Management Styles: U.S., Europe, Japan, China, India, Brazil, Russia

“My main job was developing talent. I was a gardener providing water and other nourishment to our top 750 people. Of course, I had to pull out some weeds, too.” ~ Jack Welch, G.E.

Management styles are characteristic ways of making decisions and relating to the organization, managers, and subordinates. Different management styles can be employed dependent on the culture of the business, the nature of the task, the nature of the workforce and the personality and skills of the leaders. Every style has its own characteristics, strong points, shortcomings, and methods for getting work done.

There are four basic types of leadership styles, further classified as per specific methods of management. They are autocratic, democratic, participative, and laissez faire.

Democratic Management Style: Manager delegates authority to subordinates in the decision making process.

Autocratic Management Style: Manager is completely responsible for making the decisions with no participation by subordinates.

Participative Management Style: Manager allows subordinates and staff to get involved in the decision making process.

Laissez-faire Management Style: Similar to democratic management style, but less communication between the manager and staff.

Other management styles, including;

  • Charismatic Management
  • Situational Management
  • Transformational Management
  • Bureaucratic Management
  • Task-oriented Management
  • Transactional Management
  • Relation-oriented Management

In the article “Are We Entering an Era of European Management Leadership?” by James Heskett, Baker Foundation Professor, Emeritus, at Harvard Business School, he writes there are marked differences in the social environment for management in Europe and the United States. In some parts of Europe, they foster management policies that may encourage more balance in a manager’s life, between work & private activities and risk & stability. Whether this will produce sustained economic superiority or a model to be emulated in the U.S. is debatable.

Antonio De Luca, Warner International NV, describes important differences this way: “If one has to generalize, it is fair to say that Americans pursue risk and Europeans seek stability … (leading) to fewer opportunities with more limited financial rewards, but possibly more balance for Europeans. The solution, as usual, is a sensible convergence of these two nuanced cultural approaches.”

Roy Bingham, Managing Director/Partner, Health Business Partners, LLC, points out that “American management seems to work best when the key needs are speed, aggression, last-minute genius, and take-chance, inspiring leadership. In boom times when it’s expand at all costs–pick the American style. At other times the more deliberate, consultative European approach is your ally. Maybe this is why we are hearing more from the Europeans these days.”

Jose Pedro Goncalves, Managing Partner DecisionMaster, Lda, takes issue with the idea of a “European” style of management, pointing out that there is no one style. In some parts of Europe “(as a manager) I’m a human being”. In other parts, “I’m just a number”.  In general “we (Europeans) are more human, but less flexible…”

Dr. B. V. Krishnamurthy, Professor M. P. Birla Institute of Management, India, picks up this theme by commenting “to argue that Europe might be snatching the lead in management is a little far-fetched. When one looks at the very successful organizations anywhere in the world, one discerns striking similarities—emphasis on efficiency, innovation, quality, and responsiveness to customers—even as one also finds adaptations to cultural differences.”

These comments tend to question whether management leadership has a “geographic home” as opposed to a winning set of behaviors in part fostered by the competitive, social, cultural, and legal environment. Given the prospect for continued movement toward competition and the propagation of “best practice” management ideas on a global scale; is the question largely academic?

Dr. B. V. Krishnamurthy writes: “The Triad countries have dominated international business to such an extent that after Japan’s amazing success story, followed by the resurgence of American companies, it is perhaps natural that the focus should now shift to Europe. The catalyst for this might have been the economic union that Western Europe has achieved.  The search for that elusive concept of the “best style of management” continues, although one could argue on the basis of lessons learned that there may not be a best style. Centralization and decentralization can go together, flex-time and tele-working are meant to improve productivity, and many of the “either/or” concepts can be treated as complementary, to be used with discretion…

Gunasekar C Raharatnam, manaagement consultant, writes about the India Management Style: ‘I doubt if there is clear approach that can be described today. Some might point towards the many family owned and managed business organisations in India, some of these are large corporate entities and leaders in their industry but most are small tightly controlled family businesses. Even such family business are increasingly being controlled by the recent generations of well educated inheritors. The management “styles” are changing and perhaps shifting more towards Western “styles” that are being pushed by management schools.”

India is an enormously hierarchical society and this, obviously, has an impact on management style. It is imperative that there is a boss and that the manager acts like a boss. The position of manager demands a certain amount of role-playing from the boss and a certain amount of deferential behavior from his subordinates… Anglo-Saxon concepts of egalitarianism where the boss is the primus-inter-pares are virtually incomprehensible in a society still dominated by the historical conventions of the caste system… Managing people in India requires a level of micro-management which many western business people feel extremely uncomfortable with but, which is likely to bring the best results.

In Brazil a manager’s personal style is considered to be of great significance and it could almost be said that his or her vision/bearing is viewed as of great an importance as their technical abilities… Relationships are of key importance in this Latin culture and the boss and subordinates work hard to foster a relationship based on trust and respect for personal dignity. First and foremost, managers are expected to manage. The boss is expected to give direct instructions and it is expected that these instructions will be carried out without too much discussion or debate (if there is debate it should be done in private to avoid showing public disrespect to the hierarchy).

Decision-making in Brazil is often reserved for the most senior people. Taking the time to build the proper working relationship is crucial to success. Coming in as an outsider is often difficult, so it is advisable to have a third-party introduction… Often the people you negotiate with will not have decision-making authority. Decisions are made by the highest-ranking person.

China management style tends to follow Confucian philosophy: Relationships are deemed to be unequal and ethical behavior demands that these inequalities are respected: Older person should automatically receive respect from the younger, the senior from the subordinate. This is the cornerstone of all the China management thinking and issues such as empowerment and open access to all information are viewed by the Chinese as, at best, bizarre Western notions… Management is directive, with the senior manager giving instructions to their direct reports who in turn pass on the instructions down the line. Subordinates do not question the decisions of superiors – that would be to show disrespect and be the direct cause of loss of face (mianzi) for all concerned.

Japan management style emphasis the need for information flow from the bottom of the company to the top: Senior management is largely a supervisory rather than “hands-on” approach. Policy is often originated at the middle-levels of a company before being passed upwards for ratification. The strength of this approach is obviously that those tasked with the implementation of decisions have been actively involved in the shaping of policy.

The higher a Japanese manager rises within an organization, the more important it is that he appears unassuming and not ambitious. Individual personality and forcefulness are not seen as the prerequisites for effective leadership. The key task for a Japanese manager is to provide the environment in which the group can flourish. In order to achieve this he must be accessible at all times and willing to share knowledge within the group. Manager is seen as a type of father figure who expects and receives loyalty and obedience from colleagues. In return, the manager is expected to take a holistic interest in the well-being of those colleagues. It is a mutually beneficial two-way relationship….

Russian management style tends to be centralized and directive. The boss, especially the ‘big boss’, is expected to issue direct instructions for subordinates to follow. Little consultation will be expected from people lower down the company hierarchy. Indeed too much consultation from a senior manager could be seen as a sign of weakness and lack of decisiveness. Middle managers have little power over strategy or input in significant strategic decisions. The most powerful middle managers are the ones who have the most immediate entree to the decision-maker at the top of the organization. There is little point in wasting time debating with middle managers who do not have an easy access to the top. The most significant reason for delay in reaching a decision in Russia is that the decision has not been put in front of the real decision-maker…


Management “Theory Z” is a name applied to three distinctly different psychological theories. One was developed by Abraham H. Maslow in his paper Theory Z and another is Dr. William Ouchi’s so-called “Japanese Management” style popularized during the Asian economic boom of the 1980s. The third was developed by W. J. Reddin in Managerial Effectiveness.

