Digital Sharecropping– Vast Majority of Online Business is Sharecropping: But More Distressful– They Don’t Even Know It…

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You are digital sharecropping and you don’t even know it… You are building your business on someone else’s land. Digital sharecropping means creating content that you publish on sites you don’t own–like; Facebook, Twitter, LinkedIn… without direct compensation; Just like the sharecroppers of old who tended the land of others and lived at the mercy of large landowners… Similarly today, many businesses with their social media strategy, which revolves around the websites of other businesses are in a powerless position and at the mercy of large social networks… According to Kevin Marcoux; most people don’t really understand how much they are actually giving away, and how they are, in fact, devaluing their own– value, creativity, intellectual work… in exchange for free webpage that has practically no cost to the provider… if business people better understood the social media model and dynamics, they would be more enthusiastic and proactive about building their own Internet freehold, where their work, value, intellectual property remains under their control. 

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According to Nicholas Carr, who first originated the term– digital sharecropping; when you visit; Facebook, Twitter, and thousands of social media websites and post your content on their– walls, groups, forums… you are giving away a very valuable part of your intellectual property and getting absolutely nothing in return… they (the websites) and not you, own your content… It’s worth remembering that the business model of Web 2.0 social networks is the sharecropping model. After the Civil War when the original sharecropping system took hold in the American south, plantation owners made money in two ways: They leased land to the sharecroppers and they also leased them their tools… It’s no different now in the digital age… The payments for land (i.e., web page) and tools (i.e., video, widget…) are not transacted direct through exchanges of cash, but rather indirect through the sale of ‘ads’… but the idea is the same… So, Who owns what you post on the Internet? If you can’t say; I own my creations… then you’re getting screwed… If anybody should be making money from content you create, even if it’s just ‘ads’ revenue, you should be first in line; not Facebook, not Google… You are the means of production and social media is just the means of distribution… Without your content companies like; Facebook, Google… don’t have anything to distribute and nothing to sell…

In the article Economics of Digital Sharecropping by Nicholas Carr writes: One of Facebook’s crucial financial measures is the ‘average revenue per user’ (ARPU)… Since, Facebook’s content is created by its members, ARPU also provides the monetary value of each member’s labor. If the average Facebook sharecropper were to be paid a share of revenue for his or her work on the site, that member would make a sub-minimal wage– about enough to buy a cup of coffee… Needless to say, that amount is so small that Facebook members would never even think about it… The revenue amounts only become financially interesting when you aggregate them on a massive scale…

Now even though Facebook would very much want ARPU to grow steadily, it probably doesn’t want the number to get so large that it becomes a meaningful amount to its members. If that happened, members might start thinking about the ‘cash value of their labor’ rather than just its ‘attention’ value. The line between these two economies become blurred; by keeping ARPU modest (and focus on scale), Facebook (and others) keep the all-important divide between the ‘attention economy‘ (i.e., members see themselves as working) and the ‘cash economy‘ (i.e., company reaps the monetary value of the members’ work). The last thing a for-profit social network wants is for its members to start seeing themselves as laborers

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In the article Who Are You Promoting With Digital Sharecropping? by Jared William writes: Digital sharecropping is what happens when you create content on someone else’s property, i.e.; you do the work; you create content, and the websites keep all of the benefits… These modern-day plantation owners make it easy, e.g.; just click here to sign up, add your name, email address… now you are a sharecropper. And, that means you have a place on the Internet– you can scream, yell, rant, play, show off your work, join conversations, constantly check your account to keep up with all of the other folks doing the same things: It’s enticing; it’s easy; it’s delusional… If you’re trying to run a business, or build a brand, or otherwise engage an audience… when it’s all said and done, you’re creating content on someone else’s digital land: You’re a digital sharecropper

But, what happens when your digital landlord changes the rules, or even ceases to be the place that draws a crowd? You are screwed. The simple truth is that social websites are great resources but you must  bring visitors back to your home base– your website– in order to build a sustainable business… You must control the visitor’s entire experience… Social media has its place– interacting with friends and fans on Facebook, Google+, Twitter… these places are like digital watering hole… But sooner rather than later, you must have a site of your of own that’s fully engaged with your visitors, customers…

In the article Digital Sharecropping – Customer or Product? by Marion Jacobson writes: With Internet powerhouses like; Facebook, Google, Foursquare, Instagram, Pinterest, hundreds of others… customers are willingly posting ‘tons’ of content on these sites daily; for free… But, as you might already know, these powerhouse social media firms are in business to create communities, apps… not out of altruistic desire to help their fellow-man; it’s business stupid… They are using your content to make money… and, that’s perfectly fine with most people, in fact, millions and millions of people… Since businesses are rapidly jumping into the social content fray headfirst, it’s a good time to revisit the question; are you the product or the customer that is makes money for someone else? Are you a digital sharecropper working hard and producing great stuff that’s making someone else rich? If your answer is ‘yes’ or unsure, then you must quickly change mindset: Bring your traffic, your authority, your links… to your own business website, not theirs… post your company blog on your own domain; don’t use other websites… Leverage the other social media sites to– tweet, post, plus… and share your content as much as you want, but post excerpts that link back to your original post on your site…

If you have a business page on Facebook (and you should),  promote your own content along with other engaging posts, conversations… Just remember that having a ton of original content on Facebook will not help you in the search engine results contest... But, it will help you engage with customers, fans… and a great way to increase brand visibility. But the key issue revolves around– your business being ‘findable’ on Facebook… but, as important, is the protection of your original content– it  belongs to you and it must first appear on your website… Which means that you don’t have to worry about losing content, or other sharecropping issues; if the free online repository has trouble; goes out of business, decides to charge a fee, or changes rules of the game…

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In the article Sharecropping: Sucker’s Game by Scott Baradell writes: Sharecropping goes digital, which is a sucker’s game… Why? For two reasons: 1.) Lack of audience ownership: Just as subsistence farmers of past were stuck on someone else’s land forever; so does a strategy centered on someone else’s website leaves you dependent on that website… But, most important, if you send your audience to another site, such as; Facebook rather than to your own website, then you own nothing… 2.) Lack of predictable outcomes: Since you have no control over another website and you are easy prey for changes that might take money out of your pocket and make your labors fruitless. So what’s the solution? Simple; invest in building your own website with fresh, frequently updated, mostly non-branded content that will attract prospects and other important audiences to your site…  As for– Facebook, Twitter, YouTube, LinkedIn, Quora, Flickr and the rest… Use them, of course, but for the purpose of– leveraging their audiences to build your own website... It’s equivalent of working on someone else’s land (and, setting aside some of the harvest to build up your reserves), until you have enough resources to create a more lucrative property of your own…

But, in reality; many businesses are putting all their energy and hard work just to build someone else’s business? They are, in effect, tilling soil and helping others grow their business, rather than their own… When a business is dependent on another for livelihood; they are a digital sharecropper… in fact, it’s 21st century version of 19th century sharecropper… Digital sharecropping is not just a recipe for disaster, it’s long-term business suicide… According to Bryan Del Monte; while individually, content may be trivial but when aggregated that what’s made digital media what it is today– a multi-billion dollar enterprise that has concentrated power in the hands of an oligopoly… In other words, content producers work for free as far as; Facebook, Bing, Google, LinkedIn… see it from their accounting books. Just look at their terms and conditions; not only do they have effectively unlimited rights over your contributions (including, publications…), they also have much stronger rights than you, the user, have over your own digital existence… In some cases, they can involuntarily appropriate or dispose of your information, your identity, your content, your creations, and your labors, in however manner they see fit…. The vast majority of businesses and people existing on the digital landscape are either; slaves or sharecroppers… that are making others rich, and they are working tirelessly to do so….

