Book Report: Roger Martin

[godsvoice]

posted on May 19th, 2012, 5:14 pm

Last edited by godsvoice on May 19th, 2012, 5:19 pm, edited 1 time in total.

Roger Martin has written a book titled Fixing the Game.

It demonstrates some key problems that have arisen out of thoughts about capitalism.

I have seen a couple of interviews with this guy, and he's got quite the argument. (not that I was really on the fence about my opinion on capitalism, but he offered insights as to why, recently, capitalism is having greater problems than perhaps it should)

A quick summary of some key points:

Thinking about a corporation you have: an actual (products) market, and an expectations (trading) market. In book, Martin compares to NFL, where you have an actual super bowl, and betting, or expectations about the super bowl. Essentially, instead of focussing solely on actual markets, CEOs focus intently on expectation market which is proving ineffective (CEOs do also look at the actual markets as well, but they look to much at the expectations). Imagine players in the NFL who have a one strike policy. Members of NFL are to focus solely on the actual games, and if they are ever caught playing in the betting of the games, they're out immediately. (as if they were to bet on a particular game, it might effect their actions within the actual game to benefit their bets)

The corporation has several components as an institutional structure: you have the customer, employees, community, and last the shareholders (Johnson and Johnson?). His year of study is 1976 when a piece was written that advocating shareholders be most important (big problem). In reality, as he gives examples and points to demonstrate, he shows that a firm should really be providing value foremost to its customers (attain and retain your customer base), then it has an obligation to its employees, and really to the community wherein it finds itself located. When you put shareholders first... you get problems.

A paraphrased version of a scenario Martin describes:

A company is worth 100 billion. It discovers a cure for all cancers. Trading ensues, and the company quickly becomes worth 200 billion. 6 months in, the company is worth a trillion dollars. The company is on a high. But now you get shareholders coming in who want to hold shares in the company, but now that they've bought close to the one trillion dollar mark, they see the company hasn't really gone much since then. The CEO has a particular dilemma. The actual state of affairs for the company is quite good. They have provided real value to their customers, community, and employees. They have found a cure for cancer. But since the last quarter, they haven't found new ways to increase share values, so new shareholders haven't got any profit. The company needs to grow more more more, but you can't cure diseases every quarter. The value is still there. The cure doesn't disappear. But the growth does. How do you sustain growth creating cures for major diseases like that continuously? R & D takes time regardless of this.

There are issues for corporations when they deal with actual market and expectation markets. The question of who a company should be loyal to, for a long time it was the customer, but recently it has increasingly become the shareholder, employees and community last. And you have to look at the value the corporation is providing.

You get some examples given such as steve jobs, and johnson and johnson company? I believe. Who followed a valid guide. If your company does well in the actual markets, and ignores the shareholders, regardless, the shareholders will fare well if the company actually does well. The focus should always be towards actual customers, actual products. and as a result, shareholder will benefit.

Anyways, I'd recommend the book for anyone interested in some spare reading on the subject.

posted on May 19th, 2012, 6:43 pm

Interesting! I'm also very critical towards the current capitalism. It's like a virus-cancer hybrid - a viral cancer... or whatever. 

The word that describes the concept of economic growth is: Unsustainable. If we continue to practice it that way it will lead us to a dead end. And the greater the growth rate the faster the dead end comes. It's a real delicate situation! I support the idea that shareholders are destructive forces for the whole economy. It's the whole apparatus of making virtual value with the system of interest at it's bottom.

Real value is just as fast going as it's created. For example the energy I can provide with corn from a hectare of land and the necessary production factors.

A system that creates value out of expectation is possible for the short run - but it's not meant to follow the rules of nature. That's why it is destructive and why it causes troubles all time. Just have a look at Europe! It's ONLY because of speculation, because we wanted to have things today and not in 5 years. In contrast to that those who create value out of something material - the real economy - is doing just fine. But it is heavily influenced by speculation. When speculation cross a certain line it will crash and pull everything with it that was somehow connected to it.

It should be banned and forbidden!

You know - in 2008 we not only had a wold financial crisis and an economic crisis afterwards. We also had a world hunger crisis noone was talking about. Even though millions of people in Africa, Asia and South America suffered because they could not sell their corn and other agricultural products because the market speculated with food!  >:(

posted on May 19th, 2012, 7:01 pm

I can agree with your individual points, but they have nothing to do with Capitalism.  Capitalism is the system; you're talking about problems related to speculation and corporate power distribution which aren't related to the Capitalist system at all.  If anything, they are socialist concepts.

When a CEO makes a big mistake in a functioning Capitalist system, he gets fired and the company changes its policy.  It's the government bailouts and corporate politics that allow these people to keep making mistakes over and over with large amounts of money.  Several weeks ago my dad watched a video-statement by the head of our bank talking about how he was investing several trillion dollars of our money into bailouts for Greece because he "really felt confident about the situation."  This after he had already invested the first trillion and it had become pretty much worthless.

