THE PHYSICS OF BUSINESS
Bringing Together Physics and Business
Management in Interdisciplinary
Undergraduate Education
Saturday November 8, 2014
Associate Professor Rick Trilling
Wentworth Institute of Technology
THE BUSINESS OF PHYSICS
THE PHYSICS OF BUSINESS
• Physics concepts have contributed much to the
world of business management…
• …as business management concepts have
contributed much to the world of physics.
• Wentworth Institute of Technology is teaching
undergraduates using the “EPIC” format:
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Externally collaborative
Project based
Interdisciplinary
Curriculum
• Cross-campus education = cross-pollination of ideas
THE PHYSICS OF BUSINESS
• X
• X
PHYSICS FOR BUSINESS APPLICATIONS
• Many schools offer not only undergraduate interdisciplinary
physics / business combined programs, but similar masters
programs as well
• Job opportunities for physics grads in academia are limited…
• …but typical starting salaries for physics grads overall have
increased from $40K-65K five years ago, to $50K-75K now
• So where are all those physics grads getting work? In the
business world - especially in finance
• Physicists find jobs as quantitative analysts (“quants”) or as
financial engineers (the “dark arts”)
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• All academic disciplines offer something to each other
• But Physics and Business share a special bond:
THE PHYSICS OF BUSINESS
THE BUSINESS OF PHYSICS
THE PHYSICS OF BUSINESS
THE BUSINESS OF PHYSICS
No.. the real bond between physics
and business is represented by the
numerous concepts from each
discipline that benefit the other
THE PHYSICS OF BUSINESS
• Certainly business managers regularly monetize and
commercialize the inventions, equations and other
expressions of both theoretical and applied physics:
• The geophysicists who gave us Texas Instruments (f/k/a
Geophysical Services, Inc.)
• Blue LED wins Nobel Prize (and a healthy revenue stream)
• …& everything from xerography to quantum computing
• (please see the November 2014 issue of Physics World,
“Commercializing Physics: How to Translate Ideas into
Business” for an excellent discussion and details for which
time limits constrain in this forum)
• This much is well-known and media-popularized
THE BUSINESS OF PHYSICS
• One result of which is: I have a lot of physics (and
other non-business management) students
interested in taking my Entrepreneurship minor
• (= job security, in an uncertain world? Perhaps…)
THE PHYSICS OF BUSINESS
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• But more importantly: it is what physics students
bring to the business management classroom that
deserves acknowledgement – and encouragement
• “What is an entrepreneur? Someone who creates a
business out of nothing. In other words, someone
who understands either implicitly or explicitly that
wealth is not a ‘conserved quantity’.”
• “Our slogan, ‘we have a problem with impossible’,
encapsulates the thinking of both physicists and
entrepreneurs in one.“ Geordie Rose, founder of dwave (commercial quantum computing)
THE PHYSICS OF BUSINESS
• “Training in physics prepares one well for business
which is all about analyzing complex issues &
developing & implementing a strategic plan for
commercial gain, but over time these get altered
by changing circumstances, so to be successful you
have to be capable of dealing with the
unexpected, which physicists are trained to do;
they love problems because problems need
solutions. Physics deals with problems that nature
has the answer to; the trick is to find them.” – Haig
Farris, venture capitalist for physicists
THE BUSINESS OF PHYSICS
• Elon Musk (another physics graduate): “How did
physics help my career? I think physics gives you a
mental framework for problem solving. It also
teaches you to be willing to admit you're wrong.”
• Physics teaches both concepts and skill sets
fundamental to entrepreneurs / intrapreneurs:
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Complexity
Experimentation to test hypotheses
Metrics
Quantitative skills
Systems modeling
THE PHYSICS OF BUSINESS
• TIME NOW FOR HARD EVIDENCE:
• It’s one thing to say to my fellow business faculty
and venture capitalists: “Physics has given us lots of
shiny toys and clever ideas that we can sell”
• It’s quite another to address the enormous
conceptual, foundational benefits that physics has
provided to business management
• So let’s move beyond platitudes and into the realm
of (just a few of the many) concrete examples of
those clear, demonstrable benefits:
THE BUSINESS OF PHYSICS
• 1: THE LAW OF CONSERVATION OF MOMENTUM:
• René Descartes
• If no resultant force acts on a closed system of
objects, the momentum of the system remains
constant in magnitude and direction. This is true no
matter how intricate the system, and no matter how
many components it has. Furthermore, the law
applies to all objects in universe, from the largest
spiral galaxies to the smallest subatomic particles.
