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When More Is Not Better: Book Review Part Two

This is the second part of my two-part review of the new book by Roger L Martin, “When More Is Not Better: Overcoming America’s Obsession with Economic Efficiency” to be published by Harvard Business Review Press on September 29th (Pre-Order).

In part one of my review, I focused on part one of the book. It focused on the “Problem”. In this part I will focus on the second half of the book. The focus of that is “Solutions”.

The first chapter exploring the solutions is a general discussion, and an introduction to the agendas for change Martin offers Business Executives, Political Leaders, Educators and Citizens in subsequent chapters.

Martin begins with talk of the need for “achieving balance in America’s natural systems”, a reference to his call to replace the entrenched analogy of business as a machine i.e. as a mechanistic system. He calls for it to be replaced by the analogy of a natural system.

To illustrate the danger of thinking of business in mechanistic terms with the story of how Toys “R” Us and iHeart Media were killed. “What got those companies in trouble was not the failure to win customers.” It was who they were owned by and the strategy they adopted.

They were acquired by leverage -Buyout (LBO) firms attracted to their robust cash flows.

They were then leveraged — their expensive equity being replaced by cheap debt. The LBO firms were to learn the price of ‘capital efficiency’ which requires the ability to predict future case flows with an impossible degree of accuracy. When the ‘machine’, as they saw it, didn’t perform as they expected the machine would they had to write-off their investment completely.

He explains that the machine analogy is false because, “businesses are part of a natural and highly complex system, characterised by a large number of interdependencies and contingencies, which make estimating their future cash flows anything resembling precise a fool’s errand.”

He argues, such thinking represents a disregard for the behaviours of humans in the system — employees and customers, for example. Added to this he notes, “a relentless and unconstrained drive for capital efficiency saps LBO acquisitions of all their resilience.”

He goes on to argue, “the pursuit of resilience and no efficiency is as problematic as the pursuit of efficiency with no resilience. The only difference is in the nature of the death.”

Continue reading this article which was originally published on Medium

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