Political Economics Prof

Tag: Business Management

  • Corporate Strategies: Basic Concepts and Management

    You need to know three things about management:

    80/20 Rule

    Opportunity Cost

    Compound Growth

    80/20 Rule (Also called Pareto’s Law)

    This idea says that a relatively small percent of actions account for a relatively large percent of outcomes. Find and concentrate your efforts on the important influences on your business.

    Some hypothetical examples.

    20% of your customers account for 80% of your sales.

    20% of your product line accounts for 80% of your sales and profits.

    Often, companies with a large product line with many variations find that 50% of their products account for over 90% of sales. An even smaller percent usually accounts for most of the profits.

    20% of your SKUs account for 80% of your stockouts (and lost sales).

    20% of your programmers account for 80% of the bugs in new programs.

    The percentages aren’t always 80/20. Some examples:

    McDonald’s accidentally learned that 10% of its customers accounted for 60% of its daytime sales. And it was an identifiable group that they had never aimed its massive advertising at.

    A landmark study by Arizona State University found that over the past century, just 4% of stocks have accounted for the entire net gain of the US stock market The other 96% were either flat, down, or so volatile they gave back everything they made.

    The possibilities are almost endless.

    The 80/20 rule implies:

    “Less is more” … reminds us that much of what we do, when closely analyzed, has negative value. Many activities, customers, products and suppliers actually subtract value, which helps to explain why their very positive counterparts produce such a high proportion of net value.

    Richard Koch, The Natural Laws of Business, 182-3.

    Eliminate losing products, customers, and functions. This might be happening because a competitor is more innovative or new companies have entered your markets.

    Look at divisions, regions or product lines that consistently have low sales growth rates and make below the minimum cost of capital. Reduce or eliminate these businesses. This frees up capital and resources to find and fund growth opportunities. Loser operations have a potentially high opportunity cost (see below).

    Look at positions or functions in the corporate structure that don’t add value to the company. Eliminate or outsource to the global economy supply network. This is a major strategy many companies are pursuing, which is why a high percent of job losses over the last three decades occurred because the position or function was eliminated internally.

    Better yet, avoid complexity in the first place. Concentrate on what you’re good at. Pound away at it. No complacency. Continuously innovate. And, with Andy Grove, be paranoid; your actual or potential competitors want to eat your company. His successors at Intel obviously didn’t read his book. They became complacent. A beast named Nvidia is devouring them.    

    Growth through mergers and acquisitions is a high-risk strategy with a high failure rate (loss or discounted return below the cost of the acquisition). The seller knows where they bad stuff is hidden; you don’t. (If you missed this in B-school, it’s called “asymmetric information.”) See the essay Corporate Strategies:  Mergers and Acquisitions.

    If you get into a bidding war with another company, walk away. The odds of “buyer’s remorse” are high. 

    Opportunity Cost

    After you’ve identified the critical opportunities and problems, opportunity cost is a good guide to deciding what to do about them. It reminds you that time and assets are limited and valuable. Time and assets you spend on one problem or function might be more profitably spent managing something else. For example, if you have a small customer who takes up a lot of your time, either raise prices, reduce service or stop supplying her. The opportunity cost is too high.

    Opportunity cost is a guide for better decision-making. Good managers think in terms of possible alternatives, not simple yes or no decisions on isolated proposals.

    What are the realistic options and alternatives (not a list from a management textbook)? Is there a less expensive (more profitable) way to do something? Lease or rent rather than own? Outsource some of your production?

    What is the net benefit (profit) over time of each alternative?

    Include risk as part of cost. If your company depends on inputs from China, it might be time to diversify your sources to other countries. Or seriously consider how you produce, assemble and distribute your output.

    In the extreme, some corporations have learned they are in the wrong business. They could have used their time and assets more profitably doing something else. A few retailers realized they were in the wrong business. They owned retail properties with a high opportunity cost. They became property developers. In cities across the country, manufacturing, office, and retail space is being turned into residential space. This has been a long-term trend in New York City.

    A word about accounting systems. Accounting systems are not set up to tell you which products or services are profitable. They are also poor indicators of return on capital or assets. Asset values should be adjusted from depreciated historical cost to present opportunity cost (often market value if sold or leased). The classic example is that Coca-Cola for decades carried the value of their brand name at $1 on their balance sheet. Really? See Corporate Strategies: Financial Management.

    Compound Growth

    (also known as exponential growth). 

    After you’ve freed up people and resources by applying the ideas of the 80/20 rule and opportunity cost, start looking for growth opportunities. By this time you will have a good idea what are the critical factors for your company’s success, the knowledge and resources that give you a competitive advantage. Develop opportunities that have a good chance for sustained high growth rates. Know the difference between unit sales growth rates (real growth) and dollar amount of sales growth (nominal growth). 

    In the beginning, new ventures often have low sales compared to the size of the company but high compound growth rates. If there continues to be high growth rates, these ventures can become large contributors to sales and profits in the future. Other good things can happen such as continuing reductions in unit costs (learning curves).

    These three tools work together.

    These ideas applied to starting a new business:

    Opportunity cost is a part of start-up costs.

    Loss of income from the job you quit.

    Loss of income from the saved money you invest.

    What are the critical factors for success?

    Look for sources of exponential growth and exponential reductions in unit costs as volume grows. This is especially true for new technology. A common term to describe this is “learning curve.”

    ALMOST EVERYTHING YOU NEED TO KNOW ON HOW TO MANAGE AN ORGANIZATION

    BEST BOOK ON HOW LARGE ORGANIZATIONS REALLY FUNCTION

    Joseph Heller, Catch 22.

    BEST BUSINESS MANAGEMENT BOOK

    Andy Grove, Only the Paranoid Survive. Andy Grove grew up in communist Hungary, escaped during the Hungarian Revolution, got his Ph.D. in solid-state physics at 22, and was CEO of Intel during its critical period developing and mass producing the integrated circuit (aka the microchip).

    BEST ADVICE ON STRATEGIC MANAGEMENT FOR A SMALL, DISRUPTIVE COMPANY

    “Hit ‘em where they ain’t.”

    “Wee Willie” Keeler

    One of the greatest hitters in baseball. Only one of 22 men ever to hit over .400 in a season. Also one of the smallest ever to play in the major leagues. Innovative. See biography in Wikipedia.

    “Get there the firstest with the mostest.”

    Nathan Bedford Forrest

    Surprisingly successful Confederate general in the Civil War. Consistently defeated larger Union armies. Not size but speed, surprise, and force at the point of attack led to victory. Same strategy used by Stonewall Jackson and Erwin Rommel against larger forces. One reason for the success of guerilla warfare.

    Good general advice but especially relevant if you are going up against a larger competitor with more resources. Hit them hard where they are weak. Toyota almost destroyed the huge and powerful General Motors by first attacking GM at its weakest point (compact cars).

