Theoretical foundations of the concept of "market"

The market is one of the most common categories in economic theory and business practice. This category has many different interpretations both here and abroad.

This concept includes the contract of sale; and the totality of business transactions carried out in a particular area of ​​the economy or in a particular place; and the state and development of supply and demand in a particular area of ​​the economy (for example, they talk about a decrease in prices in the metal market or a shortage in the labor market); and the junction of supply and demand for goods, services, and capital. All these (as well as others) definitions of the market have the right to exist, as they characterize certain aspects of this complex economic phenomenon.

Market evolution

market evolution marxist state

The presence of a large number of definitions and interpretations of the content of the category "market" is associated with the development of social production and circulation.

Initially, the market was considered as a bazaar, a place of retail trade, a market square. This is explained by the fact that the market appeared during the period of decomposition of primitive society, when the exchange between communities became more or less regular, it only acquired the form of commodity exchange, which was carried out in a certain place and at a certain time. With the development of crafts and cities, trade, market relations are expanding, certain places, market squares are assigned to markets.

With the deepening of the social division of labor and the development of commodity production, the concept of "market" acquires a more complex interpretation, which is reflected in world economic literature. So, the French mathematician O. Cournot (1801-1877) and the economist A. Marshall (1842-1924) believe that “the market is not any specific market area where objects are sold and bought, but in general any a region where buyers and sellers deal so freely with each other that the prices of the same goods tend to equalize easily and quickly. In this definition, the spatial characteristics of the market are preserved, and the main criterion is freedom of exchange and price fixing.

With the further development of commodity exchange, the emergence of money, commodity-money relations, it becomes possible to break the purchase and sale in time and space, and the characterization of the market only as a place of trade no longer reflects reality, because a new structure of social production is being formed - the sphere of circulation, which is characterized by the separation of material and labor resources, labor costs in order to perform certain specific functions for the treatment. As a result, a new understanding of the market arises as a form of commodity and commodity-money exchange (circulation). This understanding of the market has received the greatest distribution in our economic literature. The textbooks indicate that the market is an exchange organized according to the laws of commodity production and money circulation. In the explanatory dictionary of Ozhegov, the meaning of the market is given as: 1) spheres of commodity circulation, commodity circulation and 2) places of retail trade in the open air or in the malls, bazaar.

The market can be viewed from the side of the subjects of market relations. In this case, the market is defined as a collection of buyers (F. Kotler "Fundamentals of Marketing") or any group of people who enter into close business relationships and conclude large transactions regarding any product. The English economist W. Jevons (1835-1882) puts forward the “tightness” of the relationship between sellers and buyers as the main criterion for determining the market. He believes that the market is any group of people who enter into close business relations and make deals about any product. This definition of the market is characteristic of the concept of marketing. However, the complex mechanism of the market includes not only buyers, but also manufacturers and intermediaries. In addition, the above definition of the market does not take into account the reproductive aspect of the characteristics of the market.

With the growth of production, there is a natural need for additional labor. A person has the opportunity to “sell” his labor force, skills, abilities. At this time, the labor market begins to take shape, and therefore the purchase of not only the means of production, but also the labor force becomes an indispensable condition for the existence and development of production. The concept of "market" is expanded to understand it as an element of the reproduction of the total social product, as a form of implementation, the movement of the main components of this product. There is a definition of the market as a way of interaction between producers and consumers, based on a decentralized, impersonal mechanism of price signals (24, p. 82). This definition of the market as a set of specific economic relations is characteristic of Marxist methodology.

Market evolution in the context of crypto technologies

People are accustomed to the fact that the form of life is some kind of organic systems, consisting of particles of the material world and subject to the laws of evolution. But what is life really?

Can we argue that entities that do not have a material equivalent can be called life forms? And if these entities obey the laws of living nature and have a direct influence on it? And if these entities are constantly in the center of our attention?

Let's assume that the economy is just a kind of habitat for the market - an unusual and very interesting form of life. Let's try to find signs that will help us identify economic entities as separate forms of life.

1. Survival instinct. Like any living being, economic entities strive to survive in the market, some more successfully, others less successfully. And for this they have at their disposal a powerful natural mechanism.
2. Evolution. Economic entities are constantly evolving to provide themselves with better survival. They acquire new tools that allow them to exist in the market more efficiently. The most successful "species" use the most advanced achievements of human science and technology to remain leaders. The balance of power has long shifted towards technology companies, and you don’t need to look far for examples: Apple, Google, Microsoft, Tesla Motors, Samsung have already won the war for the mass consumer.
Mankind has created these “pets” for itself and devotes most of its life to them. We love our enterprises, companies, firms, take care of them and live with them in complete symbiosis. But of course, there are problems that, at first glance, make this theory untenable. For example, it seems that companies do not have autonomy. In fact, established companies are strong in their business model, not in the people who built it. Therefore, well-balanced companies can exist for a very long time independently of their creators.

What will happen next? If the market continues to develop at this rapid rate (after all, there is no reason why it should not be), then very soon we will see completely autonomous decentralized corporations that will no longer depend on the erroneous decisions of the people involved in their management.

Well, the next step will be the acquisition of intelligence and self-awareness by these companies. Moreover, I am sure that the driver of the first artificial intelligence will not be the efforts of computer scientists, but market forces, which, in an effort to make companies more autonomous and more balanced, will supply them with separate elements of the “nervous system” - a system that receives external signals, processes them and produces a response. These will be creatures that will add value to the economy, hire people, feed them and take care of them, as we once took care of our companies.

We can delve further into futurology, but at the moment we should analyze this concept more deeply and consider the dynamics of the development of economic entities in the context of the following theses:
— Economic entities are in many ways similar to living organisms;
“They will strive for independence, and we must respect and support this desire if we want our companies to become successful;
- If a person has become the crown of biological nature, then the crown of the market will be a decentralized autonomous corporation with intelligence.

These five key components are subject to evolutionary change. For convenience, evolutionary change can be divided into four phases.

An innovation that creates a new market can be a new product that outperforms previous ones, a new marketing concept that creates a new customer segment, or a new process that drastically reduces costs or increases the availability of a product.

For an innovation to be successful, it must offer consumers benefits that they perceive to be superior to those of products already on the market. Those consumers who are the first to recognize this benefit and be able to use it are called innovators. Innovators are usually not very price sensitive because they highly value this new benefit or feature and do not want to wait for competition to lower prices. The central task of marketing at this stage is to segment the market in order to identify those buyers who are most likely to benefit from the new product. Typically, some potential customers will benefit greatly and others not so much. Therefore, attracting the first should be the main goal.

For example, the electronic system "PABX" (switchboard for use in offices), invented by Rolm (now owned by Siemens), made it possible to save on costs for international and long-distance calls. For the top 2% of companies with very high spending on such phone calls, the savings amounted to about £100,000 per year. On the other hand, most companies with more modest international and long distance bills saved little. Rolm's original strategy was therefore to identify the first segment.

Sales usually grow slowly at first, and buyers need to be informed and convinced of the benefits. The uncertainty and high costs associated with switching to a new product, as well as the lack of a reliable marketing and service system, deter buyers from making a purchase. Barriers to adaptation are more easily overcome if the new product has the following characteristics:

♦ advantage in use that can be easily demonstrated;

♦ the costs of switching to its use are low;

♦ costs in case of malfunctions are low;

♦ consumers in this segment have enough resources to afford to switch to a new product.

When innovators start using a product, the market can grow very quickly, involving a large group of those who are not yet using the product.

Competition is weak at first. The main competition for the pioneer is the old technology. The entry of other manufacturers into the new market is temporarily hampered by barriers that include:

♦ patents;

♦ lack of technical know-how;

♦ uncertainty about the desires of consumers;

♦ lack of knowledge on how to acquire suppliers and spare parts;

♦ lack of risk capital.

Unfortunately, for innovators, these barriers to entry disappear fairly quickly. Staff turnover, distribution of knowledge, and the emergence of aggressive, energetic followers soon break the monopoly of the interim leader. As a rule, several new actors appear on the market during the year.

The high growth phase is characterized by the expansion of the market due to the involvement of new consumer segments and new opportunities for using the product. This is stimulated by the dissemination of information about the product beyond the group of innovators, the reduction of uncertainty about the rules and costs of switching to a new product, as well as the inevitable price reduction. As the price decreases, the product becomes more attractive to consumers, who find only a relatively small benefit in it.

The number of competitors is often unusually growing. For example, the motorcycle industry at its peak had 136 manufacturers in the UK alone and around 700 worldwide. They were attracted by the rapid growth and profitability of the market. In addition, the development of a reliable infrastructure of contractors and distributors facilitates market entry. Prices tend to decline rapidly as experience and economies of scale reduce unit costs, and competition increasingly forces most benefits to be ceded to consumers.

In the later stages, when growth starts to slow down, competition for market share intensifies. Leading players are beginning to have global ambitions, they are expanding their range, entering markets and segments occupied by other strong competitors. Companies that have not developed strong market positioning strategies or have failed to cut costs sufficiently see their profits fall, and more and more of these companies are forced to leave the market.

Market maturity occurs when the number of new users and ways to use a product dries up. Marketing attention must then shift from attracting non-users and inventing new uses to maintaining or strengthening market share. As existing users become more experienced, price and service become more important. Difficulties in inventing new uses for the product and giving additional characteristics to distinguish it from others at this stage increasingly contribute to the acquisition of a special status for the product.

Competition usually wanes by this time. There will also be overproduction, the struggle in the market becomes more intense, and the intervention of international companies will exacerbate the situation. Two other factors amplify this pressure on profitability. First, resellers are gaining more and more power. They may turn to alternative suppliers or create their own brand. Second, it becomes harder for competitors to cut costs because they have already exploited all the benefits that could be obtained through economies of scale and acquired experience. Then, usually as a result of mergers, acquisitions and bankruptcies, the weakest competitors are forced out of the market.

At the maturity stage, the market may coalesce around a group of companies that effectively create barriers to entry. The barriers are mainly based on economies of scale, high start-up capital requirements, the advantage of established brands, and the risk of "retaliation" that newcomers can suffer. Examples of markets that have matured to this oligopolistic state are the oil industry, supermarket chains, and detergents.

While internal competition in an industry may become more limited, competition from replacement technologies will increase over time. For example, the continuous improvement of plastics and alloys technologies is a challenge for steelmakers who want to maintain production levels. Such companies are then faced with the dilemma of whether it is worth trying in vain to ward off the threat of heavy investment in the acquisition and adaptation of replacement technologies.

1

One of the main trends in the development of economic systems is the tendency to expand areas of activity, their systemic integration, which is most clearly manifested in the concept of economic globalization. Globalization is the root cause of the formation of structurally complex economic systems in the form of integrated business groups, such as corporations, holdings, consortiums, conglomerates, cartels, syndicates, trusts and others. The most widespread integrated business groups are financial and industrial groups, transnational corporations, international joint ventures.

Analyzing current trends, many authors show that the globalization of the economy poses new problems for the governments of different countries. One of the main problems they see in the following. Modern corporate governance systems were formed at a time when the flow of capital, goods and labor across borders was of low intensity. Efficient corporations are becoming leaders in the international market today, for which state borders are not obstacles to production. By dividing production into several business stages, they place individual stages, taking into account the cost of resources and income tax rates, not only in different regions of one country, but also in different parts of the world. This allows you to increase production efficiency, minimizing costs and maximizing profits. The optimal allocation of capital mainly determines the trajectory of investment flows and increases competition for their receipt not only between companies, but also countries. By expanding access to external investors, increasing the transparency of their companies and strengthening the position of shareholders, they enter the international capital markets, where countries developing a market economy compete - India, Brazil, Greece, countries of Eastern Europe, the CIS with developed countries - Germany, Italy, France in which bank capital plays a more significant role than equity capital.

Another important aspect of globalization is the creation of highly mobile medium and small companies in the form of small diversified corporations equipped according to the standards of a modern electronic office. Such companies are low-cost and can, if necessary, quickly deploy their activities in different countries. Thus, globalization creates favorable conditions for accelerating the pace of development of not only large, but also small and medium-sized businesses.

In the context of globalization, a special role is given to information. Insufficient or unclear information can impair the strategic management of a company, adversely affect the cost of capital and lead to an abnormal allocation of resources. Users of financial information, including market participants, need information about significant risks that are reasonably predictable. At the beginning of the 21st century, the leading world powers are realizing the possibilities of a new, gently asserting global information technological order. They accelerated their socio-economic development and concentrated their efforts on the deployment of the information economy. At the same time, as you know, new problems have emerged. The rapid growth and significant increase in the role of the currency and stock markets of the "virtual" economy has significantly increased the likelihood of a crisis in the financial system of individual countries of the world.

When studying hierarchical self-regulatory organizations, we, as a rule, deal with complex processes, therefore, it is fundamental to consider such systems, the organization of which provides, firstly, for specialization based on the division of labor, that is, autonomization of processes, and, secondly, cooperation. The developed forms of cooperation are simple and complex. In contrast to simple cooperation as cooperation of the same labor, characterized by "simultaneous" actions, complex cooperation is cooperation of divided labor, various types of activity. Cooperation processes are associated with the formation of market models. The main market models in relation to our study are 4 classical market models, although in the literature you can find a wide variety of models, selected depending on the purpose of the study pursued by the authors.

The first market model described by K. Marx, F. Engels, V.I. Lenin is a self-regulating free market. Such a market existed from the 15th century until the end of the 19th century, and its peculiarity was the absence of state enterprises and the participation of only private organizations and corporations. The second market model is the monopolistic market, which was formed at the turn of the 19th-20th centuries and was characterized by the emergence of joint stock ownership through the horizontal integration of large enterprises in the form of monopolistic associations in one industry. Forms of horizontal integration were cartels, syndicates, trusts. Forms of vertical integration - concerns, consortiums. The third market model was the regulated industrial market, the fourth model was the information market, characterized by strategic planning, integration of production systems, the creation of transnational corporations and the globalization of all processes in general. The conducted studies allowed us to conclude that the evolution of market models is an element of global evolutionary processes (Table 1).

