In economics, perfect competition is hailed as an ideal. It is a situation where a large number of firms each produce a similar product, and so consumers can get what they want at the lowest possible cost.

The cult of competition starts early. At certain elite high schools in Sydney, student exam scores are publicly displayed so that every student can see where they rank against each other. This information is then used to stream students into classes. Top ranked students study with other top ranked students, and bottom ranked students study with other bottom ranked students.

If the true goal were education, then it would seem reasonable for each class to contain a mix of strong and weak students so that the strong students could gain even higher mastery by teaching the weaker students. Instead, the streaming process places all of the weakest students together. Exams are less about erudition than about classification.

While elite high schools may not be providing an optimal learning environment, they are teaching their students a crucial life lesson. We are social animals, and your relative position often matters greatly. The schools will of course defend their system by pointing out, quite rightly, that ranking students encourages them to compete, and competition pushes students to achieve higher levels of performance.

Whether ranking students makes them perform better is an open question, but it certainly serves the interests of schools. Firstly, it allows schools to hothouse the best students, thereby increasing the chance that they will get into the best universities. This always forms a key pillar of an elite school’s marketing campaign to prospective parents. Secondly, it puts the students into a competitive mindset, which is just what they will need to fight for and secure the highest paying jobs. High incomes are of course necessary so that graduates can afford the school’s astronomical school fees and provide the school with generous donations in future.

“Competition” is a notion beloved by headmasters, economists, and government policy makers. In other words, by the very people who themselves do not face competitive market forces.

Would a rose by any other name smell as sweet?

Another word for “competitive” is “uncooperative”. The brutal ranking system used in our education systems pits one student against another, and makes it dangerous to help a friend gain a greater understanding of the material. Unless of course you are so gifted as to be well above your friend in the competitive ladder, or so foolish as to not be able to perceive the cutthroat game into which you have been placed. Only geniuses and fools can afford to be benevolent in a school system designed to pit child against child.

This may all be true, but these are just issues for teachers and elite high schools. How is this relevant to issues in the business world like profit, market share, and market dominance?

Well, it is common for people from all spheres of life to believe that the ends can justify the means. Certain elite high schools believe this, which leads them to hot-house students in order to get them into the most prestigious universities. Uber, the global ride-hailing firm, also believes this, which has led the firm to engage in some very questionable behaviour over the past 8 years.

Founded in 2009, Uber has followed an aggressive growth strategy which might best be described as “ask for forgiveness not permission“. The firm has expanded quickly, entering new markets in many cases before regulations were in place. This has attracted protests from taxi drivers. However, Uber’s approach has been applauded by many economists who have argued that existing laws are often unfair since they protect complacent rent-seeking taxi monopolies that profit at the expense of consumers. Unrestrained competition, after all, is the temple where economists worship.

Uber’s belief that the end justifies the means appears to be an ingrained part of its culture, and not limited to its aggressive growth strategy. In the past, Uber employees have reportedly ordered and cancelled thousands of rides with Lyft, a rival ride-hailing firm. An executive publicly suggested digging up dirt on journalists who criticised the company. Uber implemented surge pricing during various emergencies including Hurricane Sandy in 2012, the Sydney hostage crisis in 2014, and the London Bridge attack in 2017. Uber also started using a tool called Greyball in 2014 to allow its drivers to avoid giving lifts to regulators and law enforcement officers in areas where Uber is illegal.

While “success at any cost” may sound like a start-up mantra to live by, a key problem with this type of culture is that it encourages self-serving behaviour which is both reckless and irresponsible. In 2014, U.S. Senator Al Franken, Chairman of the United States Senate Judiciary Subcommittee on Privacy, Technology and the Law, stated that Uber has a “troubling disregard for customer privacy“. The following year, Uber acknowledged that driver names and license plate information of roughly 50,000 drivers had been exposed.

Waymo, the self-driving car subsidiary of Alphabet, is currently suing Uber for the alleged theft of trade secrets and patent infringement. Court documents filed this week have revealed that Kalanick was aware that Anthony Levandowski, founder of self-driving truck company Otto, was in possession of data from Google before Uber purchased Otto for $680 million.

As if all of this weren’t enough, in February Susan J. Fowler, an ex-Uber engineer, publicly claimed that she was sexually harassed while working at the company. Uber hired former Attorney General Eric Holder to look into the claims, and in June more than 20 people were fired. Last week, CEO Travis Kalanick was finally ensnared in the continuous series of scandals and resigned following demands from investors.

The problem with a culture that supports warlike competition and uncooperative behaviour is that there is no easy solution. Where people are causing harm to others through extremely self-serving behaviour, the punishment may need to be severe. In extreme cases, even the Roman Catholic Church will resort to excommunication rather than communication and forgiveness. Benjamin Edelman, Associate Professor at Harvard Business School, appears to agree with this line of thinking, and this week argued that Uber has been operating beyond the law from day one, and needs to be closed down.

Will it come to that?

While Uber lost almost $1 billion in 2016 it has raised around $15 billion from investors. As a result, it most likely still has a huge war chest. However, combine Uber’s lack of profitability with its seriously problematic corporate culture, which may take many years to change, and it seems that Uber’s troubles look set to continue for a long time to come.