Abraham Maslow, a psychologist and the first theorist to develop a theory of motivation based upon human needs produced a theory that had three assumptions. First, human needs are never completely satisfied. Second, human behavior is purposeful and is motivated by need for satisfaction. Third, these needs can be classified according to a hierarchical structure of importance from the lowest to highest (Maslow, 1970).

Maslow’s “Theory Z” in contrast to Theory X, which stated that workers inherently dislike and avoid work and must be driven to it, and Theory Y, which stated that work is natural and can be a source of satisfaction when aimed at higher order human psychological needs.

Theory X and Theory Y were both written by Douglas McGregor, a social psychologist who is considered to be one of the top business thinkers of all time. In McGregor’s book The Human Side of Enterprise (1960), McGregor describes Theory X and Theory Y based upon Maslow’s hierarchy of needs, where McGregor grouped the hierarchy into a lower order (Theory X) needs and a higher order (Theory Y) needs. McGregor suggested that management could use either set of needs to motivate employees, but better results could be gained from Theory Y, rather than Theory X (Heil, Bennis, & Stephens, 2000).

For Dr. William Ouchi, “Theory Z” focused on increasing employee loyalty to the company by providing a job for life with a strong focus on the well-being of the employee, both on and off the job. According to Ouchi, Theory Z management tends to promote stable employment, high productivity, and high employee morale and satisfaction.

Ironically, “Japanese Management” and Theory Z itself were based on Dr. W. Edwards Deming’s famous “14 points”. Deming, an American scholar whose management and motivation theories were rejected in the United States, went on to help lay the foundation of Japanese organizational development during their expansion in the world economy in the 1980s. Deming’s theories are summarized in his two books, Out of the Crisis and The New Economics, in which he spells out his “System of Profound Knowledge“. He was a frequent advisor to Japanese business and government leaders, and eventually became a revered counselor. Deming was awarded the Second Order of the Sacred Treasures by the former Emperor Hirohito, and American businesses ultimately tried unsuccessfully to use his “Japanese” approach to improve their competitive position.

Professor Ouchi spent years researching Japanese companies and examining American companies using the Theory Z management styles. By the 1980’s, Japan was known for the highest productivity anywhere in the world, while America had fallen drastically. The word “Wa” in Japanese can be applied to Theory Z because they both deal with promoting partnerships and group work. The word “Wa” means a perfect circle or harmony, which influences Japanese society to always be in teams and to come to a solution together. Promoting Theory Z and the Japanese word “Wa” is how the Japanese economy became so powerful. And also because the Japanese show a high level enthusiasm to work, some of the researchers claim that ‘Z’ in the theory Z stands for ‘Zeal’.

Ouchi wrote a book called Theory Z How American Business Can Meet the Japanese Challenge (1981), in this book; Ouchi shows how American corporations can meet the Japanese challenges with a highly effective management style that promises to transform business in the 1980’s. The secret to Japanese success, according to Ouchi, is not technology, but a special way of managing people. “This is a managing style that focuses on a strong company philosophy, a distinct corporate culture, long-range staff development, and consensus decision-making”(Ouchi, 1981)…

Another commentary on management is by bhattathiri, management consultant, who writes: The Western idea of management centers on making the worker (and the manager) more efficient and more productive…but it has failed in ensuring betterment of individual life and social welfare. It has remained by and large a soulless edifice and an oasis of plenty for a few in the midst of poor quality of life for many. There is an urgent need to re-examine prevailing management disciplines – their objectives, scope and content. Management should be redefined to underline the development of the worker as a person, as a human being, and not as a mere wage-earner. With this changed perspective, management can become an instrument in the process of social, and indeed national development.

Capitalism and Corporations: Time for an Overhaul?

“History suggests that capitalism is a necessary condition for political freedom” ~ Milton Friedman

“While the miser is merely a capitalist gone mad, the capitalist is a rational miser” ~Karl Marx

“Despite a voluminous and often fervent literature on “income distribution,” the cold fact is that most income is not distributed: It is earned.” ~ Thomas Sowell

In the article “Capitalism is Dead. Long Live Capitalism” by Gary Hamel, Management Expert, Cofounder of Strategos, Director of the ManagementLab, he writes: I’m a capitalist by conviction and profession. I believe the best economic system is one that rewards entrepreneurship and risk-taking, maximizes customer choice, uses markets to allocate scarce resources and minimizes the regulatory burden on business. If there’s a better recipe for creating prosperity I haven’t seen it.

So why do fewer than four out of ten consumers in the developed world believe that large corporations make a “somewhat” or “generally” positive contribution to society? (2007 study by McKinsey & Company.) Why is it that only 19% of Americans tell pollsters they have “quite a lot” or a “great deal” of confidence in big business? (2010 Gallup Survey; only Congress scored worse.) It seems that a majority of us expect big companies to behave badly—to ravish the environment, exploit employees and mislead customers. Some blame Wall Street for this state of affairs. In March 2009, the Financial Times claimed that the “credit crisis had destroyed faith in the free market ideology that has dominated Western thinking for a decade.” Around the world, hyperventilating pundits and grandstanding politicians argued that a new model of capitalism was needed—one that would make executives even more accountable to legislators and bureaucrats…

If individuals around the world have lost faith in business, it’s because business has, in many ways, abused that faith. In this sense, the threat to capitalism is both more prosaic and more profound than that posed by marauding bankers—more prosaic in that the danger comes not from the esoteric schemes of “rocket scientists” but from the slowly accreting frustrations and anxieties of “ordinary” folks; and more profound in that the problem is truly existential—it threatens to burden every large company with the sort of regulatory constraints that were once reserved for nuclear power plants…

Some may bemoan the fact that capitalism (broadly defined) has no credible challengers, but it doesn’t. Like democracy, it’s the worst sort of system except for all the others—and that’s why each of us has a stake in making it better. If we fail to do so, the growing discontent with business will embolden all those who believe CEOs should answer first and last to civil servants—to those who are eager to replace invisible hand of the market with the iron hand of the state…

We know the future cannot be an extrapolation of the past. As the great grandchildren of the industrial revolution, we have learned, at last, that the heedless pursuit of more is unsustainable and, ultimately, unfulfilling. Our planet, our security, our sense of equanimity and our very souls demand something better, something different.

So we long for a kinder, gentler sort of capitalism—one that views us as more than mere “consumers,” one that understands the difference between maximizing consumption and maximizing happiness, one that doesn’t sacrifice the future for the present and regards our planet as sacred…

Hamel continues; I am an ardent supporter of capitalism—but I also understand that while individuals have inalienable, God-given rights, corporations do not. Society can demand of corporations what it likes… Of course, as consumers and citizens, we must be acknowledge that companies can’t remedy every social ill or deliver every social benefit. We must also face up to our own schizophrenia. We can’t expect companies to behave responsibly if we blithely abandon our own principles to save a buck.

