atmosphere is 401.30 ppm* and over the last 10 years, global carbon emissions are growing about 2% per year. They also cite sources of emissions as being 91% from burning fossil fuels and making cement, and 9% from deforestation and land-use changes. Other data suggest current growth rates—of carbon—will contribute a global temperature rise of two degrees Celsius in 30 years. Gapminder.org, the statistics site of Dr. Hans Rosling, graphically portrays the positive correlation between GDP growth and carbon emissions. Fossil fuel emissions (mostly to generate electricity) are up 60% since 1990 (co2now.org). There are, obviously, many complex moving parts, including the ultimate effects of a two- or three-degree increase on living conditions on earth. Belief is another variable. In a 2014 study, Ipsos MORI (ipsosglobaltrends.com) asked residents of the G20 countries if they agreed (or disagreed or didn’t know) with the following statement: “The climate change we are currently seeing is
Doug Moore, President, McKinstry Catherine Walker, Senior Vice President & General Counsel, REI Dan Wall, Senior Vice President, Ocean Services, Expeditors International
Center for Leadership Formation Health Leadership Advisory Board Scott Armstrong, President and CEO, Group Health Cooperative Scott Bond, President & CEO, Washington State Hospital Association Mike Butler, President of Operations & Services,Providence Health and Services
largely the result of human activity.” The U.S. ranked last with 54% agreeing, with a tie for 19th between the U.K (64%) and Australia (aside: can you identify the common link?). China was at the top of the table with 93% agreeing. The U.S. also had highest percentage disagreeing at 32%. In a 2013 Pew Research study, ‘dealing with global
warming’ was ranked 19 of 20 issues that Americans thought Congress and the president should be addressing (pewresearch.org). On Jared Diamond’s sequence of poor group decision-making, the American public seems stuck in the ‘failure to anticipate a problem’ mode. But what about U.S. businesses? Continued on page 11
Dan Dixon, Senior Executive and VP of Public Affairs, Providence Health & Services Brad Harlow, CEO & President, PhysioSonics Steven Huebner, Owner, Huebner Advisory, LLC Mary McWilliams, former Executive Director, Washington Health Alliance John Milne, Founder & CEO, Avnew Health Sarah Patterson, Executive Vice President & Chief Operating Officer, Virginia Mason Medical Center Chris Rivera, President & CEO, Washington Biotechnology and Biomedical Association
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Graduate Education Continued from page 1 CHART 1
Earnings and unemployment rates by educational attainment Unemployment rate in 2013 (%)
Median weekly earning in 2013 ($)
2.2
Doctoral Degree
2.3
Professional Degree
1,623 1,714
Master’s Degree
3.4
1,329
Bachelor’s Degree
4.0
1,108
Associate Degree
5.4
777
Some College, No Degree
7.0
727
High School Diploma
7.5
651
Less Than a High School Diploma
11.0
472
All workers: 6.1%
All workers: $827
Note: Data are for persons age 25 and over. Earnings are for full-time wage and salary workers. Source: Current Population Survey, U.S. Bureau of Labor Statistics, U.S. Department of Labor
Finally, if we examine annual earnings of those with graduate degrees, we see a similar pattern. Aggregating across all fields of study in 2011, a master’s degree nearly doubled the annual earnings ($79,000) when compared to that of individuals with some college but no associate’s degree ($40,400). (See chart 3 on page 5.) Additionally, recent data shows that this earnings premium is growing. A study by the Urban Institute (citing U.S. Census Bureau data) showed that from 2001-2012, the earnings premium for advanced degrees rose faster than that for bachelor’s degrees. Specifically, average earnings for full-time workers ages 35-44 with master’s degrees were 8% higher than those for similar workers whose highest degree was a bachelor’s. By 2012, that difference had grown to 21%. (“Higher Education Earnings Premium: Value, Variation and Trends,” February 2014.) Another longitudinal study by the Urban Institute of men born in the United States between 1940 and 1974
showed that, for this group, median earnings for those in their mid-40s with more than a college degree increased more than three times that of those with a four-year degree. (“Educational Attainment and Earnings, Inequality among US-Born Men, A Lifetime Perspective”, April 2014.)
Naturally, there are many reasons why a graduate education is valuable. First, there are both direct and indirect benefits. Direct benefits include the knowledge and skills gained by students during their course of study. Faculty who teach in graduate programs are deeply trained in their Continued on page 5
CHART 2 $3,500 $3,000
Weekly EArnings of the 90th Percentile by Educational Attainment
$2,500
$2,911 $2,310
$2,000 $1,500 $1,000
$1,316
$1,522
$857
$500 $0 No High School Degree
High School Only
Some College (and Assoc.)
Bachelor’s Degree
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Advanced Degree
CHART 3
median earnings and tax payments of full-time, year-round workers ages 25 and Older, by education level, 2011 Professional Degree (2%)
$102,000
Doctoral Degree (2%)
$91,000
Master’s Degree (10%)
$70,000
Bachelor’s Degree (25%)
$56,500
Associate Degree (11%)
$44,800
Some College
$40,400
High School Diploma (27%)
$35,400
Less than a High School Diploma
$25,100
The bars in this graph show median earnings at each education level. NOTE: The numbers in parentheses on the y-axis indicate the percentage of all full-time, year-round workers with each education level in 2011. SOURCES: U.S. Census Bureau, 2012, Table PINC-03; Internal Revenue Service, 2010; Davis et al., 2013; calculations by the authors.
Continued from page 4
disciplines and generally bring a level of challenge to the class that goes far beyond that of undergraduate courses. Graduate programs are comprised of students who excelled in both their undergraduate programs and admissions exams. As a result, the level of discourse is higher and students learn a lot from peers (who typically have work experience to share). Indirect benefits tend to include a social network that is helpful professionally. This group may include connections for career opportunities or advice on solving problems. Graduate education also advances personal growth. In many courses of study, students are challenged to clarify values, and professional direction, and to strengthen interpersonal and leadership skills. Finally,
graduate education should increase social mobility. Graduate degrees also follow you for life. The “letters behind the name” often speak to employers in ways that affirm an individual’s worth when the situation is ambiguous. For example, prospective employers may not fully understand what someone did in their last job — or how much creativity, discipline, and persistence were required. Yet, if the employer is seeking those attributes and is comparing candidates of similar work experience, the one with a strong graduate degree from a very reputable university is likely to have an edge. The degree provides evidence that the candidate has significant discipline, persistence, and likely creativity. In a similar way, some fields and
The educational premium still holds, because education develops knowledge, critical analysis, breadth of perspective, and typically both cognitive and behavioral skills.
