THE PHYSICS OF BUSINESS Bringing Together Physics and Business Management in Interdisciplinary Undergraduate Education Saturday November 8, 2014 Associate

THE PHYSICS OF BUSINESS

Bringing Together Physics and Business Management in

Interdisciplinary Undergraduate Education

Saturday November 8, 2014Associate Professor Rick Trilling

Wentworth Institute of Technology

THE BUSINESS OF PHYSICS


• 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:• Externally collaborative• Project based• Interdisciplinary• Curriculum

• Cross-campus education = cross-pollination of ideas


• 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”)



• All academic disciplines offer something to each other

• But Physics and Business share a special bond:





No.. the real bond between physics and business is represented by the numerous concepts from each discipline that benefit the other


• 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


• 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…)



• 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 d-wave (commercial quantum computing)


• “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


• 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:• Complexity• Experimentation to test hypotheses• Metrics• Quantitative skills• Systems modeling


• 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:


• 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?


• 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



• 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


• 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


• Michael Porter’s Five Forces (SWOT alt), method to evaluate a company’s strategic position:


• 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.


• 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


• 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


• 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


• I’ve always thought that both quantum mechanics and business consulting owe more than a little to Dr. Freud and the field of

psychoanalysis….


• 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.)



Structure of abusinessorganization (departments, consultants, Externals, etc.)


• 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.


• 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


• 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


• 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


• 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


• 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


• 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


• 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?


• 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


• 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.”


• 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:[email protected]


Bringing Together Physics and Business Management in

Interdisciplinary Undergraduate Education

Saturday November 8, 2014Associate Professor Rick Trilling

Wentworth Institute of Technology

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THE PHYSICS OF BUSINESS Bringing Together Physics and Business Management in Interdisciplinary Undergraduate Education Saturday November 8, 2014 Associate