In the near term, it is a promising sign that Uber has decided to adopt all of the recommendations from former Attorney General Eric Holder’s investigation. The key recommendations are extensive including a reallocation of responsibilities of the CEO, use of performance reviews for senior management, an increase in the number of independent board members, an improved human resources system, creation of a robust and effective complaint process, and redrafting the company’s cultural values.

Uber’s bold always be hustlin’ culture has produced rapid growth, but has also attracted scandals, enemies, protests, and disgust. Now would be a good time for it to adopt a more cooperative, friendly (and law abiding) approach.

Why International Business Degrees Are So Important


This is a guest post from Marguerite Arnold.

International business degrees, in particular the MBA, are of increasing importance in a world where globalization (no matter how you define it) is here to stay. If anything, despite the recent backlash against globalisation, international business people who have an understanding of different business cultures are far better prepared for the world that lies ahead.

Call it Globalization 2.0.

Getting an international business degree is important because it exposes you to different people and ideas in your classes that open your mind to how diverse individuals and teams organise themselves and get work done, which is inevitably influenced by different national cultures. Beyond that, an international business degree also opens ones eyes to new and creative approaches available for structuring companies, launching new products, and reaching consumers in new and more effective ways.

On another level, international business degrees are important because of their focus on real sustainability and how it can be achieved. This is not limited to so-called “green” sustainability (although this is an increasingly important aspect). It is understanding, quite literally, how your business translates into different languages, needs, markets, market structures and regulations.

This is even more true if you work for a global technology company.

Two recent examples: AirBNB and Uber.

Both businesses are American and, while expanding rapidly at first, they have both quickly found that the disruption they caused has eventually created huge roadblocks. In Germany, for example, both have been banned outright. As much as their business models were good at “disrupting” two very traditional industries in almost every country they entered, it was precisely this feature of both companies that caused their eventual banning in more than one market.

The export of American innovation absolutely is hitting its limits right now as national governments realize that, despite all the conveniences, there are significant negatives that come with the same that their economies just cannot absorb. And as a result, the US tech firms end up destroying the very innovation that they created in the first place. That is nowhere more obvious than in America itself right now.

Part of this conversation has been underway for decades. American companies (in particular) have found a home in almost every country. But with technology, market entry has never been easier.

In the U.S., the focus on deregulation since the 1980’s, and the ability of firms to create new technology faster than the ability of regulators to understand and regulate it is widely accepted (or at least has been up until now). How this will continue in the future, however, particularly combined with the rise of automation, is yet to be seen. To date, the ability of firms with hugely disruptive business models to change the game has been accepted domestically as a mark of American entrepreneurialism if not exceptionalism.

As the backlash against technology firms has reared its head, it is highly likely that this will be felt elsewhere, and in many places far beyond the boardroom. While misinformation is the focus of the current debate – starting with the algorithm-controlled world of editor-free curation of blogs and Facebook’s role in the distribution of “fake news” prior to the U.S. election – the broader issue is a backlash against the role of tech firms in society overall . Uber, AirBnB and the many digital work platforms for freelancers are all tech enabled business models spawned beyond the clutches of regulation – and which are now facing a global backlash.

For precisely the reason that “American innovation” has been resisted around the world and now even domestically, it is important to understand the current playing field and how things are rapidly changing. This is one of the most invaluable lessons an international business student can learn.

Marguerite Arnold is an entrepreneur, author and third semester EMBA candidate at the Frankfurt School of Finance and Management.

(Image Source: Global Business Technology)

Culture vs Strategy

Strategy involves understanding your current position, deciding on a destination, and charting a course from here to there.

Culture is about who you are, and why you do things.

Culture is arguably more important than strategy because, if you look at it over the lifetime of a product or an organisation, the culture is the only thing that will really matter. The strategy and the products are today’s strategy and today’s products, but over time the strategies and the products will change while the culture will remain.

Creating a successful culture won’t happen accidentally, but the key to creating a winning culture is to understand that culture matters.

And in the long run, it may be the only thing that matters.

5 Ways to Foster Learning

Learning is a natural process, but management still has a role to play

5 Ways to Foster Learning

(Source: Flickr)

FOLLOWING on from our post on learning from experience, in which we discovered that learning by doing is a natural process, we are finally delivering what we promised – a post which explores some ways that management can help.

Learning may occur naturally, but management can enhance and harness the learning process by:

  1. Fostering a culture of learning
  2. Directing effort to specific goals
  3. Capturing and sharing learning internally
  4. Keeping learning proprietary, and
  5. Commercialising good ideas

We explore each of these five approaches in more detail below.

1. Fostering a culture of learning

The culture of a firm can affect how receptive employees are to new ideas and the rate at which learning takes place. There are five methods that management can employ to help build a learning culture.

1.1. Create space for tinkering

If management wants to encourage improvement then a policy which punishes failure may sound like a good idea. Success is good, mistakes are bad, and therefore anyone who fails should be punished.