As for executives: If you feel your industry is still too lightly regulated, if you secretly long for the regulatory fetters to be tightened even further, if you think that Sarbanes-Oxley, the Patient Protection and Affordable Care Act, the Restoring American Financial Stability Act and Basel III don’t go far enough—then just keep on doing what you’re doing. If, on the other hand, you’ve had enough of sanctimonious politicians and meddling bureaucrats, then you must face up to a simple fact: In the years to come, a company will be able to preserve its freedoms only if it embraces a new and more enlightened view of its responsibilities.

Many CEOs have already resigned themselves to this new reality, and some have eagerly welcomed it. There are others, though, who still cling to the belief that a company is first and foremost an economic entity rather than a social one. Sooner or later, these holdouts will discover that they face the same hard choice that confronts every teenager—drive responsibly or lose your license. For the sake of capitalism, let’s hope its sooner.

In the article “Capitalism Forever? Why Companies Fail” by Sohail Inayatullah he writes: “Companies are born, companies die, capitalism moves forward. “Creative Destruction”, they call it.”, what US Treasury Secretary Paul O’Neill called “the genius of capitalism”. But economic systems (that what we do when we wake up in the morning) also fail.  First, is the problem of success. “A number of studies show that people are less likely to make optimal decisions after prolonged periods of success: NASA, Enron, Lucent, Worldcom – all had reached the mountaintop before they ran into trouble.” Might not this be the case with the world capitalism system itself, after hundred years of success? Capitalism defines what we do and how we do it…  

As 14th century macro-historian, Ibn Khaldun wrote in his classic The Muqaddimah (An Introduction to History): “At the end of a dynasty, there often also appears some (show of) power that gives the impression that the senility of the dynasty has been made to disappear.  It lights up brilliantly just before it is extinguished, like a burning wick the flame of which leaps up brilliantly a moment before it goes out, giving the impression it is just starting to burn, when in fact it is going out” (Khaldun 1967, 246).

Inayatullah continues; in the article “Why Companies Fail” by Ram Charan and Jerry Useem in Fortune magazine, they quote Jim Collins, author of “Built to Last and Good to Great”. The key sign – the litmus test – is whether you begin to explain away the brutal facts rather than to confront the brutal facts head on”.  While for companies the brutal facts are often an unsustainable business model, cash flow problems, too much risk, and acquisition lust, for the capitalist system as a whole; the brutal facts (taken from the United Nations Human Development Report, various years) are:  

  • While there are still 840 million people malnourished and 2.6 billion people have no access to basic sanitation, the world’s 200 richest people more than doubled their net worth in the four years to 1998, to more than $1 trillion  
  • The assets of the top three billionaires alone surpassing the combined GNP of all Least Developed Countries (LDCs) and their 600 million people.  
  • People in Europe and North America spend $37 billion a year on pet food, perfumes and cosmetics, a figure which would provide basic education, water and sanitation health and nutrition for those deprived.  

When the whole property of this universe has been inherited by all creatures, how can there be any justification for the system in which some one gets a flow of huge excess while others die for a handful of grains?”   

Of course, it could be that others are just lazy or just not smart enough or too corrupt or too feudal or too … or perhaps we need to face the brutal facts: (1) capitalism has succeeded for the last hundred years, recreating the planet, bringing untold wealth and now placing the entire planet in jeopardy. Capitalism can create wealth but distribution remains a quandary; all systems come and go, and new ones can and will be created.  

Perhaps it is time to move away the metaphor of the jungle of evolution (survival of the fittest) and design and create a system that works for all – humans and Gaia.  And perhaps that would be the greatest genius of capitalism, self-destruction, so that a new system can emerge.

In the book “The New Capitalist Manifesto: Building a Disruptively Better Business” by Umair Haque he writes: Welcome to the worst decade since the Great Depression. Trillions of dollars of financial assets and shareholder value destroyed; worldwide GDP stalled; new jobs vanishingly scarce. But this isn’t just a severe recession. Its evidence that our economic institutions are obsolete—a set of ideas inherited from the industrial age that no longer works for business, people, society, or the future.

Umair Haque argues that business as usual has outgrown the old paradigm of short-term growth, competition at all costs, adversarial strategy, and pushing costs onto future generations. These outworn assumptions are good for creating only “thin” value—gains that are largely illusory and produce diminishing returns every year.

For “thick” value—enduring, meaningful, sustainable advantage that deeply benefits the larger society, Haque details: A company that is `responsible’, `socially friendly’, environmentally sustainable, truly `democratic’ and innovative at its core. Transform the aggressive, mean and profit-driven corporation, of the industrial era, into a socially aware yet profitable enterprise. Democracy in the production process is essential in the world of the twitter-using, constantly linked and informed consumer, and synthesized production systems that will benefit both.

In the article “Opinion: A Defense of Capitalism” by Kevin Fisher he writes, in “The Tech” article, entitled “Who Does Capitalism Really Work For?,” Alexi Goranov argues that, “given the current economic and social state of America, it is clear that there must be an overhaul of the system. Greedy corporations and those in the upper echelon of the economic ladder have stopped at nothing to profit at the expense of America’s working class. The system has rewarded the few while failing to provide for the majority of Americans. Therefore, it is our responsibility to initiate a new, democratic way of doing things, one that puts people before money”.

This seems like a plausible argument. Yet what is its moral basis? Although not explicitly stated, the premise is that people have a right to certain things and it is society’s job to provide them. If I need something, it is the job of someone else to produce it for me…. The products of society are resources, to which all, at least to some extent, are entitled to. However, society is not an entity. It is made up of individuals, who themselves have inalienable rights. If it is society’s responsibility to provide for our needs, then the reality is that it is the job of some person to produce for the benefit of someone else. A socialist system is based upon this moral code…

Fisher continues; capitalism is a system that respects property rights and allows people to function as free individuals, just as the Founding Fathers envisioned. People interact with each other voluntarily in such a system, valuing and trading goods and services only when they see a benefit for themselves… It is the system that has made the United States the wealthiest nation in the world. It is the reason why for hundreds of years immigrants have left their homes to follow their dreams in the land of opportunity. It allows all people to live at their highest potential, enjoying the fruits of their own productive work…

You have every right to disagree with and criticize this argument. Yet the debate must be relevant to the subject at hand. Capitalism is a social and economic system, not a political one.  As Michael Moore shows in Capitalism: A Love Story, fraud in the government has been rampant. There are some corporations that wield sizable influence in government policy, which they use to cheat the system and gain even more profits. Fraud is wrong, but the solution is not to reevaluate our social and economic system. Rather, we should question the effectiveness and functioning of the government. Moore says that the $700 billion dollar financial bailout was in many ways a result of the greed of bankers who happened to have connections in the Treasury Department. It was immoral, even from a capitalist point of view…

Another argument that is often made against capitalism as seen in America is the growing gap between the rich and the poor. Depending on your value system, you may or may not be troubled by such statistics…In a society that rewards productive achievement; some people are going to be richer, possibly by a lot, than others. In an ideal capitalist system, a person gets wealthy when other people value the products of his or her work. As a nation gets wealthier, it is generally true that the rich will get richer at a greater rate than the poor will get better off….