Table 1. Coordination of market models and evolutionary processes

The unification of market participants into integrated self-regulatory structures will ensure self-organization only if all links in the hierarchical system during its organizational design are correctly defined and the processes ensure a stable coordinated movement of inventory, financial and information flows in the system. The most common approach in practice to the management of structurally complex self-regulatory organizations is an approach based on the principle of a rational combination of centralization and decentralization, expanding the rights and responsibilities of persons making management decisions for autonomously functioning market participants while limiting their freedom of choice at the stage of solving the problem of strategic management .

The correct inter-level division of the global task of managing a self-regulatory organization allows us to understand, design and obtain a decentralized management system with a high synergistic effect. Studies show that the property of the integrity of the system - emergence, synergistic effect, homeostasis do not arise by chance, but in accordance with systemic laws. This confirms the high importance of the theory of system organization. The task of searching for common patterns in the processes of evolutionary development of self-regulatory organizations and methods for designing sustainable structures of decentralized management is one of the most complex and urgent tasks of scientific research.

In order to advance further in our study, we consider and analyze in detail the essence of the processes of self-organization and self-government. We adhere to the positions of E.A. Smirnov, considering the processes of self-organization and self-government to be natural processes inherent in living and inanimate matter, which “as a result of evolution, civilization has placed in subordination to formalized hierarchical processes at the level of state, municipal and other corporate governance” . By self-government we will understand the autonomous functioning of the socio-economic system that realizes the need of a person and organization for freedom of choice in the activities carried out. In self-government, the hierarchy of subordination is either absent or weakly expressed, in contrast to formalized governance. Self-management implies freedom in choosing goals, shaping the tasks corresponding to them, developing technologies and methods for solving them. At the same time, this process is an element of the democratization of general management through the direct participation of members of the labor collective in the development of current and operational decisions of the company, its development strategy and other equally important issues. Self-management compensates for the part of the management area that is not covered by a formalized management system, and initiates the development of not only artificial (formal) management, but also the organization as a whole. “Self-organization can be considered both as a process and as a phenomenon. As a process, self-organization consists in the formation, maintenance or elimination of a set of actions leading to the creation of sustainable industrial and interpersonal relations in a team based on the free choice of accepted rules and procedures ... ".

The activity of the decision maker (DM) is to obtain a useful result of the object managed by him. The useful result indicated by us is a function of combining the resources and knowledge of the decision maker within the organizational structure. The use of the potential capabilities of the decision maker largely depends on the external conditions of the activity of the object managed by him. The activity of the decision maker, who is in a certain position in the hierarchy, is influenced by the structural parameters of the management system: the order of subordination of the levels of the hierarchy, the exchange of information and control, depending on which the decision maker opens up different freedom of choice in decision-making. If the decision maker is strictly limited in his actions aimed at implementing the function of the system, then the value of the degree of self-government for his activity is very small. A change in the conditions of the decision maker's activity may entail a change in the freedom of his choice, and hence the degree of self-government as part of the general management.

In this case, the following four cases are possible:

1. In the case of "stability", the transmission of "defects" in the composition of centralization, decentralization and self-government of the lower level to the upper level is suppressed.
2. In the event of a "catastrophe", any "defect" in the composition of centralization, decentralization and self-government leads to the destruction of the system.
3. In the case of "unstable criticality" it is equally likely that the "defect" of the composition will either be suppressed or not.
4. In the case of "self-organized criticality" with a fixed initial density of "defects" in the composition of formal and informal systems, the density of defects stabilizes with increasing level.

The new approach to the paradigm of global evolutionary processes that we have considered makes it possible to single out the cyclic stages in the development of hierarchical systems and the corresponding processes of change in power (Table 2).

Table 2. Evolutionary processes and the state of the organizational system

The most concrete example of the coordination of the cyclic stages of the evolution of management identified by us and the processes and states of the system corresponding to them can be the main stages in the formation and development of Russian statehood, since the existence of the state as an organization always leads to a hierarchy of power. As the well-known Russian political scientist A.A. Radugin, “starting from the period of early class societies, the state as a form of social organization was the most widespread and directly observable phenomenon...” .

In the process of transition to a market economy, Russia intensively went through the stage of free competition, the characteristic trend of which was the fragmentation of large production associations and enterprises (the process of self-organization). The genetic basis of such a process is specialization, which gave rise to a certain isolation of enterprises and turned them into primary production cells of the economic system (the process of decentralization). Over the past two years, the behavioral strategies of Russian companies have radically changed in the direction of intensifying the development of integrated business groups and capturing new markets by them. The modern Russian economy is a structurally complex dynamic system with a huge number of explicit and implicit links between economic elements. According to the definition of a modern economic dictionary, direct economic relations appear as "a form of production relations between organizations, enterprises, implemented on the basis of direct contractual contracts between participants, without the involvement of state, interdepartmental and other intermediary structures." Through the system of economic relations, the unification of several business units into a single vertically integrated business group (centralization process) is achieved. In the conditions of vertically integrated business groups as hierarchical organizations, the systematic nature of formation and action is inherent in economic relations. One of the important problems of a market economy is the establishment of long-term economic ties for the supply of products and the strengthening of economically beneficial relations for the enterprise, which must be resolved within the framework of territorially organized systems. This will lead to the effective development of interregional ties.

The intellectualization of society and the introduction of new technologies should ensure constant and uninterrupted growth of the economy, the sustainable development of all industries, and then Russia will not remain in the world economy only a supplier of raw materials. Structural reforms and the dynamism of the economy will make it possible to observe not only economic growth in the long term, but also help reduce inflation and increase household incomes only if the management approach is systematic.

LITERATURE

1. Smirnov E.A. Organization theory. - M.: INFRA-M, 2002.
2. Political Science / Scientific ed. A.A. Radugin. - 2nd ed. revised and additional - M.: Center, 2001.

The work was presented at the II scientific conference with international participation “Economic sciences. Actual problems of fundamental research” (Egypt, Hurghada, February 22-29, 2004)

Bibliographic link

Mamchenko O.P. EVOLUTION OF MARKET MODELS AS AN ELEMENT OF GLOBAL EVOLUTIONARY PROCESSES // Successes of modern natural science. - 2004. - No. 4. - P. 183-185;
URL: http://natural-sciences.ru/ru/article/view?id=12624 (date of access: 12/20/2019). We bring to your attention the journals published by the publishing house "Academy of Natural History"

One of the methodological achievements of the twentieth century is an evolutionary approach to the study of technical systems. The main thing here is the discovery of the fact that any technical product from a meat grinder to a fighter develops along an S-curve. If we put aside the resources spent on the development of a technical system along the X axis, and its performance (or main technical indicators) along the Y axis, then we usually get a graph shown in Figure 2.

This is natural. Even earlier it was noticed that along the S-shaped curve there is an increase in the weight of the fruit of the plant with time. And the great French microbiologist Louis Pasteur showed that microorganisms grow in the flask according to the same pattern. By the way, it was the authority of the great Pasteur that prompted the engineers to check whether this law also applies to technology. It turned out - it works. But microbes on each segment of the S-curve have different genes at work, and they are fundamentally different from themselves at other stages of this curve. The same happens with technical systems. In its most simplified and well-known form, the S-curve consists of four stages.

At the first stage of the S-shaped curve, a fundamentally new technical system is born, which happens in two cases. It could be a product that performs a new function, such as the Wright brothers' first aircraft. Or is it a product that performs an already known function, but by implementing a new principle, for example, the first cars. The task of the first stage is to make the product work. From the point of view of an outside observer, at the first stage of the development of a technical system, nothing happens at all. They put a motor on the cart, but it does not work. We figured out the motor, but the cart still does not go, because the transmission does not work for it yet. They made a transmission, the cart became so heavy that the axles and wheels could not stand it. They changed the axles and wheels, but it is still impossible to drive, because there is no steering wheel. And until the last of the necessary nodes that provide minimal functionality is working, all outsiders see only that the investments are consumed, and the cart itself does not move. There is still no product.

At the same time, having appeared, the new product will work for the time being clearly worse than the design that preceded it, which has long been debugged and successfully implemented the old principle of operation. Why, then, one wonders, was it worth investing so much effort and money in such a product? And then, that he, based on a new principle of action, can potentially achieve more than his predecessor, already working at the limit of his capabilities. For example, by the end of the 20th century, it became clear that it would no longer be possible to fundamentally increase the speed of torpedoes and submarines, only by changing their shape and increasing engine power. All resources are exhausted. Then a new technical system was created in Russia - a torpedo that changes the properties of the environment in which it moves. This torpedo creates a cloud of bubbles in front of it (the phenomenon of supercavitation), and its movement takes place, as it were, not in water, but in foam. The speed limit of such a new torpedo is fundamentally superior to the maximum possible and already achieved for torpedoes of the previous generation.

When the minimum functional core has been created and the new technical system has somehow started working, realizing the new principle of operation, the system moves to the second stage of its technical development. Its productivity, or the main technical parameter, grows in proportion to the investment of capital (including intellectual capital). The new product outperforms the products that preceded it and becomes more and more reliable and convenient to use. He has numerous auxiliary systems that make working with him more convenient. At the first stage, auxiliary systems were not yet needed. Well, why does a speedometer need a car that is not driving yet? An example of a “second-stage” technical system is personal computers in the 1990s. They constantly increased the amount of memory, speed, numerous peripheral devices (printers, scanners, etc.) began to be widely used.

At the second stage, the technical system can begin to branch out into different products designed to work in different conditions or perform slightly different functions. Aircraft are divided into passenger, fighter, bomber, fire, etc. But this will only happen if there is market demand and will be discussed below.

When the potential resources for improving performance are exhausted and the product is brought to the maximum possible performance and convenience with the help of auxiliary devices, it moves to the third stage. "Third-stage" technical systems are both the famous jug and the recently appeared computer mouse. In the third stage, development products tend to combine with other products to form useful hybrids. For example, there was a device in many hotels that combined a clock, an alarm clock, a radio receiver and a CD player. The "third-stage" system does not die off until the social need for it disappears or a "first-stage" system appears, oriented towards the same tasks, but realizing them due to a new, more effective principle.

Along with the true third stage, a false third stage is also possible. As shown in Figure 3, a product can stop growing in its core technical metrics and begin to change through design alone long before its real technical limit is reached. This happens either under the influence of the market, when there is simply no demand for a more technically advanced version of the product, or because the technical level of some other products slows down the further progress of yours.

An example of the first is civil aviation. If we take the flight speed of a passenger aircraft (or the flight time across the Atlantic) as a criterion, then over the past 30-40 years it has grown very slowly (and the flight time as a whole has also decreased slightly) - clearly reaching the third stage. At the same time, from a technical point of view, supersonic aircraft are possible (an example of Concorde). The development of military aviation and aerospace technology also proves the technical feasibility of reliable flight at speeds several times greater than the speed of sound.

But there is no market need and willingness to pay for this increase in speed. The price of a ticket for Concorde is several times higher than the price of a ticket on a regular plane, and the flight time is only 2-3 times shorter. If in the future there is a need for such fast transport, then there are already technical solutions and preparations for the creation of supersonic and aerospace systems for intercontinental flights.

The second, more specific example is the relatively short history of the development of nuclear power. By the time of the Chernobyl accident, it was at a clear second stage, and quite advanced, and was intensively developing. Currently, development is curtailed. And if you look at the figures for the installed capacity of nuclear power plants or the energy they generate, shown in Figure 4, they have practically stopped growing or are declining due to the decommissioning of old nuclear power plants and the cessation of the construction of new ones in almost all developed countries. At the moment, market and political factors (public assessment of the degree of safety) firmly hold nuclear power in the third stage with a very real prospect of moving to the fourth stage (specialized nuclear power plants for remote sites, submarines and other niche applications).

On the other hand, if for political or market reasons it is decided to resume the development of nuclear energy, then over the years a lot of experience has been accumulated in ensuring more reliable operation of equipment, new materials and technologies, methods of monitoring and ensuring reliability have appeared. From the point of view of potential opportunities for development and growth, nuclear energy as an industry is a technical system of the second level. Today, it can be much more reliable and productive than during the Chernobyl era. But everything will be decided by the attitude of the market (in the global sense).

The technical limitations of the infrastructure that hinder the development of a product at a false third stage can be demonstrated using trains as an example. It doesn't make sense to build new, improved trains that can travel faster than the tracks can handle. If they lay a sufficient number of more modern tracks or strengthen the old ones, then such trains will be needed.

At the fourth stage of development, the technical system reduces its technical performance from the maximum possible to those that are needed here and now. This happens in a number of cases. First, when a product enters some niche market, where it is not the maximum performance that is important, but, for example, smaller sizes or price. An extreme case of Phase 4 products are many single-use, simplified versions of products that were previously expensive, high-quality, reusable items with a wide range of uses. Compare, for example, a seven-dollar disposable camera with optics familiar to us since childhood.

The second situation that causes the transition of a technical system to the fourth stage may be its transition into toys or souvenirs after it has given way to more modern goods in the performance of its main function. Of course, the quality and effectiveness of a samurai sword cannot be compared with the children's sabers that we buy for our sons. But it is not necessary. By the way, the product at the fourth stage can continue to be useful, but not with its original function, but as a carrier of certain information. Shoulder straps, for example, have not protected the shoulder from an ax strike from above for centuries. But they remained in the army as a badge of distinction.

An interesting reason why the system can enter the fourth stage is a sudden moral constraint in society. For example, after the Second World War, the liberal trend and the attitude to human life as the main value won in Western society. As a result, there was a need for new types of weapons with less lethal force than those that existed before. Wooden bullets appeared, and then rubber bullets. Objects that had long existed only as toys have regained their practical significance, such as police shields and batons.

Interestingly, the stage of development of a technical system determines the type of technical creativity for its improvement. It was discovered in the 60s by Heinrich Altshuller. At the first stage, inventions are conceptual in nature, bordering on scientific discoveries. At the second stage of the invention is already purely engineering. "Third-stage" products are already in the hands of designers. Compare toothbrushes, computer mice and boats: in all cases, a similar play of color and shape variations.

