For any size and any type of business, the generation of value requires more than strategy, planning and executional excellence. It calls for the establishment, communication and internalization of value-generation principles (see Mises.org/E4B_105_PDF), solidly founded and consistently applied.
This concept of the long term, dynamic application of unchanging principles is the essence of the Austrian approach to business.
In a podcast conversation, Professor Per Bylund reviewed and critiqued the popular business book The Science Of Success, and focused on these principles or guidelines.
A Vision For Long Term Value
Vision in this context is not the transcendental futurism of a CEO-with-superpowers often envisaged in business school texts. This is Austrian vision: a deep understanding of what constitutes value and how to act to realize value over time, rejecting short-term opportunism.
Value, of course, is subjective, determined by consumers, and so businesses that generate long term value can be seen as creating value for society, a laudable ethical contribution to social well-being.
Virtue and Talents
It’s unusual to encounter the word virtue in a discussion of business. In this context, it applies to the selection and hiring of a team that will collaborate on the long term creative task. This requires dynamically melding people with the right values, skills and capabilities, and the capacity to develop skills and capabilities even further. Hiring becomes one of the most important and most value-generating business functions.
Knowledge Processes
Entrepreneurial value creation is a knowledge-based and knowledge-intensive process. Knowledge is actively pursued, curated, combined, and processed. Knowledge advantages may be available, where firms are able to craft uniquely superior processes, methods and technologies. Crucially, these are never permanent. They can always be competed away, and rendered redundant by changing markets and evolving consumer preferences, although some forms of knowledge advantage, such as brands and culture, can be more long-lasting. Knowledge processes must include not only knowledge management but also the creation of new knowledge.
Decision Rights
Business books often talk about organizational design, but less often about the details of the processes of decision making. Whether the organization is hierarchical or flat and networked, it must still be able to make decisions and have them accepted and supported and implemented. Putting people in the right roles with the right degree of authority and accountability is the business challenge. This is different from the mythical business school idea of “leadership”; it’s a more a matter of productive collaboration among multiple individuals and teams, all of whom have some authority. The concept of decision rights breaks the ties and the logjams and enables corporate dynamism.
Incentives
The idea that behavior is responsive to incentives is core to the science of economics, of course. The same is true in business, and it’s important to use economic reasoning to get incentives right and avoid adverse incentives. The proposition given in the Science Of Success is that people are rewarded according to the value they create. Thus, we come full circle, back to the vision of value that constitutes the first of these 5 principles. If a business is clear on its definition and understanding of value, then it can be successful in incentivizing its people to generate that value.
Additional Resources
“Long Term Value Generation as a Science of Business Success” (PDF): Mises.org/E4B_105_PDF
QJAE Special Double Edition on Entrepreneurship: Mises.org/E4B_105_QJAE