    SOME MANAGEMENT ADVICE

    As a manager, be consistent.

    Subordinates will then know how to act and what to expect.

    If you are consistently nasty, expect to change jobs every two or three years.

    Business educators, consultants and commentators love sports analogies. But be careful. My favorite,

    Football (American) analogy. Be a pulling guard. You’re a pulling guard, not the quarterback (COO) or coach (CEO). Run interference for your people and protect them so they can concentrate on high value-added work.

    Hire good people (independent, flexible, adaptable, cooperative) and have confidence in them. Trust them. Don’t let HR or an AI algorithm filter resumes. 

    Never hire a graduate of Harvard Business School or anyone who has only been a consultant. They think they are qualified to run the business. Before they understand it.

    If your company’s management is hiring a lot of management consultants to tell everyone how to run their operations, you should probably update your resume and think about working for a better company. One that has confidence in you and its other employees.

    MANAGING UNDER UNCERTAINTY

    “Nell,” the Constable continued, “the difference between ignorant and educated people is that the latter know more facts. But that has nothing to do with whether they are stupid or intelligent. The difference between stupid and intelligent people – and this is true whether or not they are well-educated – is that intelligent people can handle subtlety. They are not baffled by ambiguous or even contradictory situations – in fact, they expect them and are apt to become suspicious when things seem overly straightforward.

    Neal Stephenson, The Diamond Age, 256.

    This is a key to success in the information age. Your phone can contain more facts than you can learn in a lifetime. AI can analyze more data in seconds than you can in a year. But algorithms hate ambiguity. Well, so far.

    Good managers are not afraid to make decisions in uncertain environments. I’ve worked for corporate and divisional managers who talked a good game but were scared to make decisions quickly because they were afraid they would be blamed or fired for a bad outcome. Afraid of the annual review. Stressed by the tyranny of the quarterly report. This is management by fear or blame. This is how Jack Welch and his picked successor ran General Electric into the ground. (BTW, read Greek tragedies. It’s a good way to spot arrogant people who will be destroyed by their own hubris. And destroy good companies.)

    Some decisions fail – lose money, not meet corporate cost of capital, not achieve a tactical or strategic goal. But good managers cut losses and change strategies quickly as they realize their assumptions were wrong or the actual outcome turned out to be different than expected. This takes courage. And humility. 

    A company’s managers don’t have to be right all the time – just more often than the competition. And adapt quicker to changing circumstances.

    George Washington lost every major battle he fought before 1781. But because of his failures, he changed his assumptions about the war and changed his strategy. A large Virginia planter accustomed to giving orders to slaves, he learned how to inspire his officers and men under terrible conditions. He persevered; he refused to accept defeat. His reward – he won his last battle (Yorktown) and won the war.

    These strategies will be applied in subsequent essays on different aspects of Corporate Strategies.

    Other essays in the Corporate Strategies series.

    Corporate Strategies:   Mergers and Acquisitions

    Corporate Strategies:  Marketing and Price Discrimination

    Corporate Strategies:  Organizational Change in the Future

  • Corporate Strategies: Marketing and Price Discrimination

    One of the biggest shifts since 2013 is that a majority (52%, up from 39%) now say they are “willing to spend extra for a brand with an image that appeals to me.”

    Ipsos, Global Trends, September 19, 2025.

    CONTENTIONS

    Pricing is a strategy, not something a company accepts or beyond its control. Price discrimination is one pricing strategy.

    Price discrimination can be practice by individual companies or all companies in an industry. The relative effectiveness of competing companies’ price discrimination depends partly on the proprietary (private to the company) information each company has.

    Price discrimination, in combination with loyalty programs or product line extension, can increase market share.

    The more proprietary information a company has, the more effective is price discrimination. The more information about individual buying behavior, the more effective is personalized price discrimination.

    INTRODUCTION – COMPANIES WITH “MARKET POWER”

    The focus of this essay is on corporations that sell products or services to final consumers. A common strategy is price discrimination.

    Retailing is somewhat different than most market transactions. Retailers sell to a large number of consumers. They negotiate prices and terms of sales with a wide variety of suppliers, both in size and products offered.

    Retailers and distributors are market-makers. They bring buyers (consumers) and sellers (manufacturers) together. Some companies have their own bricks-and-mortar stores (Sherwin-Williams) or their own websites. Many online retail sites such as Amazon are market-makers.

    This discussion assumes that sellers and retailers have “market power.” This may be a result of past strategies of branding, advertising, developing loyal or return customers, developing market niches by product line extension, or any other strategy that differentiates its products or services from the competition. The result may be high market share or above-average profitability.

    Pricing, rather than being determine by total market or industry supply and demand, is another strategy. Market price can change because of some change outside of the company, such as a change in real disposable income of consumers or an input innovation available to all producers. Here it is assumed that corporations have some flexibility on the mix of prices they charge.

    DEFINITION OF PRICE DISCRIMINATION

    Price discrimination is the practice of charging different prices to different consumers for the same or similar good or service when those price differences are not caused by differences in cost. It is the pricing strategy of being able to raise or lower the price charged to one segment of customers without changing price for all customers.

    Price discrimination of consumer products often goes together with product line extension (possibly a related form of price discrimination), market segmentation, loyalty programs, and product branding. The goal is to maximize revenue and increase profit.

    Price discrimination is part of Demand Management or Revenue Management. The basis for these marketing strategies is the brand, or branding. Branding and price discrimination often occur together.

    The goal is to maximize profits, not just sales.

    This usual means raising prices to one segment of customers with a “willingness to pay” greater than the current price. But it can also mean increasing sales and maybe profits if the company offers a lower price to potential customers without lowering price to existing customers. Maybe a discount offered to new customers – the enticing “introductory offer.” This is particularly common if the service is a renewable subscription but also used by cable companies, streaming services, magazines, and newspapers.

    Some of the types of price discrimination discussed here are:

    Personalized pricing – targets individuals based on proprietary information about their personal “willingness to pay.”

    Dynamic pricing. One version, first associated with airlines, starts with supply fixed in the short run. For airlines, this means to numbers of seats on a particular flight. The cost per flight is mostly fixed – depreciation of the plane, crew, landing fees. Only slight change in amount of fuel if more passengers. And the flight takes off regardless of the number of passengers. (A long time ago, I was one of three student standby passengers on a Boeing 747. No other passengers.)

    The pricing structure changes over time until the flight is booked or reservations are closed. The airline tracks the mix of bookings as the date of the flight approaches and compares it with the past mix of bookings, maybe on the same day a year before. Based on that, the airlines might change the mix of prices.

    The same logic behind dynamic pricing applies to any type of company that has fixed supply in the short run – a hotel, a cruise ship line.

