Cristian Mitreanu's Blog

Enabling Individual Freedom and the Pursuit of Happiness

Formatted as a "YouTube video," here's an introduction to the new economic worldview that stems from the theory detailed in my article "A Business-Relevant View of Human Nature" (this should be your next stop). Some interesting conclusions can be drawn from it, including a potential explanation for the current economic crisis...

UPDATE 1/23/2009: A transcript is now available here.

My Human Nature Article Gets "Must Read"

My article "A Business-Relevant View of Human Nature" has been recently recommended by Stephan Zimmermann, professor and former department chair for economics, whose blog "No Widgets Here" is part of the online economics magazine Amateur Economists. In the comments section of his post "Dominant Economic Views in Western Society, Part II," Professor Zimmermann says (bold type is mine):

"Cristian - your article should be a "must read" for all of our "Amateur Economists" readers. Obviously I agree with your concept of "successful existence," which really cannot (or should not) be reduced to a pat formula, economic or otherwise. This might even, as you suggest, include maximizing, as long as the inherent dangers of such maximization are considered."

In his article "Turning Bright Lights on the Dismal Science," Prof. Zimmermann explains one of the reasons a deep insight into human nature is important:

"Economics is just another method of trying to solve the age-old question of what, how and to whom to distribute finite resources. [...]

Ever since Adam Smith, the foundations of economics have been presented as scientific fact. The facts presented as economics are really two: an assumption regarding the nature of man as well as a strict belief and usage of logic. Unless someone can show an alternative to thousands of years of developed logic based on fact, we should be able to live with that assumption. More difficult, of course, and subject to endless debate is the assumption regarding the nature of mankind. [...]

Too many would-be economists in graduate school or beyond may never really have had asked themselves about the fundamental nature of man.

Once we understand and accept the essentials of mankind, bolstered with valid facts, we should be able to look at the "dismal science" with a much brighter perspective."

A New Take on the Business Cycle

The concept of the Business Cycle, or Economic Cycle, is one of the most important topics in economics.   It represents the quest to understand why an economy tends to alternate between periods of growth and periods of decline, or recession (a subject all too common these days!).   Expectedly, this is a fiercely debated subject, and thus there are several related theories out there -- check Wikipedia's "Business Cycle" for a good introduction to the concept.   As I mentioned in the past, the business theory that I developed recently has the potential to provide novel explanations for broader economic phenomena; including the Business Cycle.   Since I just published the article "A Business-Relevant View of Human Nature," which details (as opposed to the more abstract explanations from BizBigPic or my book "Spointra") the basis of my fundamental theory of business, it is now possible and timely to elaborate a little on the new perspective on the Business Cycle.   Despite my efforts to keep this simple, though, you should read the article.

... Done? ... Let's move on, then.

As you know now, all business transactions can be represented on the continuum of problem-solving behaviors.  At any given time, a transaction occupies a particular position on the continuum.  Furthermore, over time, that position tends to move lower under the effect of commoditization.  Now, if we think of a national economy as the totality of business transactions that take place within that particular country, the economy can be seen as a collection of positions, or dots, that are moving lower on the continuum of problem-solving behavior. In addition, dots are continuously added (i.e., new offerings) or discarded (i.e., irrelevant offerings).  (For some help with visualizing these dynamics, you can check the second part of my video "Strategic Vision a la Spointra," with the note that: (1) it is a two-dimensional representation; (2) it refers to a firm; and (3) the continuum is placed horizontally, as opposed to the vertical orientation from the article.  So, instead of a top-down movement, you will see a right-left movement.)

We know that each of these dots has an associated stream of revenue that grows larger as the dot moves lower (a.k.a. commoditizes).  We also know that during its continuous evolution, the collection of dots tend to form a cluster, where a majority of the revenue is generated.   I will refer to this cluster as the Center of the economy.   Due to the continuous downward movement of all transactions in an economy, the Center will typically emerge at the lower end of the continuum of problem-solving behaviors.  Now, there are three general areas on the continuum, each associated with a particular business environment.  At the lower end, the environment is characterized by commoditized offerings, high levels of standardization, high levels of competition, low margins, etc.  All this implies that practices like consolidation through mergers & acquisitions, business-process outsourcing, and personnel reduction due to process automation are very common.

