Three Business Decisions

One of the valuable things for us in writing a blog about a book, what we are doing at “A Dash”,  is that we can see what is working and what is not.  By “working” we mean helping readers to understand something important that will be profitable in their investing.  This is not strictly a function of popularity of the article.  Reader comments are especially valuable.

It is a bit tricky, because the current audience in the investment blogosphere is much different from the one we will see in a year or so, when many new investors will turn to the Internet.  We are writing to the future readers, the audience for the book, where we will review many of the current blogs.  By contrast, the current roster of most popular blogs is aimed at the present.

Our purpose here is to illustrate something important, a concept which would have helped individual investors and traders alike last week.  To do so, we must find a different starting point.  So let us talk about three real public companies and important decisions they made.  All three companies are big names that you know.

Company A

The first company was engaged in a market share battle with a competitor.  Within the company came an idea for a new product that moved closer to the competitor’s product in characteristics.  The idea was to skew toward a younger demographic and win market share.

Company A conducted field studies in the heartland, went through internal debate, and did extensive planning.  It worked up an advertising campaign involving things like these products by super cheap signs.  With much fanfare, the product launch took place.

Company B

Company B was also fighting for market share.  Company B stimulates ideas from within, launching many of them as “beta tests.”  Some work, some do not.  Those that work get further development.  Those that do not are dropped.  There is some internal planning and decision making, of course, but the hurdle for trying something is relatively lower.

Company C

Company C is in a business with some domestic competition and a lot of foreign competition.  The established business is threatened by changing circumstances, so it is in a struggle to maintain market share, revenues, and profits.

Company C was presented with an idea that might provide an immediate boost to sales.  The company did not know, of course,  whether the idea would work.  Since the idea came from outside the company, it was subjected to many meetings and reviews, including representatives from many different departments.  At each meeting, questions were raised from a variety of perspectives.  The company considered both the merits of the idea and whether it needed to use the outside source.

When the idea reached the key decision maker, it was presented not by those who proposed it, but by an internal manager who listened to the meetings and conveyed the ideas.

Reader Challenge

We could have chosen many cases for each of the three examples.  Readers are invited to nominate situations that they think might fit.  While we will reveal specific examples, there is no single right answer.

Here is the key questions:

Which method do you think works best?  Which approach is used by the most successful corporations?

Which method do you think best describes the behavior of major corporations?

Following Up

We shall return to this topic to show the relevance to current stock market issues.  The key idea is that understanding organizational behavior is important to successful investing.

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3 comments

  • StockTrader February 5, 2008  

    I think that Company B’s method works best and is used by the most successful corporations and that Company C’s method describes the behavior of major corporations.

  • SI February 5, 2008  

    A for secrecy mandated from top to bottom, B for trial & error with ideas going from bottom to top, C for cathedral with high priests in solemn attendance.
    Model A makes sense only if there is a great leader who can deliver big punch with the release – iPod or iPhone comes readily to mind.
    Model B is closest to the free market ideal and works when there are rewards commensurate with risk, i.e., a person/group that comes up with a product that rescues the company gets something substantial in return. This is difficult to get to work, for example Motorola had 2 hit cell phones then flops, as there was no reward structure in place, and the company normally operates in mode C. Venture Capital forms use model B for funding most of their companies.
    Model C is true of most companies — design by committee.
    A for Apple, B for Google, C for Microsoft.

  • Turley Muller February 14, 2008  

    Company A-
    This is normal corporate behavior- structured process, – collect the data or information, discuss and determine the best strategy. Distribute action items and tasks for ad and launch.
    A, textbook bureaucracy everyone contributes and every debates and decides on what to do. Maybe have a committee or project team votes in it. Employees work better together. But, it’s a slow process. And suffers from groupthink of sharing one mindset. Dangerous in that regard.
    Company B-
    This only works in certain environments. If employees get free reign to try ideas, they will probably get in a fight about over it which should be tried next, or oh I have and Idea and no one listens. Competition turns sour It does get different think out there.
    With the right people, sharing the same goals it’s a powerful strategy because human capital is developed from trial and error, learning. Independent decision making, cooperation.
    It’s the best way, but internally it could turn into a circus if there is no direction and cooperation.
    Company C- Is the key “decider” aware it came from an outside source? Are employees entertaining outside source so they don’t have to come up with their own solution?
    I assume not, but I could imagine it though. Companies use outside sources all the time, consultants $$, get ripped off often. But, it works well because, everyone puts in there thoughts and comes to general understanding or specifics issues, and then the decision is out of their hands so take or leave it, everyone has given input on the issue and then it’s up to the bigwigs.
    C- has the best perspective, since ideas coming outside the firm, all the departments interview/proposal, and discuss. and then you have a the reporter that brings in in the ideas to executive committee, there is a real broad opinion and likely not to suffer from the groupthink of a single mindset.
    what is best is having broad perspective of ideas and diverse thinking and input. That comes at this risk of alienation.