It is convenient to trace all stages of the development of a technical system on the example of a car. At the first stage, that is, at the end of the 19th century, a “self-propelled cart” appeared, on which it was not possible to go far. Not only the “troika bird”, but also the cab horse easily overtook her. However, in the 10s of the twentieth century, the car finally moved to the second stage and the horse was already clearly superior. By the 1930s, it performed most of the functions of a modern car and had almost the same level of comfort. All sorts of cars, trucks and specialized vehicles appeared. The modern car is a normal "third-stage" product of all sorts of shapes, colors and finishes. The car of the fourth stage can be seen, for example, at the airport or the Luna Park, where the speed and power do not correspond to the capabilities of the industry, but to the needs of its place of work.

Why does an investor or manager need to take into account the evolutionary stage of product development as a technical system? Suppose you have two investment proposals in front of you. To date, the products described in them work and cost the same. But one product is at the beginning of the second stage of its evolutionary path, and the other is a technical system of the third stage. Which of the two will you choose? Of course, the first one. Yes, but in order to choose, you first need to analyze the evolution of the product as a technical system. Unfortunately, only a few companies know how to do this, and most business analyzes lack this part.

An example of what this leads to can be seen in Figure 5. The largest international corporation, Du Pont, has invested $75 million to improve the properties of nylon. But nylon was already in the third stage of the S-curve at that point, and the firm did not get enough return on its capital investment. At the same time, the much smaller company Celanese invested a smaller amount in the development of an alternative to nylon, polyester. And she achieved what she wanted. And not because their developers were better or the possibilities were greater. Of course, Du Pont was superior to anyone. But polyester was at the beginning of the second stage of the S-curve, and it had many more untapped possibilities.

Another reason that makes evolutionary analysis necessary is the fact that technical systems progress along S-curves not arbitrarily, but developing according to some objective laws. Knowing these laws, you can imagine the prototypes of the next generations of your product and protect them with patents. This will help you compete with other companies.

To what extent will the accuracy of a business forecast increase if it is supplemented with a mere evolutionary analysis of products as technical systems? Unfortunately not enough. The fact is that no more than 10% of companies fail only for technical reasons. Therefore, it is necessary to learn how to analyze the life of companies that produce products. The evolution of companies Three stages of the evolution of companies

Numerous studies have been devoted to the life of companies. It is difficult to overestimate their usefulness, however, a single concept covering all the diversity of aspects of the company's life has not emerged from them. We wanted to find an evolutionary pattern that would be applicable to companies regardless of the industry in which they operate. To do this, it was necessary first of all to choose the main criterion by which companies should be classified.

We found that the main parameter that characterizes the life of a company is the company's access to capital. Taking a number of companies from different industries and grouping them only on the principle of access to capital, we made sure that within the same group companies have similar organization, culture, goals, risks and much more.

To solve the problems of this book, we introduce three stages of company evolution. At the first stage are companies with access to capital from a few hundred thousand dollars to about three million. They are also sometimes referred to as "garage" companies, as many of them started in the garages of their founders, such as personal computer giant Apple. A typical source of funding at this stage is the investment of wealthy individual investors (investment angels). Even in cases where a company earns money by providing some kind of service and reinvests this money in its own development, it is quite adequate to consider such reinvestment as that the owners of the service company are investment angels for themselves. Investments that are large in the scope of the first stage can also be made by investment institutions called venture capitalists.

Typical Tier 2 companies have access to $10 million to $100 million in capital. But what about between 3 and 10 million dollars? And this gap does not exist, since we are not talking about the actual balance on the company's account, but about the amount of capital investment it can claim for at the generally accepted price of capital. It is difficult to imagine a situation where a company can take an investment of 7 million, and no one will give it 9 million for a larger block of shares. This does not mean that the company will necessarily take these investments. Depending on its current state, the company may not be interested in additional capital investments, but it has the opportunity to receive them.

Treating their shares with care and not wanting to unnecessarily dilute the stake of their previous investors, second-tier companies typically realize their access to capital in stages. They take the first round of investment in the amount of up to 10 million dollars, the second round from 10 to 50 million, and instead of the third round, the company often goes public (IPO) and the company receives capital from 20 to 200 million dollars.

It is impossible to draw a precise line beyond which companies become Tier 3 companies. Let's say "third-stage" institutions are those with access to capital in excess of $100-200 million. Usually these are companies whose shares are traded on the stock exchange, but this is not necessary.

Such international giants as Wall Mart and SAS Institute remained private.

The source of potential funding is not so important. You can also make an IPO for 2 million, while remaining a "first-stage" company. Let's consider some parameters that characterize the life of companies and their dependence on the stage of their development.

Type of management and decision-making style

The type of management and the style of decision-making in the company are determined by the stage of its development. As the company develops, decisions depend less and less on random circumstances and more on patterns of previous development. Management less and less reflects the individual spirit of the founder of the company and increasingly the standard of the industry.

At the first stage of the company's development, decisions are made according to the situation. They are found every time anew. At the same time, the freedom to choose possible solutions is as great as possible. The chosen solution reflects the style of work and character of the entrepreneur, and it is his individual ability to be a leader that determines the management of the company.

When a company moves to the second stage, it is necessary that a culture of corporate life be developed in it. If decisions continue to be made “on a case-by-case basis”, then the company is doomed, even if each of the decisions made is correct. The introduction of a corporate culture, that is, a decision-making style that reflects the background of the company, makes the company less dependent on who specifically makes the decision.

When forming management, at the second stage of the company's evolution, there are at least two processes. First, there is a clear division of duties and responsibilities. If at the first stage they say that John is responsible for something, and employees often replace him as a partner, then at the second stage, the manager of such and such a site begins to answer for the same. And if at the moment John is such a manager, then he will make this decision, since and as long as he is this manager. Once to entrust decision making to someone becomes more and more problematic.

The second change in the style of management is that the individual leadership of the founder and the first head of the company should be replaced by the authority of professional managers, when everyone is fully responsible for his area. For a founder of a company (especially an inexperienced one), this is a psychologically very difficult moment. But if he strives to continue to control everything himself, then he will become the "glass ceiling" of his own company. Even if he himself knows everything thoroughly and knows how, soon the company will stop its development because he still has only seven days of twenty-four hours and a limited amount of memory.

At the third stage of the company's evolution, the conformity of the corporate culture of this team to the style requirements of the exchange, as well as the written and unwritten laws of the financial market in the country, begins to play a dominant role. In addition to the strictly formalized laws that have been regulating the financial accounting of companies whose shares are sold on the stock exchange (Security Exchange Commission Laws) in America since the 1930s, as well as all sorts of rules on labor protection, protection against discrimination in the workplace and the rights of employees and trade unions (which made socialist European enterprises), a special role begins to play the presence of conformity of the original style of the company with the traditions of the market in which its shares are traded. Changing the style of work and adjusting it "in place" is becoming increasingly difficult. It is precisely because of the mismatch of style that the "third-stage" giants of the West do not adapt very well to other, very different markets, for example, the CIS countries. And vice versa, it is better for "third-stage" companies from the CIS to enter the Western markets not "head on", but using special techniques.

Factors of personal prestige of senior managers of "third-stage" companies play a special role. As a rule, graduates of the most eminent business schools are at the head of a large American company. We do not share the view that their individual influence on the current course of events is shrinking and the demands for the market to believe in them are increasing. But we agree that the leaders of large "third-stage" companies are forced to devote less and less time to events within the company (delegating this to managers of the next level) and more and more to positioning the company in the outside world, including political lobbying.

One of the favorite topics of corporate PR is the individual style of a particular company. Indeed, individual characteristics of companies exist. And yet, just as all cats are different when compared with each other, but quite similar when compared with dogs, so different companies at one level show more similarities than differences when compared with companies at other levels. Stimulation of employees.

It is well known that people of certain character traits meet with different frequency in different professions. And they have different motivations. In this section, we want to show that this division applies to companies of different levels (of course, provided that people have freedom of choice).

If your task is to find more enthusiasts for your business, look for them among the employees of "first-stage" companies. After all, it is simply difficult for a non-enthusiast to survive in such conditions, and even more so to explain to himself why he works here. Often, the employees of the "first-stage" company are its founders themselves and those who took part in the inventions and ideas that underlie the company.

These are people who assure everyone and themselves that they are driven solely by the desire for material reward, but in practice, an independent and interesting lifestyle is more important for them. Their job is also their hobby. Statistically, the likelihood that they will succeed is negligible. And they could earn more and work less if they went as employees to a “third-stage” company. But they need to create their own, and not embody someone else's. They want to solve problems that they themselves have set. They are ready to sit at work nights and weekends, but are not able to come to work “on call”. They are ready to put up with the uncertainty of tomorrow and the knowledge that the company can disappear at any moment. But discipline is not always their forte.

The main incentive for employees of second-tier companies is the expectation of remuneration. When interviewing a potential employee of a second-level company, the manager should be glad if he asked a lot of questions about the company's business model, asked if the CEO of the company had taken his companies to the stock exchange in the past, tried to understand if he had a chance to help the company in to make him a millionaire. Such an employee knows why to move the company forward.

He understands that big companies usually give more guarantees that there will be work tomorrow. Rush and stress happen less often there. As a rule, additional payments to the salary, such as good insurance, paid training or longer vacations, are more in the "third stage" companies. But growing to the upper echelon of management or becoming very rich on shares offered by the company in a “third-stage” company is also unlikely. As a result, the loyalty of a classic employee of a "second-stage" company to his place of work is the greater, the greater his faith in the fateful tomorrow's reward when the company goes public and he sells his shares for big money. If such an employee ceases to believe in tomorrow's success, he begins to look for a better job.

Employees of "third-stage" companies are people who value stability and confidence in the future. Their loyalty to the company is due to two factors. The first is the real reward today. Usually the only thing needed to lure them to another company is to offer a higher salary without losing vacation time or insurance. The second loyalty factor, usually more significant for older workers, is the belief that tomorrow will not be worse than today. If the company has managed to inspire confidence that workers will be allowed to work until retirement and will be paid a corporate pension, then even if the “second-stage” company offers the 50-year-old expert a lot of money, he will still think carefully whether to agree to it.

Unfortunately, the inability to look at the selection of personnel and the development of an incentive system through the prism of the evolutionary levels of a company's development often leads either to staff turnover, which hinders the company's progress, or to the need to pay today more than is possible in given conditions.

Main tasks and focus of the company

A company is a multifunctional organism in which work is carried out in different directions at any given time. And yet, depending on the stage of development of the company, the relative importance of these processes varies. Consider the sequence of changes in priority tasks.

During the first stage of its formation, the company must:

Achieve (personal) contact with next round investors

Prototype your first product

Develop an initial business model

Naturally, the main focus of the company at this stage is technical development (R amp; D is an abbreviation for research and development). After all, if there is no product, what will reasonable investors invest in and what will they market in general? And yet, no matter how great the developed product prototype is, it will be stillborn if it is not immediately combined with a clear idea of ​​\u200b\u200bhow and to whom to market it.

Statistically, a company with a good business model is more likely to survive than a company with a well-conceived product. Most dot-com companies that failed were well-made products with no well-defined business model. Therefore, the development of a business model should precede the final terms of reference for the creation of a product prototype. In practice, this rarely happens.

After the terms of reference are formulated and the profile of the first product is outlined, it is necessary to strictly forbid yourself to add additional improvements to it along the way. Their ideas should be written down on a list of future tasks. If developers discover new and unexpected opportunities in the process of work, and besides, when talking with potential consumers, a marketer (usually the founder of the company himself) comes up with new interesting proposals, then the product will not be completed on time and within the allotted time. budget. New easy-to-implement proposals appear faster than they can be implemented. And it buried more than one thousand nascent companies.

Another typical mistake at the start is trying to create several related products at once. Even if they can be done at the same time (which is almost always self-deception), it cannot be turned into a business at the same time. And even if it is possible, you will not be able to answer the question of investors in one sentence: “So what will be your product?”. If you don't answer correctly to investors, you will ruin your business. This means that all additional products should be postponed to the subsequent stages of the company's development.

Finally, if you've created a great product prototype and a great business model, and all you have to do is bring it all to life, you can't do it without further funding. Unfortunately, investors won't come to you, offer you money, and won't even let you in if they don't know you personally. An interesting example was a comic poster, on which, under a photograph of a young Bill Gates with the first three Microsoft employees, there was a caption: “Would you invest in them then?”. Tell yourself the truth: “No, no one invests in strangers!”. Establishing personal contact with representatives of investment institutions is a necessary condition for the survival of a "first-stage" company.

At the second stage of development, the company must:

Create a mass production technology for your first product.

Start building a market for your first product.

Start developing additional products that will be created on the basis of the first one and that the company will offer to its customers.

Create a compelling story for next level investors.

Start working with underwriters who will take the company public if the original business model provides for an IPO.

In order to do this, the company must create a capable business infrastructure, scalable production and quality control, sales and customer support system. The departments involved in this decide her fate. Development remains an important area, but turns into a "servant". For example, manufacturers need to change the design in order to reduce the cost of manufacturing a product or remove a block that most negatively affects quality indicators. Marketers can also give a task to developers, for example, to modify the design for such and such a market segment.

A "third-stage" company, if privately held, has the task of maximizing sales profits today and protecting its market from competitors tomorrow. Once a company goes public, the challenge is to maximize market expectations, thereby increasing the price of its shares. At certain points, increasing the price of a stock and maximizing profits are not the same thing, but they are the exception rather than the rule.

Such tasks determine the key role of PR departments, sales and marketing structures, as well as production, in which the quality-price ratio must be no less than that of competitors. The role of working with investors, or rather with representatives of the financial market, is becoming less and less dependent on momentary coincidences of circumstances, but never loses its importance. R amp; D usually fades into the background.

The stage of development of the company and the evolutionary level of its products

The most important discovery of CEA is that the level of development of the company determines what products, which are at different levels of their technical development, the company can work with.