The vast majority of business, people… using social media are happy with the model because they see their primary interest in garnering ‘attention‘, not in capturing ‘value created‘… We futz about ‘Klout’ and how many followers we have, and not the fact that our daily efforts build the empire of others… Put perhaps more bluntly, most people believe– ‘being socially famous’ is more valuable than the billions of dollars that successful social networks are earning by leveraging your content generation… Everyone is pretty miserable trying to figure out what works: The belief is– all you need is great content and you’ll be famous– that model is wrong… According to Anita Campbell; the question at the end of the day is; after all the effort you put into creating content– do you own the fruits of your labor? When you built something of value, and is it ‘yours’?  The point of business is to create value for your commercial enterprise, but if you are only creating value for other businesses, then you are defeating the purpose for being in business…Remember that– sharecropping is a sucker’s game and it continues (alive and well) in today’s digital age–  it’s up to you; take control of your business, protect your content, and build a profitable business…

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Power of Words– Most Dangerous Words in Business– Toxic Phrases That Have No Place in the Workplace…

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Words are powerful– they have a profound impact on business, on people who run business, on customers who buy from business, on stakeholders who support business; words are the ultimate  power in business… they create massively successful global corporations, and they are used with the precision of a surgeon’s scalpel, to heal and breathe life into a small struggling business… It’s the awareness of the power that lies within words that makes them vital… To be sure, some words are more powerful than others and on their own they don’t really do much, but it’s how they are arranged and used that creates the impact…

According to Yvonne Grinam-Nicholson; we all grew up hearing and believing the awful lie that– sticks and stones may break your bones but words will never hurt you– but age and experience have shown us that words do indeed hurt… but they also, often times, contain the cure for what ails us… According to Andrew Newberg and Mark Waldman; in their study they point to the damage of negative words… The words that send alarm signals through the brain that interfere with the decision-making process, and thus increases a person’s propensity to act irrationally… The words you say and write can change the mood of people with whom you are communicating– it can make them either; more or less productive… more or less attentive… more or less engaged…

You have the power of words, and how you choose them is enough to paint a picture of who you really are… but once used you cannot take them back… except possibly, the next best thing is just apologize for what you have said… The power of words  convey people’s– wishes, thoughts, desires, aspirations… words have the power to create and destroy… Your words whether you realize it or not, have a profound impact on people and their– emotions, aspirations, growth… Words are power; so be very careful about what you say, and how you say it… measure and weigh your words carefully… before you blurt them out…

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The power of words define the business– there are many ways you could describe what you do, who you are, why customers should choose you… But in a world where competition is fierce,  customers attention spans is short, thus you must know the key words that get people either; excited or turned-off– about you and your company… For most businesses, power words are part of a mission statement– it’s the reason for their being in business… But there are also words that are very dangerous to well-being of a business– its employees, customers, stakeholders… for example; According to Warren Buffett; the five most dangerous words in business are: everybody else is doing it... It’s incredible how often businesses and their leaders get caught in this trap, especially the ones that are lagging behind their industry peers and they desperately try to duplicate competition to survive… Also, how often do you find yourself conforming to a certain way of doing things just because it’s road most traveled? According to Emily Dickinson; I know nothing in the world that has as much power as a word…

In the article 6+ Most Dangerous Words in Business by Torben Rick writes: How often do you hear the words: You just don’t understand how we do things around here. Or even worse: We tried it that way once and the person who suggested it is no longer here... If all this sounds overly familiar, it’s time to seriously examine the way in which your organization operates in today’s rapidly changing environment– no business has luxury of remaining at status-quo… Organizations must reinvent, innovate to survive… There is no full proof sustainable formula for continuous success or even to survive in the marketplace. To move past a ‘event focused’ culture to a culture of ‘continuous innovation’, each individual must be aligned to the company’s vision and goals, and be equipped to act upon ideas to reach those goals… A culture of continuous innovation rests on exchange and execution of ideas (through words), which must be built into the core DNA of the company… Creating a great company culture means being open to new ideas, new changes… few fear factors. The most important thing about culture is; it’s the only sustainable point of difference between organizations… Hence, anyone can duplicate strategy but no one can duplicate culture– and it begins with a use of specific very descriptive words… don’t leave it untended!

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In the article Most Frustrating, Confusing, Dangerous, Single Word in Business by Dan Erwin writes: It’s amazing how a single, ‘coordinating conjunction’ can impact human behavior and thinking… To a surprising degree, the majority of people don’t realize the power of this single word… I’m referring to that single damnable three-letter word; ‘but‘. I’m making too much out of a simple conjunction? Well maybe, here’s an exercise: Finish each sentence after the conjunction ‘but’ with your own experiences or ideas, and then analyze your emotions, e.g.: You did a good job; but… or, I’d like to go out with you; but... or, It’s a possible strategy;but’… The conjunction is frustrating because it often catches you off guard, confusing because you have to handle multiple ideas simultaneously, dangerous because it’s a persuasive strategy designed to lead you astray… The conjunction ‘but’ belongs to the same category of language as the well understood phrase; by the way… They both signal something that must be watch carefully…

In the article Two Most Dangerous Words in Business by Vanessa Lanham-Day writes: The two most dangerous words for a business, which are real killers words are; I know… If for every time I have heard someone react to a piece of business information with the response; I know– I’d be rich. But the rub is although they may actually know, the point is they don’t; do…  For example; Yes; I know– I must spend more time focused on business development… or, Yes; I know– growing a business needs many marketing pillars to keep it upright and stable… or, I know– reading business books, watching business videos can be very enlightening… or, I know– the company database is not very well-organized… or, I know– all that stuff about strategy, so I don’t need to learn anything from listening to business expert… or, Oh; I know– social media is the big but I’m not interested… I know, I know… are often used but nothing ever gets done… whereas, most successful people are always looking to know about stuff… Don’t be a victim to your ego… Even if you think you know, there are always more ways to learn, grow, and to know

In the article Most Dangerous Words in Business by Michael Zipursky writes: Consider words like; sometime, someday, soon, thinking about it, planning to, this week, this month Although, you might not see anything wrong with these words, at first glance, but they are indeed dangerous. These words have ruined many businesses and destroyed many a career…  It’s not the words themselves; it’s how they are often used. More specifically, it’s what fails to accompany them… These are words of indecision. Words of a ‘talker’… and not a ‘doer’. Let’s look at a few examples: Someday I’m going to join a gymthat’s great, but you are just ‘thinking’ about joining a gym– just the same way that you’re ‘thinking’ about a trip… it may happen or it may not…  Or, you might think that because you are planning something you are being productive, however, the problem with ‘planning’ is that people say that for everything– it’s meaningless unless you’re talking about it as a specific action you are doing at a specific time… And, what about the word; soon– it does not show any sense of urgency… Then there is; I’m going to work on that– this month… this month is specific but it’s still too vague– be specific and identify the day and time of the month… If you are using these type of words; stop, and change behavior, change  from being indecisive and vague to decisive and specific… Then there is a much higher probability that you will actually do it, and get stuff done! The words we use– determines our actions and behavior…