Continued on page 6
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Graduate Education Continued from page 5
positions rely on graduate degrees for external credibility. Professional service firms are an example. Because they bill clients for expertise being provided, the qualifications of their professional staff matter. In other businesses, the credentials of senior management may be important when seeking funding. This should not imply that the knowledge itself is irrelevant, simply that, in addition to the knowledge gained, credentials are, at times, still important. One indication of the direct, indirect, and credentialing benefits of graduate education is seen when examining lifetime earnings. In 2012, the U.S. Census Bureau reported that the expected lifetime earnings of individuals with a master’s degree was nearly double (1.96) that of individu-
als with a high school diploma (1.00). Lifetime earnings for master’s graduates are also 73% greater than those with some college, but no associate’s degree, and roughly 19% higher than those with a bachelor’s degree alone. The educational premium still holds, because education develops knowledge, critical analysis, breadth of perspective, and typically both cognitive and behavioral skills. Thus, with the return to boom times, individuals are pursuing graduate education for many of the advantages just enumerated. The number of Americans pursuing higher education is increasing. According to the Department of Education (DOE), more people in the United States are earning postgraduate degrees than
ever before. DOE statistics show that over 16 million people in the U.S., or 8% of the population, now have a master’s degree. This is a 43% increase over a 10 year period. See chart 4 below
Growing Demand for the MBA Degree Interestingly, the percentage of Master’s in Business Administration (MBA) degrees among graduate degrees earned is also increasing. The MBA has become the most popular postgraduate degree in the U.S., replacing education (master’s degrees in education are required in many states to teach). Chart 5, page 7 shows, in 2012, 24.5% of graduate Continued on page 7
CHART 4
Expected full-time lifetime earnings relative to high school graduates, by education level 2.92
3.00 2.43
2.50 1.96
2.00
1.65
1.50 1.00
1.00
1.13
1.27
.72
0.50 0 Less than a High School Diploma
High School Diploma
Some College (and Assoc.)
Associate Degree
Bachelor’s Degree
Master’s Degree
Doctoral Degree
Professional Degree
NOTE: Based on the sum of median 2011 earnings for full-time, year-round workers at each age from 25 to 64 for each education level. No allowance is made for the shorter work life resulting from time spent in college or out of the labor force for other reasons. Future earnings are discounted at a 3% annual rate to account for the reality that because of forgone interest, dollars received in the future are not worth as much as those received today. Discounting does not have a large impact on the lifetime earnings ratios. The calculations are illustrative and do not represent what individuals will actually earn in the future. Earnings ratios calculated using data from another year will likely yield slightly different results. For example, the earnings ratio of bachelor’s degree recipients to high school graduates is 1.61 based on 2005 earnings data, 1.66 based on 2008 earnings data, and 1.65 based on 2011 earnings data. SOURCES: U.S. Census Bureau, 2012, Table PINC-03.
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CHART 5
most popular master’s DEGREES, 2012 SOURCE: U.S. Department of Education
With the return to boom times, more individuals are pursuing graduate education Continued from page 6
students earned an MBA. (See chart 5.) In fact, the number of MBAs awarded is also outpacing the number of JDs and MDs received. (See chart 6) When examining the earning premium for individuals with MBA degrees, the Graduate Management Admissions Council’s (GMAC) 2013 Corporate Recruiters Survey Hiring report demonstrates that MBA graduates earn higher starting salaries than other masters’ graduates in the U.S. The median base salary for MBA graduates is $95,000, up from $90,000 in 2012. Comparable numbers for bachelor’s degree holders are starting salary of $43,000 in
2013, up from an average of $40,000 reported over the past six years. Evidence also shows that organizations expect to continue to hire MBAs in significant numbers. The GMAC survey cited above also found that the percentage of U.S. employers that expected to hire MBAs was 85% in 2013, up from 82% in 2012. According to the survey, the sectors demonstrating the most growth in demand for MBAs year-over-year are energy/utilities and health care/ pharmaceuticals. Thus, evidence suggests that individuals seek graduate degrees as a means of enhancing both their
employment prospects and job stability. Apart from the economic gains indicated here, master’s graduates and MBA graduates benefit the intangible benefits discussed earlier. As a result, evidence suggests there is a strong return on investment from graduate education, despite sacrifices such as opportunity costs and the possibility of incurring debt to pay tuition. A 2011 report by the Brookings Institution determined that “[h]igher education is a much better investment than almost any other alternative, even for the ‘Class of the Great Recession’ (young adults ages 23-24).” And MBA graduates are confirming a return Continued on page 14
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Back to Boom: What’s Different this Time for Boeing? Bill Lyons, EMBA
O
n January 1, 1914, the first scheduled flight took off from St Petersburg, Florida for Tampa. In this century, aviation has grown to become one of the essential elements of our global infrastructure, transporting people, goods and ideas to enrich lives, create shared experiences and spread prosperity to communities. As a catalyst for continued change, aviation also facilitates a calling to that higher human purpose to know our world, to explore, to trade, and to connect with others. In 2014, the aviation industry will safely transport more than 3.3 billion passengers and deliver more than 52 million metric tons of cargo, from fresh farm produce in East Africa to electronics purchased overnight from online shopping. This year also marks the third consecutive year that airlines have made a net profit since the 2008 Global Financial Crisis (GFC). In this context, it is worth examining how things are both similar and different for Boeing Commercial Airplanes, as we move “back to boom” in what appears to be a globally sustained commercial aviation upturn. The GFC had deep repercussions for the aerospace industry and aviation transport sectors. In 2008, the industry swung to a combined U.S. $26.1 billion loss from a U.S. $14.7 billion net profit in 2007. Cargo and passenger traffic also fell precipitously and has only in recent years returned to the long-term average annual growth of around 5 percent. In 2013, airlines made a combined net profit of $6.1 billion, a 1.5 percent margin on revenues. This year, aviation is expected to earn a net profit of $18 billion at a margin of around 2.4 percent. The International Air Transport Association (IATA) estimates the net profit per passenger is U.S. $6. What these statistics indicate is that while the
aviation sector is growing again, recovery is fragile, and there is not much room to maneuver should costs increase. At the same time, commercial airplane customers and their passengers expect more for less in the delivered price of newer and more capable airplanes; in lower operating and maintenance costs; or, in the price of a ticket. As with any modern technology we also want innovation in aerospace that reflects societal aspirations. We all expect that our industry will not compromise its exceptional safety record or cause harm to our planet. And, for almost 100 years, Boeing has been a trusted partner in this progress. Here is one vignette from my industry among many that we can look to for inspiration and confidence in this morefor-less environment. In 1956 it took about 2-1/2 years of average weekly household net income to travel from my native Australia to Great Britain. The journey took about 48 hours of flying time spread over five days. Today, the same journey costs approximately 2-1/2 weeks of average household net income and is accomplished over a single day in a cabin environment that is radically improved from the early era of jet travel. One feature of the immediate post-GFC era was that airlines did not cancel orders for newer, more fuel-efficient airplanes and, despite disruptions in the financial sector, airline operators still obtained financing. Indeed, airlines had an imperative to obtain newer, more fuelefficient airplanes as soon as possible.