Fisher continues; America is at a turning point. In light of the financial collapse, issues with healthcare and the waning competitiveness of our education system, just to name a few, it is clear that things need to be done differently. What exactly needs to be done differently is the subject of a very important national debate.


“Capitalism is what people do if you leave them alone”~Kenneth Minogue

“Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.”~John Maynard Keynes

“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”~Winston Churchill

“Under capitalism man exploits man; under socialism the reverse is true”~Polish Proverb

“Doing well is the result of doing good. That’s what capitalism is all about.”~Ralph Waldo Emerson

Corruption in Business: Power to Destroy Firms…

 “Power corrupts; and absolute power corrupts absolutely.” — Lord Acton, British historian. (In other words, a person’s moral compass goes bonkers when his/her power increases).

Corruption, the abuse of entrusted power for private gain, is the single greatest obstacle to economic and social development around the world. It distorts markets, stifles economic growth, debases democracy and undermines the rule of law.

• Estimates show that the cost of corruption equals more than 5% of global GDP (US $2.6 trillion), with over US $1 trillion paid in bribes each year.

• Corruption adds up to 10% to the total cost of doing business globally, and up to 25% to the cost of procurement contracts in developing countries.

• Moving business from a country with a low level of corruption to a country with medium or high levels of corruption is found to be equivalent to a 20% tax on foreign business.

The international legal framework that companies are facing is changing fast and has been strengthened during recent years. It now includes the following intergovernmental instruments:

Inter-American Convention Against Corruption (1996)

• OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997)

• European Union Instruments on Corruption

• Council of Europe Conventions on Corruption (1997-1999)

• The African Union Convention on Preventing and Combating Corruption (2003)

• United Nations Convention Against Corruption (2003). Governmental instruments are increasingly being adopted at the national level; sometimes with global implications to companies, i.e. the Foreign Corrupt Practices Act and the Sarbanes-Oxley Act in the US.

Companies are subject to extortion and some play a role in paying bribes. Accordingly, the private sector is also part of the problem and can also be part of the solution (for example, by sharing responsibility for finding ways to effectively fight corruption). An increasing number of companies are demonstrating leadership by implementing effective anti-corruption programs within their companies. Common features of such programs include:

• Detailed policies on company-specific bribery issues such as kickbacks, extortion, protection money, facilitation payments, conflicts of interest, gifts and hospitality, fraud and money laundering, and political and charitable contributions

• Management systems and procedures outlining frameworks for risk assessment, training, sanctions, whistle-blowing, continuous internal self-review and external reporting Companies are increasingly engaging in sector-specific or multi-industry initiatives, locally, regionally and/or globally, to share their experiences, learn from peers and, in partnership with other stakeholders, contribute to leveling the playing field.

Corruption remains a major obstacle to international business according to a new survey commissioned by the risk consultancy “Control Risks” and the law firm “Simmons & Simmons”. Despite new laws criminalizing foreign bribery, there have been few prosecutions outside the US and honest companies are still losing out to dishonest competitors on a large scale.

Host countries lose out because high levels of corruption discourage reputable businesses from investing. And, although many companies are tightening their anti-corruption procedures, overall standards of compliance remain highly uneven – both across countries and across sectors.

“Control Risks” and “Simmons & Simmons” jointly commissioned the survey, which involved telephone interviews with 350 international companies based in seven jurisdictions: the UK, the US, Germany, France, the Netherlands, Brazil and Hong Kong. This is the fourth in a series of “Control Risks” surveys on international business attitudes to corruption: Successful action against international bribery requires combined action by both governments and businesses.

Laws making it possible to prosecute companies and individuals for paying bribes abroad are now in place in all 30 Organization for Economic Cooperation and Development (OECD) member states. Leading international companies have responded by introducing anti-bribery codes and training programs to help executives avoid corruption. However, more than half of the companies surveyed were not aware of their own country’s legislation covering bribes paid abroad. The new bribery laws clearly need to be promoted more effectively if they are to make a lasting impact.

The management of agents and other commercial intermediaries is a particularly sensitive issue. Good management practices include due diligence procedures to assess the integrity of agents before employing them. Such procedures are becoming more common, particularly in the US and, to a lesser extent, in Western Europe.

There were wide variations in the extent to which companies seek to control their agents’ conduct by contract. In the US (74%) and the UK (70%), it is common for companies to enter into agreements explicitly forbidding agents to pay bribes to secure business on their behalf. In other jurisdictions, such as Brazil (15%) and Hong Kong (27%), this practice is much rarer.

As in other areas, transparency is one of the main weapons against corruption. Companies from most sectors said that the identity of their agents was known ‘in the market place’. The exception was the defense industry, where 26% of companies said that they employed agents whose identity was confidential.

Similar issues arise with regard to commercial relationships with joint-venture partners and suppliers. Companies’ reputations may suffer if their commercial partners are known for their lapses of integrity. Particularly in the UK, the US and the Netherlands, it is becoming more common for companies to engage in a formal integrity procedure before entering such relationships, but the practice is far from universal. Companies from countries such as the US, which have high standards of compliance, frequently complain that they have to compete at a disadvantage against competitors following lower standards.

In the book “The Corporate Governance and Anti-Corruption Nexus” it writes: It is widely accepted that corruption, be it corporate or political, petty or grand, has become a worldwide problem. This acceptance is attested to by the host of international conventions and efforts designed to stamp it out. However, opinions vary as to who ultimately bears responsibility for that corruption, how that corruption can be reduced, and who will take the lead in its eradication. One thing though is clear — in dealing with corruption, there are no simple answers.

Corruption has many faces and many moving parts. In some instances business can be a source of corruption, in others — it is simply a victim. Some governments only pay lip service to combating bribery, while others genuinely attempt to put in place transparent institutions. In some countries, citizens accept institutionalized corruption as the reality of day-to-day transactions, while in others they refuse to give up without a fight.

Corruption is a corrosive drain on public trust and on the legitimacy of public and private sector institutions. Its toll can be devastating to a national economy, particularly at a time when open global markets can rapidly reverse investment and capital flows if confidence and trust are compromised by revelations of systemic corruption.

Corruption affects all types and sizes of business firms — from global conglomerates to Small and Medium-Sized Enterprises and co-operatives — each with varying degrees of resources and capabilities to deal with the consequences. It has the power to destroy firms and with them the livelihoods of stakeholders who depend on a company’s success. This further dehumanizes and undermines the reputation of the private sector as a positive force for economic growth and development in poor countries.

The private sector can be a force in developing solutions to the corruption problem, and companies around the world are taking charge. They are doing it in a multiplicity of ways. Some engage in collective action to reform the business climate to make it more transparent. Others push for ethical standards and fair practices in dealing with the government, as is the case with industry initiated integrity pacts.

These private sector solutions to corruption however are not only external in nature and so many companies are also beginning to look inside, seeking ways to ensure that they are not unwittingly contributing to the climate of corruption. For example, and this is just one of the issues facing modern companies, how do you make sure that leadership calls for anti-bribery trickle down through the whole company, down to the employee on the ground in a different country thousands of miles away?