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In the article Most Deadly Words in Business Writing by Gary Blake writes: Rarely do I see business communication that are completely avoids from what I call the ‘deadliest‘ words and phrases commonly found in business… Do a few stodgy phrases ruin a communication? Is it a big deal?  Well, when you consider how much communication is exchanged in business you realize how important it is, to be– clear, concise, relevant, engaging… There are specific phrases that when changed can make a company’s communications significantly better… In fact, it will improve a company’s image, productivity… and cut thousands of unnecessary, wasted words… consider the following:

  • Yours very truly (or, Sincerely yours, Very truly yours: Closings are antiquated. I find myself using– ‘Sincerely‘– almost all the time…
  • Respectfully: This closing has a solemn, almost hat-in-hand aspect that I dislike… ‘Sincerely’ works fine here too…
  • Kindly: ‘Please‘ works better than this old-fashioned word…
  • I Forwarded… I am forwarding: In an e-mail, ‘forwarding’ does have a specific meaning: sending materials from someone other than the writer to the reader…
  • Please do not hesitate to contact me: The prevalent ‘please do not hesitate’ was a light, bright phrase when it was coined almost a half-century ago, but now, like most clichés, it pays a price for its popularity. When you use a cliché, you subtly send a message to the reader that you think in clichés…  Use: ‘please call me‘, polite without the cliché connection…
  • Enclosed please find: This phrase, more than any other in business, epitomizes the lawyer-like way people… There’s nothing to; ‘find’… Use; ‘enclosed is...’ or, ‘I’ve enclosed‘…
  • ASAP (as soon as possible):The blandest, vaguest term in business.  It implies quickly but just how quickly is matter of interpretation. If you need a document request a specific date– name a date…
  • Dear Sir or Madam: If you are unable to find the correctly name and title of the person to whom you are writing, then you must settle for some generic rendering of the title: Dear Sales Manager… or, Dear Managing Attorney
  • To Whom It May Concern: Would you be eager to open a piece addressed this way?

The words you use really matter… According to admin; the two scariest words in business are; Trust me… People use these words far too freely, and when they cannot deliver they run the other way! I honestly hate when I am told; Trust me… It usually means that you are about to get screwed… However, there are other ‘danger’ words, e.g.,: According to Brad Hoover; when you contact a company to resolve an issue and hear the phrase; I’ll try… that’s probably not going to alleviate much frustration; as a matter of fact, it’s more likely to exacerbate the matter… Likewise, when employees say they will; try to meet a deadline… or, try to close a deal... or, try to handle a customer issue… But unfortunately in business, the old college ‘try’ is not good enough– it must be more specific; either– do or don’t… While ‘try’ is one of the more dangerous word… there are other ‘danger’ words, as well that indicate– negativity, uncertainty… words such as; if, never, maybe, used to, can’t… Ultimately words are power to communicate effectively… Words are first impression and they span the full range– from verbal discourse to emails to meetings to reports to engaging customers… they have a power to determine– reputation, competency, commitment… When you use words with power and impact… and also deliver on expectations, you are shaping image, bolstering potential, and giving business a shine… So; don’t try–do… don’t doubt–believe… don’t wonder–act

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Holacracy — Different Management Concept: Imagine– No Titles, No Managers, No Hierarchy, No Boss… Fad or Future

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Holacracy® is a management concept that ditches all traditional ways we look at ‘work’– no job titles, no managers, no organization hierarchy, even no boss… Holacracy® is a total transformation for structuring, governing, running… an organization… and a new way of achieving control by distributing power… it replaces traditional top-down management… According to Brian Robertson; Holacracy® is management based on the tasks a company needs to accomplish, rather than a standard reporting structure… It’s sort of like a game, e.g.; there are rules, workers are responsible for their own tasks, and there is no micro-management… also, no one has to be stuck doing the same task all the time… it generates organizational clarity… it’s adaptable, quick changing both for work that needs to be done, as well as, how work is being fulfilled… For some Holacracy® spells end of traditional management, as we know it. But for others, the concept is complete insanity…

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According to Martin Newman; I struggle to see this as a panacea. I see how balance needs to be struck between formal and informal leadership, and greater use of distributed leadership. But, much of Holacracy does not make sense… good managers and leaders know that they simply must talk to people and not defer to a management model that says, they don’t exist. Clearly traditional leaders must adopt and change from managing people to empowering people… But, leaders (how every defined) are still needed to be responsible for the entire company… also, the role of an enlightened leader is not to dictate; how, when, where… people do their work… but to distribute the power of leadership… It’s a huge cultural shift and it relies on trust– delegating power, joint decision-making, shared sense of purpose… these are the things we’re seeing and discussed more in the workplace… Seen this way, then Holacracy type management does makes a lot more sense…

Who’s in Charge? Is Holacracy® workable model for organizations– The idea of self-directed or self-managed teams is not new… In the mid 80s, a number of manufacturing companies instituted a similar flat hierarchy under belief that workers would be more productive if they were empowered through greater autonomy. A number of large, multi-national companies, such as; Shell, Cummins… adopted the method for a short time, but it failed… The adoption of a Holacracy type concept saw an exodus of many senior management talents, and companies soon realized that experienced managers would rather leave the company than lose their titles. In fact, according to Jan Klein; the experiment was doomed from the start… people just don’t self-regulate as well as the companies had hoped… Teams are not good at self-disciplining themselves… Only one company made Holocracy last long-term; it was a small, rural factory where everyone knew everyone. It was, in essence, an extended family business model supported by a strong community foundation… There is something intriguing about the notion of truly democratic business culture. But, hard to imagine corporate leadership embracing an idea that essentially eliminate their authority…

According to Sanjay Srivastava; people are social animals who travel in packs and care about two things: First, who is dominant? Second, who likes them? They say humans subconsciously rely on visible cues like attractive physical features or extroverted personalities to assign status in a group, which has no labels to indicate otherwise… In a company devoid of bosses, these perceptions of status will take hold to establish a pecking order… Add, the fact that people naturally strive to attain higher status in the form of admiration, respect… from peers and those perceived as more powerful. In Holacracy®, people’s instinctive inclination to climb up the ranks at work finds no reward when there is no boss to offer feedback or pat on the back… That’s because status is as important to us as breathing… Research shows that perceptions of social status– of ourselves and others– and our overall standing in social hierarchies affect how we make decisions, how altruistic we are, as well as, our overall mental and physical health…  Some workers will therefore naturally converge around a perceived leader, leaving others feeling insecure. Since our brains are hardwired to tune in to threats over rewards, people tend to act more defensively when they feel their status is at stake… In Holacracy® the titles disappear, but human dynamics won’t. In an environment where everyone is leader, some other mechanism needs to be put in place to ensure that everyone can maintain and optimize the tenets of fairness, trust, transparency… so the entire organization can move forward…

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In the article Should Your Business Embrace Holacracy®? by openview writes: What is Holacracy, exactly? And, is it right for your company? Imagine walking in to work one day to discover that you no longer had a boss or manager to report to. Instead, you are your own boss, and you work in self-organized teams– rather than hierarchy squad of managers, executives… in addition, now you are also responsible for influencing the company’s purpose… Sound a little far-fetched or utopic? At Zappos, a company that employs about 1,500 people, this management approach is reality and it’s got a name; Holacracy®. According to John Bunch; one of the core principles of Holacracy® is people taking accountability for their work, and it’s not leaderless– there are people who hold a bigger scope of purpose for the organization than others– but, leadership is distributed into each role– everyone is expected to lead and be an entrepreneur in their own roles…