This year there are record-high oil prices, yet airlines still continue to order planes and Boeing has a backlog of orders that represents more than seven years’ of production at current rates. I believe these trends can be traced to two features. Firstly, airlines and the overall industry are focused on productivity. Secondly, the concern for our global environment and reducing CO2 emissions amongst the industry remains just as paramount as safety. Just this year, the International Civil Aviation Organization (ICAO) was able to secure a global agreement on CO2 emissions reduction for aviation that will lead to carbon-neutral growth by 2020 and a 50 percent reduction in CO2 emissions against 2005 levels by 2050. Moreover, most of the progress in developing aviation biofuels, which started in 2006, was made during and after the GFC. The price of sustainable aviation fuels is coming down quickly and airlines continue to pioneer their use, as seen by the leading position that Alaska Airlines has taken with the Sustainable Aviation Fuels Northwest Initiative or the global cooperation amongst airlines—Boeing, Airbus, GE, Rolls Royce and other important partners in the Sustainable Aviation Fuels User Group. The relentless search for efficiencies in fuel consumption become even more important as environmental concerns increase. It has become an enduring trend across all elements of manufacturing and airline operations. Today, airplanes are amongst the most fuel-efficient and least polluting means of transporting people and goods between any two points on the globe.
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Continued on page 9
For example, the 787 Dreamliner applies a new set of technologies resulting in an airplane that uses 20-30 percent less fuel on a per-passenger basis than other airplanes of this same passenger capacity. The Boeing 777-300ER has a fuel efficiency of approximately 2.8 liters per passenger per 100km and the Boeing 777X will be approximately 20 percent more fuel-efficient with less noise and CO2 emissions.
that business practices that enhance competitiveness can also advance societal and economic conditions in communities across the globe. In the case of biofuels, industry has embarked with diverse stakeholders on new initiatives in Australia, Latin America, China, Europe and in the United States. These initiatives have involved communities, nongovernmental organizations, governments and other industries
One final example of how shared value creation will transform the aviation industry is that Boeing, Airbus and others are all working together to create alternatives that will reduce or eliminate the usage of hazardous chemicals. By working cooperatively and showing leadership, we can steer the industry toward new innovations that reduce costs, simplify the myriad of regulations and lead to a more sustainable future.
As a catalyst for continued change, aviation also facilitates a calling to that higher human purpose to know our world, to explore, to trade, and to connect with others. Is it worth considering how all this progress can be sustained for a long period in a more-for-less environment? A few commentators believe that the industry will eventually reach a point where development costs will exceed the delivered price of an airplane. However, as we enter a new period of economic growth, I expect that this focus on reducing cost combined with greater use of environmentally progressive technologies will continue over the next century of commercial aviation. Perhaps this is because post-GFC, a new paradigm based around collaboration and partnering has emerged in aerospace. It perhaps started early with a business innovation of airline alliances such as OneWorld and Star Alliance. However, it has gone far beyond a novel business model in the last decade. The aviation industry has been early to embrace a phenomena described by Michael Porter and Mark Kramer in 2011 as Creating Shared Value. As with biofuels initiatives, Boeing and our customers recognize
to unlock new opportunities for economic diversification and wealth creation without compromising shared beliefs about protecting resources for the future. Since 2011 there have been more than 1500 regularly scheduled flights using sustainably produced aviation biofuel. Similarly, as Boeing enters new and emerging markets, the concept around shared value is always at the forefront of interactions with our customers, governments and communities. We can observe that in the way that our industry has focused on supplier availability and viability, worker safety and health, lower water and energy use (such as with the relatively newer operations in Boeing South Carolina, now a best practice motivating other sites to similar levels). Within Boeing we have unlocked the power of working as one integrated enterprise across our defense and commercial division and functions. It is this concept that will allow our company to continue on a trajectory of steady progress in a more-forless world.