One way of addressing this dilemma and others is the establishment of strong corporate governance. It is increasingly emerging not only as a tool that increases efficiency, improves access to capital, and ensures sustainability — it is also emerging as an effective anti-corruption tool.

Simply put, on the day-to-day transaction level it makes bribes harder to give and harder to conceal. At the decision-making level, it injects transparency and accountability, so that it is very clear how decisions are made and why. And, underlying the very roots of corporate governance, and providing its moral compass, is ethics.

The ethical behavior of companies is rarely recognized as a cornerstone of good corporate governance. Yet, in many ways, ethics underlies much of business behavior, whether it is at the Board or staff level, and regardless of a company’s geographic location, size, or industry. The moral underpinnings of the decision-making processes can be observed not only in a large company from an OECD country doing business in its own back yard but also in a small business from a developing country engaged in regional trade.

Still, while ethics underlies much of what we do, the actual ethical performance of individuals and the companies they represent differs among and between countries, often significantly; and these variations can in large part be explained by the differences in political, economic, and social institutions. Often, business and ethics are viewed as two separate worlds. Yet, sustainable business, as many early thinkers of today’s economic theory have argued over the centuries, is defined by the ability of companies to do repeat transactions with their customers.

Customers need to feel that they are treated fairly and honestly. This in turn, depends much on the quality of institutions, such as contract enforcement, rule of law and property rights, as well as, business ethics — moral guidelines of behavior. In places where institutions are weak, ethics plays a much more fundamental role in facilitating repeat business transactions and, as such, a sustainable private sector.

Ethics in the business world is not only about global conventions and statements — it is also about meaningful actions and the personal commitment to raise ethical standards. The corporate sector is replete with examples of firms that profess strong ethical cultures on paper but become unraveled by corrupt behavior. Having a strong sense of ethics is not a guarantee that a company will always do the right thing.

But the opposite is also true: many companies have started from poor reputations and set new benchmarks of corporate ethics. The key component underlying much of what the best ethical companies do is leadership. Leadership — made visible through actions, commitment, and examples — sets the moral tone that emanates from the top of a company and that translates ethical principles into the concrete behavior expected from all persons acting on behalf of a company.

Predatory Pricing: Myth or Conspiracy?

  “The attempt to reduce or to eliminate predatory pricing is also likely to reduce or eliminate competitive pricing beneficial to consumers”.Harold Demsetz, professor   emeritus of economics at UCLA.

In the article “The Myth of Predatory Pricing” by Thomas J. DiLorenzo, he writes: Predatory pricing is one of the oldest big business conspiracy theories. It was popularized in the late 19th century by journalists such as Ida Tarbell, who in “History of the Standard Oil Company” excoriated John D. Rockefeller because Standard Oil’s low prices had driven her brother’s employer, the Pure Oil Company, from the petroleum-refining business. “Cutting to Kill” was the title of the chapter in which Tarbell condemned Standard Oil’s allegedly predatory price cutting.

The predatory pricing argument is very simple. The predatory firm first lowers its price until it is below the average cost of its competitors. The competitors must then lower their prices below average cost, thereby losing money on each unit sold. If they fail to cut their prices, they will lose virtually all their market share; if they do cut their prices, they will eventually go bankrupt. After the competition has been forced out of the market, the predatory firm raises its price, compensating itself for the money it lost while it was engaged in predatory pricing, and earns monopoly profits forever after.

The theory of predatory pricing has always seemed to have a grain of truth to it; at least to non-economists; but research over the past 35 years has shown that predatory pricing as a strategy for monopolizing an industry is irrational, that there has never been a single clear-cut example of a monopoly created by so-called predatory pricing, and that claims of predatory pricing are typically made by competitors who are either unwilling or unable to cut their own prices. Thus, legal restrictions on price cutting, in the name of combating “predation,” are inevitably protectionist and anti-consumer, according to Harold Demsetz.”

In DiLorenzo’s article he writes: “Predatory pricing is the Rodney Dangerfield of economic theory; it gets virtually no respect from economists. But it is still a popular legal and political theory for several reasons. First, huge sums of money are involved in predatory pricing litigation, which guarantees that the antitrust bar will always be fond of the theory of predatory pricing. During the 1970s AT&T estimated that it spent over $100 million a year defending itself against claims of predatory pricing. It has been estimated that the average cost to a major corporation of litigating a predation case is $30 million.

Second, because it seems plausible at first, the idea of predatory pricing lends itself to political demagoguery, especially when combined with xenophobia. The specter of a foreign conspiracy to take over American industries one by one is extremely popular in folk myth. Protectionist members of Congress frequently invoke that myth in attempts to protect businesses in their districts from foreign competition.

Third, ideological anti-business pressure groups and self-styled consumer group, also employ the predatory pricing tale in their efforts to discredit capitalism and promote greater governmental control of industry. The perennial attacks on the oil industry: When oil and gas prices go up there is the alleged price gouging. When prices go down, there is the call for a “study” claiming that the price reductions are part of a grand conspiracy to rid the market of all competitors. And when prices remain constant, price-fixing conspiracies are frequently alleged.

Fourth, predatory pricing is a convenient weapon for businesses that do not want to match their competitors’ price cutting. Filing an antitrust lawsuit is a common alternative to competing by cutting prices or improving product quality, or both. Finally, some economists still embrace the theory of predatory pricing. But their support for the notion is based entirely on highly stylized “models,” not on actual experience.”

The classic article on predatory pricing was written by economist John McGee in 1958. McGee examined the famous 1911 Standard Oil antitrust decision that required John D. Rockefeller to divest his company. Although at that time popular folklore held that Rockefeller had “monopolized” the oil refinery business by predatory pricing, McGee showed that Standard Oil did not engage in predatory pricing; it would have been irrational to have done so.

Judging from the record, Standard Oil did not use predatory price discrimination to drive out competing refiners, nor did its pricing practice have that effect. Whereas there may be a very few cases in which retail kerosene peddlers or dealers went out of business after or during price cutting, there is no real proof that Standard’s pricing policies were responsible. McGee was the first economist to think through the logic of predatory pricing, laying aside the emotional rhetoric that had always surrounded it. He concluded that not only would it have been foolish for Standard Oil to have engaged in predatory pricing; it would also be irrational for any business to attempt to monopolize a market in that way.

By 1970 more than 120 federal (and thousands of private) antitrust cases, in which predatory pricing was alleged had been brought under the 1890 Sherman Act (revised with the Clayton Antitrust Act of 1914 and the Robinson-Patman Act of 1936 amendment to the Clayton Act). Yet in a 1970 study of the so-called gunpowder trust–43 corporations in the explosives industry; Kenneth Elzinga stated, after an extensive literature search, that “to my knowledge no one has ever examined in detail, as McGee did, other alleged incidents of predatory pricing.” Elzinga found no evidence that the gunpowder trust, which had been accused of predatory pricing, actually practiced it.

Shortly after Elzinga’s work appeared, Ronald H. Koller examined the “123 federal antitrust cases since the passage of the Sherman Act in 1890 in which it was alleged that behavior generally resembling predation had played a significant role.” Ninety-five of those cases resulted in convictions, even though in only 26 of the cases was there a trial that “produced a factual record adequate for the kind of analysis employed” by Koller. Apparently, many of the defendants decided it was cheaper to plead guilty than to defend themselves.