At a high level, Holacracy® is about authority, leadership… In a holacratic environment, no one has the power to tell anyone else what to do, and there are no organization chart that dictates specific responsibilities for each role in the company… Instead, authority is distributed among all members and meetings are held to establish responsibilities and focus on company’s key issues… Although while stripping a company of all management structure might sound like perfect way to induce uncontrollable chaos; Holacracy’s  supporters suggest that it often has opposite effect… Ultimately, there are a few key arguments in favor of holacratic structure, e.g.; gives everyone a voice… brings clarity… highly adjustable, adaptable… Yes, there are plenty of potential pitfalls, for example; without any one person, i.e., the boss, truly in charge of the organization… how exactly will a growing company deal with the inevitable business challenges, e.g.; scaling, risk, hiring, firing, corporate governance, financial matters… According to William Tincup; Holacracy has a few potential issues with that might prevent it from being effective in large organizations, e.g.; size and complexity… retaining talent… corporate governance… transition from hierarchic to holacratic… While Holacracy has been around for a few years, there are good reasons why few large corporations have adopted it… The reality is that it’s virtually impossible to determine with certainty whether Holacracy® will work in a company until you actually try it. And while it might be a wildly successful transition that makes the company significantly more streamlined, innovative, and efficient, it could also send the company down a slippery slope…

In the article Making Sense Of Holacracy by Steve Denning writes: Holacracy® is essentially a set of inward-looking hierarchical mechanisms… Each is required to be run democratic and open, with exhaustively detailed procedures on how things like– meetings are to be managed, how decisions are to be made… But more important, the word ‘customer’ or a reference to any feedback mechanism from customers don’t appear even once in the Holacracy® Constitution… In addition, there may be no one person with the formal title of ‘manager’, but certainly there are ‘roles’ that are in every respect– managers, except for the formal title of ‘manager’. The fact that the accountability of the role is changed in accordance with governing rules, does not make him or her any less of a manager, in the normal sense of that word… In fact the responsibility of the ‘core roles’ are spelled out in exhaustive detail…  And, to suggest that there are no managers is absurd… Notice that in the media the hue and cry  about Holacracy is: Whatever happened to the managers? But, the more pertinent question should be: Whatever happened to the customer?

There are no explicit feedback mechanisms from the customer, i.e. the people for whom the work is being done… When so much time and effort is spent on the micro-details of the internal decision-making mechanisms and absolutely no attention given to external feedback mechanisms, one could easily get the idea that internal mechanisms are supremely important, while the customer is irrelevant. Unless and until this ‘gap’ is rectified, Holacracy® risks being a distraction from the central business challenge, namely– how to make organizations better able to add value to customers through continuous innovation... Nevertheless, even in firms having intense, even obsessive, focus on adding value to customers, something along lines of Holacracy® has possibilities… Holacracy offers one approach to revolutionizing the process of management– it’s democratic, but it’s heavy… For most organizations, particularly large organizations, the important issues are growth, profitability… delighting customers through  innovation… and not, in most cases, its internal administrivia… Hence, Holacracy® in current form is not very helpful; but, this is not to say that it cannot evolve to become more useful…

In the article Holes in Holacracy® by The Economist writes: Every so often a company emerges from the herd to be lauded as embodiment of leading-edge management thinking: Think of Toyota and its lean manufacturing system, or GE and its Six Sigma excellence… The latest candidate for apotheosis is Zappos (owned by Amazon) that believes that happy workers breed happy customers. Tony Hsieh, its boss, said that he is turning the company into a Holacracy… and replacing its current hierarchy with more democratic system of overlapping, self-organizing teams. Until Zappos embraced it, no large company had taken Holacracy seriously… The idea was invented in 2007 by Brian Robertson who was inspired in part by a description of Holarchy in a 1967 book, The Ghost in the Machine by Arthur Koestler… Koestler argued that the brain is made up of holons that are autonomous and self-determining yet also fundamentally dependent on the brain as a whole. In a similar spirit, Mr. Robertson says that the whole that is a firm should consist of overlapping ‘circles’, each a team of employees who have come together spontaneously around a specific task… Will Zappos success help Holacracy thrive in the brutally competitive market for management ideas? There is good reason to be skeptical…

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According to Julian Birkinshaw; nine-tenths of the approximately 100 branded management ideas I’ve studied lost their popularity within a decade or so… Among the latest cast-offs, it seems, is– Google’s much admired– 20% time, in which workers got a day a week to work on their own projects; the company is reported to be quietly side-lining it… Other, generally more timid, forms of democratic decision-making are being tried at long-established technology companies, whose bosses worry that their rigid hierarchies put them at a disadvantage to nimbler, less regimented young rivals, e.g.; IBM is experimenting with ‘agile management’, in which self-governing teams have regular ‘scrums’ to decide the next ‘sprint’, or stage, of the project… GE is rolling out ‘FastWorks’, a system inspired by Silicon Valley’s ‘lean startup’ movement, itself inspired by agile management… Haier, a Chinese appliance-maker, last year split its workforce into 2,000 self-managed teams that perform different roles…

Some management experts regard the whole idea of stripping away hierarchy as wishful thinking… According to Jeffrey Pfeffer; hierarchy is a fundamental principle of all organisational systems… According to Evan Williams; it’s not about discarding hierarchy altogether as making it more fluid… This type of management seems to work fine for smaller companies, e.g.; companies that relatively small, fast-growing, full of creative people who shun a more conformist workplace. According to some experts, Holacracy® might be good fit for Zappos, which has already shown a pronounced proclivity to go its own way. However, there is less confident about its suitability for more conventional firms. For these, they says–main thing to remember with any new management concept is; first, do no harm…

Holacracy® is a new management for structuring, governing and running organizations… and the bottom line for organizations that run with Holacracy is ‘purpose’, that is– purpose of the company, purpose of the work, purpose of the individual doing the work… Holacracy® is a new way of thinking about management and it challenges tradition to consider how work and people are organized. According to Stephanie Taylor Christensen; the goal of Holacracy is to produce results through complete transparency and realistic alignment of roles and responsibilities. For small-businesses owners, making everyone on the payroll accountable for the company’s success may in fact be the structure’s most appealing aspect… Because employees can hold varying degrees of responsibility in any number of circles in Holacracy– and those circles change, evolve with business needs at any given time– Holacracy may be the answer to maximizing the productivity of teams, particularly as business needs ebb and flow…

However, people must be willing to share power, this management style leaves no room for an- I’m the boss- mentality, despite the fact that they may be the most financially vested person in the business… every employee is essentially an owner of the business, and they are empowered to make real contributions to the business. Because they’re encouraged to put their creativity and skills to use to solve problems and seek ways to constantly improve existing processes (even beyond scope of what they were technically ‘hired’ to do), as well as finding greater fulfillment in their jobs… But is Holacracy® really worth the total disruption of an organization? Well, it just depends…

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Poison Pill– Ultimate Weapon Against Hostile Takeovers, Corporate Raiders: Raise Defenses, Hostiles are Coming…

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Poison pill is a company’s ultimate doomsday weapon against hostile takeovers, corporate raiders… The poison pill is designed to make a hostile takeover transaction very unattractive by diluting the value of a hostile takeover investor’s share of the company… A poison pill strategy is also known as a ‘shareholder rights plan’, which forces potential hostile takeover investors to negotiate with management/ board of directors rather than directly with shareholders… As such, it’s more of a ‘management rights plan’ as it empowers management/ board of directors at the expense of shareholders… Hence, there is a growing apathy among shareholders against poison pills because of its potential to block all hostile takeovers, irrespective of the merit… However, despite being one of the more effective anti-takeover tools; there is increasing shareholder activism against poison pills… Also, there is an increasing trend by large companies to shed their poison pills; but in contrast there is an increasing trend by smaller companies to adopt the practice…

According to Martin Lipton, who developed the concept of poison pill in 1982; the purpose of ‘poison pill’ was to give shareholders more time to evaluate the proposed hostile bid and to give management the opportunity to make a better business decision… Two of the most common poison pill strategies include: Flip-over: Existing investors are given options to purchase bidder’s shares at a premium… Flip-in: Existing investors are given options to purchase additional shares in the company at a premium… Both strategies dilute the company’s stock, thus making a hostile takeover more expensive and less attractive… However, the use of poison pills as a takeover defense is highly controversial, and at the core of the controversy is the question: Whether adoption of poison pills is in the best interest of shareholders or an attempt by management to entrench themselves?