    Two other common types of price discrimination:

    Load balancing has long been practiced by utilities. Customers are encouraged by lower (off-peak) pricing to use electricity when demand is low. Time segmented markets.

    Surge pricing is sometimes cited as an example of price discrimination. It has been associated with Uber in the past. But higher prices are charged in period of higher-than-normal demand.

    OTHER MARKETING STRATEGIES

    Price discrimination is often a part of loyalty programs, including special offers, special discounts, or fee waivers. Frequent flyer programs often include free admission to airport lounges and free baggage handling.

    There are physically-segmented markets. Cigarette sales taxes are a high percent of the retail price in some states. Market-makers buy cigarettes in low-tax states and sell them in high-tax states. This is called arbitrage, one way to lessen price discrimination.

    Another example is college textbooks, which are expensive in wealthy countries. Lower-cost versions are sold in poorer countries. Price-conscious students with relatives abroad buy the lower-priced textbooks. Some books are online, which makes it even easier.

    Some websites might display higher-end products for customers with higher incomes or a free-spending buying history, and lower-end products for bargain hunters or lower income customers.

    PRICE DISCRIMINATION AND INFORMATION 

    There are different kinds of price discrimination. More effective price discrimination depends on more and better data about consumers. Data about potential customers and existing customers. Examples generally apply to companies selling to consumers, not other companies in supply chain. But there are supply-side versions of price discrimination where companies negotiate net prices. 

    Finer-grained (granulated) pricing is made possible by algorithms and computer-based data collection.

    Modern price discrimination is based on sellers generating massive amounts of data on customers. Much of it is proprietary data that is used for pricing decisions. The more demographic data and data on past buying behavior of groups or even individuals, the more effective is price discrimination in increasing sales revenue. The ultimate goal is personalized pricing.

    Sometimes pricing can be changed in close to real time. Amazon changes a large number of prices every day. Digital price displays are showing up in supermarkets; this makes it easier and cheaper to change prices.

    Price discrimination has been supported by the tremendous fall in the cost of gathering and analyzing consumer information. The result is large databases. Advances in information technology has greatly reduced the cost of gathering and analyzing data. Also the cost of changing prices. It is the main reason for movement towards personalized pricing.

    A word about credit cards; they typically ask for personal information.  This makes it easier to track your buying actions. And more companies ask you to set up accounts or apps.

    With data from apps or credit cards, the company can access more data from other databases.

    So the value of the sale is not just the sales price but, in addition, the information obtained about buying patterns and buying behavior. On each individual customer. 

    Internal sales data and information about customers are proprietary information, one source of higher profits.

    Developing a large proprietary database on customers becomes the basis for price discrimination. The company can offer different prices to smaller subgroups of customers. The ultimate goal is to maximize revenue by offering different prices to individuals based on a large quantity of data known about the individual. In the oxymoronic jargon of economics this is called “perfect price discrimination,” or personalized price discrimination.

    Price discrimination is an application of asymmetric information.  Companies know more and more about individual consumers.

    E-commerce does provide information for consumers, more choices, and cuts down on search costs. But companies can design different offerings to different customers, which may make them brand-loyal customers and reduce them from looking for alternatives from other companies. 

    Modern price discrimination is based on sellers generating massive amounts of data on customers. Much of it is proprietary data that is used for pricing decisions. The more demographic data and data on past buying behavior of groups or even individuals, the more effective is price discrimination in increasing sales revenue. The ultimate goal is personalized pricing.

    EVERY COMPANY HAS AN APP (Branding)

    The value of a sale to a company may be more than just the price. It may include information about customers. So a customer who uses the company’s app and fills out a form may be more valuable than one who pays cash in a store.

    If you download the Starbucks app, the company can access your address book (contact list), financial information, browsing and purchase history (the database never forgets), location (where you live and where you go). They can track your online browsing and purchasing activity. With this information, Starbuck’s (and any other company) can access data about you from other databases All this information is analyzed by algorithms that estimate your willingness to pay. They may offer you higher-priced products. Or offer discounts to get you to buy more. Companies like UnitedHealth have follow-on marketing of related services and products targeted to individual customers or subset of all customers in their database.

    The more information a company has about individual customers, the more likely it can use personalized pricing.

    Branding now includes a company’s social media identity, including the tone of voice and personality when interacting with customers on the website. This will be an application of AI. 

    CUSTOMER CATEGORIES

    Behind much of marketing, and especially price discrimination is Pareto’s Law, also known as the 80/20 rule. It states that a relatively small percent of your customers accounts for a relatively large percent of your sales. (See Corporate Strategies:  Basic Concepts and Management for a discussion of this concept). It highlights the worth of repeat or high-value customers.

    A high-value customer does not necessarily mean high income. Repeat customers can be high-value customers. Home shopping channels rely on consumption addiction. They show a “list” price and then offer a “discount” price. Also, they often say there are only a limited number of the item for sale or it will be available for only a limited amount of time. The constant stream of visual sales pitches seems to keep some viewers watching for hours. They are probably “high value” customers.

    Many repeat customers on large cruise ships are senior citizens living on social security. Frequent flyers who follow Grateful Dead concerts around the country are highly prized by airlines. High rollers (a small percent of all casino gamblers) and frequent gamblers are comped rooms, meals, or entertainment. 

    Casinos tend to cluster (Las Vegas, Atlantic City, Macau). They basically provide the same services. So it is crucial to differentiate product or service – theme, décor, etc. 

    SOME EXAMPLES

    Retailers often raise the price of snow shovels in a snowstorm, umbrellas in a rainstorm, and taxi fares when it’s raining or snowing. Short-run shift in demand, short-run supply fixed. Retailers might charge more if the new customers are one-time customers or if there is a low chance of repeat customers. The problem is that they are also raising the price for existing or repeat customers. They may lose goodwill and future sales. 

    This is not an example of price discrimination because of the shift in the demand curve and the suppliers cannot differentiate new customers from existing customers. It is a form of surge pricing.

    Sometimes sellers can differentiate and charge different prices. A common example is tourists vs. locals. Tourists pay more but not always. But there is a third set of prices. Buyers can negotiate or “haggle” with sellers. I was in a tour group in China. We were offered a wide variety of goods. One of the members of our group was Chinese-American and spoke Chinese. She would haggle in Chinese for anyone in the group to obtain lower prices. Every tourist group should have a designated haggler.

    Luxury products and cosmetics. Companies have tried to increase sales by offering similar (or the same) product under a different brand at a lower price, often though different distribution channels. This is a dangerous strategy if their brand name loses its cachet.