 

I will conclude for now with some thoughts.   It is clear that the Center's formation or migration to the bottom of the continuum is natural, being driven by human nature.   The way down is characterized by increasing revenues, and thus economic growth.   But once there, the conditions tend to worsen for most participants.  Moving up or dispersing the Center can be caused by technological revolutions (which would create a multitude of new high-level offerings).   However, it can also be caused by widespread divestures of irrelevant offerings, and profound social and political change (which would cause many transactions to be repositioned on the continuum), among others.   That is why it is often that we see recession, or economic contraction, being associated with these sort of events.

So, there you have it -- another view of the Business Cycle, or a general pattern for economic fluctuations.   I will come back with more thoughts in the future, but in the meantime let me know what you think.

Referenced in Upcoming Book "Strategy and the Fat Smoker"

My MIT Sloan Management Review article "Is Strategy a Bad Word?" will be referenced in David Maister's upcoming book "Strategy and the Fat Smoker." To be released in January 2008, the book brings together articles that David, a renowned consultant and former Harvard Business School professor, wrote over the past few years. Nevertheless, the bound galley shows that the articles have been slightly reworked and formatted to serve the main purpose of the book -- to offer practical advice on how to overcome short-term temptations and go after enduring corporate health. Simply put, the book shows you how to "get the fat smoker on the diet."

David previously referenced "Is Strategy a Bad Word?" in his article "What's Our Deal?" (also a chapter in the book), and in his blog entry "What IF There's No Final Whistle?" Although its release was fittingly timed to coincide with the New-Year-resolutions season, the book can be pre-ordered now at Amazon.com.

Puzzled by Diagrams?

Here's what Prof. Henry Mintzberg writes in his paper "Developing Theory about the Development of Theory:"

"My work is loaded with diagrams, seeking to express every which way how the ideas I am trying to make come together. Aristotle said 'The soul...never thinks without a picture.' I try to help my soul think. [...]

These diagrams really help me a great deal: I can see it all at a glance, even if outside my head. But not always into other heads. I have been puzzled to find that some people are puzzled by these diagrams. They don't think in such terms, nor are they even able to see it in the work of others. Even many of my own doctoral students, sometimes including the best, when urged by me to express their ideas in diagrammatic form, have not gotten past a 2x2 matrix or two. Maybe this has to do with my education as a mechanical engineer -- probably the only thing left of that -- or at least my predisposition to do that kind of education, because I like to see things altogether, at a single glance, to quote a famous composer."

My book "Spointra and the Secret of Business Success," as well as the related initiative BizBigPic, is quite heavy on the graphic side. However, this blog and BizBigPic, which uses a blog technological platform, are perfectly suited for discussions. So, if you have any questions, please don't hesitate to start a discussion.

How to Innovate Your Online Venture

Earlier today, MarketingProfs.com published my new article, "How to Innovate Your Online Venture," based on an earlier post on this blog. The publication is timely. Recent announcements from Google and Amazon.com, highlighting new improvements (read "innovations") of their services, support the model presented in the article.

Google: Universal Search
http://www.google.com/intl/en/press/pressrel/universalsearch_20070516.html

Amazon.com: Digital Music Store
http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1003003&highlight=

Spatial Thinking in Strategy

Tiha von Ghyczy (Darden School of Business, University of Virginia) wrote an interesting article, "Constructing Strategic Spaces," as a precursor to a future book about spatial thinking in strategy. Here is one of the closing ideas:

"Strategy is a particular form of social coordination across scales of space and time that can be bridged only by articulated and shared thought. Strategic spaces are superb catalysts and vehicles for the thinking itself and for the articulation and the sharing. They are also -- unlike narratives in the form of vision and mission statements -- open-ended and highly plastic."

Remember, the concept of ofmos, introduced with my fundamental theory of business at BizBigPic.com and later presented in the book “Spointra and the Secret of Business Success,” is actually a strategic space.