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According to Anna Maria Galinska; now, the question is whether the old legal cases upholding poison pill tactics can also apply to ‘shareholder activism’… There are two arguments on this issue and they revolve around definition of– threat and control… and, the question: Does shareholder activists pose such a serious threat to a corporation that it justifies the adoption of poison pill? Or, does a shareholder activist’s motivation differs from incentives of a hostile bidder? Here, the primary shareholder activists argument is that they focus on the future strategy of the company and seek alternative solutions to improve the company growth, profitability… rather than, to takeover or destroy the company… On the flip side, there are those that say shareholder activism, especially hedge fund activism, creates only short-term gains, which harms the company long-term… According to Activist Insight; shareholder activism is gaining momentum both in U.S. and EuropeThey points out that 13 European companies are publicly targeted by activists in 2014, so far; while in 86 companies activists have sought board representation worldwide, in 2014…

In recent research by Ed Hammond and Arash Massoudi; the value of global mergers and acquisitions (M&A) hit $1.75 Trillion in first six months of 2014, a 75% rise on the same period last year and highest since 2007. The increase highlights a shift in thinking in the U.S., Europe and Asia… Now it seems, risk aversion and organic expansion are being pushed aside, with the belief that– improved financial returns and company growth can be more easily ‘bought’ than ‘built’… Although 95% of M&A deals are very friendly, some 5% are hostile takeovers, in which one party fights to gain control of a firm against the wishes of existing management… Although poison pills are generally on decline in large-cap companies; smaller firms are increasingly taking up the strategy both to ward off unsolicited bids and drive-up price of the company should takeover develop. According to Keith Gottfried; small-cap companies are more likely to perceive themselves as under-valued targets as the stock market fluctuates… Smaller companies are also cheaper to acquire, especially in a downturn, which makes the tactic more attractive to them…

Basically, a hostile takeover is launched in one of two ways; ‘tender offer’ or ‘proxy fight’. In ‘tender offer’, the raider offers to buy a certain number of shares of stock in the corporation at a specific price. The price offered is generally more than the current stock price so that shareholders are motivated to sell. The raider hopes to get enough shares to take control of the corporation and replace existing board of directors and management. In ‘proxy fight’, the raider launches a public relations battle for shareholder votes, hoping to enlist enough votes to oust the board of directors and management… In defenses against hostile takeovers– corporate boards and executives devised number of schemes to defend themselves against hostile takeovers… ego, the poison pill

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In the article Companies Use Shareholder Rights Plan–Poison Pills by Kalen Smith writes: Essentially, poison pills are used to dilute the acquiring company’s ownership. This is conducted by issuing stocks, warrants, or options to existing shareholders and it exercisable once takeover company acquires fixed percentage of the target company’s stock (often at a significant discount to current price). Poison pills are usually triggered when investor obtains ownership interest of  20%… While there are a variety of ways poison pills may be constructed, one common way is to make the long-term director’s options immediately exercisable, thereby diluting the potential hostile’s ownership, and alternatively, current shareholders may be given rights to purchase additional shares at a deep discount, making it much more expensive for the target company to get acquired… Poison pills may be used in different scenarios, for example; management may want to deter a hostile takeover in order to preserve their jobs… Or, sometimes, a company doesn’t mind being bought out, but is not interested in the specific company that is attempting to do so. In the latter case, using a poison pill can be a delaying tactic to give the company more time, while they search for a more favorable acquisition partner…

In the article Poison Pill’s Relevance in Age of Shareholder Activism by Steven Davidoff Solomon writes: Poison pills were invented to fight off hostile raiders intent on taking control of a company, and so just as the hostile raiders are reinventing themselves, these same tools that were invented for hostile raiders are being reworked and used to fight off activists… Most U.S. corporations are incorporated in State of Delaware and the Delaware courts have repeatedly held that poison pill is a valid response to a hostile takeover bid… The court reasoned that Delaware law gives boards of directors the power to make such judgments, and if shareholders don’t like it, they can simply replace the directors… In effect, the channel for company change of control is through board of directors… But in shareholder activism situation, the motivations are different from a hostile takeover. In a hostile takeover, there is a change of control– new management and new board of directors… But with shareholder activism, main issues are about– how to steer the future direction and improve the company…

Shareholder activism is as debated now as takeovers were in 1980s. Critics of shareholder activists argue that they force companies to take short-term actions that hurt the long-term interests of both the shareholders and the companies… A number of studies have found that this is not true in many cases, and that activism does create long-term shareholder value… Clearly, though, there is still questionable corporate activism like the proposals by Mr. Icahn, David Einhorn’s hedge fund Greenlight Capital on what Apple should do with its cash hoard… Most studies are not definitive and the debate continues over whether activism poses same threat as hostile takeovers… However, there is clear difference; activism is enhancing shareholder value; in hostile takeover, shareholders are being taken advantage of…

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In the article Absurdity of The Poison Pill by Carl Icahn writes: Public companies refer to a poison pill as a ‘shareholder rights plan’. Does anyone else find that amusing? If anything, it undermines shareholder rights rather than supporting them… A poison pill actually creates an unmitigated ban on acquiring more than certain percentage of stock. A purchaser who desires to buy and the seller who wishes to sell are simply out of luck. Board of directors should not be allowed to hide behind a poison pill indefinitely… all parties should operate under a more rational system… There are myriad of solutions that could be legislatively enacted short of absolute prohibition on poison pills. The solutions should create a balance between rights of shareholders to buy and sell shares and the desire of management to have meaningful input in a change of control situation… However, the future of poison pills depends on much wider issues involving corporate governance…  According to Profusek; corporate governance is going thru a transition … the ultimate question is where to strike the balance of power between the board of directors and the shareholders…

Despite uncertainty regarding the future of poison pills, there is no doubt that they are experiencing a resurgence in the current market, particularly as a means of protecting a company’s ‘net operating loss’ (NOL) carry forwards… According to Mike Armstrong; new poison pills are being put in place to protect something that all companies find very valuable– their ‘net operating loss’ (NOL) carry forwards… Nobody likes to lose money, but one good thing about the new pills for companies is they can use their losses to offset future income tax liabilities, once they’re in the black again… So while traditional poison pills is aimed to protect an entire company, NOL poison pills are designed to shield single line on company’s balance sheet…

According Thomson Financial; there are over 1,500 poison pills in place at public companies today, with nearly 35% set to expire over the next few years. That means that hundreds of companies will have to decide whether to placate shareholders– let them expire or renew them and risk angering corporate investors, and the increasingly influential private equity market. Some companies will put the decision to shareholder vote, but the majority don’t require shareholder input for renewal of a poison pill