    The healthcare industry. Providers like doctors, hospitals, and pharmacies negotiate prices with health insurance companies. The prices they receive depend on which healthcare plan the patient is in. On the supply side, pharmacies negotiate prices with drug companies through pharmacy benefits managers (PBMs). As discussed in another essay, all markets up and down the healthcare supply chain are dominated by large companies with large market shares. Prices are negotiated. These types of markets are called bilateral oligopolies.

    Small companies, like local retailers, attempt to differentiate their offering from those of local and national competitors. (restaurants, specialty shops, local services) and rely on loyal customers. In my hometown, over 40 family-owned restaurants and delis compete with the local stores of national chains. Two coffee shops successfully compete with two Starbucks. How? By not imitating the national chains, by differentiating their offerings and environment. Every restaurant is different. By trying to attract and develop repeat customers.

    My retired parents were excellent repeat customers at a local diner. The owner would always greet them personally and sometimes gave them a free dessert. The owners of the two delis in my town know the names of almost all their customers; they live in town and often talk with them about family or vacations or some other personal subject.

    One strategy is to encourage brand loyalty with lower prices. Amazon offers price discounts if you agree to automatically receive a product on a schedule, such as once a month.

    When I walk into my local CVS store, I’m greeted by a sea of price tags that say something like “buy one, get the second at half price.” If you buy two at once, you save 25%. You can also save if you have a discount card or are a member of a loyalty program. These types of pricing strategies are very common.

    The price a consumer pays may depend on when the product is bought. Retailers offer sales on seasonal products, excess inventory, and end of season merchandize. Christmas decorations on December 26. And my favorite, happy hour.

    Senior citizen discounts used to be common. Then retailers and service providers realized that seniors have a lot of income. Good-bye discounts.

    Price discrimination can be by race or gender or age, although this often isn’t legal. There are a few examples of companies basing price discrimination on area code. In one famous case, an education services company offered higher prices in mailings to area codes with a high percent of Asian families.

    Governments create price discrimination. Different national governments set different prices for the same pharmaceutical products distributed globally. Different tariffs on products from different countries create differences in prices in the national domestic market. Different state sales taxes create different online prices for the same product.

    Reduction of transaction costs of practicing price discrimination or changing prices. Algorithms and “personalized pricing.” Application of asymmetric information. Companies have more information than consumers. Consumers can compare prices online, but they don’t know if the retailer is charging different prices to different consumers. Reduces search costs of time. Sites will do it for you – airline and hotel tickets.

    SOME OTHER CONSIDERATIONS

    Political borders create opportunity for price discrimination. Canadians cross the US border to have elective surgery even though it is free in Canada. The reason is the long waits for elective surgery in Canada even when the patient is in pain. Some consumers get tax-free cigarettes on Native American reservations. Other Americans obtain cheaper prescription drugs and dental services along the Mexican border. 

    Some buyers may pay more to reduce risk. If it is hard to determine the quality of a product, some buyers may pay more to reduce risk. An example might be buying a used car; most buyers cannot evaluate the quality of a used car. Some pay a mechanic to look over the car. Many manufacturers offer insurance for repair costs. Some consumers just pay the seller’s price and assume the higher risk. A quaint historical example was student standby on airlines. There was the risk of not having a reservation and not getting the preferred flight. 

    On the other hand, the value of the purchase may be less than expected. Some buyers may buy a product from a questionable seller (street vendor) and run the risk of getting a counterfeit version of a branded luxury consumer product. Online markets like Amazon and eBay are chock full of counterfeits, knock-offs, scams, and stolen goods.

    Some consumers may pay more for a branded product than for an identical, or almost identical, generic product. Sometimes the reason is the belief the branded product has consistent quality and the generic may not. This is common in supermarkets. Many generic food products are the same as branded and may be produced in the same plant as the branded product.

    PRICE DISCRIMINATION AND INFORMATION

    Developing a large proprietary database on customers becomes the basis for price discrimination. The company can offer different prices to smaller and smaller subgroups of customers. The ultimate goal is to maximize revenue by offering different prices to individuals based on a large quantity of data known about the individual. In the oxymoronic jargon of economics this is called “perfect price discrimination,” or personalized price discrimination.

    Price discrimination is an application of asymmetric information.  Companies know more and more about individual consumers.

    E-commerce does provide information for consumers, more choices, and cuts down on search costs. But companies can design different offerings to different customers, which may make them brand-loyal customers and reduce them from looking for alternatives from other companies. 

    Modern price discrimination is based on sellers generating massive amounts of data on customers. Much of it is proprietary data that is used for pricing decisions. The more demographic data and data on past buying behavior of groups or even individuals, the more effective is price discrimination in increasing sales revenue. The ultimate goal is personalized pricing.

    Algorithms have greatly reduced the cost of changing prices. Amazon changes millions of prices every day. Supermarkets use digital price systems at the shelves that make it easy to change prices.

    AIRLINE “DYNAMIC PRICING.”

    Airlines use a form of price discrimination called “dynamic pricing.” Each flight has a fixed number of seats (fixed supply). Almost all cost is fixed regardless of the number of passengers. The problem is how to maximize revenue. 

    Dynamic pricing is related to load factor. The load factor, percent of seats filled in a flight, is an important determinant of profit. Airlines shoot for load factors over 80%. Last minute discount fares, sometimes through “cheap tickets” websites, is better than empty seats and no revenue. But the number of last-minute cheap tickets depends on how successful dynamic pricing has been.

    On some routes, based on past data, airlines may charge more for some seats, expecting last-minute business travelers.

    Recently, airlines began to charge individual passengers who flew during the week more than the per passenger they charged couples per person. After outcry, they rescinded most of the new fares. But they also did the opposite; on some flights where there was little or no competition, they raised the fares of couples to twice the solo fare.

    This is a new version of trying to charge a higher fare for business travelers completing their round-trip flights during the week.

    The Economist, “Airlines’ favourite new pricing trick,” July 22,      2025.

    Airlines, using past data and looking for buying patterns, noticed on some flights, most last-minute sales were to business travelers. So rather than reducing prices just before the flight, they made more business class seats available at the higher price.

    But how does an airline know when to change prices on a particular flight? The have information on the same flight on the same date last year. They can see the reservation history and see if the upcoming flight is following the same pattern. If not, they change the mix of prices and the availability of seats at different prices.

    At some entertainment events, last minute tickets cost more (scalpers). Rock groups now charge more than in the past. Formerly, they charged below market-clearing prices for concerts to fill the hall (show popularity) and help promote their album sales. Music is now free on the internet. Concerts are a separate source of income. The extreme example is the Grateful Dead, which has developed a long-term cult following, which is a little spooky since Jerry Garcia has been dead for 30 years. Other rock concerts are based on nostalgia; it is doubtful if the concerts generate much if any new record sales.