Tier 1 companies are effective for working with Tier 1 technical systems. Typically, the activity of a Tier 1 company is to develop a new product.

Second-tier companies can work with products that are technical systems of both the first and second levels. "Second-stage" companies skillfully bring the prototype to market production.

Tier 3 companies work great with products that are already at the third level of their technical evolution, or at least in the middle of the second level. With Tier 1 products, Tier 3 companies cannot work in the same way as Tier 1 companies with Tier 3 products.

A typical example here is the Xerox company. Much of what the average user knows about the computer was developed there: the mouse and joystick, the laser printer, the Windows prototype GUI, and even the Excel prototype program. And what happened to such an outstanding development department? Looks like they got fired for nothing. What is this - an accidental mistake of Xerox company executives? But why, then, do many other “third-stage” companies show a similar “chill” towards the developers of the new? After all, it cannot be that at the helm of the American economy there were mostly bunglers, while the country is living so well.

Let's see what level of technical products were the inventions made at Xerox? First! And what level of company was Xerox at that time? Third! Is this combination compatible? No, and Xerox could not work effectively on new products. And this is understandable. After all, the main task of the “third-stage” Xerox was no longer the invention of a new one, but the maximum profit from the sales of copiers it produced. In production, executive discipline is necessary. Development requires creative freedom and enthusiasm. Of course, they sacrificed enthusiasm in the name of production.

But is there really no way out of this contradiction between today's tasks and the culture of "third-stage" companies and the style of work required to create a "first-stage" product, which is a "step into tomorrow". Of course, there is a way out, and it is called in Russian “subsidiary”, and in English subsidiary. A subsidiary is a "second-stage" company that is created by a "third-stage" parent company in order to develop some new technology and / or product. There is no conflict between the second level of development of the company and the first level of development of the technical system. They match perfectly. When the "second-stage" company develops the product to a level acceptable for the work of the "third-stage" parent company, the product can be explicitly or implicitly transferred there.

One of the leaders in the effective creation of isolated subsidiaries is Intel. In it, such branches are not even created as formally separate firms, but as autonomous departments, separated from the production part and practicing a culture typical of "first-stage" companies. A disastrous investment.

Why do investors and managers need to know and understand the stages of a company's evolution? Let's demonstrate the significance of this with an example that almost shocked the Wall Street investment professionals who attended our seminars. We will demonstrate that an additional investment in a company when it is not ready for it can be disastrous for the company.

Consider a typical American course of events. A garage company came up with a good idea for a new product. Investors have invested in it 3 million dollars. The company made a working prototype, developed a design, found out that the product could be produced using some technology at a certain plant, and even agreed with the first potential buyers. Hopeful investors bring in next level investors who invest 30 million.

The company moves from the first level to the second. It hires professional managers who translate almost all aspects of the company from what they should have been in the first stage of corporate development to what they should be for a successful second stage. But, as they say, "almost" doesn't count. It is enough to let at least one parameter fall behind, leave it as it was at the first level, and the company will start to feverish.

In response to the difficulties that have arisen, as often happens, management runs to investors and shouts that the company does not have enough money. He explains the difficulties that have arisen by the fact that they cannot increase such and such, hire such and such, and so on. Investors see that a lot has really been done and is being done correctly (managers do not forget to demonstrate this in all its glory). Will investors get to the bottom of the true cause of the problem - to the fact that one of the parameters of the company has really remained the way it should no longer be? It's possible, but it usually doesn't happen.

What happens if investors, trying to protect their investments, take the management's point of view and provide new investments of 60 million? This additional investment will bring the company closer to the third stage, widening the gap between the dimension of corporate life that has remained "first stage" and what is now required. And the wider this abyss, the sooner the company will fall into it. It follows that an investment made in a company at a time when the company is not ready for it does not protect the company, but, on the contrary, accelerates its death.

The practical conclusion from this example is the need for investment analysis based on QEA. Matrix-system of company organization

When a company reaches the late second level, an effective technique is often the transition to a matrix structure. This allows you to save a lot of resources, using the company's employees more efficiently. Unfortunately, the matrix structure is not traditional in Western culture, and management needs to make extra efforts to implement it.

Traditionally, a company is organized along one of two principles. Either all employees are combined into divisions, each of which is engaged in one or another professional activity (development department, technical control department, marketing, advertising, etc.), or divisions are formed according to who is involved in what project. In this case, representatives of all specialties will be in each division. In both these cases, each employee is subordinate to the head of his department, and he is responsible for all issues related to the work of this employee.

But both methods of organization carry fundamental internal limitations. Let's take a look at this as a joke. Suppose we decide to produce stools. We hire a designer to develop a model, a strength engineer to ensure that the stool does not break, a woodworking technologist, a production workshop, marketers and advertising specialists. Together they produced stools that became a success in the market. And we decided to start producing chairs as well. Who needs to be hired? All the same, but for chairs. And then the nightstands.

And each time, uniting people into teams according to their project affiliation, we create redundancy. After all, despite the fact that each product requires a whole range of specialists, these specialists do not work at the same time, and each of them is idle part of the time. For example, while the developer is still only working, the technologist has nothing to produce yet, and the advertising department has nothing to advertise yet. Next, the developer will "idle" until it's time to update the model. Yes, and the constant honing of their professional qualities is difficult for each of the specialists, because he is surrounded not by colleagues, but by representatives of other specialties. But it is not difficult for management to keep each employee focused on the project.

How can employee downtime be avoided? One way is to entrust one person to lead the entire project from "a" to "z". However, at the same time, we are sliding down to the level of efficiency that humanity had before it invented the division of labor. However, this proposal will not be so obviously rejected when it comes to biotech companies. In many of them, it is still accepted that the same researcher and the same laboratory assistants lead the project at all its stages. As a result, if someone is great at DNA but worse at proteins, they will do both, while their counterpart has skills and priorities in just the opposite order. But it is interesting: everyone goes through the plot, climax and denouement of the project. It is a pity, however, that the denouement too often does not have to be proud of.

Another attempt to avoid downtime is to group designers together in one department, engineers in another, technologists in a third. At the same time, it becomes easy for the head of the department to maintain the professional level of each employee. However, can he control the progress of each designer, given that one deals with stools, another with chairs, and a third with nightstands? And if you also need to help the designer find a common language with the engineer and technologist… It turns out that with the growth of the company and a large number of projects, the management of teams organized by professional affiliation becomes ineffective.

The matrix system offers a way out of this situation. With a matrix management system, each employee lives in two dimensions at once. On the one hand, employees are grouped into units, which include representatives of each specific profession. On the other hand, each project has its own leader, and as far as the work on this project is concerned, representatives of all specialties involved in the work are under his management.

This leads to the fact that the head of the professional unit monitors two things. First, for the professionalism of each. And secondly, behind the schedule: at what time and to what extent the employee is under the control of one or another project manager. However, with regard to the specific activities of this employee within the project, the head of the professional unit should not know.

With such a management system, each performer has as many managers as the number of projects he is involved in, plus one manager of the professional unit. And it is this latter who is responsible for ensuring that conflicts in the schedule do not start and that at any given time it is clearly clear which project manager the employee is working with so that other managers cannot disturb him now.

By organizing the company in this way, it is possible to load people as flexibly and efficiently as possible. At the beginning of the project, it is determined how many and which specialists should be involved and in what sequence. Then the engineering manager might say that if you start the project in February, you need to hire another engineer, because by April, when an engineer is needed for the project, all the engineers will be busy. On the other hand, if you start it in March, then the engineer will be needed in June, and engineer Johnson will be released from another project just at that time and will have to return there only in October. The window in his schedule in the first project will allow him to cope with the second in that time.

Interestingly, not only manufacturing companies, but also large service companies are switching to the matrix structure. For example, transcontinental PR agencies serving firms selling their products in different regions. The one who brings the contract with the client company usually works in an office located in the same place as the client's central office. The signer of the client becomes the project manager for servicing that client.

On the other hand, PR agency offices located in other regions are analogous to professional units whose professional knowledge is how to promote companies in their region. And the project manager (account manager) attracts employees from different regional branches of the agency in the same way that a project manager for the production of chairs would attract designers, engineers, technologists and advertising specialists.

We expect that the matrix system of organization will become more and more popular for companies of the late second and third levels.

Market evolution

Much research has been devoted to the study of markets. Most of them analyzed the markets of individual industries and can serve as a reference rather than a systematic classification of the evolutionary stages of market development. Some works devoted to general regularities are of interest, reflecting certain characteristic features of markets as a whole. However, there was no unified and practical classification of markets that would reflect the stages of market evolution.

To create it, it was necessary to find a fundamental criterion that could be used as the basis for such an evolutionary classification of markets. We have determined that the criterion that classifies the stages of market evolution is the distribution of consumers between this market and other markets. This criterion should not be confused with the percentage distribution of the same market between companies trading on it.

Let's take an example. The air transportation market shares its customers with the road, rail and sea transportation markets. The percentage of passenger traffic between these markets depends both on the stage of development of aviation compared to other vehicles, and on a number of more random factors, such as the temporary illusion that terrorists will blow up planes, but not trains. At the same time, within the aviation market, there is a distribution of it between various companies, such as Delta, El Al, Swiss Air, Aeroflot and others. The internal distribution of the market among the companies playing on it (market sharing) is not the criterion that will be discussed in this chapter.

We have proposed an evolutionary classification system in which markets are divided into five groups corresponding to five successive stages of development. At each stage, the markets are characterized by the same:

Goals

Stages of development of companies trading in this market

Stages of technical development of goods sold on a given market

The psychology of buyers

At level zero, the market for consumers who pay money to use the new offer does not yet exist. There are enthusiasts for whom trying something new is a hobby. On their game, a new proposal is born. The users of a market that does not yet exist can be research scientists, for whom the testing of a new one is part of their activity. The zero-level markets were the phone or the car at the end of the 19th century, and a hundred years later, the first inhabitants of the Internet constituted this level market.

There are already buyers on the first level market who actually pay money. But they are not leaving the previous market yet. For example, a rich person at the beginning of the 20th century could already buy a car and defiantly ride it around the city on a day off. However, the main means of transportation for him continued to be a horse. He temporarily paid both the gasoline market and the hay market. The phone market was in a similar position around the same time. And the Internet became a first-tier market by the early 1990s.

The market of the second level is characterized by the fact that consumers begin to come to it en masse, leaving the previous market. So Americans and Europeans in the 20s of the last century began to massively change to cars, leaving cabbies unemployed. With phones, this happened about ten years earlier. But the Internet, having entered the stage of the second level market by 1993, is on it now.

A situation is possible in which the number of consumers who leave money in a certain market does not increase, but each consumer begins to use a new product to perform an increasing number of tasks. Moreover, he needs this product more and more often, and he leaves more and more money in this market. This is also a second level market. For example, before computers for payroll and balance sheets, banks and companies used tabulators with punched cards. The first large mainframe computers in banks and companies took over exactly this job - i.e., compiling balance sheets, calculating salaries, keeping track of stocks, etc. But soon, computers entered all areas of the bank's work. The banking consumption of the computer markets was constantly growing, while the banks did not become more.

The market enters the third level of development when all potential consumers already use the offer of this market and the dynamics of the number of buyers reflects the population growth in the country. The postal service in countries with universal literacy has been a "third stage" market since the invention of the postage stamp. American automobiles and the telephone moved into the third tier market in the 1930s. I wonder when the Internet will reach the third stage of the market?

The fourth stage market is the other side of the second stage market. At the fourth stage of the market, there is an outflow of consumers who begin to use a new offer to replace the existing one. The market for transportation by horses moved to the fourth level when the car moved to the second. Postal and traditional telephone networks are now entering their fourth phase under the pressure of the Internet. The market for cars or pots is still far from the fourth stage. And if science fiction writers have already predicted the onset of the fourth stage for cars, then I don’t even want to imagine a world without pans.

Characteristically, the market should not be confused with companies trading in this market. A company can quickly move from one market to another, sometimes even getting an additional impetus to development, accelerating the death of its former market. For example, IBM moved into the personal computer market, hastening the death of pre-electronic office equipment, which it once produced (by the way, information was recently published about IBM's intention to exit the personal computer business as well). On the other hand, specific companies may also disappear in a booming market, giving way to others.

Stage of development of the company in the markets of different levels

The zero-level market is not quite a market yet: no money is being paid on it yet, and too much is still impossible to formalize. At the same time, the role of the zero level of the market is by no means zero - it is a necessary proof of concept. It is not surprising that, in terms of the nature of the team and tasks, it is the first-level companies that are most effective at the zero stage of the market.

In the first-tier market, second-stage companies are the most effective. We know many examples when “third-stage” corporate giants also entered the first stage of the market. However, in almost all such cases, a separate subdivision is created within the "third-stage" company, living according to the laws of the second-stage company. And even the decision to continue funding this unit is made by corporate management in a manner similar to that practiced by investment bankers who invest in other people's "second-stage" companies.

The second stage of the market begins quite rosy for both second-tier and third-tier companies. However, by the end of the second stage, only "third-stage" companies remain on the market. This mechanism will be discussed in more detail in the chapter “Dynamics of the number of companies on the market”. It also explains why only "third-stage" companies can effectively produce a product in the third-level market.

It is noteworthy that “second-stage” companies can sometimes re-enter the market of the fourth stage. Indeed, for the "third-stage" giants, this market may become uninteresting, and the remaining niches may continue to be profitable for second-tier companies that have adapted to these niches in time. For example, after the appearance of a new drug, there may be a relatively small group of patients who are contraindicated for its use. For these patients, small pharmaceutical manufacturers can produce obsolete drugs for a long time, and the requirements for its price are lowered. In the same way, there may be production of telephones not with push-buttons, but with a rotating disk. Few extreme fans of retro style will buy such phones. But for a "third-stage" company, the production of such phones will not be a profitable project.

