You would think that given the choice between following a belief and following a (and this is important) sure thing to make money, that business people would chuck out toss their beliefs in an instant if they could make a buck. Business is business, after all.
And you’d be entirely wrong.
One of the weirdest things about reading real research on business is how much of what you are told is Absolutely True turns out to be Fabulously False. It turns out that contrary to what business managers and entrepreneurs tell us, they are not all about the money. At least not when it comes to the firm making money.
It’s all about ideology.
And if you’re smart, you can use this to manipulate them into doing what you want them to.My first inkling of this came from stumbling upon the work of J. Scott Armstrong, at the time at the Wharton School, University of Pennsylvania. In an amazing set of research, he and coauthor Fred Collopy looked at whether market-share or beating the competition was as salient for managers, MBA students and business professors as was the profit motive or making as much money as you can. Their initial results so contradicted accepted knowledge — and frankly pissed off their reviewers — that they had to replicate the study in multiple countries over years before it would finally be accepted for publishing.
What they were interested in was how managers used competition orientation to make tactical decisions to achieve objectives:
We hypothesized that under certain conditions some managers adopt competitor-oriented objectives. We further hypothesized that when competitor-oriented objectives are adopted, profits are reduced. Note that these hypotheses deal with objectives, not strategies. It seems reasonable that decision makers should consider competitors’ actions when developing strategies. For example, it might be useful to examine competitors’ actions for ideas about design, price, and service. Also, managers should probably consider how competitors will react to their actions.
The long and short of it is that they tested the question in a bunch of different ways, trying to eliminate the complaints that arose in the review process. They asked managers to choose between beating their competition or earning more money. For example, one of the scenarios was like this:
|Expected Profits Over Five Years|
|Low-Price Strategy||High-Price Strategy|
|YOU||$40 million||$80 million|
|COMPETITION||$20 million||$160 million|
If you want to make money, and that’s all you care about, you will choose the High-Price Strategy because you make twice as much. But that’s not what managers choose. They choose the low-price strategy because it’s all about beating the competition and not about making money.
Downsizing has similar problems. Although the markets know that downsizing creates better stock values, it turns out the downsizing destroys longterm stock valuations. The studies that have been done are fairly decent, and take into account that the firms are in trouble. Given two firms in similar financial situations, you should almost always invest in the one that doesn’t downsize because you will make more money that way. The markets believe something that is false, and drive a very short-term spike in the downsizing firm’s valuation before driving it down later.
There are notable exceptions, such as IBM’s massive turnaround after laying off thousands when Gerstner came onboard, but they are also the notable in that the markets almost always miss them, such as when they pummeled IBM’s price after Gerstner’s initial press conference (where he famously said “the last thing IBM needs right now is a vision”).
The key to this, as it is for Armstrong and Collopy’s results, is understanding the importance of ideology, those core axiomatic beliefs that must go unexamined in most people. William McKinley, along with several colleagues over the years, has shown how managers’ ideologies drive the decision to downsize or not. It’s a complex belief system, and not simply “these loafers need to go”.
Executives’ beliefs drive decisions and not what will make money. And they will continue to hold onto them even when they are shown wrong because they can’t violate the norms of their field.
If you know this, you can make money when other people aren’t. This is the big secret to Warren Buffet’s success. He follows the money rather than what everyone knows to be true. If he can’t make sense of how he will make money, he won’t do t the deal, even when everyone else is making money hand over fist on the same thing. But he also avoids the crashes, because he understands what his money is doing.
You can also use this fact to manipulate people, especially business people. It’s pretty obvious once you start thinking about it. The trick for you will be in leaving behind your own ideologies and felt-needs, framing things to get them to do what you want rather than in making them think right about things. As long as you focus on what makes money, you can succeed in business without really trying very hard.
Most of these are available online, probably through ProQuest or Questia. And some are simply lying about on the web: search and ye shall find, maybe.
- Armstrong, J.S. and Collopy, F. (2006). “Competitor Orientation: Effects of Objectives and Information on Managerial Decisions and Profitability”. Marketing Papers (1996). Available at: http://works.bepress.com/j_scott_armstrong/2
- Armstrong, J.S. and Green, K. (2007). “Competitor-oriented Objectives: The Myth of Market Share”. International Journal of Business, : 117-136.
- Cascio, W. (1998). “Learning from outcomes: Financial experiences of 311 firms that have downsized”. In M. K. Gowing, J. D. Kraft, & J. C. Quick (Eds.), The organizational reality: Downsizing, restructuring, and revitalization. (pp. 55-70). Washington, D.C.: American Psychological Association.
- Cascio, W. F., & Young, C. E. (2003). “Financial consequences of employment-change decisions in major U.S. corporations: 1982-2000”. In K. P. De Meuse & M. L. Marks (Eds.), Resizing the organization (pp. 131-156). San Francisco: Jossey-Bass.
- De Meuse, K. P., Bergmann, T. J., Vanderheiden, P. A., & Roraff, C. E. (2004). “New evidence regarding organizational downsizing and a firm’s financial performance: A long-term analysis”. Journal of Managerial Issues, 16, 155-177.
- De Meuse, K. P., Vanderheiden, P. A., & Bergmann, T. J. (1994). “Announced layoffs: Their effect on corporate financial performance”. Human Resource Management, 33, 509-530.
- McKinley, W., Mone, M. A., & Barker III, V. L. (1998). “Some ideological foundations of organizational downsizing”. Journal of Management Inquiry, 7: 198-212.
- McKinley, W., Sanchez, C. M., & Schick, A. G. (1995). “Organizational downsizing: Constraining, cloning, learning”. Academy of Management Executive, 9(3), 32-44.
- McKinley, W., Zhao, J., & Rust, K. G. (2000). “A sociocognitive interpretation of organizational downsizing”. Academy of Management Review, 25, 227-243.
- Rust, K. G., & McKinley, W. (2002). “Managerial ideologies as rationalizers: How managerial ideologies moderate the relationship between change in profitability and downsizing”. Journal of Behavioral and Applied Management, 3(2), 108-128.
- Rust, K. G., McKinley, W., & Edwards, J. C. (2005). “Perceived breach of contract for one’s own layoff vs. someone else’s layoff: Personal pink slips hurt more”. Journal of Leadership and Organizational Studies, 11(3), 72-83.
- Rust, K. G., McKinley, W., Moon, G., & Edwards, J.C. (2005). “Ideological foundations of perceived contract breach associated with downsizing: An empirical investigation”. Journal of Leadership and Organizational Studies, 12(1), 37-52.
- Scrone, R. & McKinley, W. (2006). “Perceptions of organizational downsizing”. Journal of Leadership & Organizational Studies, [Summer] 12(4): 89-108.
Presidential $1 coin program. (c) 2007 Bill Koslosky, MD (CC BY 2.5)