"Triangle defense": customer, team, and long value

Incentives matter.

That’s what we can see in “The Big Short” by Michael Lewis depicting what misaligned incentives do to customers (loan takers), banks agents, money managers, insurance brokers, and retirement fund managers resulted in big recession and wipe out of savings at large.

Another case. A pharmaceutical company (let’s simply call them Y) abandons investment in R&D projects and focuses (entirely) on searching for acquisitions. It is hard to get ahead when you are always behind. Even as experiencing technology does not yield business, it does yield knowledge. Useful for deeper evaluation of a business category.

Understand me correctly, it’s not the strategy at the top line only: it’s gradual deformation of incentives which at the bottom line resulted in questionable practice.

In the long run, shares did drop. Shareholder value dropped. The newly appointed CEO would have to start conversation with government officials: “we are not the team which brought this ship to this wreck, we are the team which needs to manage this out”. Y even had to change their company name.

Let’s go to an even more morbid and fictional example of badly set business incentives. Of course it’s a reference to a story of Sweeney Todd. Business, shareholders, and a large part of customers (a business line) were happy. Except, they literally were cannibalizing fraction of customers, ignoring their interests altogether. This is a fictional story (or some say not) with deep metaphorical meaning.

Forth example. The famous The Johnson & Johnson Tylenol Case [1] gives a good example when thinking about customer mattered. They had a choice to fight massively expensive recall; yet recall resulting in a loss and share price drop in a short term and seal-closed bottles innovation meant in long term shareholder value gains.

Hence, the best framework for making decisions one could find is navigating best judgement using triangle of three interests: customer, team, and shareholder, - decision “triangle defense” of business. As each team follows virtues and takes care of customers, then the company follows and delivers value from their products, happy customers create happy feedback loops, and everyone benefits from long term value. That’s the defense.

 [1] - https://en.wikipedia.org/wiki/Chicago_Tylenol_murders