    COLLEGE AND UNIVERSITY PRICE DISCRIMINATION

    There is a quaint view that it is unethical or even illegal to use collected data to charge each customer a different amount on their “willingness” or ability to pay. People who still believe this have never dealt with the college admissions process.

    No industry uses personalized price discrimination more than the college and university industry. Tuition list prices have gone up much more than the overall price index. Discounts are off higher and higher list tuition.

    There are distinct market segments of students who pay different prices. Some students and their families pay list price, such as foreign students, part-time adult students, and out-of-state students at public universities. Most full-time “traditional-aged” students don’t. How much of a tuition discount (aka scholarship) depends on a number of factors. Colleges and universities gather data about students’ family finances from the Financial Aid Form and other databases. This gives them a crude “willingness to pay” number used to compute the tuition discount. 

    The number of full-time traditional-aged students is going down because of demographics (fewer 18-year-olds) and doubt a college education is worth the opportunity cost (including four years lost income). If students take out student loans and can’t meet the payback costs, they learn about compound interest.

    An interesting market segment is the children of college graduates. Children of graduates tend to go to a parent’s college. Family brand loyalty? And, as children of one or two college graduates, family income is likely to be higher than average. Alumnae parents may be willing to pay more, ceteris paribus.

    Colleges offer large tuition discounts to “high-value” students such as outstanding athletes.

    Colleges have found a segment of applying students who really want to go to a particular college and whose parents probably have a higher “willingness to pay.” It is early admission. A student who applies for early admission agrees to go to that college if accepted. The advantage is that by applying early, the student has a much better chance than later applicants of being admitted.

    Buyers (parents) can affect the final cost. Some parents “haggle” after learning what the tuition cost will be. This can be effective if the parents can convince the admissions people their child really likes the college (good chance the kid will pick the college) but they don’t want to pay the offered price. This probably doesn’t work if their child is admitted early. 

    Universities segment the market, set different effective prices, and in doing so, capture more revenue from high-paying students’ families and attract lower-revenue students to fill empty (zero-revenue) seats.

    This market has asymmetric information. Colleges know a lot more about potential students and how to market to them than students know about colleges. There is much “buyer’s regret.” About one-fourth of full-time traditional-aged students transfer.

    Colleges have found a segment of applying students who really want to go to a particular college and whose parents probably have a higher “willingness to pay.” It is early admission. A student who applies for early admission agrees to go to that college if accepted. The advantage is that applying early, the student has a much better chance of being admitted than later applicants.

    CONSUMER PSYCHOLOGY

    Consumers love sales, discounts, and coupons. They love frequent flyer points and loyalty programs. They derive “pleasure” from getting a good deal, from not paying list price.

    Consumers look at prices. The list or full price is sometimes called the anchor or anchor price. That is, some consumers compare the sales price with the list price to see how much they are saving. Typically, the greater the percent saving, the greater the satisfaction.  Daniel Kahneman, a psychologist, won a Nobel Prize in Economics by discovering this behavior (and a lot more).  

    All retailers and service providers know this.  So they mark-up the wholesale price to earn a target margin that includes an expected percent of the goods to be sold on sale. The target margin is often a weighted average of the a list price and some form of a discounted price, such a sales price at the end of a season for seasonal or holiday goods.. So there are two types of customers – those who buy the product at retail and those who can wait for a lower price.

    HAGGLING

    Customers who pay a higher price than others can reduce price discrimination by haggling. If you call your local, friendly cable company and threaten to “cut the cord,” they will probably lower the cost of your monthly bill. Sometimes providers will waive fees if asked by long-time customers.

    Most Americans don’t like to haggle in person. It takes time, effort, and confrontation. Buying on sale, with coupons and rebates, or through a loyalty program is a passive, low-cost way for people who don’t like to haggle in person. So is “discount” prices offered on Amazon. Just click. 

    At retail, price discrimination is built into the list price.  Rather than one price, retailers expect to sell the same product at different prices to different groups of customers. At the end of a season, unsold goods go on sale. Colleges compute tuition discounts for each student they accept.

    There’s another aspect to the purchasing process economics doesn’t consider – how the consumer pays.  Consumers who pay with credit cards do not experience the same “pain” as consumers who pay with cash. The pain is delayed until the credit card bill comes due. The combination of the two changes – the pleasure of getting a sale and delayed paying with a credit card – changes the pleasure/pain ratio of the purchase and probably increases total sales. For some people, buying online with a credit card further reduces the pain. Until the interest on credit card balance begin to add up and compound.

    Any “buy now, pay later” plan probably increases sales. An implicit interest charge is included in the price.  

    PRICE DISCRIMINATION ALONG THE SUPPLY CHAIN

    Setting net prices along the supply chain can be an expensive and complicated process. Haggling, usually called negotiating, is an integral part of the entire purchasing process. Walmart employs thousands of purchasing agents in China just to negotiate the terms of buying products in Asia.  Companies also spend a great deal of money on people and IT to compute and track net prices.  Net prices and terms of sales are negotiable after the sale and delivery of the goods, as companies haggle over interest on late payment, returns, advertising allowances, warranty costs, delivery costs, transportation and tariff costs, support services and any other part of the transaction.

    Sources:

    E. Andrew Boyd, The Future of Pricing:  How Airline Ticket Pricing Has Inspired a Revolution, 2007.
    Ben Casselman, New York Times, ‘Same Product, Same Store, but on Instacart, Prices Might Differ,” December 9, 2025.

    See other essays in the Corporate Strategies series:

    Corporate Strategies:  Basic Concepts and Management

    Corporate Strategies:  Mergers and Acquisitions

    Corporate Strategies:  Organizational Change in the Future

  • Corporate Strategies: Mergers and Acquisitions

    Corporate Strategies: Mergers and Acquisitions

    INTRODUCTION

    I was, for many years, in charge of finding and analyzing acquisitions for a large company.  Then, for two years, I was an independent merger broker and took part in negotiations.

    MERGERS AND ACQUISITIONS

    American corporations spend over $1 trillion a year buying other companies. This is more than they spend on net new investment (minus data center investment).  Even more than they spend on boxes at pro sports stadiums.

    Buying another company is a risky corporate strategy.  The few studies I have read indicate that 70-80% of acquisitions are failures. They do not earn the acquirer’s opportunity cost of capital. Many are a total loss and result in future write-downs.  

    This failure rate from published research is similar to the information I collected. My department would use discounted cash flow/net present value analysis to determine the maximum price we would pay for an acquisition (the present value of the future net cash flows).  We kept a running list of companies that were potential acquisitions. Most were eventually acquired by other companies. A high percent, over 80%, were acquired for a price above our maximum price.

    Because of the high risk of an acquisition, we were probably conservative in our forecasts of future cash flows. As a check, we did sensitivity analysis and learned that the present value of a company was sensitive to small changes in sales growth rates and operating margins.

