More of the same is different Archives

November 8, 2018November 8, 2018

Intangible assets and the catataxic gap

The problem of intangible assets

In 1988 Nestle bought Rowntree, the UK confectionary company famous for its fruit gums and jelly babies. It paid £2.5 bn which was three times more than the market thought it was worth. Nestle then had a big problem with its accounts.

Traditionally, accountants would only look at the value of tangible assets; physical things like equipment and buildings. The difference between what you paid for a company and its tangible assets was called goodwill and had to be written off. Rowntree at the time had tangible assets of £0.5 bn. So according to the accounting principles of the day, Nestle had just blown £2 bn on intangible assets that had no true recognised value. It faced having to declare a huge loss.

Nestle argued this was nonsense. The intangible assets were not worthless, in fact they were very valuable. They were consumer brand names that had cost many millions in advertising investment to build up. Moreover, they were more valuable than physical equipment. Machinery wears out and breaks down in the end; it depreciates in value. Brand names don’t. They last for ever.
This debate about accounting policies ran on for over a decade. The proper accounting treatment of brands was not settled until 1999 in the UK and 2002 in the US. Nestle’s view won out. Brands do have financial value and don’t depreciate.

Brand value is the catataxic gap

What is a Brand? It is essentially a collection of feelings and emotions in the minds of the populace. Brand valuation is an example of catataxis. It is the difference between the value of all the physical assets and the value of the company as a whole: the catataxic gap. A brand is a great example of the whole being worth more than the sum of its parts. Beauty is in the eye if the beholder. Brand is in the mind of the consumer. So accountants are now valuing things one level higher than the physical. They are pricing emotions in your head. How you as a consumer feel now has a recognised monetary value.

The ultimate expression of a brand is a pop group. Rowntree’s jelly babies is a physical product with some warm consumer associations. But a pop group is not a physical product at all. Its pure concept. So a band is the ultimate brand. It can exist without its physical parts. Forget jelly babies, look at the Sugarbabes.

Sugarbabes and the Ship of Theseus

The Sugarbabes formed in 1998 with three members: Siobhan Donaghy, Mutya Buena and Keisha Buchanan. One by one, all three of the original members left the group. The line up in 2010 was Heidi Range, Amelle Berrabah and Jane Ewen. The constituent parts were completely different from ten years previously, but the band was still the same. It still sold out big arenas so clearly the fans didn’t mind. The band is not its members. It exists at a higher level.

This is sometimes called the ‘Ship of Theseus‘ problem, first presented by the Greek philosopher Heraclitus. Theseus’ ship is so old that gradually every plank of it is replaced by a new plank. Once the last piece of the old ship has been replaced, is it still correct to call it the Ship of Theseus? The example of the Sugarbabes and Nestle’s intangible assets would prompt a yes.

Better together…

Better known bands that the Sugarbabes also demonstrate that the whole is more than the sum of the parts. The Rolling Stones as a band (and brand) is still as strong as ever. But the solo albums by the members are embarrassing flops. Mick Jagger released a solo album in 2001 which sold only 954 copies on its first day. A few years later the Stones “Bigger Bang” tour played to 3.8 million people and grossed $500m. So when Mick writes songs and releases them under the Stones banner it is completely different from releasing them on his own.

Consider Pink Floyd. This band lost its creative mainspring not one but twice. Syd Barrett left in 1968 and Roger Waters left in a very acrimonious breakup in 1985. Roger Waters wrote almost all of the The Wall which has sold 20m copies worldwide. His first solo album was “The Pros and Cons of Hitchhiking”. This is very similar to The Wall, even down to the artwork by Gerald Scarfe. It was written at the same time as The Wall and at one time could have been recorded by the band. It was an embarrassing flop.

A big dispute followed about the ownership of the Pink Floyd name. Roger Waters lost out and the remaining three band members kept ownership of it. They went on to release two successful albums and had three sellout tours under the Pink Floyd name. Roger Waters had the humiliation of playing the same songs – songs that he wrote – in tiny auditoriums right next door to Pink Floyd rocking stadium arenas.