Even though no systematic analysis of predatory pricing was performed in any of the 123 cases, Koller established the following criteria for independently determining whether a monopoly was established by predatory pricing: Did the accused predator reduce its price to less than its short-run average total cost? If so, did it appear to have done so with a predatory intent? Did the reduction in price succeed in eliminating a competitor, precipitating a merger, or improving “market discipline”?

Koller’s criteria give predatory pricing theory more credit than it deserves: Below-cost pricing per se is not necessarily a sign of predatory behavior; it is a normal feature of competitive markets. Moreover, determining predatory intent is an exercise that is far beyond the capabilities of any economist and for which mystics might be better suited. And “eliminating a competitor” is the very purpose of all competition.

Employing those criteria for determining predatory behavior, Koller found that below-cost pricing “seems to have been at least attempted” in only seven cases. That, of course, proves nothing about monopolizing behavior, given the fact that below-cost pricing can be just as easily construed as competitive behavior. Koller claims that in four of the cases low prices seemed to have been motivated by the desire to eliminate a rival. One would hope so! The entire purpose of competitive behavior–whether cutting prices or improving product quality–is to eliminate one’s rivals.

Even in the cases where a competitor seemed to have been eliminated by low prices, “in no case were all of the competitors eliminated.” Thus, there was no monopoly, just lower prices. Three cases seem to have facilitated a merger, but mergers are typically an efficient alternative to bankruptcy, not a route to monopoly. In those cases, as in the others, the mergers did not result in anything remotely resembling a monopolistic industry, as defined by Koller (i.e., one with a single producer).

Despite over 100 federal antitrust cases based on predatory pricing, Koller found absolutely no evidence of any monopoly having been established by predatory pricing between 1890 and 1970. Yet at the time Koller’s study was published (1971), predatory pricing had long been part of the conventional wisdom. The work of McGee, Elzinga, and other analysts had not yet gained wide recognition.

In one of the most famous passages of “Wealth of Nations”, Adam Smith warns of the pervasiveness of business conspiracies: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.”  But in the very next sentence Smith added: “It is impossible indeed to prevent such meetings by any law which either could be executed, or would be consistent with liberty and justice.” Smith clearly recognized the potential for business conspiracies; but whether they were likely or not, he believed that any government regulation of them was improper.                                                                     


Examples of Alleged Predatory Pricing:

Standard Oil Company – In 1909, the US Department of Justice sued Standard under federal anti-trust law, the Sherman Antitrust Act of 1890, for sustaining a monopoly and restraining interstate commerce. The government said that Standard raised prices to its monopolistic customers but lowered them to hurt competitors, often disguising its illegal actions by using bogus supposedly independent companies it controlled. “The evidence is, in fact, absolutely conclusive that the Standard Oil Company charges altogether excessive prices where it meets no competition, and particularly where there is little likelihood of competitors entering the field, and that, on the other hand, where competition is active, it frequently cuts prices to a point which leaves even the Standard little or no profit, and which more often leaves no profit to the competitor, whose costs are ordinarily somewhat higher.”

France Telecom/Wanadoo – The European Court of Justice judged that Wanadoo (Now Orange Internet France) charged less than cost in order to gain a lead in the French broadband market. They have been ordered to pay a fine of €10.35m, although this can still be contested.

Microsoft  – released their web-browser Internet Explorer for free. As a result the market leader and primary competitor, Netscape, was forced to release Netscape Navigator for free in order to stay in the market. Internet Explorer’s free inclusion in Windows led to it quickly becoming the web browser used by most computer users.

According to an AP article  –  Minnesota forced Wal-Mart to increase its price for a one month supply of the prescription birth control pill Tri-Sprintec from $9.00 to $26.88.

According to a New York Times article – German government ordered Wal-Mart to increase its prices.

According to an International Herald Tribune article – French government ordered to stop offering free shipping to its customers, because it was in violation of French predatory pricing laws. After Amazon refused to obey the order, the government proceeded to fine them €1,000 per day. Amazon continued to pay the fines instead of ending its policy of offering free shipping.

Low oil prices during the 1990s – while being financially unsustainable, effectively stifled exploration to increase production, delayed innovation of alternative energy sources and eliminated competition from other more expensive yet productive sources of petroleum such as stripper wells.

Darlington Bus War, Stagecoach Group – offered free bus rides in order to put the rival Darlington Corporation Transport out of business.

Tulip Mania– Delusions of Extraordinary Wealth: Reality of an Economic Bubble…

Tulip mania or tulipomania (Also, other Dutch names include: tulpenmanie, tulpomanie, tulpenwoede, tulpengekte…) was a period in the Dutch Golden Age during which contract prices for bulbs of the then recently introduced tulip reached extraordinarily high levels and then suddenly collapsed.

At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble (or economic bubble), although some researchers noted that the Kipper-und Wipperzeit episode in 1619–22, a Europe-wide chain of debasement of the metal content of coins to fund warfare, featured mania-like similarities to a bubble. The term tulip mania is now often used metaphorically to refer to any large economic bubble (when asset prices deviate from intrinsic values).

The event was popularized in 1841 by the book Extraordinary Popular Delusions and the Madness of Crowds, written by British journalist Charles Mackay. According to Mackay, at one point 12 acres (5 ha) of land were offered for a Semper Augustus (most highly prized) bulb. Mackay claims that many such investors were ruined by the fall in prices, and Dutch commerce suffered a severe shock.

The tulip was introduced to Europe in the mid-16th century from the Ottoman Empire, and became very popular in the United Provinces (now the Netherlands). Tulip cultivation in the United Provinces is generally thought to have started in earnest around 1593 after the Flemish botanist Charles de l’Écluse had taken up a post at University of Leiden and established the hortus academicus.

There, he planted his collection of tulip bulbs— sent to him from Turkey by the Emperor’s (Ferdinand I, Holy Roman Emperor) ambassador to the Sultan, Ogier de Busbecq—which were able to tolerate the harsher conditions of the Low Countries, and it was shortly thereafter they began to grow in popularity.

Tulips grow from bulbs, and can be propagated through both seeds and buds. Tulips bloom in April and May for only about a week, and the secondary buds appear shortly thereafter. Bulbs can be uprooted and moved about from June to September, and thus actual purchases (in the spot market) occurred during these months. During the rest of the year, traders signed contracts before a notary to purchase tulips at the end of the season (effectively futures contracts).

Thus the Dutch, who developed many of the techniques of modern finance, created a market for durable tulip bulbs. Short selling was banned by an edict of 1610, which was reiterated or strengthened in 1621 and 1630, and again in 1636. Short sellers were not prosecuted under these edicts, but their contracts were deemed unenforceable.

As the flowers grew in popularity, professional growers paid higher and higher prices for bulbs with the virus(Streaked blossoms get their streaks from a harmless virus infection that causes the color to disappear in patterns, letting white or yellow show through.). By 1634, in part as result of demand from the French, speculators began to enter the market. In 1636, the Dutch created a type of formal futures markets where contracts to buy bulbs at the end of the season were bought and sold.

