Tag Archives: competition

What is Killing Capitalism in America?

What is Killing Capitalism in America?

GUEST POST from Greg Satell

There’s no doubt that capitalism in America is in bad shape. Higher market share concentration in industry is leading to higher profits for corporate giants, but also to higher prices and lower wages along with decreased innovation and productivity growth as well as a long-term decline in entrepreneurship.

You would think that the rise of progressive politicians like Bernie Sanders and Alexandria Ocasio-Cortez would be responsible for the decline in the power of capitalism and the demise of free markets. However, a new book by NYU finance professor Thomas Philippon, titled The Great Reversal, argues exactly the opposite.

In fact, he shows through meticulous research how capitalists themselves are killing capitalism. Through the charade of “pro-business” policies, industry leaders have been increasing regulation and limiting competition over the past 20 years. We need to right the ship and return to an embrace of free markets, entrepreneurship and innovation.

A Rise in Rent Seeking and Regulatory Capture

The goal of every business is to defy markets. Any firm at the mercy of supply and demand will find itself unable to make an economic profit—that is profit over and above its cost of capital. In other words, unless a firm can beat Adam’s Smith’s invisible hand, investors would essentially be better off putting their money in the bank.

That leaves entrepreneurs and managers with two viable strategies. The first is innovation. Firms can create new and better products that produce new value. The second, rent seeking, is associated with activities like lobbying and regulatory capture, which seeks to earn a profit without creating added value. In fact, rent seeking often makes industries less competitive.

There is abundant evidence that over the last 20 years, American firms have shifted from an innovation mindset to one that focuses more on rent seeking. First and foremost, has been the marked increase in lobbying expenditures, which since 1998 have more than doubled. Firms invest money for a reason, they expect a return.

It seems like they are getting their money’s worth. Corporate tax rates in the US have steadily decreased and are now among the lowest in the developed world. Occupational licensing, often the result of lobbying by trade associations, has increased fivefold since the 1950s. Innovative firms such as Tesla face legislation that seeks to protect incumbent businesses. These restrictions have coincided with a decrease in the establishment of new firms.

Perhaps most importantly, the increasingly lax regulatory environment has resulted in a boom in mergers and acquisitions, which led to increased market power among fewer firms and increased barriers to entry for new market entrants.

The Decline of Competitive Markets

To understand how markets have died in the US, you only have to look at the airline industry. After years of mergers just four airlines control roughly two thirds of the market. Yet even that understates the problem. On individual routes, there are often only one or two competitors. We’ve all experienced the results: increasingly higher prices and worse service.

Airlines are far from an isolated case. Consider the cable industry, where consolidation has resulted in broadband prices that are almost 50% higher than in Europe. For mobile phone service, Americans are being charged more than twice what our European friends are. Across a wide swath of industries, increasing concentration is leading to lower competition.

Yet the problem is more than just Americans getting ripped off by corporations who are able to charge us more and give us less. Fat and happy industries tend to underinvest and become less competitive over time, enjoying short-term profits but putting the economic well-being of the country in serious jeopardy.

Again, there is evidence that this is exactly what’s happening. There is abundant data showing that American corporations are underinvesting, even while they have been reporting strong profits to investors.

Entrepreneurial Headwinds

With protected markets and healthy profits, recent decades have been great for incumbent businesses, but not so great for those who want to start new ones. In fact, entrepreneurship in America recently hit a 40-year low and a recent report by the Brookings Institution found that business dynamism in general has been declining since the 80s.

It’s not hard to see why. A recent study found that about half of all college students struggle with food insecurity even as tuition has risen from an average of $15,160 in 1988 to $34,740 in 2018. Not surprisingly, student debt is exploding. It has nearly tripled in the last decade. In fact student debt has become so onerous that it now takes about 20 years to pay off four years for college and even more for those who pursue a graduate degree.

So even the bright young people who don’t starve are often condemned to decades of what is essentially indentured servitude. That’s no way to run an entrepreneurial economy. In fact, a study done by the Federal Reserve Bank of Philadelphia found that student debt has a measurable negative impact on new business creation.

