"Our Obsession with Efficiency Is Destroying Our Resilience" - Combining Insights on Efficiency, Competition, and Market Fit

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Hatched by Glasp

Jul 12, 2023

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"Our Obsession with Efficiency Is Destroying Our Resilience" - Combining Insights on Efficiency, Competition, and Market Fit

In Adam Smith's "The Wealth of Nations," published in 1776, he introduced the concept of a clever division of labor that could greatly increase productivity in commercial enterprises. This idea was further expanded upon by David Ricardo in his work on comparative advantage, which emphasized the importance of specialization and trade. These insights played a significant role in driving the Industrial Revolution and continue to shape our understanding of management today.

Efficiency has long been hailed as a key driver of productivity and success in business. The more efficient a company becomes, the greater its competitive advantage and market power. However, as efficiency improves, the rewards become increasingly unequal, leading to a concentration of wealth and power in a small number of companies and individuals. This creates an unsustainable business environment that is highly risky.

The pursuit of efficiency can also have unintended consequences. When an industry becomes highly efficient, it often leads to consolidation and the elimination of redundancies or slack. While this may result in short-term gains, it also increases the risk of catastrophic failure. For example, the almond industry in California consolidated its production to achieve greater efficiency, but in doing so, it lost the insurance that redundancy provides. A single extreme weather event or virus could devastate the entire industry.

Efficiency also tends to favor the most powerful players in a market. As efficiency increases, these dominant players gain even more market power, making it easier for them to extract value rather than create it. This can lead to a decline in product quality, as companies reduce their investment in improvements, and ultimately harm long-term shareholders, employees, and customers.

In light of these issues, it is important to shift our focus from immediate efficiency to resilience. Resilient systems are characterized by diversity and redundancy, which efficiency seeks to destroy. By limiting scale and introducing productive friction into the system, we can build resilience and promote dynamic competition. Promoting patient capital and creating good jobs are also crucial in fostering resilience and long-term value creation.

In order to achieve market fit, it is essential to understand the needs and desires of customers. Market fit is about discovering what makes a customer want or need a product enough to take immediate action. This goes beyond just usability, feasibility, and viability. Product marketers play a key role in applying the insights from discovery work to create a smart go-to-market plan, positioning, and messaging. They segment customers, identify potential evangelists, and determine the most compelling aspects of the product.

To gain a deeper understanding of market fit, it is important to ask questions such as: Who are your customers? What would make them a raving fan? Are there other market segments that could potentially adopt the product? What market situations are necessary for them to take action? By conducting exit surveys and sentiment probes, companies can gather valuable feedback and insights to refine their product and marketing strategies.

In conclusion, our obsession with efficiency has led to a concentration of wealth and power, increased risk of catastrophic failure, and a decline in long-term value creation. It is crucial for businesses, governments, and educational institutions to prioritize resilience as a source of competitive advantage. By limiting scale, introducing productive friction, promoting patient capital, creating good jobs, and focusing on market fit, we can build more sustainable and resilient systems that benefit society as a whole.

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