• So is it also applicable to business?
THE PHYSICS OF BUSINESS
• Michael Porter (of 5 Forces fame, tbd) suggests that
an industry can be viewed as a complex system of
forces and that, in situations where there are no net
external forces acting on the system, the law of the
conservation of momentum applies
• In business school we teach that industries develop
along a predictable, cyclical path, which includes
the following five stages: embryonic, growth,
shakeout, maturity, decline
THE BUSINESS OF PHYSICS
THE PHYSICS OF BUSINESS
• For example: when two organizations merge, the
resultant “mass” (size, revenue, etc.) of the new
organization increases. Based on the law of the
conservation of momentum, the velocity of the
merged organization (the time rate of change in
revenue) must decrease by an amount inversely
proportional to the sum of the masses.
• The math is not intuitive for CEOs; but, when you
walk businesspeople through it like an intro student,
the principle of the conservation of momentum can
be applied from a mathematical perspective
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• 2: NEWTON’S SECOND LAW: FORCE
• Force is a foundational concept in physics,
characterizing any influence that can cause an
object with mass to change its velocity. Newton’s
Second Law of Motion defines force as: F = m * a
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• Michael Porter’s Five Forces (SWOT alt), method to
evaluate a company’s strategic position:
THE BUSINESS OF PHYSICS
• As Porter’s framework suggests, the forces
associated with any one of these five areas can
dramatically altered an industry’s balance of
power.
• These five forces can act on even the most massive
enterprise, to change its “velocity”
• Think of the juggernaut businesses that you have
witnessed stopped in their tracks by disruptive
technologies, new entrants, customers no longer
having disposable income, etc.
THE PHYSICS OF BUSINESS
• Having mentioned “velocity”, let’s turn to “business
velocity” in terms of…
• 3: Newton’s other laws of motion
• Newton’s first law states that an object in motion will
stay in motion unless acted upon by an external
force, using a change in position (distance) as the
basis for defining velocity
THE BUSINESS OF PHYSICS
• Substituting business revenue (r) for distance (d),
one may define business velocity (Vb) in
quantitative terms as the ratio of change in revenue
(r) per change in unit time (t).
• Vb = ∆r / ∆t
• Similarly, since the 1920s the Fed has used the
concept of income velocity = the rate of spending
(turnover of money) = how many times a dollar is
spent in a given period of time
THE PHYSICS OF BUSINESS
• 4: Quantum Physics:
• the study of the fundamental particles from which
all matter forms, describing and predicting the
properties of all physical systems.
• understanding everything at nanoscale, the
smallest elements, and how they interact
• Your average consulting firm (“efficiency experts”) is
hired by a large enterprise (LE), visits the LE, breaks it
down to its smallest parts, then reorganizes it from
those building blocks into a more efficient enterprise
THE BUSINESS OF PHYSICS
• I’ve always thought that both quantum mechanics
and business consulting owe more than a little to Dr.
Freud and the field of
psychoanalysis….
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• 5: Complexity:
• The study of complex systems investigates how
relationships between parts give rise to the
collective behaviors of a system
• How the system interacts and forms relationships
with its environment
• Physicists bringing their understanding of complex
systems to business management offer inherent
value: whether to the enterprise itself or its
constructs (the Internet, biochemistry, etc.)
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Structure of a
business
organization
(departments,
consultants,
Externals, etc.)