Another obstacle for entrepreneurs is our healthcare system which represents a huge economic burden. Consider that in the US healthcare expenditures account for roughly 18% of GDP. Most OECD countries spend roughly half that. Anyone who wants to start a business first needs to figure out where their health insurance will come from. Is it any wonder that entrepreneurship is declining in America?

Pro-Business Policies Are Often Anti-Market

The truth is that no business leader wants a free market. In fact, most of our efforts go toward tipping the playing field in our favor. Often, we do that in positive ways, such as building a trusted brand or innovating new products. Yet the incentives, if not the motivations, for rent seeking behavior are exactly the same.

For far too long pro-business lobbies have run rampant over our democracy. The Supreme Court’s Citizens United decision, which led to essentially unrestricted political donations, has made a bad situation worse. Members of Congress now spend roughly 30 hours a week “dialing for dollars” rather than tending to the nation’s business.

And we pay the price in higher prices, stagnant wages and worse service. Where we should be investing in the future, creating better infrastructure, schools and a cleaner healthier environment, instead we are spending it on tax breaks for businesses, even though research has shown that these incentives don’t promote economic growth.

It’s time to claim capitalism back for ourselves and promote free markets, entrepreneurship, innovation and public well-being. That’s how you build competitive markets and a healthy society.

— Article courtesy of the Digital Tonto blog
— Image credit: Pexels

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Think Like a Tech Company or Go Out of Business

Think Like a Tech Company or Go Out of Business

by Braden Kelley and Linda Bernardi

Even in 2014, there are business sectors who feel they are not ‘tech companies’. News flash: Whether you are a consumer products company, an insurance company, a hotel, or a pharmaceutical company, your business is a technology business. Why?

Technology is the link between any business and its customers. To say technology is not core to your business strategy, means you think customers are not the key to your business success. So, your business is a technology business whether you want it to be or not.

Today technology is how you market and sell your products, make your business more efficient, and most importantly, how you stay connected to your customers. Some companies mistake the importance of technology to mean that they need to open a twitter account and monitor social media, put in an ERP and CRM system, and revamp their web site. But the importance of technology in today’s business environment is more than that.

ERP and CRM are common tools, a requirement to remain competitive, and while social media and the internet are important to sales and marketing success, they are becoming yesterday’s news as customers develop deeper connections to their mobile devices. If you aren’t on their devices and interacting in a meaningful way with them there in real-time, you won’t stay connected to them in the long run.

Let’s look at the impact on a few different industries whose members tend not to see themselves as technology companies:

1. Fortune 100 consumer product goods (CPG) companies
2. Hotel Chains
3. Big Box Retailers

1. Fortune 100 CPG companies typically manufacture large quantities of consistent products and have visually pleasing (static) web pages for consumers. But they don’t use technology well enough to detect what the market wants before it knows it, often fail to personalize or customize products to customer needs, and usually lack the online networks that could help connect other customer product needs together into new potential product ideas that the company could co-create with their customers. Often connection means post mortem analytics on data collected in the past, or, analyzing previous customer interactions with static web pages. Creating authentic customer connections requires online and mobile technology these companies usually don’t possess. I don’t mean apps (which often are pretty much the same as a website), but new physical/online/mobile engagement models that inspire customers to stay connected to the company (and each other) in a dynamic, evolving community. Rethinking is needed here. The customer is not just a buyer but an influencer. If CPG companies want to sell that next bottle of $300 facial cream, they better consider delighting, and not just marketing to, their customer base.

2. AirBnB has proven to be a major disruptive force in the hotel and hospitality business, grabbing a massive foothold in a market that the Homeaway.com member companies created and should have dominated. Resistance to AirBnB is massive and lawsuits are abundant, but for a moment let’s go beyond the hype and explore the angst of traditional hotels. AirBnB created a highly connected, effective community of property owners and property renters. This bi-directional ecosystem can only thrive if they are both happy and satisfied. To experience what they’ve created, first go to a traditional hotel website (pictures of room, building, lobby) and then go to AirBnB and browse the hundreds of customer experiences their property owners offer. On the hotel site you’ll see they’ve created the mechanics of paying to rent a hotel room, while on AirBnB you’ll see that they’ve created both an ecosystem and an experience.