This may sound logical, but it ignores what we know about the learning process – mistakes are to be expected and are part of the natural process of learning which, combined with a due sense of stoic perseverance, inevitably leads to the next big breakthrough.

Convex Tinkering

Scientists understand the learning process and have adopted trial-and-error as a fundamental part of the scientific method. Management needs to appreciate this as well.

Small mistakes and discoveries that lead nowhere are to be expected, and should not just be tolerated but accepted as normal.

If management tries to optimise operations and set deadlines so tightly that there is no space for curiosity and tinkering, then employees may be prevented from trying new approaches which have the potential to radically improve performance.

Intelligent and energetic people are more valuable when they have space to tinker. This fact has been willingly accepted by many Silicon Valley firms and was the core idea behind Google’s “20 Percent Time”, a company policy that allowed Google employees to spend one day per week on a project of their own choosing and which led to innovative new products like Gmail and Google Adsense.

1.2 Celebrate success

Incremental improvements and breakthrough advancements are valuable, and management can help by celebrating the employees responsible for making it happen.

Some people are motivated by short term monetary incentives, but when it comes to learning and creativity the process of discovery is often its own reward. By recognising the heroes, management can send a strong signal to everyone in the organisation that innovation is valued, and that the people responsible will be recognised.

The flip side of the coin is that new discoveries are often commercially sensitive, and so in order to protect innovations from the prying eyes of the competition it may be necessary to keep award ceremonies in-house and out of the media.

1.3 Measure Employee Engagement

Employees will only learn from experience if they are actually working – goofing around doesn’t count.

In a factory setting you can assess how much work is being done by measuring the factory’s output. This is easy to do.

The difficulty lies with professional service firms and other organisations where the work involves thinking and creativity. How can you tell whether people are really working? What if they are just going through the motions and filling out boilerplates without applying any independent thought? If this is the case, then they may not really be learning anything.

Our suggested solution to this problem is to measure employee engagement, for example using Gallup’s Q12 Survey. Employees who are more engaged in their work are more likely to be learning.

1.4 Temper Pride with Humility

A common way to boost morale is to encourage a feeling of pride in the organisation. This can be effective, and as you might remember your author’s high school headmaster was pretty fond of this technique, but it has a hidden cost.

As we explored in our post on humility, pride can blind us to the good ideas of others. A special fondness for your own organisation should not go so far as to blind you to the good ideas put forward by customers, suppliers, competitors, government agencies, universities, or your mother-in-law.

Don’t get too full of yourself.

1.5 Avoid Perverse Incentives

Perverse incentives are inducements which lead to unintended consequences, and management needs to be careful to avoid them.

One example given by behavioural economist Dan Ariely is the effect that small monetary payments can have on motivation.

Ariely explains that if you ask someone to help they may be quite willing to do so. However, if you offer them a small payment, say $10, then the person’s motivation is likely to decrease rather than increase.

The inducement has the opposite effect than intended because it crowds out the person’s internal motivation (i.e. the joy of helping), and transforms a social relationship into a financial transaction.

The offer of money changes the question that the person asks themselves from “Do I want to help Tom?” to “Is $10 fair payment for this job?”

According to Ariely, this problem can be avoided by offering a small gift instead of a small monetary payment. In other words, give chocolates or movie tickets to reward a job well done rather than offering a small hourly wage.

2. Directing effort to specific goals

Management guru Peter Drucker is famously quoted as saying “what gets measured gets managed”.

Making measurable progress is important, but before progress can be meaningfully measured management needs to set specific goals which employees can align their efforts around.

Undirected learning can be valuable especially during the early creative phase of product development, but in order to reach its destination the ship’s captain needs to set the sail.

Management needs to determine the direction of learning.

3. Capturing and sharing learning internally

To accelerate the learning process, a firm should establish ways to capture and share learning within and between practice groups, offices and business units.

Management should also be mindful of the fact that sharing information can be hindered by geographic distance and internal rivalry.

Ways of capturing and sharing learning include:

  • Hold weekly team meetings at which learning points are discussed
  • Record know-how by producing internal memos and technical papers
  • Organise regular internal talks and conferences
  • Support working groups that cut across formal departmental boundaries
  • Send employees to external conferences and require them to share learning internally
  • Acquire competitor learning by poaching employees, analysing competitor strategy, reverse engineering products, forming relationships with the competitor’s suppliers, and engaging consultants who have worked with the competition.

4. Keeping learning proprietary

If it is possible for a firm to learn from the competition, then it will also be possible for the competition to learn from it. This is a problem since it may allow competitors to improve performance more quickly and at lower cost.

Management should take steps to limit the spill over of learning to competitors, and ways of doing this include:

  • Produce strategically important technology and components internally in order to maintain, develop and protect know-how
  • Patent new technology in order to slow down the rate at which it can be copied
  • Control publications and media releases to avoid educating the competition
  • Retain key employees
  • Place strict non-compete and non-disclosure provisions in employee contracts

5. Commercialising good ideas

Developing good ideas and new technology is important, but it is only half the battle. A firm also needs to develop a system for connecting innovations with commercialisation opportunities. Many large companies are currently doing this by running an in-house start up incubator that they use to generate, develop and commercialise good ideas.