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Art of Setting, Resetting– Business Boundaries, Limits, Rules… Drawing Lines That Distinguish– Purpose, Clarity, Chaos…

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Business boundaries… Imagine countries without borders… imagine companies without management… imagine games without rules… It’s chaos, confusion, conflict… However, this is not to say that business should always have boundaries– they are not always desirable or necessary, for example; imagine limiting people’s imagination and their thoughts about– creativity, innovation, inventiveness… the world would be rather dull place… Business boundaries are intended to assert business structure, control, and influence the behavior of the organization– they describe operations, definitions, constraints that apply to the organization, and are put in place to help business achieve goals…

Generically boundaries can be very simple, clear-cut… or downright baffling, for example, land surveyors can clearly draw a boundary that separates the property between neighbors… However, that simplicity and clarity does not exist in business… In business, a boundary is a limiting factor that separates– people, responsibilities, influence… they protect the rights, integrity of each person in the organization… A boundary can be as tangible as the surveyor’s line or as intangible as a human attitude, behavior…

But business boundaries are mostly intangible and setting clear boundaries requires defining– what is within the scope of work and what is not; what is appropriate behavior is and what is not; and what is productive work is and what is not… When people have boundaries within which to operate, they are more empowered to act, innovate, take initiative… Setting realistic boundaries is an empowering tool to promote positive behavioral change… and it can make or break the success of a business…

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According to Wikipedia; boundaries are defined as: guidelines, rules, limits… that create an identify for reasonable, safe and permissible ways to behave… Boundaries are what make business healthy, functional, smooth running– many successful businesses have an explicit and often a document that outlines the ‘boundaries plan‘… According to Dr. Henry Cloud; leaders must set conditions that make people’s brains perform at their highest levels… One way to do it is through creation of ‘boundaries’– structures that determine what will exist and what will not… A boundary is property line that marks responsibilities… In other words, boundaries define — who we are and who we are not… Boundaries impact all areas of business, e.g.; physical boundaries help us determine who may touch us and under what circumstances… mental boundaries give freedom to have our own thoughts and opinions… emotional boundaries help to deal with our own emotions… According to Fiona Miller; boundaries enable employees to know difference between right and wrong in the workplace and to know their ‘rights’ in the workplace… these boundaries also foster respect among employees and provides a system of dealing with workplace conflicts

According to Sam Williams; business boundaries determine– business brand, employee behavior, executives control… Boundaries are ubiquitous; there are industry-specific boundaries, personal boundaries, company-specific boundaries; and for business, boundaries are the basis behind– personal hiring, employee behavior, decision-making… and these rules are often based on business vision and goals… According to Robert Kaplan; sometimes simple rules delineate boundary conditions that help managers sort through many opportunities, quickly, e.g.; boundaries might center on customers, demographics, technologies… According to Len Silverston; rules are not created in a vacuum… they are created based on the business’ visions, goals, culture… and they are major factors that affect outcome… boundaries are visions, values, culture… that define corporate governance, risk management… According to  Rita Sommers-Flanagan; the way a person dresses at work, speaks to co-workers, and the effort put into work are all determined by personal boundaries…

In the article Drawing the Lines, Setting Team’s Boundaries by Ann Greene writes: The concept of boundaries conjures an image of lines; lines that are drawn around you, the team, the department… lines that should not be crossed under any circumstances… We all have our personal boundaries; think of them as filters by which we allow other people into our lives, or not. These filters contribute to the defining, shaping… of our personal brand, which is precisely the way business boundaries help to define, shape… the business brand… According to Julie Parkinson; the definition of a business boundary can be described as the ability to understand where one person ends and another person begins. This includes understanding a colleague’s need for space, setting limits, determining acceptable workplace behavior, creating sense of autonomy… It’s up to each person to learn and adhere to physical space and the various other boundaries that exist in the workplace. It’s also worth bearing in mind that understanding and adhering to workplace boundaries is  everyone’s responsibility…

Boundaries are elusive yet they are discernible lines that distinguish personal and activity-specific space– an area you occupy which you appropriately feel is under your control– most likely, you have had the experience of someone at work standing too close to you… now, what that person has done, knowingly or not, is invaded your space and crossed your physical boundary… Boundaries must protect all areas of people interaction– boundaries provide a sense of safety, and each person faces innumerable boundary decisions each day… and to make things even more confusing, boundaries may fluctuate, because they change with the situation or context, for example; a behavior that is deemed appropriate at one time may be offensive in another setting, and even involving the same person or situation… hence, boundaries can be fluid or rigid dependent on the situation…

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In the article Create Boundaries Plan for Business by Emma McCreary writes: In business, the biggest struggles is around setting, navigating boundaries… In personal relationship, boundaries are what make it healthy, functional… In business it’s the same, e. g.; you must know who you are and who you are not; what you will do and what you will not… You must know how to set, reset, and negotiate… boundaries that  serve to keep the business functioning smoothly… Boundaries make the business more appealing, because it come across as being ‘together’, and having a professional structure for people to interact with… Think about interpersonal relationships– we are all wary around someone who is not clear on their boundaries… The same is true in business– the more clear, communicative… you are about boundaries, the safer employees, customers, and stakeholder feel. They’ll know what to expect and they are able to make informed clear choices…

In the article How To Manage Boundaries In The Workplace by Dr. Henry Cloud writes: There are several important types of boundaries that leaders must set: Boundaries that focus attention on what is crucial, and inhibit distractions from everything non-crucial, while keeping the crucial ongoing and current… Boundaries that build a positive emotional climate that leads to high performance brain functioning. Boundaries that keep people connected to each other and inhibit fragmentation, compartmentalization and isolation of people, teams, departments, business units… Boundaries rule the organization; keeping the dominate thinking optimistic and proactive as opposed to– pessimistic, powerless…

Boundaries that align people with behaviors that they can control, and empowering them to work on activities that actually ‘moves the needle’ of measurable results, as opposed to focusing on what they cannot control, which may not be related to the desired results… That is, aligning boundaries with true drivers of a measurable outcome… Boundaries that structure teams around a well-defined purpose with defined roles, activities, and mutual accountability… along with the ability to diagnose, correct… what is not working, quickly.

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Most people find it stressful to discuss boundary issues, because we are conditioned not to set boundaries as a way to avoid the negative reactions of others… So most managers, people… are ill-equipped to freely discuss boundaries when something is uncomfortable. Often issues of boundaries and concerns are about crossings the boundary, and it escalates because the reparative conversations are challenging to raise and so people avoid them… According to Sue Miley; if you do not set sensible-realistic boundaries then it’s most likely that people will not respect what may seem obvious to you… The key though is to set a realistic boundary and hold to it–  if you don’t stay true to the boundaries you set, then, it won’t be respected… hence, without business boundaries, business life can be chaotic, unmanageable and that will consume you… According to Alicia Arenas; change your mindset about boundaries… Boundaries serve to protect business relationships… when creating boundaries decide where you’re going to place the boundary line… and no matter where you put the line it will be continually tested… 

According to Alyssa Gregory; boundaries don’t have to be strict, rigid, or written down in a policy document… it’s often enough to know how you want business relationships to be structured and create habits that enforce that vision. Think through the areas where you feel you need to create more structure, and be clear on how you want to communicate it… Setting boundaries is all about creating habits and the best way to create a positive habit is by consistency… Of course, there are always exceptions, even when you have very clear, defined boundaries… boundaries must be enforced– consistently and honestly… According to Carla Young; get tough with boundaries– they are the invisible line you draw in the sand between– what you will do, and what you won’t do… 

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The Make-or-Buy Decision: Struggling to Stay Competitive or Pushing to Stay as Leader– An Option That Must be Considered…

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Make-or-buy is a strategic decision most organization must make in today’s highly competitive global markets– it’s  a decision between ‘making’ product, service… internally, within a company, or ‘buying’ it externally, from outside suppliers– it’s a basic decision that impacts a company’s strategic planning… According to Polly S. Traylor; it’s a question of Shakespearean proportions: Should you license a commercial enterprise application that meets 75% of your needs, or is it more noble to build your own application, one that tracks as closely as possible to task at hand? Decades of trial, error, and egghead analysis have yielded consensus conclusion: Buy when you need to automate business processes; build when you’re dealing with the core processes that differentiate your company. An organization must consistently question the performance for all the activities for its value creation, e.g.: What performance is necessary to effectively compete in the market? Could improvement be achieved with some other form of external supply?

