Monitor Group, co-founded by Michael Porter, filed for bankruptcy a couple of months ago. That bankruptcy was somewhat puzzling. Like a few financial companies, ones that are expected to know how to manage assets, went bankrupt in 2008, Monitor Group preaching other businesses on strategy and competition, sadly struggled to manage its own strategy and lost to its competitors. While certainly other factors played their roles in Monitor Group bankruptcy, there is an obvious general question – why does division of labor fails here. How much should we trust a consulting company and believe the consulting company is competent enough? In my opinion, that largely depends on how much of moral hazard is involved. If that’s true, consulting as a form of business will become very tricky until consultants take more responsibility for their actions and consequences of those actions.
Today Deloitte has acquired Monitor Group. I hope Deloitte will make better decisions based on Porter’s framework, which I still believe is good, but not as sufficient to achieve success.
I recognize that the subject is very controversial, especially after the April unemployment report got released with “alarming” numbers showing that the US national unemployment rate is at 9.9%. But this post is about what one should be aware of so he/she does not join those who are desperately looking for a job. Hopefully, it will also help those who is looking for job.
I will leave obvious things not related to competition per se (e.g. inappropriate behavior).
- Poor performance. This sounds very straightforward at the first glance. It is very broad and can be applied to organizations as well. For example, someone works very efficiently and produces a product that no one needs. This example falls also into this category.
- Division of Labor. It comes in different forms. For example, outsourcing for services, build vs. buy for products, etc. In the first case, if the job is not directly related to the primary business, it is likely it will be outsourced. In the second case, if you create/develop a product, that helps the primary business, but is similar to existing ones, the chances are very high that the product available on the market will replace your product sooner or later (this is known as the threat of substitute products or services in Michael Porter’s five competitive forces). The only viable alternative in this case is to spin off that product, but one should be aware of consequences of direct completion (in essence, this is a move from one Michael Porter’s forces to another – competitive rivalry). Speaking of outsourcing abroad, there is some temptation to protect the local job market, but doing so we would get some relief at the cost of our future. But Murray Rothbard put it in a more elegant way (see Myth 10).
- Automation. Even though this is one of forms of division of labor, I decided to list it separately. Humans started to lose badly to machines. There is an opinion that unemployment in early 2000s was caused more by automation rather than outsourcing. So if the job can be automated, it will not last long.
- Merger of direct competitors. There is not much you can do as this a threat of direct competition with counterparts from the other company.
- New entrants. This is another Michael Porter’s competitive forces. If the job position is well paid and it is a known fact, likely it will drive demand to take it. To maintain the job in this case, the entry level should be very high.
In general, from the economics point of view unemployment is a form of resource misallocations. But this does not mean that the unemployment rate is a good economic indicator as it may be misleading and resource misallocations tend to change from one form to another.