Is the goal of business to do the best you can or to beat others? A surprising number of people seem to think business is about beating others. The technical term is competitor orientation — when your ultimate objective is to beat your competitors. Why is competitor orientation wrong? If you believe your duty is…
Boring Positioning Maps
I often discuss mistaken thinking, this is different. I’m discussing something worse than being wrong and that is being boring. A positioning map illustrates marketing strategies. Here I discuss the axes of which there are two generic types. Where there is no universally agreed best, e.g. taste based dimensions, like the spiciness of food. Where…
Evolution and Jack Welch
While it is rarely explicitly acknowledged evolutionary thinking is central to business theory. People often believe selection pressures change populations competing in markets. (How exactly this happens is often a little vague). Armen Alchian was an early proponent of evolutionary thinking in modern economics. He suggested that if enough managers headed off in random directions…
Rational Voters?
Whenever I hear someone say “rational” I worry. Everyone means a different thing. This is a problem as obviously you can’t discuss rationality without knowing what it is. Bryan Caplan uses his view of rationality to criticize democracy in The Myth of the Rational Voter (Caplan 2007). The book leaves me with mixed feelings. I love…
Paranoia Doesn’t Make Sense
The most infuriating articles are written by otherwise impressive scholars. One such article is Roderick Kramer’s When Paranoia Makes Sense. Written in the aftermath of the September 11th terrorist attacks and the Enron debacle it may have resonated at the time but it is irredeemably flawed. In difficult times I think we should encourage people to calm…
Marketers Prefer Contribution
A couple of years ago teaching introductory marketing I told my students they must have calculations in the final exam. They listened and gave me numbers. My students, who mostly aim for investment banking, thought finance had the “best” numbers and so used these. They gave a marvellous numbers, e.g. EBITDA and NOPAT. These are…
Friedman’s Ethical Joker
In 1970 Milton Friedman produced perhaps the most influential popular article by an economist, The Social Responsibility of Business is to Increase Its Profits. Admittedly 43 years late is not the snappiest comeback but Friedman’s argument has flaws. Many have already tackled major weaknesses. Here I will concentrate on a less noticed problem that I…
How Bad Metrics Help
Consider the following scenarios: A) The plan was unveiled in the meeting. A proposed moderate increase in price would lead to increased profits. It sounded reasonable to all. B) The plan was unveiled in the meeting. A 3% increase in price was proposed to generate $2 million more in profits. One of the reps asked…
Does Acquisition Cost Reduce CLV?
Marketing suffers from serious definitional problems which undermine the communication function of metrics. I therefore recommend a step forward; lets all exclude acquisition costs from customer lifetime value (CLV) calculations. Customer lifetime value is the net present value of a customer relationship. There are strong assumptions and fiddly discounting but the idea is simple. Valuing…
Selfishness and Rationality
Many people believe that selfishness is central to rational decision making but this is wrong by any meaningful definition of rationality. Definitions matter in the real world. Managers can believe they commit a business sin by considering others but what does selfishness mean? A totally selfish decision maker would not buy food for their children….