Traders met in “colleges” at taverns and buyers were required to pay a 2.5% “wine money” fee, up to a maximum of three florins, per trade. The contract price of rare bulbs continued to rise throughout 1636. That November, the contract price of common bulbs without the valuable mosaic virus also began to rise in value. The Dutch derogatorily described tulip contract trading as windhandel (literally “wind trade”), because no bulbs were actually changing hands. However in February 1637, tulip bulb contract prices collapsed abruptly and the trade of tulips ground to a halt.

tulip th

A standardized price index for tulip bulb contracts, created by Earl Thompson. Thompson had no price data between February 9 and May 1, thus the shape of the decline is unknown. The tulip market is known, however, to have collapsed abruptly in February.

The modern discussion of tulip mania began with the book Extraordinary Popular Delusions and the Madness of Crowds, published in 1841 by the Scottish journalist Charles Mackay; he proposed that crowds of people often behave irrationally, and tulip mania was, along with the South Sea Bubble and the Mississippi Company scheme, one of his primary examples. His account was largely sourced to 1797 work by Johann Beckmann titled A History of Inventions, Discoveries, and Origins.

In fact, Beckmann’s account, and thus Mackay’s by association, was primarily sourced to three anonymous pamphlets published in 1637 with an anti-speculative agenda. Mackay’s vivid book was popular among generations of economists and stock market participants. His popular but flawed description of tulip mania as a speculative bubble remains prominent, even though since then 1980s economists have debunked many aspects of his account.

According to Mackay, the growing popularity of tulips in the early 17th century caught the attention of the entire nation; “the population, even to its lowest dregs, embarked in the tulip trade”. By 1635, a sale of 40 bulbs for 100,000 florins (also known as Dutch guilders) was recorded. By way of comparison, a ton of butter cost around 100 florins, a skilled laborer might earn 150 florins a year, and “eight fat swine” cost 240 florins. (According to the International Institute of Social History, one florin had the purchasing power of €10.28 in 2002.)

People were purchasing bulbs at higher and higher prices, intending to re-sell them for a profit. However, such a scheme could not last unless someone was ultimately willing to pay such high prices and take possession of the bulbs. In February 1637, tulip traders could no longer find new buyers willing to pay increasingly inflated prices for their bulbs.

As this realization set in, the demand for tulips collapsed, and prices plummeted—the speculative bubble burst. Some were left holding contracts to purchase tulips at prices now ten times greater than those on open market, while others found themselves in possession of bulbs now worth a fraction of the price they had paid.

Mackay’s account of inexplicable mania was unchallenged, and mostly unexamined, until the 1980s. However, research into tulip mania since then, especially by proponents of the efficient market hypothesis, who are more skeptical of speculative bubbles in general, suggests that his story was incomplete and inaccurate.

In her 2007 scholarly analysis Tulipmania, Anne Goldgar states that the phenomenon was limited to “a fairly small group”, and that most accounts from the period “are based on one or two contemporary pieces of propaganda and a prodigious amount of plagiarism”. Peter Garber argued that the bubble “was no more than a meaningless winter drinking game, played by a plague-ridden population that made use of the vibrant tulip market.”

Earl A. Thompson, UCLA economics professor, argued in a 2007 paper that Garber’s explanation cannot account for the extremely swift drop in tulip bulb contract prices. The annualized rate of price decline was 99.999%, instead of the average 40% for other flowers. He provides another explanation for Dutch tulip mania. The Dutch parliament was considering a decree (originally sponsored by Dutch tulip investors who had lost money because of a German setback in the Thirty Years’ War) that changed way tulip contracts functioned:

On February 24, 1637, the self-regulating guild of Dutch florists, in a decision that was later ratified by the Dutch Parliament, announced that all futures contracts written after November 30, 1636 and before the re-opening of the cash market in the early Spring, were to be interpreted as option contracts. They did this by simply relieving the futures buyers of the obligation to buy the future tulips, forcing them merely to compensate the sellers with a small fixed percentage of the contract price.

Some economists point to other factors associated with speculative bubbles, such as a growth in the supply of money, demonstrated by an increase in deposits at the Bank of Amsterdam during that period. Goldgar argued that although tulip mania may not have constituted an economic or speculative bubble, it was nonetheless traumatic to the Dutch for other reasons.

“Even though the financial crisis affected very few, the shock of tulip mania was considerable. A whole network of values was thrown into doubt.” In the 17th century, it was unimaginable to most people who something as common as a flower could be worth so much more money than most people earned in a year. The idea that the prices of flowers that grow only in the summer could fluctuate so wildly in the winter, threw into chaos the very understanding of “value”.

The popularity of Mackay’s tale continues to this day, with new editions of Extraordinary Popular Delusions appearing regularly, with introductions by writers such as financier Bernard Baruch (1932), financial writers Andrew Tobias (1980), and Michael Lewis (2008), and psychologist David J. Schneider (1993). Nearly a century later, during the crash of the Mississippi Company and the South Sea Company in about 1720, tulip mania appeared in satires of these manias.

When Johann Beckmann first described tulip mania in the 1780s, he compared it to the failing lotteries of the time. Even many modern popular works about financial markets, such as Burton Malkiel’s A Random Walk Down Wall Street (1973) and John Kenneth Galbraith’s A Short History of Financial Euphoria (1990; written soon after the stock market crash of 1987), used the tulip mania as a lesson in morality.

Also in Oliver Stone’s drama Wall Street: Money Never Sleeps from 2010, a sequel to the classical 1987 film Wall Street, the tulip mania is referenced. Gordon Gekko, played by Michael Douglas, uses a historical chart displaying the market value of tulips and compares it to the Financial crisis of 2007–2010.

Tulip-mania again became a popular reference during the dot-com bubble of 1995–2001. Most recently, journalists have compared it to the subprime mortgage crisis. Despite the mania’s enduring popularity, Daniel Gross of Slate has said of economists offering efficient market explanations for the mania, that “If they’re correct … then business writers will have to delete Tulip mania from their handy-pack of bubble analogies.”

Blog by RJ dated 5/12/2010, “5-Famous Bubbles in History and What You Can Learn From Them”, writes: “This past decade, we’ve seen three bubbles burst: Dot-com era burst in 2000, real estate crash in 2008, and the credit crisis of 2008-2009. This type of behavior is nothing new to an economy. You would be surprised at how many bubbles there have been, and what made them burst, dating back to the 17th century. RJ looks at famous bubbles in history and ends with what you can learn from them.”

Tulip Mania: In the 17th century in Holland, tulips, yes the flower, were the rage. For just one tulip, you would have to trade 4 oxen, 8 pigs, or 12 sheep. Rare tulips were going as high as 10X the annual salary of a craftsman. As you probably guessed, eventually the market for tulips crashed. Those who speculated in the tulip craze soon had nothing.

Roaring 20′s: What caused the Great Depression? Debt: For the first time in history, individuals were given access to debt. Now they could buy a house, a car, and a radio and not pay till later. Even worse, people were using credit to purchase stocks. As we found out recently, when banks make loans to people who aren’t going to pay them back, they lose money. When banks stop making loans, a bubble bursts.

