CapitalistMarks

America’s giant companies need a lesson in Micro-economics.

Posted on 28. Jul, 2009 by scott in economic daydreaming, markets

Back in the ‘day’ at University many case studies in graduate business school were about widgets–something made, something played, something grade(d).  No one ever knew what they were but they were ubiquitous.  They helped with lessons learned and professors referred to them relentlessly.

How is it then that America’s best and brightest haven’t learned the lessons they were taught about those widgets?

I’m not often going to write about micro-economic issues but lately several things have jumped out at me from the news and all of us can ‘relearn’ important micro lessons about competition, and elasticity of demand-supply (you know, that basic stuff that caused you to get the solitary ‘C’ your freshman year).

Seems our largest corporations are led by chaps (or ladies) with no economic education or no memory of the simple things taught in those Micro-Econ 102 class rooms.

How is it that GM went downhill for a decade without ever recognizing that market share was dropping and then without making an attempt to stop the bleeding.  Toyota had it right and you think that the CEO at GM might have thought to put somebody on the trail of Toyota’s success.  But no!  GM just kept making huge cars that drank gas like the proverbial elephant at a watering hole.  I mean these were big honkers, you could haul lawnmowers, golfcarts and a dozen children in some of ‘em.  Toyota on the other hand made cars adequate for a couple of people and maybe a kid or two . . . but hey, they got 35 MPG.

Now the government (you and I ostensibly) own GM and guess what?  Yep, our new team is going to continue with only a few brands and one of them is Cadillac (uhuh, the brand with flipping big boats that old folks drive so that if they have a collision with a semi the semi will loose–and to heck with the 15 MPG it takes to feel safe).

Oh well.

Then there is the recent news from two of the biggest and least competitive companies in the world.  Microsoft and Google.  They don’t get it either.  Microsoft is jealous of Google’s position in search, which by the way Google does MUC H better than anyone else.  But Microsoft diverts resources to create ‘BING’ their new and improved entry to knock Google off it’s ‘high-horse.’  Except that ‘BING’ sucks!  It not only doesn’t help make decisions it doesn’t help much at all.

Google’s response?  Jealous of Microsoft’s control of the market for operating systems, they divert resources to make their own operating system from some ‘Chrome’ project.  Resources that should have been used to update Google Search based on a bunch of new search engines that are more responsive to the ‘right now’ on the internet.

Competition is great for consumers if it drives prices down,  but competition for the sake of competition is stupid.  Too many of our giant corporations are so fixated on their perceived competition that they don’t tend to their primary business like they should. They need to find their niche and stick to it until they get it right (and few if any have).

The lesson from that Micro 102 class?  Do what you do well and do it better all the time.  Don’t try to grow by taking something that someone else does well and try to do it better when they have a huge lead.

Instead (if you’ve already peaked) come up with some new ideas and start with that.  Innovation is ALWAYS better than copying.  Spend time, money and resources on trying to make things better, with product reliability and real quality controls.

Sell us something we really need and don’t just copy.  There is always a market for a better widget mousetrap.

Hybrid cars?  Heck no, give us Hydrogen cars with no pollution and unlimited fuel supplies.

Another entry into the search market?  Heck no, fix your operating system so that my computer doesn’t get viruses and won’t shut down every time I accidentally hit the ‘Cap lock’ and ‘Ctrl’ at the same time.

Another operating system?  Heck no, fix your search engine so that when I want an articulate blog on religious diversity I don’t get some Russian guys crud about Putin’s immortality.

CEO’s of America . . . send you subordinates back to business school and focus on the basics (oh, and why don’t you audit a few classes yourselves!).

This lesson is free.  They next one you will have to pay tuition for (probably in terms of paying more for less — seems to be the new American way).

thanks to kurtthomashunt at flickr for the photo

Tags: competition, gm, google, Microsoft, product reliability, quality controls, Toyota