In the early days of the development of U.S. railways, towns and communities sprang up along railway corridors. This mode of transport created new industries and opened up new opportunities for virtually every
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Continued on page 15
“Cracking the Egg” or, If You Don’t Crack the Egg, Someone Else Will! Steve Brilling, MBA
C
ompanies are again selling at record multiples, waking everyone up to the possibility of the “big financial score.” Facebook purchased WhatsApp for $19 billion (this isn’t a typo)—a company which employs 55 people and was founded in 2009. And these multiples aren’t limited to technology companies. A local M&A firm recently told me they are seeing the same phenomenon in other industry sectors. It is anyone’s guess whether this current rise in company valuations will be more sustainable than the last time around. I do know it feels different. There is no talk of a “new economic reality—own the eye balls, don’t worry about profit.” Inspite of the headline news of record deals like WhatsApp, there is generally less of a hype versus what we saw in the late 90s. Too many people are still worried about finding and keeping their job and just getting by. But in many ways the “boom vs. bust debate” is not the essential question. The real question is, has some-
thing fundamentally changed over the last 15 years? I believe the answer is yes! The pace of change is going up exponentially. The introduction of the Internet and associated forms of communication have created a new “revolution.” Try living without daily access to the Internet in your personal and professional life. Revolutions are literally being started with a tweet or Facebook post. Enabling technology has become the life-blood of most companies. The sacred product/service/process eggs in most industries are cracking and there is no choice but to go along with change or become irrelevant in the market. What has worked in the past is no longer a good excuse to not continually question the approach going forward. If you aren’t, your competition is. Worse yet, it could be someone outside your own industry that is going to make you irrelevant. 3D printing is starting to revolutionize manufacturing, medicine and distribution. Drones are rapidly becoming a commercial reality. The book publishing industry is going through what the music industry faced not too many years ago. Even bastions of tradition like education are being transformed. There is no safe haven from change— it is here to stay and must be better understood. As Albert Einstein is quoted as saying, “we can’t solve problems by using the same kind of thinking we used when we created them.” Innovation, entrepreneurship and dealing with change are as fundamental to running a business as sales and marketing and operations. These are core competencies that need to be better understood and institutionalized in every company, regardless of size. Different companies in different industries have found various ways of institutionalizing it in their culture as evidenced by Google, Proctor & Gamble and Parker Hannifin. The key commonality is that their leadership teams have embraced it in their culture. They understand innovation
and entrepreneurship are not one-time events but a continuous process of change. While many larger corporations are starting to wake up to this new reality, smaller companies have been slower to embrace the new demands of the market. They have less resources to devote to the challenge but are often additionally encumbered with their traditional roots, particularly if they are a family business. Honoring the prior generation for their accomplishments is often part of the culture but thriving in today’s marketplace is still critical to sustainability. Resistance to cracking the product/service/ process eggs of the past must be broken and rebuilt to reflect the demands of today’s and tomorrow’s market. As I tell my entrepreneurial students, the market will tell you if you are relevant—your job is to be a great listener and a responsive, thoughtful executioner of change. Steve Brilling is the recently-retired Family Business Director in the Innovation and Entrepreneurship Center at Seattle University. Previously, Steve was Executive Director at the Center, which over the course of six years grew to include a highly successful business plan competition, the family business program, and graduate and undergraduate entrepreneurship curriculum. This year, Steve joined the Center for Leadership formation faculty co-teaching Integrating Leadership & Business Practice to second year EMBA students. Steve has over 25 years of executive leadership experience in financial and consulting services, holding titles of President, COO, CIO, and Associate Partner. Before coming to Seattle University, Steve provided strategic consulting services as President and Principal at Dragonfly Ventures in Seattle, CIO/Senior Vice President at Swiss Re America in New York, and Associate Partner at Andersen Consulting/Accenture in Chicago. Earlier in his career, he worked for RSI/Sedgwick Re in Seattle, as Chief Operating Officer, Chief Information Officer and Executive Vice President of Sales and Marketing. Steve has a B.S. in business administration and an MBA from Washington State University. He serves on the boards of BECU and NW Family Business Advisors, the board committee of Physicians Insurance (finance and audit committee), and the advisory boards of N2uitive, Back on Track, and mbsSource.
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Are Growth and Sustainability Compatible? Continued from page 3
Those that study the content and growth of CSR reports say that the practices of reporting and, more importantly, the approaches to environmental, social and governance (ESG) issues are maturing rapidly. From a scattershot report-everything mode, businesses are now reporting a much more focused set of metrics and initiatives. The forces behind this change can be expressed in a single word: materiality. Materiality, in a CSR/ESG context, addresses issues that are simultaneously a) important to stakeholders and b) acknowledged risks to the business. Mapping issues along these two perspectives in a low/medium/high model creates a ‘materiality matrix’ in which issues that are important to both stakeholders and managers are identified. These issues then drive the organization’s sustainability initiatives, metrics, and reporting. In their latest revision (G4), the Global Reporting Initiative (globalreporting. org) has included an entire section on the rigor of the process by which organizations determine material issues (including listening to stakeholders). The fast-growing area of integrated reporting is also contributing to an emphasis on materiality. Integrated reporting seeks to merge traditional financial reporting (e.g., SEC reports) and ESG/CSR reports (i.e., non-financial). Investors are among the primary stakeholders of integrated reporting. You may be aware that the financial content of a public company’s annual report is subject to audit. You may not be aware that the ‘management comments’ section of the annual report—where risks to the business are discussed—are not required to be audited. The ‘sustainability accounting standards board’ (sasb. org) is working to identify common materiality issues across industries
From a scattershot report-everything mode, businesses are now reporting a much more focused set of metrics and initiatives. The forces behind this change can be expressed in a single word: materiality. and to develop draft integrated financial statements. Evidence of the growing importance of SASB is the recent announcement of Michael Bloomberg as chair and former SEC Chair Mary Schapiro as vice chair. A 2014 report from U.S.-based CERES notes that, of Fortune 100 companies, 60% have published targets for greenhouse gas (GHG) reductions and 53% are reporting emissions to the CDF (formerly the Carbon Disclosure Project). Meanwhile, 43% of the Fortune 500 have goals around clean energy and GHG emissions. Also in 2014, the Governance & Accountability Institute changed their CSR report research to asking the question, ‘What matters?’ in sustainability reporting and include data on practices and metrics across 36 sectors. Locally, large players in our economy (save one,) are consistently improving their ESG performance, and communicating those gains. Efforts to reduce emissions, support sustainable fisheries, and strengthen communities are but a subset of the initiatives underway. Integrated reporting will also drive sustainabilityactivities deeper into organizations. But are these changes enough? As I said at the top, it depends. Increasingly, companies are learning that reducing emissions also means lower costs. As scarcity (and pricing) of raw materials and inputs (such as water) increases, efforts to redesign products and processes can produce savings and enhance a brand’s image. Reporting on audited enterprise risks to investors is coming. Ultimately, I think it depends on the power of business to alter our
perceptions. If businesses allow, or reinforce, the perception that we can continue on our path of growth without consideration for the systems that engender and sustain life, then we’ll stay in Diamond’s first two stages (lack of anticipation or lack of perception). To have a world in which seven generations beyond us can still access and enjoy resources in use today, then business must be a force for change. Moving the needle on their own metrics can start the flywheel that spins to motivate groups to solve the complex challenge that is sustainability. *In 1986, the amount of carbon in the atmosphere was 349 ppm and over the last 800,00 years, levels have cycled from 175 ppm to 275 ppm. Preindustrial levels (1850s) were about 275 ppm.