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• Example: Pierre-André Noël, Charles Brummitt and Raisa
D’Souza from UC Davis propose a model of the standard
example of self-organized criticality (SOC)
• Physics World reports that they have worked out a
scheme for optimal control of complex systems, where
one event can lead to another, studying how best to
intervene in SOCs, which are constantly poised on the
brink of a cascade, so as to suppress or manage
"avalanches" and propagating crises.
• The approach might potentially be applied to real
landslides and avalanches, forest fires and economic
crises.
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• 6: Brownian Motion:
• No, seriously…
• Louis Bachelier's “Theory of Speculation”: 1900
thesis discussed the use of Brownian motion to
evaluate stock options
• “random walks” became a mainstay of modern
economics
• The first paper to use physics and advanced
mathematics in the study of finance
THE BUSINESS OF PHYSICS
• 7: Fluctuation Dissipation:
• Rayleigh’s work on a heavy particle in a single
temperature buffer gas is among the first
descriptions of the relation between the dissipation
and fluctuations of a stochastic system, a/k/a
fluctuation-dissipation theory
• The fluctuation-dissipation theory has shed light on
input-output inter-industrial relations at a
macroscopic level by its application to IIP (indices
of industrial production) data
THE PHYSICS OF BUSINESS
• 8: Markov Chains:
• System that undergoes transitions from one state to
another; a random process usually characterized as
memoryless because the next state depends only
on the current state and not on the sequence of
events that preceded it; this has many applications
as a statistical model of real-world processes
• In other words, a stochastic model that describes a
set of events such that the probability of any given
event is a function only of the state of the state of
the event directly preceding the event in question
THE BUSINESS OF PHYSICS
• Marketing and customer relations are just two areas
of business that use Markov Chain analysis
• Even Bachelier’s random walks (and so-called
Monte Carlo statistical methods) are forms / variants
of Markov Chains
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• 9: Power Laws and Pareto Distributions:
• When the probability of measuring a particular value of
some quantity varies inversely as a power of that value,
the quantity is said to follow a power law, a/k/a the
Pareto distribution
• Power laws appear widely in physics, biology, earth and
planetary sciences, economics and finance, computer
science, demography and the social sciences
• Examples: the distributions of the sizes of cities,
earthquakes, solar flares, moon craters, wars & people's
personal fortunes all appear to follow power laws
THE BUSINESS OF PHYSICS
• Frankly, Pareto distributions have become so
fundamental to business management that we
probably would never hire a faculty member who
didn’t know what that was
• Customers / Problems
• Effort / Profits
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• 10: The Scientific Method
• What self-respecting physicist is ignorant of the
scientific method, a set of techniques used by the
scientific community to investigate natural
phenomena by providing an objective framework
in which to make scientific inquiry and analyze the
data to reach a conclusion about that inquiry?
• Yet what self-respecting business management
professor is ignorant of the scientific method having
been translated to manufacturing and other
business methodology?
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• Scientific management, also called Taylorism is a
theory of management that analyzes and
synthesizes work flow
• Gilbreth advanced Taylorism (did you ever see the
movie Cheaper by the Dozen? Ever heard of
Therbligs?
• Earliest attempts to apply physics to engineering of
manufacturing processes and to corporate
management itself
THE PHYSICS OF BUSINESS
• There’s no way I got this all in under 12 minutes…
• Is there time for my Black-Scholes (semi) joke?
• The physics of video games: reproducing explosions
and the motion of body parts?
• You mean I can’t go into the story behind this
recent headline?
“FROM FAST COMPANY: WHAT THE? I DON'T EVEN... A
NEW GAME FOR THE XBOX ONE GETS BREAST PHYSICS
COMICALLY WRONG.”
THE BUSINESS OF PHYSICS
• Thank you for listening to one business
management professor’s truncated ode to the
benefits of cross-pollination between the physics
discipline and ours.
• For more information:
TrillingF@wit.edu
THE PHYSICS OF BUSINESS
Bringing Together Physics and Business
Management in Interdisciplinary
Undergraduate Education
Saturday November 8, 2014
Associate Professor Rick Trilling
Wentworth Institute of Technology