Stage of product development in markets of different levels

The level of development of the technical system offered on the market must be combined with the level of development of the market. This is indirectly due to the fact that the level of market development dictates the stage of development of a company that can be present in this market. And the stage of a company's evolution, as we saw above, determines which technical system a given company can work with.

Nevertheless, there is a direct relationship between the market stage and the level of product development. An insufficient level of product development will hold back the development of the market. The technical system of the first level will determine the existence of the market only at the zero level. Nobody wants to pay for it yet. The technical system of the second level usually requires too much training in its use, is not sufficiently debugged and / or does not meet any other requirements of the buyers of the "third stage" market. A “third-stage” technical system, on the other hand, can quite rarely be a product on the early-stage market, otherwise it is not clear why it was not offered to this market earlier.

In turn, for civilian products, it is the stage of market development that determines the amount of investment in product development. Reacting to market dynamics, companies and banks are investing in the development of the next, more advanced versions of the product. If the market moves to the second stage, then there is no doubt that there will be investments for this proposal (unfortunately, not necessarily for your company). On the other hand, no matter how ready for further progress the technical system is at the zero stage of the market, a small number of people willing to invest in it will slow down its technical progress.

Thus, it is the company that is the transmission link through which products and markets influence each other. It is also the goal of their coordinated action.

Buyer psychology in markets of different levels

The most important factor in the market is the psychology of the buyer. In a world where basic human needs are already quite fully satisfied, it is the conformity of the product to the conscious and unconscious desires of the consumer that determines success. And it is not surprising that buyers in markets of different levels represent groups with different purchase motivations and are ready to forgive the manufacturer for various shortcomings.

At the zero level of the market, everything is forgiven, except for lies and greed, since the zero level is driven by the user's interest to become almost a co-author of the developer. Enthusiasts assume in advance that your development is still working poorly, and good-naturedly inform you about the shortcomings they have found. At the same time, some will give recommendations, which are sometimes very useful. By the way, the need to respectfully listen to even the absurd offers of users at the zero stage of the market is an inevitable price for their agreement to help you.

At the first stage of the market, buyers become buyers for two reasons. For the first, a new proposal solves a vital problem (this is usually in the military or in medicine). The second case is much more common. These buyers not only buy the product as such, they value the feeling of exclusivity. Giving them the opportunity to become better and more progressive than others in some way, the product should already work and perform its function, but for now it will be forgiven if it does it imperfectly and requires effort from the consumer.

With what pleasure the former president of the company writes in his memoirs that he was the first to introduce some kind of revolutionary innovation in himself and how it pushed the company forward. About how much blood his employees initially cost this now familiar and well-functioning invention, history is usually silent. By achieving exclusivity by revolutionizing an outdated process, first-stage consumers contribute to the progress of society.

There is no negative or positive exclusivity for the seller in the first stage market. One day we were flying from Europe to America with a salesman for a brand new voice recognition system that was planned to be installed on the most expensive brands of cars. Such systems allow the driver, instead of, for example, turning on the right turn signal, simply say a command, and the car will turn on the signal itself. After talking during a long flight, we asked our fellow traveler how well these systems work. “It doesn’t matter yet,” he replied. - After all, while the majority of buyers of cars with such systems will not drive a car themselves. Their driver will drive such an expensive car, and they will sit in the back seat and discuss the latest technology. That's when the driver decides to buy his Ford, which will or will not have my system installed, then it will have to become reliable, like a car stereo today.

At the second stage, those who see that using a certain product, they get a new convenient tool for a more complete realization of their old desire become consumers. The feeling of novelty is not the goal of the second-stage buyer, but it does not repel those who would like to expand their capabilities and do the same things that they would do without this product, but worse and in smaller volumes. The new always causes discomfort, because a habit is a convenient thing. At the second stage of the market, the discomfort from the new product is still forgiven, but the poor performance of its work is no longer there.

For example, e-mail provided the opportunity to correspond and communicate, which people did before it. But now it's possible to do it more efficiently:

It became possible to send the same message at once on the whole list, without wasting time on duplication

It became possible to contact recipients all over the world almost instantly and almost free of charge

It became possible not to distract a person with a call at a time that is convenient for you, but to send him a message that he will open when it is convenient for him.

At the same time, most users perceived the fact that they had to learn how to use a new tool - the Internet, as a completely acceptable price for access to these advantages.

At the third stage of the market, the psychology of buying a product is discomfort from its absence. The product should already be habit-oriented, and all requirements for its consumer should be reduced to a minimum. All derived words “novelty” are good in advertising slogans, but the “third-stage” market does not like any novelty visible to the user.

For example, in Denmark, the digits of a push-button telephone are arranged differently than in America or Germany. Therefore, when cheaper foreign-made phones came to Denmark, the Danes almost did not buy them. The fact is that people get used to the pattern of finger movement when dialing a number. And the discomfort from the unusual design turned out to be even more important than the small difference in price.

Tasks of markets of different levels

Is the market an abstraction to which it makes no sense to attribute specific tasks? No, the markets are something very real, and this reality is clearly aware of what it wants at every stage of its development. No matter how companies compete in a particular market, they nonetheless unite into formalized (formalized) industrial unions, or, without formalizing their ties, achieve common goals, or fight common enemies. Think, for example, of the oil lobby in the US government. These are the proteges of the industry, although, of course, the industry implements its tasks through specific companies. And it doesn't even matter whether specific companies are aware of this, although they usually do. A clear awareness of unity is not required for all forms of cooperative behavior. For example, collective panic is a clearly cooperative and unconscious phenomenon.

At the zero stage, the task of the market is to attract the attention of future consumers to the emergence and existence of a new class of products.

At the first stage of the market, he must create a basic group of consumers to develop in society some habit of his proposals.

In the second stage, the market should grow into an international set to fashion itself

In the third stage, the market tries to prevent the emergence of competing markets and find new niches.

At the fourth stage, the market seeks to slow down the outflow of consumers to find sustainable niches to slow down the progress of a growing competitive market

It is interesting that the understanding of the given objective laws of the market reduces the mass of personal irritation to the actions of certain company executives. It brings the understanding that if this particular person did not cause harm to your business, then his market would delegate the same mission to some other representative. He is not a scoundrel, but simply a person who turned out to be with you today on opposite sides of the barricades. No wonder the introductory phrase “nothing personal, ...” is so common in America. The evolution of the investment project as a whole. Promising and doomed projects.

Every day, thousands of business analysts review an endless stream of business plans, assessing their viability. They provide a feasibility study on why one project is viable and another is not. Talking to technical experts in the industry, getting to know the team, studying the size of the market, they want to see projects that have all the parameters that are as good as possible.

Indeed, it intuitively seems that if the technical development is excellent, and the team in whose hands it fell is good, and even the whole world has buyers, then such an investment should inevitably bring success. Well, what a terrifyingly high percentage of investments fails, analysts explain by the mistakes of managers who, with their wrong actions, ruined such a sure thing.

However, it follows from the analysis earlier in this chapter that investment and business analysis commonly practiced today suffers from a fundamental flaw: it does not take into account the extent to which product, company, and market fit together. Separately, each of these components can be beautiful, but their whole is reminiscent of an ecosystem where the flora of tropical forests was planted on the dunes of the desert and populated with seals. And no matter how hard you try to select greener lianas, looser sands, and healthier seals, this ecosystem will die. And the fault here will not be the manager-gardener, in whose hands she did not survive, but the one who initially thought out the ecosystem so “well”, really collecting all the best in it.

And how is the prospects of the project assessed according to the CEA methodology used by the International Institute for Feasibility Studies (MITEO)? According to the CEA, at the first stage of the analysis it is necessary not only to assess the technical merits of the product, the company's staff and resources, the size of the market with its dynamics, but also to determine the evolutionary stage of development of each of these components. At the second stage, the existing combination of evolutionary levels of product, company and market development is compared with the matrix of allowed combinations developed by MITEO. If the resulting combination is allowed, the project may be successful. If unresolved, the project is doomed from the start due to the evolutionary incompatibility of key components.

Let's look at Figure 6. On the three axes of the graph, we plotted four levels of development of the technical system, three levels of development of the company and five levels of market development. It turned out a space of sixty cubes. We mark in this space the cubes corresponding to the allowed evolutionary combinations. For an average situation, there will be only 15 of them, which is only a quarter of all available options. This means that by not doing FEA, but by continuing to blindly create combinations of ideal products, companies, and markets, you have only a 25% chance of success. And this is provided that each of the potentially winning projects works as intended, and does not die along the way from the really mistakes of managers.

By the way, FEA leads to an interesting conclusion about the effectiveness of managers. It turns out that if the business system is poorly planned and is in one of the forbidden positions, then the more efficiently each manager will perform his specific task, the faster everything will collapse. After all, in reality, speaking in the language of mechanics, they work "for breaking", like horses harnessed to one cart, but from different sides. And the only mistake these managers (who will eventually be blamed for everything) was that they initially took on a poorly planned project.

Now let's add a time factor, not shown in this figure. For example, in the dynamics of the second stage of the market, second-tier companies will gradually give way to third-tier companies. This will also lead to a reduction in the number of green cells on the graph at certain specific points in time.

Moreover, statistically, projects based on the development and production of technical systems of the fourth level are offered to investors less frequently than those based, for example, on the use of products of the first or second level. It's just that people, for one reason or another, are less likely to come up with them. This means that the three allowed cubes that they bring to the chart in real life add not 5%, but less to the possibility of random success without CEA.

And this is still in an average situation, without taking into account the state of the economy at a particular moment. A more detailed analysis shows that in different periods of the state of the economy within one country, such as: an economic boom (expansion), stagnation (stagnation), or recession (recession) - investors and the market prefer one or another position from those allowed and marked on the given chart. This means that for different periods of the state of the economy, the graphs of allowed evolutionary combinations will also be different.

So what is the result of CEA? Prediction of investment and business success? In no case! CEA does not compete with fortune-tellers, it makes fortune-telling unnecessary in situations where you can calculate the inevitable failure. By cutting off projects that are doomed due to the wrong evolutionary combination of their components (and most of them are), CEA increases the likelihood of success for investors, managers and businessmen by leaving them a few tunnels, not solid dead ends. But you can stumble in the tunnel.

CEA is also useful for projects that have already been started and have fallen into one of the forbidden positions in the space of evolutionary states. The fact is that practically from each such state it is possible to switch to the trajectory of promising positions using specific techniques. Consider an example.

A few years ago, investors came to us from a small investment fund. They told us that they recently invested the first couple of million dollars in the creation of a new type of motor. Inside these motors, oxygen and hydrogen contained in the air will react with each other, releasing energy. It is on this energy that the car will run. Just the embodiment of the dream of mankind: instead of gasoline - air, instead of exhaust gases - water. The team working on the project consisted of 18 young, talented and enthusiastic scientists, engineers and managers. All of them were graduates of the best universities. The market was obvious - we all drive cars. Where is more?

To bring development to the pre-production milestone, the company asked investors for another $ 8 million. Without doubting that they will provide all the financing for such a promising undertaking themselves, the investors from this fund nevertheless decided to discuss with us their already prepared solution. The case turned out to be so obvious that we didn't even have to invite experts in motors, energy and the automotive market.

Assume everything is really as great as it sounds, we told investors. Let's now see what we're dealing with. Your new motor is a first level technical system. The company is a second-tier company. Great combination. But the market is the market of the third level. And there is nothing to rejoice at its gigantic size: your company has no chance to take it away from the "third-stage" giants. The position of this investment in the space of evolutionary combinations is marked in Figure 6 with a red square. This is a forbidden combination of individually beautiful components. It is not promising.

What do we do? - asked frustrated investors. - Do you think that our first investment is doomed? Of course not, we replied. - You have made a great investment, but in order for it to make a profit, you need to change your further strategy. Instead of investing the entire required amount yourself, invest only a part so that the rest is added by an investment fund of some "third-stage" car company. Then you will put your "second-stage" company in the position of a subsidiary. When the product is technically brought to the second level, the branch will no longer have to solve the overwhelming task of bringing it to the market. This will be done by the “third-stage” automotive giant investor. According to the investment fund that came to us then, the proposed solution was the most correct.

Following the path of development of many of our predecessors, at first, when we first discovered the laws of CEA, we only wanted to use this advantageous knowledge in our competitive struggle in the market. But now we want to believe that over time, CEA will become the same generally accepted methodology for investment and business analysis, as well as classical methods of financial analysis. And we recommend that you protect your investments and projects by applying FEA in combination with classical methods of analyzing selected and promising business proposals. Why "quantum" analysis?

The title of Quantum Economic Analysis is probably unprofitable in terms of marketing and PR. It scares away people without an engineering or natural science education with “abstruseness”. And it alarms people with such an education with pretentiousness: “Are you hinting that another atomic bomb will come out of your model?” But this name was not invented by us, it was given to our methodology by those of our listeners who, before getting to Wall Street, were either physicists or mathematicians. And there are many of them, and therefore we do not even know who was the first to propose the name of the CEA.

The explanation below is not necessary to understand the entire book, and we recommend that people with no background in physics go straight to the next section.

It seems to us that the name of QEA reflects some analogy between the methodology of business analysis proposed by us and quantum physics.

The state of a particle can be described as a combination of quantum numbers. The state of a business is a combination of the evolutionary stages of its components.

If a particle can stably be at one of the permitted energy levels, then the business project must also fall into one of the permitted states with the correct combination of the stages of development of all its parts.

As there are forbidden energy states for a particle, so there are forbidden evolutionary combinations for business.

To move from one energy level to another, a particle must absorb energy. A business, in order to move from one state to another, must absorb the investment.

Both methods make it possible to predict.

Of course, the analogy is not complete. First, discrete quantum levels are a physical reality, and the subdivision of evolutionary stages into discrete stages is nothing more than a descriptive device. Although Max Planck, who proposed the idea of ​​quantization, treated it as nothing more than a mathematical technique that had no physical meaning.