Most organizations are facing increasing competitive pressure, e.g.; need to achieve developments more rapidly, aging technology and processes, threat of excessive or insufficient in-house capacity…These questions are strategic in nature, in terms of; cost, quality, flexibility, reduced overheads, economy of scale and technologies… Hence, a closer consideration and examination of the make-or-buy option is essential in today’s business environment… But, these are difficult questions requiring special management skills to identify, evaluate, and compare the relevant costs of using external or internal sources of supply…

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According to Brian McClure; make-or-buy decision can be just about anything you use in your organization regardless of the product, service.. these decisions are about looking at what make in-house and when to buy from outside the company… A make-or-buy decision involves a number of criteria, e.g.; looking at overall market potential, time-to-market, special requirement of the market; looking at current assets– utilization of your different facilities in different geographies and capacities; looking at your technology– evaluating the state of its competitiveness… The challenge most companies face is that the ‘buy’ solution, which often might look more attractive in terms of ‘speed to market’ and ‘reduced overhead’ than the ‘make’ decision, but in reality when you look at the risks associated with the ‘buy’ model– it can be more costly than if you made the investments in your own infrastructure… Moreover, it’s not a simple matter of adding up the cost numbers– there are always unknowns, uncertainties that are impossible to quantify… Often, the apparent lowest cost is not always the best option, and quantifying the risk is the hardest part… There are hard and soft numbers and often the soft numbers are much harder to put into the company’s framework of an investment strategy… It’s a struggle– you don’t always get the numbers right, but you are always trying to get better at quantifying the risks…

There is a vast amount of literature that goes into great detail about the make-or-buy decision process. Historically, these analyses have focused on overall cost comparisons… whereas, contemporary works have taken a more holistic view by incorporating both qualitative as well as, quantitative factored into more complex frameworks… which is more in tune with today’s business scenarios… The most widely considered factors in a make-or-buy decision are typically; cost, core competency, availability of capacity…

According to Sanjay Murthi; there are two extremes of behavior among teams charged with making ‘make-or-buy’ decisions… One group believes they can make everything needed, and that no off-the-shelf solution will fit their needs. The other group believes that an off-the-shelf package will be much cheaper, and better able to fit their needs… Unfortunately, both groups can lead to disappointments, if not carefully considered. At times, going the internal route may make more sense while at other times, an external solution is better… however, more often than not a hybrid solution that uses both, internal and external, will be the best solution… but as they say– it just depends…

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In the article When to Make–When to Buy? by Pranjal Kelkar writes: The make-or-buy question represents a fundamental dilemma faced by many companies. The cut-throat nature of competitive market compels most companies to re-evaluate their existing processes, technologies, competencies… The make-or-buy decision is a process of making a strategic choice between producing an item internally (in-house) or buying it externally (outside suppliers)… So, the question that springs up consistently is; should a company make all of their own products, services… or should they buy some from suppliers?There is no single answer–some companies are highly integrated… while, other  companies are much more specialized… and still other, relying entirely on outside suppliers…

The make-or-buy decision is a complicated process due to various competitive factors, for example; increasing competitive pressure… efforts to become leaner by decreasing costs through better asset utilization, while maintaining high customer service level… company’s need to keep pace with rapid technological developments… financial cost implications, shortening development cycles and faster time-to-market… The highly dynamic-disruptive nature of today’s markets compels most companies to consider, and reconsider make-or-buy decisions… however, it’s not only about cost– there are many other reasons; its more than just an operation, tactical issue, its increasingly a strategic imperative.

According to David Burt, Donald Dobler, Stephen Starling; as a rule of thumb most companies should buy-outsource all items that ‘do not’ fit one of the following three categories: (1) critical to the success of a company’s product, service… including customer perception of important branding attributes; (2) requires specialized design, manufacturing skills, equipment, and the number of capable and reliable suppliers is extremely limited; (3) fits within the company’s existing core competencies, or those the company must develop for future plans… Items that fit in one of these categories are strategic in nature and should be made internally, if at all possible…

In the article Make-or-Buy; Three Pillars of Sound Decision-Making by Detlef Schwarting and Robert Weissbarth write: When considering a make-or-buy decision a company must conduct a detailed analyses and develop a framework to thoroughly evaluate– costs, benefits, risks, rewards… and the framework should be based on these three key pillars:

  • Pillar 1: Business Strategy– evaluate the stra­tegic importance of the product, service… as well as, the importance of their– process, technologies, skills… required to make them… These factors must be considered not only in light of the current competitive market envi­ronment, but also in anticipation of a changing market in the future… As a rule, choose in-house capabilities when it’s critical to the company’s growth, financial well-being, core competency… Conversely, seeking outside suppliers tends to be a good choice when companies are trying to; reduce  burden of capital or labor intensive processes, reduce costs, gain flexibility in response to changing demand, gain access to new process or technologies…
  • Pillar 2: Risks– evaluate the risks of outside supplier solutions as compared with in-house capability… this includes risks inherent in the process of; identi­fying, selecting, verifying… the right suppliers and structuring a workable ongoing relationships… When there are multiple suppliers, a single failure in the supply chain may not be fatal… but use of outside suppliers introduces such a wide array of new risks, a company must be keenly aware of any potential pitfalls with suppliers, and evaluate partners on the basis of their importance to the organization…
  • Pillar 3: Economic Factors– evaluate impact of outside suppliers on capital expenditures, return on invested capital, return on assets as well as, the possible savings achieved through use of suppliers… The primary focus should be to shift the discussion from the cost of a finished product, service… to overall cost of delivery to the end customer… To do that, a company must identify the supplier’s cost drivers and design a pricing mechanism that reflects the current underlying costs and how costs might change in future…

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Today the role of outside suppliers is stronger than ever before. It’s widely considered to be an integral part of business strategy… The contribution of the purchased inputs is estimated to be more than 50% of the sales revenue in many industries… In fact, such is the importance of suppliers that in recent years, management experts have highly recommended cross-functional collaboration in make-or-buy decisions methodologies. There are widely different opinions about the nature, degree of involvement of various functions, such as; purchasing, marketing, R&D… depending on the project… However, one thing is for sure there is a greater need for collaborative efforts and better synergy between various departments in sorting out the various issues that need to be dealt with in making these decisions… According to Puneet Kuthiala; expert judgment is very important in making make-or-buy decisions. There is no numerical analysis possible that can give you a black and white answer to the crucial questions– these are more qualitative issues that required subjective consideration that need to be made by experience people who understand risk, and know how to minimize it…