    Why such a high failure rate?

    The first reason is that the buyer pays too much, making it unlikely the buyer can earn an acceptable return on the investment.  Many of the acquisitions were of public companies.  Finance theory says that the current price is the best estimate of expected future cash flows. Yet acquiring companies routinely paid 30%-60% over market price. Why?

    Usually, the acquirer goes after the acquired. This gives the seller a negotiating advantage.  If they are smart, they will appear reluctant to sell, hoping to be “convinced” to sell at a high premium.

    From a seller’s viewpoint, the best situation is when two or more acquiring corporations get into a bidding war.  Financial rationality goes out the window.  Remember, companies are headed by people who are very competitive.  They don’t like to lose. An auction starts. The winner often pays too much and learns about another concept – “winner’s regret.” 

    This can happen even if there is only one bidder since the seller doesn’t have to sell. The seller can hold out for a very high price, knowing that once the company is “in play,” other potential acquirers will become interested.  

    If the intended acquisition is a public company, the acquirer has to pay some premium to ensure all or almost all of the stockholders sell their stock. Another reason is that the acquiring company may  believe the acquisition is worth more to them than to outside investors. Maybe the company has a key technology or specialty product the acquirer needs. Maybe the acquirer could bring something that would add value to the acquired, such as wider distribution of a regional or specialty consumer product. Maybe the acquirer is eliminating an actual or potential competitor.  

    Maybe the acquisition is highly valued because of the entrepreneurial management the acquirer lacks. Wal-Mart paid over $3 billion for a small online retailer that was losing oodles of money. A look at Wal-Mart’s e-commerce site will tell you why. Wal-Mart bet $3 billion and billions more in the future that the founders and managers of jet.com knew how to compete with Amazon.

    These are potential added benefits compared to the current cost of the acquisition. They are uncertain. Acquisitions are risky for another reason, summed up in the concept of asymmetric information.

    ASYMMETRIC INFORMATION AND ACQUISITIONS

    Who knows more about the intended acquisition, the buyer or the seller?  The seller.  Why?  The seller knows the risks, where “the bodies are buried.”

    The buyer will try to discover the risks through a process called due diligence. The seller must make its financial records available to the buyer. But financial records seldom indicate the risks. The buyer’s owners and managers have no incentive to divulge any adverse information; on the contrary, they have a strong personal incentive not to divulge negative information.

    The seller knows more about the company and also more about the industry – the competitors, the technology and future sources of risk.

    POST-ACQUISITION RISKS

    Imagine that you and your friends started a company. You worked very hard – 12-14 hours a day, 6-7 days a week – and ploughed profits back into the company. You took modest salaries. The company grew rapidly. One day there is a knock on your door. A large corporation wants to buy your company. The price will make you and your friends rich. Seriously rich. Now what happens?

    You and your management team are now managing a small piece of a large company.  Rather than running the show yourself, you now report to a Senior VP in a big city far away.  There are budgets, reports and meetings. Proposed capital expenditures now go through a long, formal process; you compete with other parts of the corporation for capital. Clueless corporate staff types with MBAs from Harvard review your requests and decisions. High-risk proposals are denied. After a few years of this, what do you and your friends do? Walk. The main reason the large corporation bought you, what made you attractive, just walked out the door, taking most of the value of the company with you.

    This scenario is very common.  Even a less drastic scenario is likely.  Do you work as hard?  As many hours?  Don’t you want to enjoy your new-found wealth?  Buy the Porsche you always dreamed about and zip down the Pacific Coast Highway to Big Sur for enlightenment? Go to comic book conventions? Maybe divert your attention into pursuits that bring you status?  Part-owner of a professional sports team?  Board membership at a prestigious museum or orchestra?  A vineyard in Sonoma Valley? The new possibilities are endless.

    And the ultimate nightmare to the acquirer.  You and your friends get to hate your corporate superiors and their petty, bureaucratic mentality.  So you walk out and start another company in competition with them.  You have tons of money, a proven track record and every VC in the Valley wants a piece of your new company.  You know everything about your old company and its owners know nothing about your new company.  Asymmetric information is still your ally.

    Mergers and Acquisitions (M&A)

    In addition to the development of innovations and internal growth as a source of growth for corporations and the formation of oligopolies, large corporations are often formed through mergers and acquisitions.

    “Merger Mania” in the late 19th century, often promoted by J. P. Morgan and culminating in 1895-1904, created many of America’s largest companies. Many would continue to dominate their industries well into the late 20th century.

    One indication of the continuing impact of mergers among large companies and acquisition of smaller companies is the decrease in the number of publicly traded companies. In the mid-1990s, there were around 8,000 publicly traded companies in America. In 2016, the number had fallen to 3,627.


    For many years recently, America’s corporations have spent more than $1 trillion a year on mergers and acquisitions. Globally, M&A is around $3 trillion a year. Some of the largest mergers recombined companies that were broken up in earlier anti-trust cases. Cross-border and cross-regional mergers and acquisitions are creating global companies, called multinational corporations (MNCs).

    The result is increasing concentration. Two finance professors at the University of Southern California estimate that nearly a third of American industries were highly concentrated in 2013, up from a quarter of all industries in 1996.

    Many of America’s 500 largest corporations spend more money every year on mergers and acquisitions than on net capital investment. 

    Why? What are they buying?

    Some mergers are between large corporations to reduce combined costs, reduce competition, merge related product lines or realize some economies of scale. Many large companies acquire smaller companies to eliminate potential competition, acquire new technology, acquire more innovative managers and employees, expand product line, or expand markets to other countries. While the United States and other countries have anti-trust laws, they are seldom used to block mergers or acquisitions. Governments often tolerate or even encourage mergers, believing larger companies are necessary to compete in regional (EU) or global markets. 


    While most merger and acquisitions do not make financial sense – they do not earn the companies’ cost of capital – they may make sense from a strategic point of view by eliminating actual or potential competition.

    Acquisitions of competitors or new companies that have specialized knowledge or are perceived as a current or potential threat is another defensive strategy to preserve market positions over time. Acquisitions, seldom a good investment, are the cost corporations pay for stability and long-term survival.
    Pharmaceutical companies, rather than buying small drug companies, often advance funds to a company with a promising new drug for development and FDA trials. In exchange, the large drug company is given marketing and sales rights, and a percent of future sales or profits.

    AI Financing:  The New M&A

    There’s a rush to invest in AI, and NVIDIA is one of the main actors. Microsoft, Oracle, xAI, Intel, Advanced Micro Devices (AMD), CoreWeave, Mistral, and OpenAI are all nodes of an increasingly interconnected web of AI-related transactions. These deals transcend the usual merger or acquisition, and probably avoid antitrust scrutiny.