Japanese Bubble Economy: It’s a little shocking how similar the bubble in Japan was to the U.S.’s recent bubble. The Japanese Government loosened restrictions on banks. Banks made loans to people who couldn’t pay them back because it looked good in the books. Eventually, banks stopped making loans. Sounding familiar? The Nikkei 225, which is similar to the Dow Jones Index in the U.S., closed at 38,957.44 on December 31, 1989. As of today the Nikkei 225 is around 10,400.

Dot-Com Bubble: During 1995-2000, if a company had been considered a tech company, its stock price went up. It didn’t matter that the majority of these companies were not making any money. We were in a “new” era. A crazy amount of money, usually from private investors, was being thrown at small start-ups. Big corporations got greedy and acquired every start-up they could.

However, the small start-ups were not making money. Big corporations tried hard to make them profitable but since they had no experience in the tech industry they couldn’t. The site was purchased by Yahoo for $3.57 billion. Ten years later, geocities closed down: Greed at its finest.

Credit Crisis: You probably have heard enough by now. U.S. Government relaxes restrictions on lending. Banks make loans to people who are not going to pay them back. The economy goes up because now banks can make loans to almost anyone. A couple of years later, everyone starts to default on their loans. Real estate prices drop. Banks stop making loans. Plus, they now own all the real estate that’s worth next to nothing.

“Inevitably, we can expect another bubble bursting or two or three. It’s just a matter of when. You can tell a bubble is about to burst when people start to get greedy and when everyone is saying that the rules have changed. The people who survive are those who are out of debt, have an emergency fund, and work hard (and smart). These are the same people who prosper during and after each bubble.”

Dysfunctionality: Get on the Same Page…

The famous tree swing picture (also known as tire swing, rope swing) depicting tire and rope swing in various states of dysfunctionality, illustrates the pitfalls of poor product design, or poor customer service, and the dangers of failing to properly listen to customers and interpret their needs.

The tree swing also demonstrates the dangers of departmental barriers, and failures of departments to talk to each other, and to talk to customers. As such, the tree swing is perfect for training these areas of quality, communications, customer care and inter-departmental relations. If you are using the tree swing to highlight a training subject most people very readily interpret the pictures into their own organizational situations.


Normally no pointers are needed – people very readily interpret the pictures into their own organizational situation. Here are a few typical ‘them and us’ reactions just in case:

Marketing – add unnecessary value, add complexity, bells and whistles, embellish, put their own mark onto things, fanciful, impractical, untested, untried, creativity for creativity’s sake, subjective not objective, theoretical not practical, clever ideas, think they know what’s best for the customers even if the survey feedback is utterly clear, fail to consult with engineering, production and anyone else in the organization.

Management – cost-conscious, process-led rather than output-aware, failure to understand and interpret real issues and implications, failure to ask questions, committee decisions produce impractical solutions, removed from reality, detached from customers and front-line staff, failure to consult with users and functional departments.

 Engineering – technical interpretation rather than practical, unconcerned with aesthetics and ergonomics, consideration stops after the ‘can we build it?’ stage, lack of consultation with specifiers and user representatives, meets specification but doesn’t work properly, inappropriate materials and absence of styling.

 Manufacturing – production specification over-rides design considerations, a law unto themselves, you get what you’re given, any color you like as long as it’s black, detached from users, specifiers, designers, and everyone else except other manufacturing staff, unconcerned with usability or functionality, certainly unconcerned with bells and whistles and added value, totally focused on production efficiency, cost and time, lack of liaison with all other departments.

 Maintenance – necessity is the mother of invention, very big tool-boxes, huge stocks of parts and ancillaries, materials, nuts, bolts and all other fixings known to man, happy to work all hours, especially evenings, weekends and public holidays at treble-time-and-a-half with days off in lieu, never consult with specifiers or customer specifications, enjoy quick-fixes, sticky-tape, mastic, bending bracket, planks of wood and extended tea-breaks, never liaise with any other departments and think management are all useless idiots who can’t even change a plug.

 Sales – if only we’d listened, understood, and checked with them once in a while….

Note: Uncertainty surrounds the origins of the tree swing cartoons. Several variations of the cartoons now exist, some extending to more than six pictures, in color and in more elaborate detail, covering additional departmental perspectives.

The simpler cartoons are re-drawn from the old photocopied versions of the tree-swing cartoon which hung on many office walls especially in the 1970s and 1980s. Those ‘original’ drawings seem to have provided the basis for the version which appeared in John Oakland’s book Total Quality Management, first published in 1989.

Change the Game: Change the Economics and Strategy of How It’s Played…

                         “adapt and evolve or become extinct”

In Tim Ferriss’ blog he writes: “The game today is all about changing the game. Competing head-to-head on products and services is table stakes. Innovators are looking for a new business model that will destabilize their rivals and produce a breakthrough opportunity.

In fact, in a recent survey of top-level executives in established companies IBM found that the biggest shared concern is that somewhere in the world—in a garage or a dorm room— someone is coming up with a new business model that will overthrow their established way of doing business.”

In Alan M. Webber’s, co-founder of Fast Company magazine and former editorial director of the Harvard Business Review, book ‘Rules of Thumb’ is a collection of 52 truths he’s culled from  notes specifically related to winning in business. These were a collection of notes, lessons, and insights he gleaned from his experiences travelling the world and in his interactions with people ranging from CEOs and spiritual leaders to basketball coaches, novelists, and stars from dozens of other worlds… Here is Rule #24.

 RULE #24 – If you want to change the game strategy; change the economics of how the game is played.

Once you start to look you’ll find companies in every industry that have changed the economics to change the game: from razors to cameras, computers to airlines, magazines to nonprofits. Companies that start by redesigning the economics of an industry often finish by redesigning the whole industry—and owning it.

Start by analyzing the status quo. What’s the standard economic model the industry uses today? When you pull it apart, how does it work? What are the assumptions that it’s based on? How and why has it become the industry standard? Take a look at it from the point of view of the customer. Exactly what is the customer paying for? And where does the business make its real money? Go back to Business School 101 and ask the fundamental question: what business are you really in?

After you’ve analyzed the standard business model, take a look outside your own industry. You may be able to learn some new tricks—or at least borrow some inspiration. What would happen if the whole business moved to the Web? If things that customers paid for now became free? Free, as the saying goes, is a pretty good price. What if you did a King Gillette and gave away the razor? What could you charge for? Take it one more step: are you hurting your business by charging for something you should give away free? (As daily newspapers watch their circulation numbers decline, some critics argue it would make more sense to give the papers away for free.)

After you’ve looked at the economics from inside the industry and from other industries, try looking at new platforms. Can you imagine new revenue streams that reflect changes going on in customer habits, customer experiences, or customer loyalty? Is emerging technology opening up new ways of connecting—or making customers pine for the good old days when things weren’t so high-tech? Don’t forget, everyone agreed that retail outlets were dead and all commerce was shifting to the Web. Then Steve Jobs opened up Apple stores with their Genius Bars. Counterintuitive can be a great economic model.

There are a lot of ways to reinvent an economic model. But most established companies are unwilling to do it because it would mean destabilizing their own operation. Which is exactly what those innovators and entrepreneurs in the garages and dorm rooms are counting on.

  Rule #38: If you want to think big, start small (an interaction with Muhammad Yunus)

Subtle Shifts in Business, Leadership, Management, Organization, Strategy, Innovation– Bring Big Results…

Translate »