Catataxis : sum of the parts

This is one aspect of catataxis. In the above examples, the whole is different from the sum of the parts. This can be summarised under the phrase ‘more of the same is different’ which is one of the four axioms of catataxis

November 8, 2018November 8, 2018

Lynn Margulis and the eukaryotic cell

Fossils are not the whole story

When you think of evolution what image first springs to mind? It’s probably a hall in the Natural History Museum filled with fossils. All the dinosaurs, trilobites, coelacanths and ammonites together make an awesome menagerie of extinct creatures. The stepping stones of evolution are laid out before you in rock and bone. But there is something wrong with this picture – it’s just depicting animal evolution which means it is only telling part of the story. There are five other kingdoms of life (plants, fungi, protozoa, bacteria and archaea) and animals showed up relatively recently. Life on Earth started 4 billion years ago but the first animals evolved 0.5 billion years ago, half-way through the last quarter of the game. So that fossil hall in the museum is like a history of the world that only covers one continent in recent time. A history of the world that starts with American Independence and never strays beyond its borders. (Yes. I know. For many Americans that really is the history of the world but bear with me)

Lynn Margulis challenged orthodoxy

Most famous evolutionary biologists (Dawkins, Gould, Haldane, Maynard Smith, etc) come from a background in zoology. Their expertise is in the comparative study of animals. Lynn Margulis, who died aged 73 in November 2012, was different. She was a microbiologist who focused on the evolution of eukaryotic cells (cells with a nucleus) and became convinced that the scientific consensus was wrong. The mainstream thinking was that the engine driving the evolution of species was random genetic mutation in which only the fittest survived. Margulis agreed that natural selection picked winners but disagreed about how the competing variants were created. She believed that evolution was driven by the symbiotic cooperation of organisms: the competitors in the race worked together rather than competed with each other. The mainstream saw the creation of new species as a divergent process; just as twigs and branches diverge from the trunk of a tree. Margulis believed that new species were created by a process of fusion and merger. She wrote a paper about it in 1966 called “ Symbiogenesis: the origin of eukaryotic cells”.

And then nothing happened. In fact, worse than nothing. Fifteen academic journals rejected her paper. One actually said “Your research is crap. Don’t ever bother to apply again”. Maybe it was because she was a woman. Maybe it was her difficult personality and bad temper. After extensive reworking, she finally managed to get her paper published in the Journal of Theoretical Biology. It was a groundbreaking piece of work. For the first time, the evolution of cells had been properly examined: a history of a continent that was not America had been published. The response from the mainstream was…..complete silence. No one bothered to respond because no one really cared.

The theory of symbiogenesis

And then, very gradually, the years passed and data began to trickle in to support her theory. A single cell is more complex than you might imagine; it’s more than a nucleus in a little sack of protoplasm. The diagram below shows that there are 13 different entities inside it. The crucial evidence to support her theory came when scientists discovered that some of these entities had DNA that was different from the nucleus. The DNA of mitochondria, chloroplasts, basal granules and plastids is not the same as the DNA in the nucleus. This implies that a cell, the fundamental building block of all animals, is a fusion of different bacteria-like creatures. At some time in the past, a group of different bacteria clumped together to form a eukaryotic cell. This cell was dramatically more successful that the individuals composing it and became the basis of all higher lifeforms. The living creatures that we see around us all stem from that initial cooperative merger. Nature is not wholly “red in tooth and claw”.

1. Nucleolus
2. Nucleus
3. Ribosome
4. Vesicle
5. Rough endoplasmic reticulum
6. Golgi apparatus (or “Golgi body”)
7. Cytoskeleton
8. Smooth endoplasmic reticulum
9. Mitochondrion
10. Vacuole
11. Cytosol
12. Lysosome
13. Centriole

Lynn Margulis’s theory has now become scientific orthodoxy and her book “Symbiosis in Cell Evolution” is seen as a classic of 20th century biology. Her concept of symbiogenesis could be summarised as

“Today’s groups are tomorrow’s individuals”.

Time acts to drive individuals up the catataxic ladder. In a social history of the world, families become tribes, tribes become nations, nations become empires. So too in biology. Bacteria merge to become eukaryotic cells, single cell creatures merge to become multicellular plants and animals, and the resulting flora and fauna knit together to form complex ecosystems. What you view today as a group of separate but similar things in the fullness of time will be viewed as a single entity.

October 30, 2018October 30, 2018

Costa Concordia: catataxic catastrophe

On the centenary of the Titanic disaster of 1912 another huge cruse ship sank. The Costa Concordia ran aground in January 2012 hitting a rock in the Tyrrhenian Sea. Although most of the passengers and crew were evacuated safely over a 6 hour period, 32 people died. There is a catataxic side to this tragedy. As cruse liners have ballooned in size, the safety systems have not scaled up appropriately. In this case, more of the same is not just different but also deadly.