    I call these “circular deals,” where a big tech company takes equity in or provides credit to a customer in lieu of cash for its equipment or services. Such deals require convoluted financial engineering that are difficult to analyze, often hiding risk.
    Ed D’Agostino, “We’re Back to 1997/98?,” October 31, 2025.

    Nvidia and other companies are creating technological ecosystems.

    Nokia recently received a $1 billion equity investment from NVIDIA, securing its place in the coming telecommunications 6G build out. ­

    The new strategy is to negotiate joint strategies along the supply chain without a formal acquisition or merger. Some of the cost of the new data centers is off-loading onto private credit firms and do not appear on the balance sheets of the big tech companies. Since high-tech companies are the favorite targets of anti-trust departments, these strategies may avoid government anti-trust lawsuits.

    OpenAI strikes a huge deal with Amazon. The ChatGPT maker agreed to buy $38 billion worth of cloud computing capacity from the tech giant over seven years, days after it renegotiated its relationship with Microsoft partly to reach such agreements.

    See related essays
    Corporate Strategies – Basic Concepts and Management

    Corporate Strategies:  Marketing and Price Discrimination

    Corporate Strategies:  Organizational Change in the Future

  • The 10 Minute MBA – Almost Everything You Need to Know to Manage Organizations, People, and Yourself

    The 10 Minute MBA – Almost Everything You Need to Know to Manage Organizations, People, and Yourself



    Positive Externality


    You need to know three things about management and corporate finance:





    80/20 Rule

    Opportunity Cost

    Compound Growth


    80/20 Rule (Also called Pareto’s Law)


    This idea says that a relatively small percent of actions account for a relatively large percent of outcomes. Find and concentrate your efforts on the important influences on your business (and life).


    20% of your customers account for 80% of your sales.


    20% of your product line accounts for 80% of your sales and profits.


    Often, companies with a large product line with many variations find that 50% of their products account for over 90% of sales. An even smaller percent usually account for most of the profits.


    20% of your SKUs account for 80% of your stockouts (and lost sales).


    20% of your programmers account for 80% of the bugs in new programs.


    The percentages aren’t always 80/20. Some examples:


    McDonald’s accidentally learned that 10% of its customers accounted for 60% of its daytime sales. And it was an identifiable group that they had never aimed its massive advertising at.



    A landmark study by Arizona State University found that over the past century, just 4% of stocks have accounted for the entire net gain of the US stock market The other 96% were either flat, down, or so volatile they gave back everything they made.


    The possibilities are almost endless.


    The 80/20 rule implies:


    “Less is more” … reminds us that much of what we do, when closely analyzed, has negative value. Many activities, customers, products and suppliers actually subtract value, which helps to explain why their very positive counterparts produce such a high proportion of net value.


    Richard Koch, The Natural Laws of Business(182-3)


    Eliminate losing products, customers and functions. This is probably happening because a competitor is more innovative or new companies have entered your markets.


    Look at divisions, regions or product lines that consistently have low sales growth rates and make below the minimum cost of capital. Reduce or eliminate these businesses. This frees up capital and resources to find and fund growth opportunities. Loser operations have a potentially high opportunity cost (see below).


    Look at positions or functions in the corporate structure that don’t add value to the company. Eliminate or outsource. This is a major strategy many companies are now pursuing, which is why a high percent of job losses over the last three decades occurred because the position or function was eliminated.


    Better yet, avoid complexity in the first place. Concentrate on what you’re good at. Pound away at it. No complacency. Continuously innovate. And, with Andy Grove, be paranoid; your actual or potential competitors want to eat your company. (His successors at Intel obviously didn’t read his book. They became complacent. A beast named Nvidia is devouring them.)    


    Growth through mergers and acquisitions is a high-risk strategy with a high failure rate (loss or discounted return below the cost of the acquisition). The seller knows where they bad stuff is hidden; you don’t. (If you missed this in B-school, it’s called “asymmetric information.”) 


    If you get into a bidding war with another company, walk away. The odds of “buyer’s remorse” is high. 


    Opportunity Cost


    After you’ve identified the critical opportunities and problems, opportunity cost is a good guide to deciding what to do about them. It reminds you that time and assets are limited and valuable. Time and assets you spend on one problem or function might be more profitably spent managing something else. For example, if you have a small customer who takes up a lot of your time, either raise prices, reduce service or stop supplying her. The opportunity cost is too high.


    Opportunity cost is a guide for better decision-making. Good managers think in terms of possible alternatives, not simple yes or no decisions on isolated proposals.


    What are the realistic options and alternatives (not a list from a management textbook)? Is there a less expensive (more profitable) way to do something? Lease or rent rather than own? Outsource some of your production?


    What is the net benefit (profit) over time of each alternative?

    Include risk as part of cost. If your company depended on inputs from China, as soon as President Obama (and successors) focused on China as America’s number one geopolitical threat, it was time to diversify your sources to other countries.


    In the extreme, some corporations have learned they are in the wrong business. They could have used their time and assets more profitably doing something else.


    A word about accounting systems. Accounting systems are not set up to tell you which products or services are profitable. They are also poor indicators of return on capital or assets. Asset values should be adjusted from depreciated historical cost to present opportunity cost (often market value if sold or leased). The classic example is that Coca-Cola for decades carried the value of their brand name at $1 on their balance sheet. Really?



    Compound Growth (also known as exponential growth). 


    After you’ve freed up people and resources by applying the ideas of the 80/20 rule and opportunity cost, start looking for growth opportunities. By this time you will have a good idea what are the critical factors for your company’s success, the knowledge and resources that give you a competitive advantage. Develop opportunities that have a good chance for  sustained  high growth rates. Know the difference between unit sales growth rates and dollar amount of sales growth. 


    In the beginning, new ventures often have low sales compared to the size of the company but high compound growth rates. If there are high growth rates, these ventures can become large contributors to sales and profits in the future. Other good things can happen such as continuing reductions in unit costs.


    One application is personal investment. Compound growth rates are the first thing you need to know about finance, particularly personal investing. Earn income. Start saving early, save steadily over a long period of time, invest in high-quality bonds and dividend-paying stocks, and reinvest interest and dividends. Let compound interest (interest on principal and past interest) do its thing. Same advice for investing in stocks generally – start early, invest in index funds. Starting early is important because there will be periods when stock prices go down or stagnate. Spend all the time you save not analyzing or worrying about investments doing more pleasant and productive things (see opportunity cost).


    These three tools work together.


    These ideas applied to starting a new business:


    Opportunity cost is a part of start-up costs.

    Loss of income from the job you quit.

    Loss of income from the saved money you invest.

    What are the critical factors for success?

    Look for sources of exponential growth and exponential reductions in unit costs as volume grows.



    These ideas applied to personal life:


    Eliminate activities and people with high opportunity cost.