Dr. Greg Magnan teaches a variety of courses at the undergraduate, MBA, and executivelevels, including operations management, sustainability, strategy, leadership, supply chain management, project management, and marketing. Dr. Magnan has received several teaching and research awards, including the 2005, 2009 and 2012 Beta Gamma Sigma Professor of the Year at Seattle University and the E. Grosvenor Plowman Award at the CSCMP Supply Chain Management Educators’ Conference in 2010. His research is focused on supply chain relationships and he has published in numerous journals, including Decision Sciences, Journal of Supply Chain Management, Journal of Business Logistics, Industrial Marketing Management, Supply Chain Management: An International Journal, Supply Chain Management Review, Business Horizons, and the International Journal of Physical Distribution and Logistics Management. Dr. Magnan was named a Genevieve Albers Professor for 2008 - 2011 and spent 20072008 as a Visiting Academic Fellow at Henley Management College (UK). He enjoys hiking and watching his kids grow.
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CLF Board Member & Alumnus Spotlight:
Harvey Kanter,Chairman of the Board, Chief Executive Officer & President, Blue Nile Cindy Hamra & Dr. Sharon Lobel
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he Center for Leadership Formation (CLF) met with Harvey Kanter, Chairman of the Board, Chief Executive Officer and President of Blue Nile. Harvey is an alumnus of the Executive Leadership Program (ELP 2000) and recently joined the Center’s leadership advisory board. Given the theme for this issue of InSights (“Back to Boom: what’s different this time?”), we focused on Blue Nile’s growth as a Seattle-based company, both within the United States and now internationally. We also discussed Harvey’s career path and leadership journey.
On his career path and route to Blue Nile Harvey’s career has been in retail, which he attributes in part to the fact that he comes from a “retail family”: he is the fourth generation in his family to work in retail, and his own children are now doing the same. He was always very performance-focused, with a goal of becoming a CEO. After graduating from Babson College in Boston with an MBA,
Harvey joined Broadway Department Stores (now part of Macy’s) as Department Manager of Crystal, China and Silver, in the Santa Monica, CA location. He moved from working in the store to the corporate office. Mentored by a vice chairman for the company, he had an opportunity to work in a wide range of businesses throughout the company, holding eight different jobs in nine years. Harvey was then recruited by Sears, where he spent two years as Divisional Merchandise Manager. He moved on to Eddie Bauer, where he entered as a director and then took over the home and non-apparel business unit as the Managing Director. It was while he was at Eddie Bauer that Harvey realized that this accomplishment- and numbersorientation was not sufficient. He determined that it was time to become a transformational leader from what he self-identified as an “accomplishment junkie.” In 1999, at the suggestion of Michelle Clements (LEMBA anticipated 2015), then Senior VP of Human Resources at Eddie Bauer (now Senior VP of Human Resources at REI), Harvey joined the second cohort of the Executive Leadership Program at Seattle University. As part of the program, he created a learning contract and began to define accomplishment as whatever people want it to be, and focused on growing his capacity to bring out the best in others, and get them where they want to be. He transformed from the “fix-it”
guy, a doer, to someone who could be a transformational leader. At Eddie Bauer, he subsequently rewrote the business plan for his unit, resulting in profitability in that unit for the first time. After Eddie Bauer, filed for bankruptcy in 2009, after its parent company, Spiegel, filed for bankruptcy. At that time, Harvey was recruited as President of Aaron Brothers Art & Framing, a subsidiary of Michaels. Here again, he found himself rewriting the organization’s business plan and determining a better way to run the business. He subsequently moved into the Chief Merchant role at Michaels. During his three-year tenure, he took Michaels through privatization in 2006 when it was sold to a consortium of private equity firms including Bain Capital and the Blackstone Group. In October 2007, Harvey was diagnosed with cancer. This significant life event led him to take three months off, traveling and running a marathon during his recovery period. In January 2009, Harvey took the CEO role at Moosejaw Mountaineering, a retailer specializing in outdoor recreation apparel and gear, replacing the founder and original CEO, Robin Wolfe. In 2007, Moosejaw sold a majority stake to a private equity firm. By 2009, the company was almost bankrupt after suffering through the economic downturn. Harvey calls the role an “incredible challenge.” For over three years, he spent each week in Michigan at Moosejaw’s home office, returning to Dallas on the weekends to be with his family. Harvey led the company to a turnaround in 2009, as they were able to break even, and followed his first year with two strong years. Continued on page 13
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Joining Blue Nile Harvey was recruited to Blue Nile in 2012 and moved his family to Seattle to take the CEO role here in March of that year. His journey to Blue Nile started with a phone call with Mark Vadon, the company’s founder. When he took on the CEO role at Blue Nile, his mandate was to take the company to its next chapter. This evolution would require better retailing and marketing with a focus on the DNA of the company. Harvey’s excitement about the company developed quickly: from the first phone call from a recruiter until the time he accepted the CEO position, 17 days passed. Harvey characterizes Blue Nile as disruptive. He describes the design as an innovative way to engage consumers that resulted in a disruption to the jewelry industry. Blue Nile focuses on education, authenticity, informed customers, transparency and an empowered buyer. The Executive Leadership Program Harvey identifies the ELP as a transition point in his life and credits his time in the program as being instrumental in his transformation as a leader and a significant experience in his life. Among the important leadership skills he learned, Harvey points to communication structure, motivating and driving performance and bringing out the best in others. He took these skills and others to his role as CEO of Moosejaw Mountaineering, and on to Blue
About Harvey Kanter Harvey Kanter has been the Chief Executive Officer and President of Blue Nile, Inc. since March 30, 2012 and Chairman since December 31, 2013. He has an MBA from Babson College and a BS from Arizona State University. He is also a 2000 graduate of Seattle University’s Executive Leadership Program and a member of the Center for Leadership Formation’s business leadership advisory board. Harvey serves on the advisory boards of the University of Washington Bothell School of Business and the Jewelers for Children Special Programs Committee.
About Blue Nile Blue Nile is the largest online retailer of certified diamonds and fine jewelry. It was founded in 1999 by Mark Vadon, who took Blue Nile public in 2004 and stepped down as CEO in 2008, staying on as Board Chairman through December 2013. Vadon went on to co-found Zulilly, a Seattle-based online clothing retailer for women and children in 2009, where he remains Chairman of the Board. Blue Nile’s focus has been on educating consumers about the process of purchasing diamonds. When he founded the company, Vadon proposed an unusual structure with suppliers: an exclusive listing with Blue Nile, which would pay 75-90 days after the actual sale. As a result, Blue Nile did not have to manage any inventory, and had less need for capital. Today, the company’s sales volume allows suppliers to turn their inventory much faster. On an average day, Blue Nile offers 150,000 individual diamonds for sale exclusively on its website; this is over one billion dollars’ worth of inventory. It sells at 20-40% lower prices, in large part because it has lower overhead and shorter margins. Blue Nile has a zero-tolerance policy toward conflict diamonds. It only purchases diamonds through suppliers who adhere to and enforce the standards established by the Kimberley Process, an international process to track and certify diamonds. Blue Nile is a signatory of The Golden Rules regarding responsible mining of gold and metals.
