Cristian Mitreanu's Blog

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."

Waking Up the Business Nation

What if the world of business has been stuck in the wrong mindset for the past half century? Here's a quote from my new initiative "A Wake-Up Call for the Business Nation:"

“Keynes's impact on the business world was even more profound. His view that an economy, as a whole, does not necessarily abide by the same laws as do individual transactions has created a lasting rift between business thought and economic thought. While the field of economics has continued to search for a more insightful economic worldview, generally focusing on a macro perspective, the business world has remained trapped in the post-war mindset. The apparent perfect fit of the discipline of corporate strategy, backed by Keynes's macro-micro divide, has gradually diminished the importance of an historical perspective, ultimately leading to a business world in which few question the discipline's very existence, and even fewer see the Keynesian underpinnings.”

Make sure you join the discussion.

UPDATE 7/24/2009: The essay/manifesto quoted above was part of a proposal sent to several potential investors for the first time on March 9, 2008 in an attempt to raise capital for one of my business ventures. For the public at large, it was first published on September 11, 2008 as part of the initiative announced here. And later, it was published as a RedefiningStrategy.com article on June 19, 2009.

UPDATE 6/21/2010: The discussion "A Wake-Up Call for the Business Nation" was deleted. Nonetheless, the essay/manifesto remains available at RedefiningStrategy.com/WakeUpCall.pdf.

On Changing the World...

"[I]t ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them."

That's Machiavelli in his famous book "The Prince" (circa 1515). The full text of this English translation by W.K. Marriott is available here.

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.

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.

Feels Like 1871

Carl Menger wrote in the Preface of his 1871 book "Principles of Economics," which later became the foundation of the so-called Austrian School of economic thought:

"Never was there an age that placed economic interests higher than does our own. Never was the need of a scientific foundation for economic affairs felt more generally or more acutely. And never was the ability of practical men to utilize the achievements of science, in all fields of human activity, greater than in our day. If practical men, therefore, rely wholly on their own experience, and disregard our science in its present state of development, it cannot be due to a lack of serious interest or ability on their part. Nor can their disregard be the result of a haughty rejection of the deeper insight a true science would give into the circumstances and relationships determining the outcome of their activity. The cause of such remarkable indifference must not be sought elsewhere than in the present state of our science itself, in the sterility of all past endeavors to find its empirical foundations."

It makes you think -- it was written 136 years ago, and yet it remains so relevant today. Indeed, it feels like 1871!

I tried to say the same thing in my earlier post "Does the Long Term Matter?" but I could not be as concise as Menger. So, if you have not read this relatively short book yet, you should. Or at least, read the first chapter "The General Theory of the Good." The Ludwig von Mises Institute offers a free PDF version here.

Does the Long Term Matter?

In his post "The Long Term," David Maister notes that "our biggest barrier, as individuals and as organizations, is the difficulty in doing what is in our long-term best interest, not just what provides immediate gratification." Then he asks, "how DO you help people actually get on the program for what is their best interests?" Because I believe that his question touches a very important subject, I took the opportunity to comment. Here is a copy of my post:

"As it transpires from the post and from the previous comments, this is a big discussion. And, I think, that we need to narrow it down to what is relevant here: Assuming that a business leader's long-term personal success is directly dependent on her or his company's long-term success, why does she or he make business decisions that seem to go against the company's long-term success (and implicitly her or his own)?

In this case, the problem is a matter of perspective.  I am not referring to people's mental capabilities, but rather to the business' body of knowledge. The most popular and heavily employed business concepts are decades old. And, as is the case with any discipline in its infancy, they are based on assumptions that today do not hold true anymore. As a result, many of them have become obsolete and unfit to generate a realistic big picture of the business environment.

Every individual strives for a successful existence, whatever the meaning. Typically, as she or he grows older, this successful existence covers more space (impact on other humans) and time (impact over time). So, my view is that all people care about the long term. It is just that, if not provided with a compelling big picture, an individual will develop one on her or his own.

Now, there are many problems with the big pictures provided by the popular, mainstream business concepts.  Among the most important is the lack of a dynamic perspective. That is why most pictures of the future presented to business leaders are single-frame, still pictures. So, if the consultant's picture doesn't fit in the big picture (movie?) that the business leader already sees, it will be simply put aside. But, if the consultant's picture is dynamic, presenting an evolution that can be tested (read felt) as it unfolds, it will be much more readily accepted, even though it was not part of the leader's initial big picture.

In conclusion, people are not the problem; the discipline (body of knowledge) is. The world of business desperately needs new theoretical insight that would more accurately reflect reality, pushing the discipline forward in its transition from art to science."

UPDATE 6/7/2007: Also read "Feels Like 1871."