Lec 02: Basics of Wealth Creation through Getting Jobs Done

Getting Jobs Done:

Our daily activities, from sleeping to breathing, are all about getting jobs done
efficiently. The quality of our lives depends on how well we accomplish tasks and
the resources we invest in them—time, effort, and money. We continually strive to
enhance our living standards, which drives us to develop and refine products and
processes. Ideas, inspired by empathy, science, and technology, fuel our
innovation efforts.
Driving forces of innovation: i. Getting jobs done better,
ii. Empathy & Passion for perfection, iii. Science &Technology,
iv. Engineering, v. Creativity, and vi. Winning in competition
However, despite our efforts, a recent study found that 72% of new product and
service introductions fail to meet expectations. So, the challenge remains: how
can we improve success rates and ensure our innovations deliver as promised?

Historical Context in Getting Jobs Done:

The quest to get jobs done and innovate isn't new; it's been part of human history
since the beginning. From creating fire by rubbing stones to accomplish tasks,
humans have always observed their surroundings, gained knowledge, and imagined
manipulating variables intentionally. This process led to technological inventions
and innovations. In the pre-industrial age, knowledge was limited to non-scalable
forms like art, which hindered rapid progress. However, the establishment of
corporate labs, like Edison's at GE, marked a shift towards scalable knowledge and
incremental refinement of ideas. This approach revolutionized idea generation and
contributed to improvements in living standards, economic indicators, and the
emergence of profit-driven competition.
 How do ideas contribute to the growth of utility? /

Ideas and Utility:

Ideas drive innovation, leading to the invention of new products and the continuous
improvement of existing ones. This constant evolution aims to enhance the utility
of products in helping us accomplish tasks more effectively. Products are made up
of various features, and their overall utility is the sum of the utility produced by
each feature. As a result, the willingness to pay for a product depends on the total
utility it provides. Therefore, we rely on a continuous flow of ideas to keep
increasing the utility we derive from products, whether it's on a daily, monthly, or
yearly basis.
(A product consists of a set of feature, N. The utility (Tu) of a product is distilled
as the summation of utility produced by each feature U(fi). Consequently,
willingness to pay (WtoP) depends on the total utility. )
Justify that relation between utility and ideas is not linear./
Utility Dynamics:
As we add more features to a product, its total utility increases, but the extra benefit
from each additional feature (marginal utility) starts to decrease. Similarly, the
utility provided by individual features: as they improve, their additional benefit
diminishes over time. Marginal utility is typically defined as the change in total
utility resulting from a small change in the quantity of a particular feature.

There's a risk of total utility or feature utility declining after reaching a peak or
saturation point, which could result in negative marginal utility. For example, too
many features in a product might overwhelm users, leading to decreased overall
satisfaction.

Not all features have the same impact on utility, and the utility gained from
advancing each feature varies, as does the associated cost. Therefore, the challenge
lies in identifying the most impactful features to maximize the return on investment
in innovation.
Utility of a product Total
Utility

Marginal
Utility

Number of features
Utility of a feature

Total
Utility

Marginal
Utility

Advancement of a feature
6
 Science and Engineering: for scaling up utility in getting
jobs done
To continuously enhance the utility of each feature and introduce new ones, we
rely on a constant flow of ideas. Incremental progress requires ongoing
innovation, while breakthrough ideas are needed for adding entirely new features.
For instance, adding a camera to smartphones required the breakthrough concept
of digital photography, followed by ongoing refinement. While the camera was
initially invented through intuition and craftsmanship, it needed scientific
knowledge and engineering precision to evolve and become a smartphone staple.

Science provides the knowledge needed for inventing and advancing

technologies, while engineering ensures their optimal implementation. Without
these disciplines, inventions in the preindustrial era often reached early limits,
hindering improvements in living standards. Successive industrial revolutions have
unfolded by transforming knowledge from an art form into science and utilizing it
for technological advancements through engineering.

This ongoing reinvention journey has led to increasing utility and value in how we
accomplish tasks.
 How does market of a product expand?/

Market Keeps Expanding with Growing Utility

No matter how groundbreaking an idea is, it typically starts in a basic form. Initially,
it may attract only a small group of customers, with limited willingness to pay. Even
if they sell at a loss, innovators manage to make some sales. Take automobiles, for
example. In 1901, German automakers sold just 900 cars, but in 2017, over 6 million
were sold worldwide. Automakers have continuously improved utility and reduced
costs over the past century, leading to increased sales and profits.