CLF Alumni at Blue Nile
Harvey Kanter (ELP ‘00) Chairman of the Board, Chief Executive Officer and President Edward Hiar, (LEMBA ’11) Director Software Engineering Jon Sainsbury, (ELP ‘14) President, International
Continued on page 15
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Graduate Education
CHART 6
masters of the university
Continued from page 7
Graduate degrees awarded in the United States in 2000
on investment: in the GMAC’s 2014 Alumni Perspectives Survey, 96% of business school alumni around the world who have graduated since 1980 value their degrees highly, specifically indicating that they would still pursue the degree. Data also suggests that the costs incurred are relatively quickly recouped: the 2013 Forbes business school ranking indicated that for the top 50 MBA programs, the payback period for the investment is four years or less. Thus, in a time of return to full employment and growth in opportunities for highly educated and highly trained workers, it is noteworthy that graduate education and graduate business education are reaching record levels. Individuals and companies both see the investment as having significant long-term benefit.
Masters in Business
Law (LLB or JD)
Medicine (MD)
200
150
100
50
0 1971 ’75
’80
’85
’90
’95 2000 ’05
’09
*All numbers are in the ‘000s. Source: U.S. Census Bureau Source: The Economist, “Change Management: The MBA is being transformed, for better and for worse”, October 12, 2013.
Marilyn Gist
Marilyn E. Gist, Ph.D. Dr. Marilyn Gist has more than 20 years’ experience in the field of executive development. She is presently Professor of Management and Associate Dean for Graduate Programs, Albers School of Business and Economics, Seattle University. In addition, she serves as Executive Director of the Center for Leadership Formation providing academic direction for the executive degree and certificate programs. Prior to this, Marilyn held the Boeing Endowed Professorship of Business Management at the University of Washington, where she was also the Faculty Director for Executive MBA programs for many years. In addition to her academic roles, she has served in management positions in the
public and private sectors, and had extensive consulting experience. M a r ily n is a n inte r n atio n ally recognized scholar. Her research emphasized confidence-based factors in motivation and training and leadership assessment and development . S he has over 25 publications in leading scholarly outlets. Google Scholar, which monitors how often a publication has been cited by other scholars, provides one measure of the quality or importance of a person’s work. It shows that Marilyn’s work has been cited roughly three thousand times in articles and books that were published subsequently by other people. Her current publications include “Developing Dual-Agenda Leaders” (co-authored with Professor Sharon Lobel) in the 2012 Journal of Corporate Citizenship, and ”Self-Efficacy” (coauthored with Angela Gist) in the 2013 Oxford Bibliographies in Management. Marilyn earned her BA from Howard University and her MBA and PhD from the Smith School of Business at the University of Maryland, College Park.
Cindy Hamra, JD, MA Cindy is Associate Director in the Center for Leadership Formation in the Albers School of Business and Economics at Seattle University. She has over fifteen years of experience in teaching and education management, including roles as a teacher, tutor, trainer, manager and regional director. She holds a JD from the American University, Washington College of Law and a MA in International Affairs from the American University, School of International Service. Following law school, she worked as a law clerk and attorney in Washington, DC. She is licensed to practice law in Washington, Oklahoma, Washington, D.C., and New York. In her role, she liaises with the Center fellows, advisory boards and alumni, manages student affairs, produces Center publications, and oversees the operations team. She is also tasked with financial management for the Center, assists with assurance of learning, and oversees the executive coaching program.
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Back to Boom: What’s Different this Time for Boeing? Continued from page 9
sector of society. I think in this second century of aviation, we’ll come to expect far more from aerospace in terms of creating shared value for our global economy and with a sustained focus on societal good just as we started to observe around the time of the GFC. William (Bill) Lyons is Director of Global Research & Development Strategy Boeing Research & Technology (BR&T), where he leads a team responsible for conceiving, planning and implementing international technology alliances , and collaborative R&D. Prior to this, Lyons was general manager of BR&TAustralia, conducting applied technology development supporting Boeing Defense, Space & Security and Boeing Commercial Airplanes in Australia. He has held various assignments with Boeing on development programs in space-based remote sensing, international business pursuits and environment. Lyons has more than 19 years of experience in systems engineering and systems development for satellite applications, and has served on the board of governors for the Institute of Electrical and Electronics Engineers’ Aerospace and Electronic System’s Society. Prior to joining Boeing, Lyons worked for Australia’s Bureau of Resource Sciences and was a visiting Assistant Professor at the University of Oklahoma where he taught Satellite Remote Sensing and Meteorology. He also held Australian government appointments in the departments of Defence and Agriculture, including international assignments in Southeast Asia. He is a 2014 graduate of the Leadership Executive MBA program in the Albers School of Business & Economics at Seattle University.
Harvey Kanter of Blue Nile Continued from page 13
Nile, where Harvey spends about a third of his time focusing on organizational culture. Many employees at Blue Nile have been with the company since it was founded, and Harvey cites the importance of knowing employees by name and walking around each day. He particularly finds that retail is a dynamic industry, where employees can have an impact every day, without necessarily holding a leadership role.
Where does Blue Nile go from here? Harvey points to a significant evolution in consumers’ comfort with purchasing online. Specifically, consumers are using smartphones and/ or tablets to make purchases that previously were purchased via personal computer. This shift to use of mobile devices to make online purchases has been significant for Blue Nile: 50% of the traffic to the Blue Nile website is via mobile phone. Much of this traffic comes from users in countries like China, who don’t have personal computers, but use their smart phones as access points to digital commerce. One primary reason this is happening is that the westernization of China and growing middle class are leading education-oriented consumers to mimic western-style engagements. As a result, Blue Nile is taking the consultative selling model to China, focusing on education, navigation of the buying process, guidance and counsel of consumers. Jon Sainsbury (ELP ’14) was recently named President, International. Additionally, the Blue Nile website is now accessible in seven languages, and customer service representatives speak 12 languages. Defining his Leadership Legacy Harvey is focusing on identifying a successor and creating a succession plan at Blue Nile. He will continue to focus on creating value by getting the best out of people, and driving their careers. He believes that results — in general and at Blue Nile — are a function of people and teams. He reiterates his belief, honed in the ELP, in the importance of bringing out the best in people, as they define it. He believes that leaders cannot define success for their teams, but must balance this against the concerns and needs of stakeholders in a publicly held company.