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Marketing Authorities and Economists Think Differently: How They View– Market Structure Vs. Market Segmentation…

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Market structure: Many companies look to market structure and market segmentation to better understand the composition of markets and to identify and profile groups of people (i.e., potential customers) to grow their business… but is  ‘market structure’ the same as ‘market segmentation’ or do they differ? Market structure is often defined as the interconnected characteristics of a market, such as; relative strength of buyers and sellers, degree of collusion, types of competition, differentiation, barriers of entry… Whereas, market segmentation is defined as process of subdividing, targeting a mostly homogenous market into clearly identifiable segments having similar need, want, characteristic, demand… In segmentation the objective is to design a marketing mix that precisely matches the expectations of the customers…

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According to Jeanne Grunert; economists and marketing people each define the terms a bit differently: Economists look at the overall market structure with the goal of defining and predicting consumer behavior… Whereas, marketing professionals seek to define the market structure to create competitive strategies as part of their overall marketing plan… Economists examine market structure to help with decision-making and they seek to analyze broad trends in order to better understand consumer motivation… While marketers also look at trends, but they defer in that economists tend to focus more on the big picture… The economist want to know more about how this information affects large segments of various populations. Whereas, marketing is keen to understand the information, but apply it to their company’s specific marketing strategy…

Economist define market structure according to how an industry– that’s serving a market– is organized, and these structures typically include:

  • Monopolistic competition: Type of imperfect competition such that companies sell products, services… that are not identical with each other, but competitive… they are differentiated from each other by branding, pricing, quality… hence, they are not perfect substitutes…
  • Oligopoly: Market is controlled by small number of companies that together have the majority of market share… Duopoly: Special case of oligopoly with only two controlling the market.
  • Monopsony: Only one buyer in a market…
  • Oligopsony: Many sellers but meet only a few buyers…
  • Monopoly: Only one seller of a product, service…  Natural monopoly: Serves the entire market demand, typically at lower cost than any combination of two or smaller, and more specialized companies…
  • Perfect competition: No barriers to entry, an unlimited number of sellers and buyers, and a perfectly elastic demand curve…

Marketing, in contrast, defines market structure a little differently, when they know that an industry is organized as describe as one of the above restructures, i.e.,  oligopoly, perfect competitive… typically they will dig deeper into the industry, searching to better understand other factors, such as; nature of competition, vulnerability, customer behavior, price sensitivity… Understanding the market structure and landscape helps marketers develop relevant and effective marketing strategies… Hence, defining a structure from marketing perspective tends to seek answers to questions, such as:

  • What are the key motivational drivers that determine how, why, what… consumers buy?
  • How do product, service… packaging, features, brand, pricing… and other factors play into the consumer decision to buy?
  • What and where are the opportunities for growth in an industry through major innovation?
  • What are the key market differentiators and competitive factors?
  • Where are the key market opportunities, threats, risks?

Defining market structure isn’t always easy. Definitions remain fluid and subject to change even among various functions-groups within a company…  and it’s common that different companies view the same market structure differently… As may be observed, both marketing and economists confuse the terms; segments and structures, so much so that the line between the two is nearly obliterated. You can have a conversation with some of these people and, at the end, not only will you not know what they are talking about, but you feel completely confused about both subjects…

In the article What Can Economics Learn From Marketing Market Structure Analysis?  by Charles Fischer writes: The concept of market structure is central to both economics and marketing. The problem for economists and marketing professionals is that a meaningful operational definition of market structure is elusive… Each discipline takes a different methodological approach toward the definition… and each has its own strengths, limitations. Economics is concerned with broad socio-economic,  micro-economic issues, e.g., competitive fairness, predatory pricing… Whereas, marketing is more concerned about the managerial aspects of market structure… Although, each discipline touches on the primary domain of the other, the primary distinction between the two is just a matter of relative emphasis… In economics, markets are classified according to the structure of the industry serving the market… Industry structure is categorized on the basis of market structure variables which are believed to determine the extent and characteristics of competition… In the traditional framework, these structural variables are distilled into the following taxonomy of market structures:

  • Perfect Competition: Many sellers of a standardized product, service…
  • Monopolistic Competition: Many sellers of a differentiated product, service…
  • Oligopoly: Few sellers of a standardized or differentiated product, service…
  • Monopoly: Single seller of a product, service… for which there is no close substitute…

These four market structures each represent an abstract (generic) characterization of a type of real market… Market structure is very important because it affects business outcome through its impact on the– motivations, opportunities and decisions of economic players participating in the market… A key element of the economic market structure is product substitutability, which is strategically linked to market definition… however, this also complicated by the fact that consumers have their own perceptions of product substitutability…

market marketstructuremap

In the article Market Structure Analysis by Steven Struhl writes: Some of the confusion surrounding market structures arises from the fact that two contrasting traditions of– marketing and economics– have embraced it… Comparing and contrasting the marketing vs. economic methods are briefly summarized as:

  • Marketing approach: Basic elements– analyze the relationships among– target markets and segmentation, potential customers, competing brands, risks, opportunities, business strengths and weaknesses, pricing strategy…
  • Economic approach: Basic elements– analyze the trends of buyers and sellers, extent to which products, services… are substitutable, analysis of comparative costs, market barriers to entry, extent of mutual interdependence– extent to which buyers and sellers depend on each other…

One important point that the economists have in common with marketers is that they include demand elasticity and cross-demand elasticity (or words meaning the same thing) in market structures. Also, how economists get to their answers is usually very different from marketing practices, for example; economists can do much of their work without ever talking to an actual person, and some even act as if asking people what they do or think is, in fact, superfluous to understanding what is happening in a marketplace. This may seem slightly ridiculous, but we should remember that these people win ‘Nobel’ prizes, while humble marketers and market researchers do not, but perhaps they are onto something… The basic consideration in market analyses is reaching a definition of exactly what constitutes the market… Traditionally this is done by focusing on these factors:

  • Degree to which products, services… can substitute for each other, based on consumer perceptions…
  • Extent to which products, services… are intended to serve similar purposes…
  • Impact of products, services… on each other and as measured by elasticity of demand and its effects on each other, as well as cross-elasticity

In typical marketing approaches, it always start with the consumers… but, to reach an overall market structure, the needs of each consumer must be aggregated… This is an aggregated list of each consumer’s– behaviors, perceptions… The  two main aggregation methods are:

  • Behavioral aggregation; (linked to studying market impact)…
  • Subjective aggregation; (linked to the extent to which products, services… can substitute for each other, ratings, opinions, and perceptions)…

Aggregation is problematic: One question often asked is– what happens when aggregation consists of many idiosyncratic consumer opinions; in other words, how do you meaningfully aggregate all the individual consumer choices or opinions when these often reflect great diversity?  Since most marketing authorities do not consider market structures to be the same as market segments, hence finding segments almost always is taken to mean looking for groups that fit these following criteria:

  • Defined product, service… related needs different from those of all other groups…
  • Characterized or identified specific customer– needs, wants…
  • Reachable selectively (or targeted) through communications and marketing efforts…

Different segments of a market, may structure a market differently, since their needs are different… A clear understanding of a market’s structure and segmentation is paramount to understanding it’s– needs, buying processes, preferences, value perceptions, revenue potential… but then, as important, translating these insights into an actionable strategy is precursor to developing a successful business…

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