Big cruise ships are top heavy

Cruise ships have been a boom industry and as a result the ships have got bigger and bigger in order to achieve economies of scale. Today’s ships are twice the size of a decade ago and can carry 6,000 passengers and 1,800 crew. That’s the size of a small town and four times bigger than the Titanic. Since most passengers want a nice view from their cabin, there are more and more decks stacked above the waterline. At the same time, the ships need to be able to get into traditional old ports (where tourists like to go) rather than to anchor offshore and be ferried in on small boats. That means they need a shallow draught. Both factors mean that ships are becoming increasingly top heavy: there is a lot more above the waterline and too little underneath.

Lifeboats and logistics

A second factor is the lifeboat problem. This technology has not really changed since the time of the Titanic. When the top heavy Costa Concordia heeled over, that put half the life boats out of action because they could no longer be lowered into the water. Every passenger is (in theory) allocated a berth in a lifeboat matching their cabin allocation. It is a logistical nightmare to try and shepherd 7,800 people to their allocated lifeboat seat. Just picture this. A typical movie theatre has say 250 seats. Now imagine 30 cinemas stacked on top of each other in a sky scraper with every seat full. You randomly distribute tickets with seat numbers in a different cinema to all the members of all the audiences. Then you blow a whistle and tell them to find their new seats in the new auditoriums. Result: utter chaos. Now imagine doing it in the dark, at sea with the rooms gradually tilting over to one side…..

This lifeboat issue is such a logistical problem that the International Maritime Organisation advises Captains to try and use the ship itself as a “big lifeboat” and return as fast as possible to port for evacuation. In other words, the best advice available about lifeboats is to try to avoid using them at all.
Both the ship design and the lifeboat problem are problems of scale. Andrew Linington of Nautilus International, a maritime union, says “The alarm bells have been ringing with many of us for well over a decade now. These ships are floating hotels – skyscrapers, really. The design has been extrapolated from that of smaller ships. We believe a lot of basic safety principles are being compromised to maximise the revenue”

Surface area to volume problem

A big ship is different from a scaled up small ship which is the essence of catataxis. If you just inflate the ship design like a balloon it becomes top heavy. This is a version of the surface area to volume problem. The outside surface of the ship – which passengers have to get to in order to escape – increases with the square but the internal volume increases with the cube. So logistical problems with ever larger cruise ships grow exponentially. More of the same is different.

October 27, 2018October 28, 2018

The Catataxic baguette

One of the great joys of a holiday in France is the early morning trip to the boulangerie, in my case the Ti Ar Bara in Audierne. The baker has been up since 3.00am, working hard for your sybaritic pleasure. And what a true pleasure it is. As that gorgeous smell of freshly baked bread steals into the still morning air, you feel a rushing lift of the spirits. Yes, any day with such a blest beginning will surely bring all manner of wondrous things later.

Not just ‘your daily bread’

It’s not just the smell of the bread, it’s the glorious range of different things on offer. It is a mark of true civilisation to take a so pedestrian a concept as ‘daily bread’ and turn it into this transcendent cornucopia of golden joy. There are croissants and pan chocolat, flaky and light as a cherubim’s kiss, the eggy richness of the many different styles of brioche and, here in Brittany, the dense layers of caramelised butter in the kouign amann and the far breton. But even in the simplest things there is still a riotous diversity. ‘White bread’ in the Anglosphere is a simile for bland and unimaginative mediocrity. In France, white bread comes in dizzying array of forms; boules, epis, plats and rondes. Even the quintessentially French baguette comes in many different formats. There is the Ficelle, thin as the string it is named after, the shorter Batard, the pointy ended Festive, the double sized Parisienne and the giant Pan Ordinaire, which is not ordinary at all but a massive truncheon of crusty extravagance.

Surface area to volume ratio

Where does the catataxis come in? Well, it’s to do with this variety of forms. Why so many different types of baguette? If you want more bread why not just buy two normal sized ones rather than one big one? Two Ficelles weigh the same as one Batard so in ‘volume of bread’ terms they are identical. But mathematicians know that they are not the same thing at all. This because surface area and volume don’t scale up in the same way. Surface area scales in proportion to the radius but volume scales with the square of the radius. Gourmands know this difference too, but they put it a different way: you get a lot more crust with two Ficelles. A Ficelle is all crust; it’s so thin that there is very little doughy interior. So if you like the crust then get two Ficelles. By the time you get up to the monster Pan Ordinaire there is relatively little crust and a huge expanse of doughy interior. You can easily slice it and put it in a toaster.

This surface area to volume issue is a key factor in catataxis, and one of the main ways that ‘more of the same is different’ when you try to change the scale of something. For another example, consider the reason why no insect is ever bigger than a foot long: its exoskeleton design cannot support the interior mass at bigger scales.