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Considering the state of the Seattle-area housing market With Dr. Stan Humphries, Chief Economist at Zillow Dr. Marilyn Gist & Cindy Hamra
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ur theme for this issue of InSights is “Back to Boom: what’s different this time?” In exploring the positive change(s) to the Puget Sound area economy, we wanted to examine the housing market, a leading economic indicator. We were fortunate to meet with Dr. Stan Humphries, Chief Economist at Zillow. Zillow is an online, Seattle-based home and real estate marketplace, founded in 2005 by Rich Barton, who also founded Expedia.com and Glassdoor, and Lloyd Frink, a former senior executive at Expedia. Zillow is organized around the premise that information and data about homes and home prices should be widely available to consumers. Stan and the economists and data scientists at Zillow produce housing data and research on over 450 markets.
How is the Seattle housing market performing compared to the US market? The Seattle housing market has seen a very strong recovery, particularly in the Seattle metro area, when compared to the national market. For example, the Seattle market saw a
12.5% year-over-year increase from May 2013 to May 2014 — more than twice the US market growth during the same time. When examining the three counties that make up the Seattle area, there is variation in the strength of the housing market across King County, Snohomish County and Pierce County. Not surprisingly, King County has seen the strongest growth, but also saw the mildest drop in terms of home values. Significant housing recessions began in many markets in early 2006 but Seattle’s own recession started about a year and a half later. Home values in the three-county metro area declined by over 30%; the impact of this recession was average compared to other large metro areas. Overall, the Seattle metro area is still about 12% below peak home prices (which occurred in August 2007). Broken down by county: King County is 6% below peak home prices, Pierce County is 19% below peak and Snohomish County is 14% below peak. However, homes in desirable, closer-in Seattle neighborhoods are generally back to peak values already. Stan explained that Seattle metro residents’ experience of the housing recession differed dramatically based on where in the Seattle area they lived during that time. For example, Pierce County still has a high number of foreclosures, and over 30% of homeowners are still underwater on their mortgages. However, the city of Seattle is now the fifth highest sellers’ market in the U.S. (out of the 400 metropolitan markets that Zillow tracks). The hottest areas are all in King County: Seattle, Kirkland, Issaquah, Bellevue and Sammamish.
Why is Seattle’s housing market performing so strongly? According to Stan, the current US housing market recovery is unusual in that it is not fueled by traditional factors such as income growth and household formation. Rather, the national recovery in the housing market is based on factors such as very low mortgage rates (triggered by the Federal Reserve stimulus package), very low inventory levels, and a 10-year “huge reset” on housing prices. Zillow’s April 2014 Real Estate Market Report noted that “despite a recovering housing market and a return to more normal rates of appreciation, we still face headwinds. The following remain risk factors to the recovery: negative equity rates remain high, household formation is still low by historical standards, housing and rental affordability is still an issue in select markets where home values have increased much more than incomes.” (Zillow’s Real Estate Market Reports are available at http://www. zillow.com/research/reports/). The reset in housing prices has fueled high levels of negative equity (possible indebtedness that occurs when the market value of a property falls below the outstanding amount of a mortgage secured on it). Nationally, the percent of homeowners with negative equity as of the first quarter of 2014 is 19%, versus 21% in Seattle. These homeowners are often unable to sell which decreases inventory and drives up home prices. The high rate of negative equity was driven by a dramatic drop in home prices (34% in Seattle versus 25% nationally) during the Great Recession. Continued on page 17
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About Dr. Stan Humphries Stan’s interest is in econometrics, data mining, and big data problems. After completing his PhD at the University of Virginia, he joined Expedia’s applied research group as a Group Manager for Customer Analytics, building econometric models to use in making predictions for operational decision-making. He moved to Zillow with the founding team in 2005. He initially worked on internal projects such as the Zestimate and housing indices. He subsequently took on additional responsibilities focused on economic research and making sense of the housing market for consumers and media. As Chief Economist, he is responsible for all analytics across Zillow, including data science, economics, pricing analytics, business analytics, and marketing analytics. Stan’s take on Zillow Zillow has created many tools and assets, and made them publicly available for free. The company’s goal has been to create transparency
around information and data relating to real estate. Stan characterizes Zillow as a media company — it sells advertising to monetize its operations, while funding research and giving the data away. This is consistent with the company’s mission, which is to “empower consumers with information and tools to make smart decisions about homes, real estate and mortgages.” Their mission and sharing data for free differentiates Zillow from other companies engaged in real estate research. Zillow’s data is widely used for research elsewhere. Zillow differentiates itself from other sites in the home and real estate marketplace by executing on an ambitious vision, involving creating a real estate marketplace for consumers and professionals around everything involving homes. The key is that the marketplace matches professionals and consumers, as opposed to acting as a broker or providing a service. The vision is accordingly larger and more ambitious. Stan suggests that other
companies in this space are competing on only part of Zillow’s vision, but not all. Zillow puts more information into the hands of consumers, operating under the belief that every market benefits from transparency, and accordingly becomes more efficient. Stan emphasized a “philosophical belief” at Zillow — the importance of free data and information transparency. Additionally, he stressed that Zillow’s obsession is on delivering what consumers want. He argues that if companies like Zillow give consumers what they want, or “set the data free,” then professionals will follow to the marketplace. He believes that in the long term, most if not all consumerrelevant data will be free, and Zillow’s business model both works under this assumption and helps realize this aspiration. Stan believes that businesses that charge consumers for information will ultimately be undermined by those that offer the same information for free.
The current U.S. housing market recovery is unusual in that it is not fueled by traditional factors such as income growth and household formation.
The positive news is that home prices have risen faster in Seattle than in the rest of the US. Due to what Stan calls a “huge price reset,” home prices appear affordable to new buyers (calculated as a percentage of income that these buyers can spend to purchase a home).