Secondly, the situation with business is much worse than with a particle. A particle cannot fall into a forbidden state, which is not allowed by the laws of quantum mechanics. And not because she knows about it, but because it is physically impossible. There are no physical barriers that would prevent a business from getting into a state prohibited from the point of view of the CEA. Business, if it finds itself in a forbidden position in terms of a combination of evolutionary levels, will burn out. And strict targeted actions are required to transfer this business to a permitted state. It won't happen on its own.

New Business Description Language

The higher the level of civilization of an individual or community, the greater the role in his decision-making is played not only by his personal experience, but also by the experience of his predecessors. The peoples of developed countries have learned to record and transmit the lessons they have learned from certain situations, while the savages have to “reinvent the wheel” all the time. The culture of a people is largely determined by how the language of this people allows you to describe what is happening.

The same applies to professional activities. Belonging to any profession to a large extent and there is an opportunity to use the previous experience of professionals like yourself, and not reinvent the wheel every time. When doctors or lawyers speak on professional topics, their conversation is characterized not only by the specifics of the topic, but also by professional language. The progress of their professions began precisely after and thanks to the fact that they had a professional language.

Judge for yourself. One doctor tells another that a patient with gastritis and hypertension responded well to a new drug, but one with gastritis and asthma did not. The second doctor immediately understands that tomorrow he will prescribe this medicine to Mr. Johnson, but in no case to Mr. Smith. Note that the first doctor gave the second specific recommendations based on his experience, completely unaware of the existence of either Mr. Johnson or Mr. Smith. And this became possible because they have a language that allows them to share experiences.

But business analysts have not yet had such a language. Not because they have nothing to tell each other (the number of business magazines proves otherwise). And not because they do not need it (the existence of a constantly growing business slang indicates the need for a language and the desire of the business community to use it). But because the emergence of a full-scale professional language requires a comprehensive concept of understanding what is happening. Professional language emerges on the basis of this conceptual concept and cannot arise before or without it. We think that FEA is the paradigm on the basis of which it is possible to create a new business language. Company description chains

Let's designate products at four levels of development of technical systems as TS1, TS2, TS3 and TS4, companies of levels from the first to third as C1, C2 and C3 and markets of five levels as M0, M1, M2, M3 and M4. Then, any production, regardless of what it produces, can be described by a chain in which the first link is the symbol corresponding to the product level, the second link is the symbol of the manufacturing company, and the third is the symbol of the market level. If required, you can continue to add the following levels of description, for example, the state of the economy: E - economic boom, Es - stagnation, Er - recession.

In this nomenclature Amazon.com in 1999 will be represented as TS2-C3-M2-Ee, and the big three American car manufacturers as TS3-C3-M3. Characteristically, soap maker Proctor and Gamble will be represented by the same formula as General Motors.

Even just by presenting your project in the form of such a chain, you will already save yourself from the danger of making a lot of mistakes. Indeed, in such a chain, the value of each next link makes the values ​​\u200b\u200band/or the combination of previous elements allowed or prohibited, immediately indicating what the discrepancy is. For example, you don’t even have to ask what industry the business plan was from, reduced to the TS3-C1-M3 chain, to say that you can’t invest. A Tier 1 company should not deal with a "Third Stage" product, and it has nothing to do in the Tier 3 market. The proposal to invest in the TS2-C2-M3 chain again does not work, because M3 is a third-level market, which excludes the success of the TS2-C2 combination on it.

Such a language makes it possible in the future to create computer expert business analysis systems that will compare the chains describing the proposed projects with a pre-prepared matrix of allowed chains and issue a reasonable estimate.

The business description algorithm proposed here does not depend on how many evolutionary stages we introduce when considering the technical evolution of a product, company or market development. It is possible to offer a more detailed description of the evolution of a technical system with a large number of identified stages. The logic of CEA will not change from this. In some ways, the system can become more accurate, in some ways more flexible, in some ways more cumbersome. It is only important that there is no confusion and that under the same numbers people in a conversation do not mean different things.

It is possible to complement the stages of company development by adding a fourth stage for the "masters of the market", that is, dividing companies with access to capital in the hundreds of millions and giants like Proctor and Gamble or General Motors, whose access to capital is measured in many billions. You can even add a fifth level of companies - state-owned, guided not so much by access to capital as by the social tasks assigned to them. Again, FEA is not a certain number of cells on a graph, but a way of understanding the diversity of a business.

The same applies to the ability to add more and more levels of consideration. For example, by introducing a classification of countries over the economy, and then noospheres, that is, combinations of cultural and ecological landscapes. However, this should be done only in case of real need, only if these levels really affect the fate of the project being evaluated. In one of the chapters below, speaking of technology transfer, we will use the chain, an integral part of which is the stage of the country's economic development: Western countries - NW (Nation Western) and developing countries - ND (Nation Developing). In most cases, it is usually enough for a business analyst to consider a project only at three levels: from product to market.

Formulas for describing techniques and situations

So, CEA makes it possible to create business description chains. But businesses do not exist in a vacuum. They compete and/or enter into partnerships with other companies, try to capture new markets, modify their product. Is it possible to describe the actions of the company in the same formalized way, which instead of an infinite number of particulars would immediately explain the essence of what is happening?

It turns out you can! The fact is that the real number of actions that companies can take and the techniques used in different situations is limited. In this book, we present only a few of them to illustrate this concept of using FEA. By introducing operators, i.e. words or icons that represent the actions taken by the company, and adding these operators to the chain that describes the situation, we get a formula that explains who did what in a particular situation.

For example, in different industries and at different times, companies have gone to reduce the technical performance of a product in order to reduce its cost. Denoting a purposeful reduction in technical characteristics as! we can describe this type of action as TS2,3Ї-C2,3-M2,3. Note that, unlike a specific situation, in the description of which the value of each link in the chain is always the only one, to describe the technique as a whole, you can list the levels of development of products, companies and markets, separated by commas, for which this technique is applicable.

And how to describe the actions that one company takes in relation to another? Obviously, it is required to describe both companies with the corresponding chains and connect these chains with an operator symbolizing this action. For example, let's designate competition with the English word compete or, for brevity, with an icon. Then the competition of a small candle factory that decides to switch to soap production with Proctor and Gamble will be symbolized by TS3-C2-M3 TS3-C3-M3 or TS3-C2-M3competeTS3-C3-M3.

In such a formula, on the left should be the chain of the company on whose side you play or decide not to play, and on the right - its competitor. This is not an arithmetic equation in which you can change the order of the parts. After all, with the description of the situation that we gave, we will offer a small company either to urgently look for some specific niche where the giant competitor will not go, or to stop the project and the sooner the better. And rearrange the parts in places, and we would advise you to simply ignore this competition, like a fly on the horizon.

Even more important than describing the types of activities is the ability to describe the types of tasks facing the company. The situations caused by the mutual actions of companies in the market and the tasks facing the company are interrelated, but they are not the same. Situations often arise regardless of our desire. For example, we did not ask some company to suddenly start competing with us. And it does not depend on us that all potential buyers in our region have already bought this type of product. But the tasks in certain situations, management sets itself, or rather, chooses one of the possible tasks predetermined by the situation.

Let's give an example of a task. A company producing some kind of "third-stage" technical product and selling it in the "third-stage" Western market decided to capture the market for this product in a certain developing country where the market for this product is "first-stage". Such a task can be described as TS3-C1,2,3-M3NWtransferM1,2ND.

Well, what gives you the possibility of such a description? How does she help? And the fact that if you formally described the situation in this way, now using the formula you can see what those who faced such a task did before you. It doesn't matter that you want to move the production and sale of pregnancy tests, and someone else has found a convenient way, expanding their tractor market. Without formalizing the problem in this way, it simply would not have occurred to us to look for analogies so far. And seeing the formula TS3-C1,2,3-M3NWtransferM1,2ND and knowing the techniques used for it, we can offer to transfer the product to an artificial fourth stage. This specific example will be discussed in more detail in the corresponding chapter below.

Being able to universally describe a project, technique, and task makes it possible to understand the extent to which two situations are really similar and the experience of one is really applicable to the other. Cataloging situations and the techniques used in them can greatly facilitate the exchange of experience between business analysts practicing in different industries. Some examples of operators, related situations, and competitive techniques will be given in the second part of this book.

Stage "saw"

It's hard to overstate the disappointment caused by the decline in Internet stocks in 2000-2001. This has brought the prosperous countries of the West and the western flagship America into a situation close to recession and a temporary economic downturn. Of course, the biggest blow is not the loss of material resources as such, but the psychological factor of surprise and shock after seven years of recovery. The rise, in turn, was also caused by the psychological mood and the expectation of ever-increasing financial benefits that the Internet brings with it "cloudlessly". Everything was supposed to be so perfect and suddenly fall. So is the Internet still a mass self-deception?

To answer this question, you first need to ask yourself another question: To what extent is what happened a situation uniquely deplorable only for the Internet? Or maybe this is typical of any emerging industry? The analysis shows that on the border of the first and second stages of the market, “saws” are a frequent occurrence. Waddling over the teeth of a saw, biotechnology, radios with television, and airplanes went through ups and downs. True, the number of teeth, their height and depth were different in each case. What happens at the stage of "saw"?

So, the market has successfully overcome the skepticism of the zero and first stages and is about to move from the first level to the second. In relation to the companies producing the product, a surge of investment optimism. They solved technical and technological problems and even overcame the psychological barrier of the first consumers. They went through fire and water. The “saw” stage, according to the proverb, is the vicissitudes of “copper pipes”. It is the overestimated expectations of investors (and the companies themselves) that since consumers have noticed and appreciated such a revolutionary proposal, now they will switch to it quickly, and profits from this market will grow rapidly. Such inflated expectations lead to an incorrect calculation of one's strengths.

At the first moment, this leads to a rise in investments in everything that even remotely resembles manufacturers from this market. And companies, confident that this will be the case, spend resources without stint. However, the speed at which information about the benefits of a new product is communicated is limited. And society is in no hurry. It is shifting to offer a new market, but more slowly than companies and investors expected. When the backlog of reality from expectations reaches a certain critical value, investors, fueled by journalists, fall into the opposite extreme. They are screaming that they have been deceived and that the whole new market will lead to nothing. Companies that have just been overvalued begin to be undervalued, and a product that has just been praised is anathematized.

Figure 7 shows a graph showing the nature of a sawtooth. The thin line shows the real dynamics of the number of consumers. At the first stage of the market, the number of consumers grows almost linearly, increasing only due to the efforts of manufacturing companies. In the "second-stage" market, the linear nature of growth is replaced by exponential growth, as each new consumer becomes an advertiser and attracts the next. The thick line shows the dynamics that investors predicted. The curve of the predicted increase in the number of consumers rises clearly more sharply than the curve of the real increase.

An N-shaped tooth, reflecting the price of manufacturing companies in a given market, arises as follows. At first, the price of companies rises according to the rise in the curve of expected growth of consumers, that is, clearly ahead of reality. At the moment when the curves of expected and real growth diverge by a certain critical value, the N-shaped price curve of companies falls sharply below the level dictated by the curve of real growth of consumers. Over time, after some delay, the N-shaped tooth reaches the price level corresponding to the real market dynamics curve. It is characteristic that there may be more than one teeth.

It is noteworthy that the “saw” stage does not arise from the fact that the product as a technical system suddenly lowered its performance. The “saw” stage is not a phenomenon of technical, but of social and market life. And if at the “saw” stage the product suddenly becomes temporarily worse, then this is only because manufacturing companies begin to “save on matches”.

Knowledge of the "saw" stage can become the basis for an investment strategy for "anti-phase" investment. There are several private equity firms in America that didn't invest a dollar in dot-com Internet companies during the Internet boom. They even introduced an "overvaluation index" of Internet companies. However, as soon as the N-shaped prong reached its lowest point, these same funds established an “undervaluation index” and began to buy not so much even the companies themselves as their products, which took millions to develop and which, at the time of bankruptcy, it became possible to buy for a penny.

Impact of market stage on standard economic indicators, such as P/E

The sciences and even engineering disciplines consistently go through stages of differentiation and integration. At the stage of differentiation, different sciences appear, exploring the world from different points of view and seeing different things in it. For example, a hundred years ago, a person knew that physics, chemistry, biology, and so on came out of a single ancient Greek discipline of philosophy as independent and independent sciences. But today, at the stage of integration, the sciences merge in such a way that chemists describe reactions using physical equations, biologists think in terms of biochemical and biophysical processes, social sciences become natural sciences.

The same will happen with CEA, which emerged as a direction independent of classical business analysis, although not competing with it. In the near future, CEA will inevitably merge with classical financial analysis as two complementary parts of one scientific and practical discipline.

Let's consider this statement with an example.

The ratio of a company's price to its income used in the international banking world is called P/E (price/earnings). It is an industry average and shows how much your company is worth if you made a dollar. For example, if you are a biotechnology company and your P/E is 100, then by earning a dollar, the owners of the company became $100 richer. If you are a consulting firm, then your P / E is no higher than four. And why?

Because P/E is a quantitative expression of an investor's optimism. Somewhat simplified, the P/E logic is as follows. Suppose we invest in a company that makes tractors. This company pays dividends to shareholders from its earnings. We will receive that part of the company's profit that corresponds to the percentage of shares we own. For example, if we buy one millionth of the total shares of a company that pays $100 million in dividends this year, we get one hundred dollars. If we reduce our example exclusively to the Western world, then it is difficult to imagine that next year the number of tractors sold or their price will change much. Arable areas in the West will neither increase nor decrease. The purchasing power of farmers will also remain about the same. Fundamentally new tractors are no longer expected. In short, each subsequent year will probably be about the same as this one.

So, having bought shares in a tractor builder, we expect the same hundred dollars every year. We also do not expect that the price of the shares themselves will change significantly: why would it suddenly? The company we invest in has maintained the same market share for many years. In the US, with such predictable returns and low risk, a tractor company would probably sell its shares on the stock exchange based on a company value equal to twenty of today's annual earnings.