3. Big box retailers have done a poor job of seeing themselves as technology companies capable of fending off challenges from online-only retailers. Target made the mistake of seeing themselves as a retailer, not a technology business, and so they outsourced their ecommerce to Amazon in the beginning, only to regret doing so because Amazon was able to learn which 20% of their inventory drove 80% of their profits, and when.

Meanwhile, Costco and Walmart, despite being two of the most successful retailers in the world, have struggled to find success online because they can’t get beyond their brick and mortar heritage to see themselves as a technology business with an integrated online/offline ecosystem. Seriously, it is 2014, do we still need to get our Costco circulars in the mail? Nothing has changed about Costco’s interaction with its customers. Walmart exacerbated the disconnection between the two sides of their business by creating a separate online division and exiling it to Silicon Valley. Costco sells different products online than offline. The results of both of these approaches have been far from stellar.

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Technology Lowers Barriers to Entry

In the history of the world, it has never been easier to start and scale a business to a global footprint, not in a matter of decades or years, but in months. And it is not just the other companies in your industry and technology-driven startups that you have to worry about if you choose not to view yourself as a technology company and move as fast as they do. You have to worry about competition from established technology players like Google and Amazon too, because one day they (or people that used to work for them) might decide that your market is attractive enough to enter and come disrupt your industry. For example, Amazon has become a book publisher and a financial services company.

Technology Enables Experiences

Technology enables the creation of customer experiences. I am going to choose my insurance company based on my experience. At the end of the day if all prices are comparable, then how the businesses you interact with make you feel, and the connections you’ve built with them will matter more. Without an emphasis on using technology to make your business a social business, you will find your company displaced by others that do. You must lead your industry in identifying opportunities to use technology to get closer to your customers. The future of business will be all about delighting customers and making their experience more personal.

Technology is not just a tool, but central to everything you do in today’s always on, always connected digital age.

Here are ten ways that technology can help you become a more social business:

  1. Building Connections
  2. Developing Networks
  3. Global Sensing and Prediction
  4. Sharing Recommendations
  5. Creating Experiences
  6. Personalization
  7. Customization
  8. Co-Creation
  9. Crowdsourcing
  10. Open Innovation

To give you an example of what things will look like in the future, the forward thinking health insurance company will leverage the mobile device for virtual ID cards, drug interaction warnings, personal triage, mobile care, wellness, cost sharing calculations, FSA/HSA administration, diagnostics, and more.

Conclusion

In conclusion, no matter what business you are in, it is very dangerous not to see technology as a competitive differentiator and a core driver of your business. Instead, you must constantly look at how you can become more of a technology company in order to enable deeper customer connections and more meaningful experiences. Today if you don’t connect with, understand, delight and start predicting your customer’s needs/wants, you may not thrive in your industry and your competition and new entrants who do embrace technology will replace you.

This article is brought to you by Linda Bernardi and Braden Kelley. Collectively, we have over 30 years of experience working with large, global multi-disciplinary enterprises. We write this with care and passion as we want your enterprises to succeed. We would love to hear your thoughts.


Guest Collaborator:

Linda BernardiLinda Bernardi is a Technology Strategist, Investor, and Founder & CEO at StraTerra Partners, The Bernardi Leadership Institute and a Strategic Advisor at Cloudant Inc. She is also the Author of Provoke, Why the Global Culture of Disruption is the Only Hope for Innovation. Learn more here about Linda’s work on disrupting large enterprise analytics.

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Innovation Culture Battle Royale

Innovation Culture Battle Royale

Earlier this month I wrote an innovation culture white paper for Planview titled “Five Ways to Make Your Innovation Culture Smell Better” that is getting a great response after my appearance as a keynote speaker at the Pipeline 2014 conference where I spoke on the same topic.

Then recently Jim Brown published a white paper with Planview titled “Creating the Environment to Innovate: How Industry Leaders Put People, Processes and Technology in Place to Drive Innovation” and now Planview wants to know which one people like better…

So I need your vote!

Click this link to go to a web page where you can not only download both white papers, but also cast your votes for mine! 🙂

You might even win a $100 gift card!

Please vote for Braden Kelley now!


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