Consumer Sovereignty


Mainstream economics uses some simple starting points; it believes that they are the best possible. First is that agents have more wants than they can attain, so that they feel scarcity; in fact, for practical purposes, wants are assumed to be endless. Second, third and fourth are that agents are self-interested, rational, and the best judges of their own well-being. These four assumptions are indeed usually good starting points, rather than starting by assuming that agents are completely fulfilled, altruistic, irrational, and not well-placed to evaluate their own situation. They are not equally good as finishing points. Sometimes good arguments exist for not accepting them.

An assumption that agents are the best judges of their own well being is less questionable for businesspeople and corporations, given the resources they have for analysis. Debate focuses more on consumers. The phrase consumer sovereignty is sometimes read descriptively, to mean that consumers are sovereign, in that procedures are induced via profit-seeking and competition  to provide what consumers want. Sometimes it is read normatively, to mean that consumers should be sovereign, their wishes should prevail concerning what is good for them. The normative claim can rest on three different bases: that consumers do make good choices; that the alternative stance is worse – to use someone else’s judgments and estimates of what is good for a person and how good it is; or quite differently, that people have the right to make their own choices and mistakes.

Consumers will not make good choices automatically and unconditionally. Our wants are not simple; for example, some are wants to not to have other wants (such as the desire to smoke or a compulsion to gamble). Establishing a mature balance between wants involves skills. Choice is also unlikely to bring satisfaction if taken on the basis of weak information. Markets often do not provide consumers with full and reliable information, for it is hard to exclude people from information and therefore to ensure payment for it, so its market supply is weakened. Instead, in a commerce-dominated society, one of the main types of information that adults get will be images that say the good life is obtained through high consumption of commodities; there is too little counteracting public information.

The issue of consumer sovereignty goes beyond whether choices are good for the chooser. Other people are affected. Some wants may thus be unacceptable, notably wants that bring harm to others, including even wants to harm others. Mainstream economists have unfortunately often taken a don’t-want-to-know approach to ethics in which they confuse acceptance of all wants with a value-neutral stance.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

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Company Demographics


For all customers or prospect records the following basic attributes will lay a solid foundation for numerous segmentations:

  1. Category code: A four-digit code is usually a sufficiently descriptive definition your market is concentrated in several Standard Industry Codes, then going to the six or eight digit level may be appropriate. Remember the SIC is currently undergoing revision, so be flexible with this field.
  2. Company size: There are two choices – sales volume or employee size. It is probably best to use employee size, as it is more easily obtained and more accurate than company revenue. Record employee numbers by site so that they can be rolled up to the corporate level.
  3. Site Type and Linkage: There are some standard definitions here such as branch, division and corporate headquarters. It is important that you take time to develop a site definition that fits your business as this might include plant, research center, etc. secondly, link the sites to a corporate structure, so that a roll-up to the enterprise level can be carried out to look at the customer picture.
  4. Financial year: For those selling situations that involve the customer needing to budget for your product or service, the knowledge of the fiscal year becomes critical, as this will drive the buying process and therefore your selling cycle. Most companies are on a calendar/fiscal year, but about 20 percent are on a different fiscal year basis. In the consumer market this might also be relevant – for example in acquiring expensive items.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

Antiquated Strategic Planning


At one time, the view from the top of most corporations was strongly influenced by their leaders planning doctrine. Executives were taught that the best way to plan for a complex company into discrete components, called strategic business units. For a time this practice provided a helpful way to unbundle the corporation and to select strategies most appropriate to each unit’s individual situation.

Companies were best thought of as a portfolio of individual businesses: some brand-new and unproven, some growing rapidly and consuming great amounts of cash, some growing rapidly and generating the cash needed by the up-and-comers, and some out and out losers.

Strategic planners eventually carried the idea one step further. They developed formulas that appeared to identify the contribution each business unit was making to the company’s overall stock price. Called value-based planning (as in shareholder value), its application, along with techniques such as junk-bond-driven leveraged buyouts, helped de-conglomerate many corporate dinosaurs in the financial go-go years.

These planning techniques are logical and quantifiable, descriptive as well as perspective. They provide a seemingly attractive way for the head of an enterprise to put arms around what might have become an increasingly diverse array of businesses. But thinking of a corporation as if it were similar to a portfolio of stocks or other investments can also be very limiting and one dimensional.

This kind of thinking tends to overemphasize the uniqueness of each business and often assumes that all the competition in which the corporation is engaged occurs when its business units do battle with their counterparts in other companies. It suggests that the role of top corporate management is either secondary or passive with regard to competition. It also implies that top management’s role is primarily that of a banker to the individual strategic business unit, concerned chiefly with financial resource allocation, and that it adds value mainly through “balancing the portfolio” by buying or selling the strategic business units that make up the company.

This approach encourages a “trader’s mentality” on the part of top management. Traders like to buy and sell, conglomerate and de-conglomerate. But they do not know how very much about how to grow the company from within.

Decentralization, sometimes extreme decentralization, is also encouraged, because each business is expected to stand on its own, containing most of the resources it needs for its operations. This simplifies the job of top management. It has only to focus on each strategic business unit’s bottom line and consider the details of its operations on an exception-only basis.

But this simplification comes to a great cost. Stressing stand-alone uniqueness and managing through the blinders of short-term earnings results in living, growing business entities treated almost as if they were fragments of the company’s stock certificate. The disease of the stock markets—perspective that seldom extends beyond next quarter’s financials—is passed along to the company.

There is another danger when strategic business unit framework dominates corporate decision-making. This is the tendency to grow redundant resources in the company as each strategic business unit, over time, builds up all the functions and staffing it feels it needs to operate as autonomously as possible. At times headquarters management tries to check the emergence of this costly duplication by mandating resource sharing across strategic business units, by using central service groups, or both. But these well-meaning attempts at cost containment send mixed signals to the strategic business units and they also can impose heavy coordination costs in terms of time and loss of flexibility.

Many intelligently managed companies led down the paths and took a seemingly attractive shortcut in their thinking. They confused a framework for planning with a basis for organizing power and resources. They used a perspective that directs to management’s attention to the financial scorekeeping aspects of the business at the cost of neglecting the underlying mechanisms that create value for their customers.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact www.asifjmir.com, Line of Sight