Sometimes you just have to take it slow. So all you mono-maniacal efficiency-seekers beware — you can have too much of a good thing. So, instead, look for opportunities or reasons to be in-efficient. View all posts by stratecutionstories. Strong finish in your post Michael. Completely agree about there never being a more important time than now to slow down.
Great post…. The schedule had to be met. You are commenting using your WordPress. You are commenting using your Google account. You are commenting using your Twitter account. You are commenting using your Facebook account. Notify me of new comments via email. Notify me of new posts via email. Skip to content No matter where you look, you will find hundreds of pundits, management consultants, business gurus and organizational experts all singing the praise of efficiency.
What do you think? Like this: Like Loading Published by stratecutionstories. Market domination is not an acceptable outcome, even if achieved through legitimate means such as organic growth. Our antitrust policy needs to be much more rigorous to ensure dynamic competition, even if that means lower net efficiency. In our quest to make our systems more efficient, we have driven out all friction.
It is as if we have tried to create a perfectly clean room, eradicating all the microbes therein. Things go well until a new microbe enters—wreaking havoc on the now-defenseless inhabitants. To avoid such a trap, business and government need to engage in regular immunotherapy. For example, lower barriers to international trade should not be seen as an unalloyed good.
Although David Ricardo clearly identified the efficiency gains from trade, he did not anticipate the impact on Pareto outcomes. Small French baguette bakers are protected from serious competition by a staggering array of regulations. The result: Although not cheap, French baguettes are arguably the best in the world.
Friction is also needed in the capital markets. The current goal of U. A fuller realization of this goal would increase the pace at which the billionaire hedge-fund owners already at the far end of the Pareto distribution of wealth trade in fewer but ever bigger markets and generate even-more-extreme Pareto outcomes.
And they should stop placing obstacles in the way of new players seeking to establish new exchanges, because those obstacles only solidify the power of consolidated players. Common equity is supposed to be a long-term stake: Once it is given, the company notionally has the capital forever.
But long-term capital is far more helpful to a company trying to create and deploy a long-term strategy than short-term capital is. The difference in value to the company notwithstanding, the two types of equity investments are given exactly the same rights. Under that approach, each common share would give its holder one vote per day of ownership up to 3, days, or 10 years.
If you held shares for 10 years, you could vote , shares. If you sold those shares, the buyer would get votes on the day of purchase. If the buyer became a long-term holder, eventually that would rise to , votes.
But if the buyer were an activist hedge fund like Pershing Square, whose holding period is measured in months, the interests of long-term investors would swamp its influence on strategy, quite appropriately. Allocating voting rights in this way would reward long-term shareholders for providing the most valuable kind of capital. And it would make it extremely hard for activist hedge funds to take effective control of companies, because the instant they acquired a share, its rights would be reduced to a single vote.
Some argue that this would entrench bad management. It would not. Currently, investors who are unhappy with management can sell their economic ownership of a share along with one voting right. Under the proposed system, unhappy investors could still sell their economic ownership of a share along with one voting right.
In our pursuit of efficiency, we have come to believe that routine labor is an expense to be minimized. This ignores the fact that labor is not just a cost; it is a resource that can be productive—and the current way of managing it drives down that productivity as it reduces the dollar cost. What if we focused on longer-term productivity? Instead of designing jobs for low-skill, minimum-wage clock punchers, what if we designed them to be productive and valuable?
A key but counterintuitive element of the strategy is to build in slack so that employees have time to serve customers in unanticipated yet valuable ways. The cheap labor model is extremely costly to the wider economy. When they cut labor costs, companies such as Walmart simply transfer expenses traditionally borne by employers to taxpayers.
A recent congressional study evaluated the impact of a single person Walmart store on the federal budget. With 11, stores and 2. Management education focuses on the single-minded pursuit of efficiency—and trains students in analytic techniques that deploy short-term proxies for measuring that quality.
As a result, graduates head into the world to build inadvertently, I believe highly efficient businesses that largely lack resilience. Management deans, professors, and students would undoubtedly beg to differ. But the curricula show otherwise. Finance teaches the pursuit of efficient financial structures.
Efficient cost management is the goal of management accounting. Human resources teaches efficient staffing. Marketing is about the efficient targeting of and selling to segments. The overarching goal is the maximization of shareholder value. Of course, none of these in itself is a bad thing. A corporation should maximize shareholder value—in the very long term.
Those are all short-term ways of assessing long-term outputs. If we continue to promote these short-term proxies, managers will seek to maximize them, despite the cost to long-term resilience. And activist hedge funds will take control of companies and cause them to act in ways that appear, if judged by short-term proxies, to be highly efficient. Those funds will be applauded by regulators and institutional proxy voting advisers, all of whom will continue to think their actions have nothing to do with the production of more-fragile companies.
For the sake of the future of democratic capitalism, management education must become a voice for, not against, resilience. In his work The End of History and the Last Man, Francis Fukuyama argued that the central theme of modern history is the struggle between despotism and what we now know as democratic capitalism.
So while efficiency is good, you have to have a sense of how efficient do we want to be versus resilient. How is upping the ante on efficiency linked to short-term thinking, as opposed to thinking long-term over what is efficient in a broader sense? What we've done is taken a goal — more efficiency — and reduced it to proxies that we use to measure it. But we've been using proxies that are very short-term.
So efficient staffing means [a] low wage bill, which means "keep our wages down. Now, long term, if that results in more tired employees, more frequent turnover, etc. So we do these things that seem to make sense in the short term, that turn out not to in the long term.
This interview has been condensed for length and clarity. To hear the full conversation with Roger Martin, click the 'listen' link at the top of the page. A variety of newsletters you'll love, delivered straight to you.
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