But if we suddenly believe that the same share tomorrow will begin to give us not a dollar of dividends, but two, then we will agree to sell it only for twice as much. And suppose the European Union decides to subsidize the project for the development of the entire Sahara. The project will start in a few years. This will clearly require new tractors. This means that from the beginning of the project, the company's income will grow, and with them the dividends paid. Expecting this, no one will want to sell their shares at today's price. The value of the company will rise at the same current income. Since P/E is a fraction, the numerator of which is the price of the company, and the denominator is its income, the hypothetical decision of the European Union (European Parliament) raises the P/E of tractor builders, making them richer.

As this hypothetical example shows, P/E rises on the expectation that tomorrow there will be more buyers than today and they will spend more generously together. This explains why P/E varies across industries. Now let's see how you can present this picture from the point of view of the CEA?

What is consumer growth? This is a second level market. It is in the second-level market that the number of consumers is growing, and the massive transition of new consumers to this market distinguishes the second stage of the market from other stages. What is our hypothetical example with tractors? A typical third stage of the market, when all consumers are already involved. It turns out that in the markets of the second level P / E is higher due to the expectation of increasing income, and in the markets of the third level - lower. And how will P/E behave in the fourth level markets? Of course, to fall, because you expect that the income from the company tomorrow will be less than today. Because of this, a company in a Tier 4 market should consider diversifying its products with something from younger markets in order to combine revenue from its old products with investor optimism for its own account.

With the market of the first stage, the situation is a little more complicated. Here, firstly, there is a greater spread from market to market. This reflects the varying degree of investors' expectations that a given market will take place. After all, while it is only in its infancy, it is difficult to predict whether this "child" will turn into Hercules or become a victim of "infant mortality." Recall, for example, the New York Times wrote in 1939 that television will never become as big a market as radio. After all, the TV chains to the place, and the Americans will never have time for this.

On the other hand, companies in the first stage market may well be unprofitable, which is quite normal. They will pay for themselves later. And this means that by putting zero as income in the denominator of the P / E fraction, you get infinity. This means that P/E is not yet applicable to these companies at all. Consider an example.

A biotech company has developed a method for creating new vaccines and has licensed the method to several major pharmaceutical firms. Under the terms of the sale, the biotech company received several million dollars at once. In addition, the company retained a percentage of participation in future profits from the sale of vaccines. If this is a vaccine against a common deadly disease, then 6 billion people - the entire population of the Earth - could be vaccinated in the future. Even if it is only one billion inhabitants of civilized countries, then the percentage of profit sharing can be hundreds of millions of dollars from each new vaccine. Of course, the price of a given biotechnology company will not be determined by its current small income from the sale of a license, but by the expectation of future profits. A sane investor would not be arguing for another million immediately at the time of licensing, but for setting aside another 1% of future sales of revolutionary vaccines. This is because when the long-awaited vaccine is finally made, the market will immediately become “third-stage”.

The analysis presented in this section shows that P/E does not depend on the industry as a branch of production, but on the stage of market development. The nature of the error is that Wall Street's classic economic analysis is designed in the West for the West. And at any particular moment in time in each particular region, different industries are already at a particular stage in the formation of their market. If you invest, for example, only within America, then replacing the concept of a market stage with a list of industries, you will come to similar results. However, if you are interested in international investment, then you should read the next section to avoid mistakes. Country influence on market types, companies and investments.

Chemical reactions take place differently in water and, for example, in oil. At the same time, the logic of the science of chemistry does not change in any way, no matter what reactions the chemist is interested in. But without taking into account the peculiarities of the environment, he will not come to the right conclusions. The same applies to different countries, which are the environment in which markets react in one way or another to products and companies. In this section, we will demonstrate that the same industries are located in different countries in different levels of markets. We will also look at how this can influence the nature of companies and investment decisions. Markets of the second level.

Let's go back to the hypothetical tractor example from the previous section. There it was considered exclusively in relation to Western countries, which explained the "third-stage" nature of the market. However, imagine that we lifted the geographic ban and turned to countries where, due to the reforms taking place in them, it became more profitable for farmers to produce products on a modern market basis. The regimes that suppressed healthy economic relations collapsed, the unsuccessful struggle with artificially cheapened foreign products ended, and a solvent domestic market appeared. Russia now belongs to such countries, but not only it. Let us recall the history of the countries of Latin America, Turkey, and even the not so distant past of Japan.

It is quite natural that in these conditions, farmers in a developing country will begin to purchase more and more modern types of tractors that meet new challenges and realities. More and more farmers will be able to afford modernized equipment. And it will take several more years before everyone who has land will completely renew their tractor fleet. But this is the real "second-stage" market!

This example shows that an industry (for example, tractor construction) that produces a “third-stage” technical system (tractor) and is located in the “third-stage” market in the West may well find itself in a “second-stage” market in countries with less developed but rapidly growing economies. And this applies to a large number of so-called "old" industries. In countries where, due to historical reasons, the majority of the population is just emerging from poverty, practically any not very cheap and not vital consumer goods will constitute second-tier markets. In countries where the industry is reorienting from military orders to the production of competitive civilian products or is awakening after a protracted destructive crisis, manufacturers of labor tools, for example, machine tool builders, will also fall into the "second stage" markets.

Interestingly, the nature of risk in such "second-stage" markets is fundamentally different than in the "second-stage" markets in the West. On the one hand, there are no risks associated with the technical development of the product. After all, as we know, the Western "second-stage" market usually offers products that are "second-stage" technical systems. They go through a stage of rapid technical development, and it is not entirely clear who will make the next invention and how it will affect the mutual position of the players in the market. When the "tractor" begins to be actively sold in Brazil, then no unexpected inventions are usually expected here. The product is already a "licked" "third-stage" technical system. There is almost no need to spend money on development and the risk associated with it.

On the other hand, countries in which a “third-stage” product enters a “second-stage” market are usually the least stable politically and legally. At the end of the 1990s, a fully developed Turkey almost fell into the abyss of Islamist rule. Manufacturing giant China claims it is unable to deal with intellectual property piracy. This is a huge risk factor for Western investors and "third-stage" companies. This was especially sharply demonstrated by the Russian crisis of 1998. After all, after Russia, stock exchanges collapsed literally all over the world of developing economies up to Chile. How to explain it?

This cannot be explained by large losses of money invested in Russia, since the absolute amounts lost were still insignificant compared to the usual and acceptable losses in America or Germany. The fact that Russia has temporarily dropped out of world trade does not explain anything either. After all, the entire foreign trade turnover of Russia at that time was equal to the turnover, for example, of Denmark. But the crisis in the Scandinavian countries, for example in Finland, does not scatter around the world. And the presence of nuclear weapons in Russia also has nothing to do with it. Hungry Pakistan and India are in crisis all the time, and they also have atomic bombs. In addition, Russia's foreign policy remained exclusively peace-loving. So what is the matter and what is wrong with the securities markets of all unstable countries?

And it's a shocking precedent. When Russia announced that it would not pay, the very style of such a decision was so unexpected for Western investors and businessmen that it simply could not have occurred to them on their own. The question arose: “Can you be sure that other non-Western countries will not repeat the same trick?” After all, in the end, stability is based on foundations and traditions. And the uncertainty that certain behavior will not be impossible for third countries, that is, a purely psychological and cultural factor, is the reason that Western investors began to massively withdraw their investments from third world countries, causing a crisis there.

Interestingly, these risk factors are intuitively understood and used by some Russian businessmen. Like any other investor, part of their personal investment portfolio is designed to provide maximum financial stability. The main thing here is not to gain, not to lose. Many Russian investors prefer to keep this part of their portfolio in the stable West, often leaving money management in the hands of well-established financial advisers. The other part of the investment portfolio is designed to increase the state. For her, the risk of a "second-stage" market is acceptable. This money is less and less often exported by Russian investors abroad. They are increasingly investing in the development of the Russian industry, which, unlike similar industries in the West, is entering the second stage of the market.

At the same time, there are types of technologies that arise in countries such as Russia or India, but it is better to develop and implement them by transferring them to the West. Such technologies include inventions aimed at a high-tech market, which in the West is already moving or even moved to the second stage, but not yet in a poorer country. Consider, for example, software products offered to individual customers whose money is kept in banks.

All working Americans keep their money in banks and use credit cards. This is a classic example of a "third stage" market. At the same time, an increasing number of people have less and less time to go to the bank, and even during its opening hours. Against this background, since the mid-1990s, when the Internet services market became a growing “second-stage” market, more and more banks began to switch to on-line services, that is, to provide their customers with the opportunity to carry out transactions via a computer at any time convenient for them. them time from almost anywhere on Earth.

Now let's look at two software companies: one is Indian, the other is Polish. An Indian company has developed a convenient and easy-to-use software product for electronic banking. She could not sell it directly to American banks, since they only buy from "their own", in whom they have long been sure, but the developers found an intermediary partner. With its help, the company began to sell its product to an increasing number of American banks, while receiving a stream of orders for its adaptation and connection to the systems available in banks. The company is growing, little by little.

Their Polish colleagues at about the same time created a similar software product. However, being sure that the unification with Europe, German capital and the fall of communism would immediately and without delay create a huge market for them, they abandoned the attempt made by the Indian company. And it’s not even that they didn’t have such an opportunity, they just decided that there was no need to travel thousands of kilometers and back if all this was sold in your microdistrict. But with all the economic renewal of Poland, the market of online banking services there is still far from the second level. And it's not some new piece of software that can change that, but social evolution. As a result, there were no serious sales of this program on the domestic market, the team was interrupted by random orders, continuing to dream of promoting their offspring, until the stale product was completely outdated.

Summing up, we come to the conclusion that it is most profitable to transfer products and services to those countries where the market for them is at the beginning of the second stage. And it is West or East, it is not so important. Third-tier companies in Russia.

The above characteristics of third-tier companies reflect not only and not so much the realities of the West, but rather stable situations that can exist for a long time. However, many Russian third-tier companies, as a result of historical reasons, are now going through a transitional stage. Some will come out of it as winners, others will go to competitors. The former will certainly approach the pattern typical of all stable "third-stage" companies, but their current deviation from the standard course is a subject for analysis.

Today in Russia there are two groups of "third-stage" companies. The market position of some is based on the fact that they own natural resources (oil, non-ferrous metals), power plants and/or territories. It is beneficial for such companies to upgrade in order to increase income, and the situation with them is not the most difficult. In a much more risky situation now are many large and even well-known industries created during the period of Stalinist industrialization as "flagships at any cost" and for decades producing their products, knowing that sales would be ensured by a centrally planned economy.

Traditionally, the main object of attention of such companies was production as such and the “production” part of the team. The concept of marketing, for example, was simply absent. For comparison, let's say that the "third stage" company Proctor and Gamble, spending on technical development (R & D) 1.2 billion dollars, at the same time spends 20 billion on marketing. The share of production as such in the life cycle of a post-Soviet "third-stage" company is unnaturally high only because traditionally everything else was considered secondary. And for a third-tier company, this is a death sentence.

It is the Russian "third-stage" company, more than any other, that needs to concentrate on vigorous marketing. Why? Because as a result of a ten-year "ice age" in many sectors of Russian industry, the equipment and capacities that were previously available have become unusable and require replacement, thereby creating a second-tier market. During the same period, customers have moved away from those who supplied them with products earlier. And the map of the market division will be redrawn. What is the peace of the Western "third-stage" in a stably divided "third-stage" market. "Third-stage" companies suddenly found themselves on the "second-stage" market within their own traditional industries, and besides, in the same place - this is an economic anomaly that is impossible today in the West.

There are two main scenarios for the further development of "third-stage" manufacturing companies in Russia.

In the first case, emerging "second-stage" teams with strong and modern-minded managers will place production orders at "third-stage" plants, marketing and then selling their products. Here it must be emphasized that they will sell the goods not “as their own”, but really their own. The contract manufacturing method has long been known and tested all over the world. Its attraction for a small customer is that it does not require large initial investments in production capacity. Honor and praise to those second-stage companies that can do this. For a third-stage manufacturer, this gives people a load and salaries today.

What about tomorrow? Tomorrow, alas, is difficult for the plant to build on such contracts. After all, the share of the "second-stage" market, which will develop into the "third-stage" market, will be received not by the plant, but by the company-manager. And tomorrow, growing up, she will be able to open her own plant, leaving today's manufacturer behind the stern, or transfer the order to those who are cheaper. The plant has, of course, the ability to protect itself. For example, initially to provide a small discount from the price for the fact that the “second-stage” company undertakes to produce this product only for them for a certain period, but in Russia few people use such methods so far. In a word, contract manufacturing in today's Russian "second-stage" markets is an opportunity for growth for "second-stage" companies and a road to industrial vassals for third-stage plants. Although at first the factories will be happy with the money today.

The second development scenario for the third-stage Russian factories is to supplement their personnel with modern-minded marketers themselves.

Can manufacturing plants suddenly introduce strong marketing structures? They can, but it is extremely painful from a human point of view. After all, the introduction of such a structure within the “third-stage” plant inevitably raises the question of the redistribution of roles. “Well, now we will have a new boss who does not know how many edges a nut has, but will tell me what to produce?” - asks the head of such an enterprise. It will be very difficult to overcome the internal resistance of colleagues to the newly created structure. And one should not think that the redistribution of portfolios can scare away only a Russian company from a profitable step. The vast majority of failed mergers of American companies (merges) did not happen precisely because of the personal relationships of those directors who were to become deputies in this case.

How to reduce conflict? The way they do it in the West, that is, by inviting a consulting company for strategic business planning. The really good companies in this area can be counted on the fingers, and there are more charlatans here than anywhere else. The service is expensive, and usually, if the consultants really believe in what they offer, they will definitely reserve the right to a share of the profits. But by inviting competent and experienced experts as third-party contractors, you do not really create tension within the team. The status quo of internal managers remains the same, and consultants become something like "very smart taxi drivers." They don't aim for the director's chair, they come, do their job and leave.

The trend over time is such that an ever smaller role in the life of the "third-stage" companies in Eastern Europe will be played by their nationality, and an increasing role will be played by the fact that they are "third-stage". More like a circle than a chain.