    Avoid high-maintenance (high opportunity cost) people (selfish, self-centered, demanding, whiny, long-winded). Life is too short.

    Concentrate on a small number of important people and activities who add meaning to your life.

    Remember the learning curve when starting something new.

    Persevere; learning something new is slow going at first but accelerates. (Again, concentrate on what’s important; 30% of the assigned reading in a textbook will account for 80% of the questions on the tests.)



    ALMOST EVERYTHING YOU NEED TO KNOW ON HOW TO MANAGE AN ORGANIZATION


    BEST BOOK ON HOW LARGE ORGANIZATIONS REALLY FUNCTION


    Joseph Heller, Catch 22.


    BEST BUSINESS MANAGEMENT BOOK


    Andy Grove, Only the Paranoid Survive. Andy Grove grew up in communist Hungary, escaped during the Hungarian Revolution, got his Ph.D. in solid-state physics at 22, and was CEO of Intel during its critical period developing and mass producing the integrated circuit (aka the microchip).


    BEST ADVICE ON STRATEGIC MANAGEMENT FOR A SMALL, DISRUPTIVE COMPANY


    “Hit ‘em where they ain’t.”

    “Wee Willie” Keeler


    One of the greatest hitters in baseball. Only one of 22 men ever to hit over .400 in a season. Also one of the smallest ever to play in the major leagues. Innovative. See biography in Wikipedia.


    “Get there the firstest with the mostest.”

    Nathan Bedford Forrest


    Surprisingly successful Confederate general in the Civil War. Consistently defeated larger Union armies. Not size but speed, surprise and force at the point of attack leads to victory. Same strategy used by Stonewall Jackson and Erwin Rommel against larger forces. Reason for success of guerilla warfare.


    Good general advice but especially relevant if you are going up against a larger competitor with more resources. Hit them hard where they are weak. Toyota almost destroyed the huge and powerful General Motors by first attacking GM at its weakest point (compact cars).



    ALMOST EVERYTHING YOU NEED TO KNOW ON HOW TO MANAGE PEOPLE


    Be consistent.

    Subordinates will then know how to act and what to expect.

    If you are consistently nasty, expect to change jobs every two or three years.


    Business educators, consultants and commentators love sports analogies. But be careful. My favorite.


    Football (American) analogy. Be a pulling guard. You’re a pulling guard, not the quarterback (COO) or coach (CEO). Run interference for your people so they can concentrate on high value-added work.

    Hire good people (independent, flexible, adaptable, cooperative) and have confidence in them. Trust them.


    Never hire a graduate of Harvard Business School or anyone who has only been a consultant. They think they are qualified to run the business. Before they understand it.


    If your company’s management is hiring a lot of management consultants to tell everyone how to run their operations, you should probably update your resume and think about working for a better company. One that has confidence in its employees.



    MANAGING UNDER UNCERTAINTY


    “Nell,” the Constable continued, “the difference between ignorant and educated people is that the latter know more facts. But that has nothing to do with whether they are stupid or intelligent. The difference between stupid and intelligent people – and this is true whether or not they are well-educated – is that intelligent people can handle subtlety. They are not baffled by ambiguous or even contradictory situations – in fact, they expect them and are apt to become suspicious when things seem overly straightforward.


    Neal Stephenson, The Diamond Age, 256.


    This is a key to success in the information age. Your phone can contain more facts than you can learn in a lifetime. It can analyze more data in seconds than you can in a year. But algorithms hate ambiguity. Well, so far.


    Good managers are not afraid to make decisions in uncertain environments. I’ve worked for corporate and divisional managers who talked a good game but were scared to make decisions quickly because they were afraid they would be blamed or fired for a bad outcome. Afraid of the annual review. Stressed by the tyranny of the quarterly report. This is management by fear or blame. This is how Jack Welch and his picked successor ran General Electric into the ground. (BTW, read Greek tragedies. It’s a good way to spot arrogant people who will be destroyed by their own hubris.)


    When the CEO is like this, the company is doomed to mediocrity. Or worse. Update your resume.


    Some decisions fail – lose money, not meet corporate cost of capital, not achieve a tactical or strategic goal. But good managers cut losses and change strategies quickly as they realize their assumptions were wrong or the actual outcome turned out to be different than expected. This takes courage. And humility. 


    A company’s managers don’t have to be right all the time – just more often than the competition. And adapt quicker to changing circumstances.


    George Washington lost every major battle he fought before 1781. But because of his failures, he changed his assumptions about the war and changed his strategy. He inspired his officers and men under terrible conditions. He persevered; he refused to accept defeat. His reward – he won his last battle (Yorktown) and won the war.



    LEADERS AND MANAGERS – KNOW THYSELF


    Are you a leader or a manager? 


    A leader has strategic vision.

    A manager has functional expertise.


    A leader looks outward.

    A manager looks inward.


    A leader thinks abstractly.

    A manager thinks concretely.


    A leader anticipates.

    A manager reacts.


    A leader is able to make decisions in an uncertain environment.

    A manager attempts to reduce uncertainty to routines.


    A leader thinks and worries about the future.

    A manager thinks and worries about the present.


    A leader indicates a general direction for the company.

    A manager wants specific instructions to carry out a function.


    A leader is paranoid and insecure.

    A manager seeks security and certainty.


    A leader thinks in terms of trade-offs and possible scenarios.

    A manager wants to find the one best way to optimize performance.


    A leader is not guided by financial data and short-term financial objectives.

    A manager is directed by her budget.


    A leader thinks strategically in a hostile, competitive environment.

    A manager is concerned with operational efficiency.


    A leader can make decisions in an environment of accelerating change and
          discontinuities.

    A manager can’t.


    A leader sees potential opportunities in an age of radical change.

    A manager sees problems to be dealt with.


    A leader persuades.

    A manager commands.


    A leader adapts, improvises, overcomes obstacles.  (From Heartbreak Ridge)

    A manager waits for explicit instructions.


    A leader looks for talent.

    A manager looks for skills and experience.


    A leader trusts other people.

    A manager controls other people.


    A leader discovers, nurtures and promotes potential leaders inside the company.

    A manager doesn’t.


    A leader reads books and articles about history, the global economy, other cultures and values, new ideas like complexity theory and tipping points, biotech, and science fiction.

    A manager reads books and articles about management and her functional
           specialty.


    A leader reads The Economist.

    A manager reads The Harvard Business Review.


    If you see yourself as a manager, join a large organization. But be warned; you are in danger of having your position eliminated by AI.

    If you see yourself as a leader, think seriously about starting your own company.

    Published 1/23/2019.

    Last updated 8/17/2025.

    There are posts on American History, American Economic History, demographics, and much more. Some essays on information, innovation, and how markets work. Even some essays on business, finance and economics.