This ability to offer better products continually is crucial for expanding the market.
Therefore, generating a constant flow of ideas is essential. How do we do that?
Growing Number of Jobs to be Done in an Integrated Manner:
Raising Policy Issues
Three significant trends have emerged: an increase in the number of tasks to be
completed, improving utility in accomplishing each task, and integrating discrete
tasks into a cohesive process. Achieving higher-level goals often requires
performing a series of lower-level tasks, leading to transaction costs, errors, and
delays. Real-time integration can substantially enhance utility by seamlessly
connecting these tasks.
This integration trend demands leveraging sensor data and predictive models to
assess current situations, predict future trends, and take immediate action. It's
transforming offline processes into real-time machine capabilities, making tasks
more efficient and faster. However, this integration isn't limited to national
boundaries; it's connecting the world into a unified system monitored and
controlled by machine intelligence.
As these waves of reinvention progress, individuals and institutions may lose
privacy, control, and relevance. While technology improves how we accomplish
tasks, profit-driven innovation can sometimes conflict with broader societal goals.
Therefore, ensuring that this technological transformation serves the interests of
society as a whole, rather than just a few individuals, is paramount.
 Higher Quality at Less Cost:

People are motivated by economic incentives—they want better products at lower

costs. They won't buy something unless they see its value outweighs the price,
and the opportunity cost of not buying other products is low. Meanwhile,
producers aim for more profit, so they strive to create higher quality products at
lower costs, despite paying more for inputs like labor and materials.
Additionally, they must address environmental concerns and increasing taxes for
health and elderly care. Balancing these conflicting demands is essential,
especially for utilizing ECE competence to produce more with less.
Fortunately, ECE ideas offer solutions by improving quality while reducing
material, energy, and labor costs. For instance, photo relays achieve this while
consuming fewer materials and less energy. Other examples include ideas that
decrease material and energy usage, thereby reducing emissions and
environmental harm.
 Expanding the Economies of Scale and Scope:
By implementing ideas that save on materials, energy, and labor, while also
enhancing fitness for purpose, businesses can increase economies of scale. This
means that as production increases (N), the overall cost decreases. While initial
research and development (R&D) costs may rise, the minimal cost to implement
these ideas in each unit of production allows for improved quality and reduced
costs.
Similarly, leveraging economies of scope by reusing core ideas across multiple
products within a product family can also enhance quality and lower costs. For
example, investing in upfront R&D for VLSI chips improves quality and reduces
costs, but reaching the minimum efficient scale is crucial. However, to fully exploit
these economies, a growing market is necessary.

Smart firms are actively seeking ECE ideas to capitalize on economies of scale and
scope, while also mitigating diseconomies of scale. Additionally, third-party plug-in
options can further enhance scope effects. In microeconomics, economies of scale
refer to cost advantages from increased production, while economies of scope
involve cost savings from producing multiple goods together. Conversely,
diseconomies of scale arise when costs increase with organizational growth or
output.
 Increasing network externality effects:
The network effect causes products to become more valuable as their customer
base grows, known as network externality or demand-side economies of scale. It's
important to intentionally design features that create this effect. Digital services,
like telemedicine platforms, benefit from network externality, where more
connected doctors mean more service options.

Although there's exponential growth initially, it eventually saturates after reaching

a certain volume of customers. Maximizing value from this effect requires a series
of ideas beyond just network connection. Companies like Facebook and Google
have become global monopolies by leveraging this aspect of innovation.

Features like Facebook's "Marked Safe" contribute to network externality by

increasing user engagement and interaction.
Value from network

Value acquired by
externality

consumers from
network
externalities for
Technology ideas
Customers
 Frugal innovation: misleading affordable innovation
Frugal innovation aims to make high-end products more affordable for low-income
individuals by removing or downgrading certain features. However, this approach
can reduce the perceived value of the product. For instance, TATA attempted frugal
innovation with the TATA Nano, but despite its lower price, it failed to attract
enough sales to reach a sustainable scale. Ultimately, the cost reduction from
feature removal wasn't enough to offset the decrease in perceived value, resulting
in customers finding the cheaper car unappealing.
 Upgrade Technology Core:
Upgrading the technology core offers several advantages, including reducing the
need for materials and energy, improving quality, and reducing environmental
impact. One option is to replace mechanical and electromechanical technology
with electronics. This shift from hardware to software brings various benefits.
Changing the technology core also enhances economies of scale, especially with
the zero cost of copying software. As a result, many industrial products have
evolved, often in episodic phases.
However, pursuing these opportunities requires increased R&D investment to
make products better and cheaper. It also necessitates a growing market to reach
the minimum efficient scale, leading to globalization.
 *****
How will you measure it as consumer and producer surpluses? /
Measuring and Increasing Economic Value:
Being able to measure economic value is crucial for setting targets, monitoring
progress, controlling processes, and finding better methods. Consumer surplus
(CS) measures the benefits consumers gain when they pay less than they're willing
to for a product. Producer surplus (PS) reflects the difference between the price
charged and the cost incurred, which may not always be positive, especially for
startups.
Both consumer and producer surpluses can be increased by ideas that lead to
higher quality and lower costs, creating economic incentives for both parties. The
combination of CS and PS serves as an indicator of wealth creation from ideas,
represented as W=CS+PS. Consequently, producers compete to offer higher
quality products at lower prices.