Speculation is also a serious problem, with major banks practically selling each other air while their CEO's get paid massive salaries.  Once again this is evil people taking advantage of stupid people and has nothing to do with the Capitalist system.  There hasn't been a truly Capitalist country on earth in over a century.

posted on May 19th, 2012, 9:56 pm

Genuinely attempt to keep this short.

What do you think 'Capitalism' is? It was a very brief summary of the book, true, so maybe I didn't entirely lay out the connections. Capitalism is profit. Growth. The way my (-his) points demonstrate this, is that CEOs are obligated to shareholders to increase the value of their market shares ... profit.

The real value for customers, employees, and community have been undercut.

I agree to an extent with you that Capitalism could be done .. better in a different way.

If they put the customers, employees, and community first, and shareholders just benefited, you would still essentially have a capitalist system, but it wouldn't be so hard edged toward strictly profit. You would in fact have a very visible connection between a company and its consumer base, employees, community and so forth. So this would scale back the need for growth growth growth, that if the consumers needs were met, the employees were doing well, and so was the community, the company could just relax and say 'look at what we've accomplished', and that is good.

If we could curtail capitalism to be grounded into something other than pure profit, the profit still exists but not so abundantly as being unsustainable as perhaps touched on above, but the being grounded in something more tangible like customers and so, we would be better off.

Lastly, while I currently forget who Roger Martin is in terms of his position, I believe he is some sort of manager or consultant at the upper levels of wall street. Anyone can just as easily google this information to know for sure. But this is a guy who is inside American Capitalism, and trying to point out what problems there are.

In the end, if we are back to 'the capitalist system'. I think its the motivation of the capitalist system we really need to underscore here. Of course, the capitalist system works. There are capitalists. They make profit. Bang! It works. I had a GIC in past years, and I made a profit. All the proof I need right? It works!

But beyond this, what is the aim of capitalism, can it sustain itself and so forth. What I was trying to point out was specifically that the sole aim of capitalism can not be purely profit. Why? Because you can forget about the customer experience, real value of the company, the employees, and community.

Profit motivated by more profit, grounded within profit, just everything profit! This is what I don't like about capitalism. Where trades are made in a way where for every trade a company makes 10 cents, and with millions of trades, millions of dollars are made... but nothing of real value is created. A system where you can make money just on hedge funds... who cares. It has to be grounded in something REAL.

yeah, my s#!t never ends up being that short ... 

posted on May 21st, 2012, 4:22 pm

well it is such an American book. Well I mean based on America's view of capitalism.

the whole shareholder example is kinda bad

First of all... shareholders aren't owners of the corporation, the claimants of the profit, or investors, as in the contributors of capital.

The ones that have IPO's  are investors but they are from the primary market and it is a small pool of shareholders

what they can do is nominate a director, vote for one, buy and sell stock and liquidate their assets.

Secondly, Medical companies have an average of 10 years of R&D before an actual medicine is on a market. For a shareholder to demand results (which is already weird) in a quarterly year is insane.

Thirdly, research made on the development of a medicine is always used to provide a basis for a new cure. Easy example: aspirin therapy to help prevent heart attacks. A more complex example: the creation of Protease inhibitors for HIV led to the recently created new treatment  with Telaprevir, for hepatitis C.

And why is there a new treatment for hepatitis C since there is already one? Cause the old one had too many life impacting side effects.

But American economy is so tied with politics since -companies are people too and are allowed to do infinite donations to any politician-, that the whole circle of producer-consumer-oversight is destroyed because oversight is usually done through the government but are no longer independent because of lobbying power. There are such things as mixed economies like those used in Scandinavia... but the US government almost finds it toxic to try it since a large base find government oversight as impending on freedom. While blaming blaming government as inefficient when loosened oversight creates a problem.



but anyway, how about those biogel packs.. I heard those where the hottest stocks in the federation

posted on May 22nd, 2012, 1:07 am

I think I missed the point with a few of those paragraphs unfortunately. i can't tell wether your entirely disagreeing, or generally agreeing with different points?

Not sure what you are trying to say.

Yes, this is more American Capitalism, rather than say Chinese Capitalism.

I completely understand that shareholders are not actual owners of the corporation, but they certainly influence with the way things are run now. Shareholders provide risk capitol, and therefore admittedly are entitled to a return.

It's merely a matter of balance. Give them a profit based on amount of risk involved.

But again, customers, employees and community are very important.

As for the medical example, it was purely fictional and rather simplistic just to give the idea. And for argument sakes, although I didn't write it in, the author points out that the drug has amazing efficacy rates in this scenario.

Yes, and what Freedom includes, and where to draw lines in certain cases is an issue.