In this chapter, we have shown how a country with its ethnic, cultural and historical characteristics becomes the head of the product-company-market chain. Indeed, it is foolish to plan an oil production and sale business, ignoring the fact that you are going to the Japanese market, where oil is traditionally not eaten, or to start a magazine for free-form women, ignoring the fact that the magazine is published in a fundamentalist Muslim country. . But it's not even about studying demand in local markets. In the end, in different states of the same America, the same products are in different demand.

The culture, laws and history of different countries cause different levels of markets and different rates of progress in these markets and companies in them. This, in turn, determines the style of work of the companies themselves. Figure 8 illustrates a humorous picture that we added that was circulating on the Internet. On it, the authors laugh at the fact that, no matter what country you take, everywhere the real style of the team's work differs from the classical scheme. And how companies operate determines the type of products they can produce.

However, if you observe this process for a sufficiently long time, it turns out that this is not a chain, but a circle. The emerging new technical products, in turn, change the culture and, consequently, the country with its laws. Moreover, there is a tendency to accelerate the processes of culture change under the influence of new products. Perhaps the most important technical achievement of mankind was the printing press. But it took centuries before it really changed the way the average person lived. At the same time, it took only a few years for the advent of contraceptives to completely reshape the fundamental foundations of human behavior in all Western countries.

Political changes associated with the emergence of new technical systems occur especially quickly in the event of a military threat. Thanks to the emergence of a new technical product - the steamboat, in Russia, finally, such a radical change in the entire social structure as the abolition of serfdom took place. During the Crimean campaign of 1856, Russian sailboats failed to sink English ships, sheathed in armor, which was difficult to penetrate. The power of steam engines was enough to move such heavy ships, and besides, regardless of the wind. It was not available to sailboats. As a result, the tsarist government, having lost the opportunity to enter the Mediterranean Sea and having lost a significant part of its international influence, realized that without a new type of warships, Russia's security was under serious threat.

But it was impossible to produce steamships in Russia at that time because labor productivity in the country was extremely low. In order to increase the industrial power of the country, so necessary for its defense capability, it was necessary in 1861 to abolish serfdom, liquidating the feudal mode of production and opening the way for the capitalist one. By some analogy, one recalls the opinion of a number of Russian and Western Sovietologists who associate the beginning of Gorbachev’s perestroika with the Central Committee’s fears that the collapsing Soviet economy was unable to compete with Reagan’s “Star Wars” program (which later turned out to be technically unfeasible).

In the era of globalization, the technological advances of one country are changing the lives of all countries, whether they like it or not. For example, the Internet and the freedom of access to information it provides are incompatible with totalitarian regimes based on ideology. Neither in Iran nor in North Korea will governments be able to sustain themselves if their citizens can access the Internet freely. Therefore, the first reaction of the leadership of such countries to the emergence of a new technology is a ban on its use.

It is still difficult to imagine all the ideological consequences of the advent of biotechnology. But the scary thing is that it could potentially change such fundamental concepts as health and disease, parents, safety. Along with this, biotechnology promises to solve the problems of deadly diseases, lack of food and energy, and ecology.

However, it is no coincidence that ordinary business analysis does not include an assessment of such global changes in society. They tend to take place over a much longer period of time compared to the duration of the project. Therefore, for the practical purposes of a feasibility study, and not for philosophical conversations, it is still worth considering the product-company-market-country as a hierarchical chain, and not as a circle.

Service companies. Franchises

To what extent is FEA applicable to the analysis of service companies? To answer this question, you must first consider what, in fact, service companies are, what unites them and what distinguishes them from companies that produce products.

Firms producing software for customer companies, legal consulting firms, accounting firms, restaurants, auto repair garages, doctor's offices and even brothels are all service companies. They all offer the services of specialists of a certain qualification, spending a certain amount of time on each specific client, which must be paid based on the market price of the time of these specialists. The end product sold is a specific service to a specific client. And this means that the process of the final production of this service begins only after its sale (that is, after this particular client ordered it).

The situation is exactly the opposite with the industrial production of goods. We come to a branded clothing store, where ready-made clothes are put up for sale. We come to buy watches that have already been produced. The production process of both has already been completed. And the sale is just starting now.

You will say that not so long ago people came to sew clothes to the tailor, and once rich people ordered watches directly from the watchmaker. That's right, which means that at that time the manufacturing process of both was a service. This proves that many industrial productions arose from services as a result of the development of technology and standardization. On the other hand, many services do not yet move into the category of industrial production of goods because there is still no well-established technology for their mass production. When discussing degrees of product customization in Part 3 of this book, we will refer to such custom service production for each individual customer as “pre-industrial production.”

To date, the two main groups of services have not moved into industrial production. The first is "intellectual-intensive" services, those that require a person to comprehend a particular situation. For example, doctors, lawyers, tax consultants, artists. In the future, artificial intelligence systems and general computerization will translate much of what is now a service into products. For example, already today, many Americans, whose taxes are typical and the process of paying them is simple, use a program that helps them fill out tax returns, deduct something from taxation, calculate how much is left to pay (or ask for a refund). However, full tax services will never translate into computer products because there will always be people who need inventive advice. It is still impossible to completely formalize and imitate human ingenuity. The same partial transition from service to products awaits other "intellectual-intensive" services.

The second group of services are services based on the factor of human participation. The sympathetic look of the nurse will not be replaced by any state-of-the-art equipment. You can often see how some people buy coffee and chocolate in the machine, while others prefer to take the same from a nearby lotus. It's just that speed is more important to the first, and human contact is more important to the second. This dynamic equilibrium between industrial production and service can last indefinitely.

Another distinguishing feature of a service from industrial production is that the producer of the service must usually be located in the same place as the one to whom this service is provided. Only recently have legal consultations by telephone or the Internet appeared. But basically, the chimney sweep should be next to the pipe, and the massage therapist should be at the back.

The service economy in industrialized countries is filled with Tier 1 and Tier 2 companies more than any other sector. This is not surprising. After all, there is no need for large initial investments in the instruments of production. It is one thing to buy an auto repair shop at a cost of several hundred thousand dollars, and another thing to buy a plant for the production of even if not cars, but just gaskets in motors for many tens of millions of dollars.

It is the “first-stage” service company that is the ideal start for professionals who want to try their hand at business. One lawyer will go to work for a large international legal corporation, another will open his own office. It’s not that the second one had more chances to make money (rather, on the contrary), but a certain percentage of people will always strive to work for themselves.

The nature of the service industry predisposes a company to work directly with the consumer with the atmosphere of a “first-stage” or, at most, “second-stage” firm. The fact is that being tied to the conditions of life in a particular area, a small company is better guided in how to behave and sell in these specific local conditions. At the same time, it would be a mistake to spread this particular style with all its shades to other areas. A large “third-stage” company, on the other hand, must average too much across all its divisions in all regions. Employees of a "third stage" company have less incentive to be creative and sell their service more efficiently (each of them takes less risk).

So, the trend of growing companies from “first-stage” to “third-stage” companies that we have described as the market evolves from the first to the third stage does not work in the service industry? It works, and very effectively, but in a special form called a franchise!

The franchise known to everyone is Mc Donalds. Let's take a look at how it works. Each particular restaurant belongs to a separate owner or group of owners. From this point of view, it is a separate company, the financial success or failure of which does not directly depend on the fate of thousands of other Mc Donalds owned by other owners. What does Mc Donalds do? Provides restaurant service. And now let's make a table of functions that an ordinary restaurant performs and each individual Mc Donalds.

Conventional Mc Donalds restaurant food preparation + - /+ customer service + + Advertising + - assortment development + - design selection + - optimal equipment selection + - price negotiation with suppliers + - staff training + - /+ development of a package of legal and financial rules + .

As we can see, each Mc Donalds performs only a few of the functions required for a regular restaurant. Almost the only function that has been preserved in a single Mc Donalds is customer service, that is, service. But after all, the provision of service is the main function of any company in the service industry. All other functions are auxiliary. The restaurant buys food, cooks, provides interior design - all just to be able to provide a service that the consumer pays for.

So what, in Mc Donalds restaurants, other functions are absent or not performed? Of course they do, and very effectively. Take, for example, advertising or design. It is difficult to find a person today who does not know what Mc Donalds is and what it looks like. Let's do a thought experiment. Imagine that you are driving on a freeway between two cities. You are hungry. You need to eat urgently, but there is no time to ride around unknown neighborhoods. From the road you can see a large Turly-Murly sign. Will you go off the highway without knowing if it's a restaurant, an auto repair shop, a hotel, or something else? But after that, you see the Mc Donalds sign. If you're not a big fan of "average cuisine", you're more likely to turn there.

So who performs all these functions, if not the restaurant itself? Net! The franchise network to which it belongs. And it's understandable why she does it. In centralized factories, where expensive equipment of enormous productivity is located, semi-finished products are made, which are then delivered to restaurants. Of course, none of them could afford equipment of such performance (and it would not make sense). This means that due to large-scale centralized production, the price of products has decreased (scale economics - economies of scale).

Moreover, in each particular Mc Donalds, the need for a highly qualified employee - a cook, has disappeared. As in any production, the economic effect is achieved when a large number of performers can be replaced by performers of lower qualification. And indeed, as we see, in the American Mc Donalds, ready-made semi-finished products are heated up by low-paid high school students and people with an income that is clearly lower than what even the most unskilled cook would have to pay.

A large chain can negotiate such price discounts with any supplier of raw materials, equipment, or law firm that would not be available to any restaurants alone. The same applies to advertising. Advertising Mc Donalds on television applies equally to all restaurants of the network at once. A minute of TV air costs the same, whether we advertise one particular point, or the price is distributed among thousands of restaurants.

Thus, while being a separate company in terms of shareholding, each Mc Donalds is not a completely autonomous business entity in its own right. A number of vital functions, without which the operation of any particular restaurant would be impossible, have been transferred to the chain as a whole. This has a biological analogy - an anthill. With the apparent autonomy of each individual ant, only the entire anthill is a fully functional organism. No single ant can provide a range of necessary biological functions, such as reproduction or digestion. The anthill as a whole, of course, is able to ensure their implementation. At the same time, the individual ant has its own destiny. For example, he can go far from the anthill or be crushed by our heel.

A franchise is a "third-stage" company that combines functionally dependent, but financially autonomous companies of the second level. Moreover, these “second-stage” companies are predetermined to remain such, and they themselves will never turn into third-stage companies.

In a biological organism, each individual cell is under the control of the organism as a whole and supplies this organism with something necessary for it. The same thing happens in the franchise. The franchise controls each specific business owned by the network in a number of key ways:

Location. The chains will only allow their new businesses to be built in locations that they deem useful and that will not negatively impact the chain and its profitability. The new Mc Donalds cannot be built anywhere.

Operations zone. The franchise allocates a certain territory to each company in the network, thereby achieving the fact that the companies do not interfere with each other, but there is also no uncovered territory either.

Use of materials, products, and tools. Franchise companies can only use raw materials, equipment and tools that are approved by the franchise. Nothing else can be used by companies. On the one hand, this limits their freedom, on the other hand, consumers are confident in quality control and feel more relaxed than with an unknown small company.

Quality control and method of work. Companies that violate the franchise standard can undermine its reputation. Because of this, the franchise controls these key points of work.

Design. The similarity of the design of all companies in the network can be an important part of the advertising and operations of a given franchise. Therefore, franchises often strictly control the appearance of the premises, the clothing of employees, and even the area in front of the building, requiring uniformity.

What do individual franchise companies provide in general? First, money. And secondly, the visible effect of presence. Cash receipts from individual companies come in three forms (not necessarily all):

The initial fee for the right to open your own branch of this franchise. Moreover, by paying for the acquisition of the company of the second stage, the buyer acquires access to the full power of the company of the third stage

Percentage of sales generated by affiliate company

At the same time, just as each individual "second-stage" company within the franchise is subject to its own risks and failures, so the "third-stage" franchise as a whole must control the dynamics of its growth in order not to lose stability and be able to provide its companies with all the necessary services.

It is difficult to imagine today the service sector in which there would be no franchises. Gas stations, beauty salons, travel agencies, chain stores, flower and garden shops, home improvement shops, auto repair shops and much more. Interestingly, many service companies that do not call themselves franchises have largely adopted a style of operation in which divisions that act as "second-stage" companies within a franchise are combined into a coherent "third-stage" company. The main difference between the largest financial, consulting and auditing companies from classic franchises is that their branches cannot be bought. They are approved from above.

The same applies to insurance companies such as the US HMO (health management organization). HMO is a health care organization that has a group of medical institutions (clinics, hospitals, laboratories, doctors' offices) for the treatment of members of this organization, contributing funds to its fund and having the right to contact any of its medical institutions in case of illness. Even some of the largest international charities, such as the United Way, are a network of semi-autonomous registered local organizations (United Way Alabama, United Way Nebraska, United Way Massachusetts, etc.).

And no matter which franchise we take, it turns out that "second-stage" companies are combined into a "third-stage" structure for one of two main reasons: it makes it cheaper to produce their service; it provides access to a wider range of consumers.

An example of the latter is the franchising of resorts, each of which is sold and advertised by all other holiday destinations from this chain around the world. Without joining the franchise, the resort would have to advertise itself only on its own (most likely, locally, since it would be unjustified to create an international network for it alone).

At the same time, unlike industrial production, for which the third-level markets sooner or later end up in the hands of “third-stage” companies, service markets predispose to a certain proportional representation of “third-stage” franchises and first- and second-level companies with their own individual identity. Despite the fact that Mc Donalds can feed the whole of America (if not the whole world), this does not threaten in any way cute restaurants that have their own atmosphere, their own design, their own cuisine, their own spirit. Small service companies can co-exist with franchises for one of three reasons: they are even cheaper (usually due to lower quality or exploitation of a less paid group of employees) they offer a higher quality of service to a group of consumers who in this case do not care about price people want what something unusual.

Notes:

CEO - chef operating officer is the highest-ranking leader in the company, standing above the president.

The function of preparing food from semi-finished products is partially performed at the service point: potatoes are fried, coffee is prepared, etc.