How is the Seattle housing market affected by the local economy? Unemployment in the Seattle area (including Seattle, Tacoma and Bellevue) is at a significant low (5.2% in July 2014 according to the US Bureau of Labor Statistics), which
would typically drive the housing market. However, the jobs that are being created are more likely to affect people aged 36 and older. As a result, the rate of first-time home buyers is down, and more adults are choosing to live with their parents (around 20% of 23-34 year olds according to Zillow’s Continued on page 19
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TRENDwatch Question: In light of the recent run up in the stock market, what do you anticipate the business climate will look like in the next 6-18 months?
A
run up is a sudden increase, normally short term, in the price of stock on the stock market. The key words here being “sudden” and “normally short term.” Based on this, I believe the recent upswing is temporary and in the next 6-18 months we could be back in a recession. The stock market has been accelerating due to the easy and cheap flow of money by the Federal Reserve. But the Federal Reserve has stated that is due to end in the next few months. When that happens, interest rates will rise, stocks and bonds will fall, consumers will cut back, thus business will cut back and we will see less on the hiring front and more terminations or lay-offs. The market is currently being driven by zero interest rates, i.e. cheap money, and that will soon be coming to an end.
Francine Johnson (LEMBA ‘14) Director, Global Services Sales, F5 Networks
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e continue to view the tangible improvement we have seen in the U.S. economy as well as the reduction in uncertainty and increase in confidence and sentiment as key drivers of the fairly steady strength stocks have exhibited over the past 18-24 months. The Wealth Effect continues to drive consumer confidence and sentiment, which feed directly into consumer behavior, i.e., retail spending. We expect that this will continue over the next 6-18 months, provided the stock market cooperates. Similarly, CEO and small business owner confidence have been showing strength lately and we believe these are likely to continue to gain momentum. Though there has been meaningful progress on the jobs front already, more is needed. Meanwhile, more robust capital spending is a piece of the economic puzzle that has been missing until very recently.
B
lue Nile is bullish about the prospects for e-commerce in the next 6-18 months. Two significant trends drive that optimism. First, the rapid consumer adoption of mobile technologies is fundamentally changing the nature of the online experience while expanding it to a broader spectrum of consumers – many of whom don’t own a traditional PC or laptop. Many retailers, including Blue Nile, are embracing this trend with more advanced native applications and the adoption of experience paradigms like responsive design websites. The second bright spot is the emerging internationalization of e-commerce. Recently, Alibaba completed a successful IPO behind the strength of the business they have built in Mainland China and the emerging Chinese middle class. Last year on Singles’ Day (11/11), sales on Alibaba’s Tmall and Taobao platforms represented nearly four times the U.S. e-commerce spend on Cyber Monday. Of particular interest to American companies is Alibaba’s Tmall marketplace, a platform which allows western brands to connect with the majority of Chinese consumers. Alibaba’s success validates the entire e-commerce sector. Jon Sainsbury (ELP ’14) President, International, Blue Nile
Lorrie Baldevia (LEMBA ’14) Vice President, MCM, A Meisenbach Company
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Considering the state of the Seattle-area housing market Continued from page 17
research). Other relevant, current factors include low rates of household formation (millennials are delaying partnering and marriage) and stagnant income growth. Stan suggested that this means that the housing market will shift back towards the traditional factors that drive recovery (as opposed to the unusual factors that have been driving this most recent recovery). That shift should result in a slower pace of recovery going forward. Accordingly, over the next two years, home prices will see positive appreciation, but will slow as compared to growth over the last few years. As already noted, home prices in Seattle increased 12.5% between May 2013 and May 2014; the growth is expected to be 9.75% from May 2014 to May 2015, and 5.6% from May 2015 to May 2016. This is as compared to 3.5% normal or traditional annual growth in home prices.
What’s next for Zillow? The company is executing on more of its vision in existing lines of business and in the United States. For example, it launched Zillow Digs, a home improvement product, and the Zillow Mortgage Marketplace, a place where consumers can find and research mortgage options. The company is rapidly expanding, doubling in size over the past year, as it hires engineers, data scientists, and business leaders to create the cool data-driven features that people expect to see on Zillow.
Albers Means
business with purpose An education at the Albers School of Business and Economics is based on the Jesuit philosophy of developing the whole person within a framework of academic excellence. We inspire our students to lead successful, ethical lives in contributing to the global community. Nationally ranked by: • Bloomberg BusinessWeek • U.S. News & World Report • The Princeton Review • Beyond Grey Pinstripes Joseph M. Phillips Dean, Albers School of Business and Economics
Dr. Stan Humphries is the Chief Economist of Zillow. Stan joined the company as one of its earliest employees in 2005 and created the Zestimate® and its first algorithm. Since that time, Stan has built out the industry-leading economics and analytics team at Zillow. A recognized leader in the real estate industry, Stan is a member of Fannie Mae’s Affordable Housing Advisory Council. Prior to joining Zillow, Stan spent five years at Expedia where he ran the advanced analytics team. Before Expedia, Stan served as a researcher and faculty member at the University of Virginia, and was previously a presidential management fellow at NASA, the Office of Science and Technology Policy in the Executive Office of the President, and the technology administration within the Department of Commerce. Stan also served in the U.S. Peace Corps, where he taught high school physics and chemistry in the West African country of Benin. Stan has a Bachelor of Arts degree from Davidson College, a Master of Science in Foreign Service from Georgetown University, and a doctorate in government from the University of Virginia.
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Non-Profit Org. U.S. Postage PAID Seattle, WA Permit No. 2783
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RETURN RECEIPT REQUESTED
Upcoming Events ALBERS school of business and economics EXECUTIVE SPEAKER SERIES (Free and open to the public) Time: 5:30 to 6:30 PM Location: Pigott Auditorium
Tuesday, October 21, 2014 Stein Kruse CEO, Holland Group America Thursday, November 13, 2014 Panel Discussion on Empowering Employees featuring: Melanie Dressel President & CEO of Columbia Bank Harvey Kanter Chairman, CEO & President, Blue Nile Major General Stephen Lanza Base Commander at JBLM
Wednesday, January 28, 2015 Bill Ruckelshaus President & CEO, Blucora Thursday, April 16, 2015 Adrian Hanauer General Manager, Seattle Sounders Tuesday, May 12, 2015 Jeff Wilke Senior Vice President of Consumer Business, Amazon.com Inc.
connect with us! For more information about these events, visit: http://www.seattleu.edu/albers/news-events/speaker-series/. For more information about the Center for Leadership Formation programs, visit: http://www.seattleu.edu/albers/executive/