
Firm Inefficiency - a3voices
http://www.overcomingbias.com/2014/07/firm-inefficiency.html
======
tikhonj
This really reminds me of how Yanis Varoufakis, Valve's economist, describes
most firms:

> _Interestingly, however, there is one last bastion of economic activity that
> proved remarkably resistant to the triumph of the market: firms, companies
> and, later, corporations. Think about it: market-societies, or capitalism,
> are synonymous with firms, companies, corporations. And yet, quite
> paradoxically, firms can be thought of as market-free zones. Within their
> realm, firms (like societies) allocate scarce resources (between different
> productive activities and processes). Nevertheless they do so by means of
> some non-price, more often than not hierarchical, mechanism!

The firm, in this view, operates outside the market; as an island within the
market archipelago. Effectively, firms can be seen as oases of planning and
command within the vast expanse of the market. In another sense, they are the
last remaining vestiges of pre-capitalist organisation within… capitalism._

The image of a firm as an island of control within a greater see of capitalism
really stuck with me. I think it's a pretty good image to support Valve's
style of organization. (Of course, I'm also a bit biased: I prefer that
philosophy for reasons of my own besides just increasing efficiency.)

The whole article ("Why Valve? Or, what do we needcorporations for and how
does Valve’s management structure fit into today’s corporate world?"[1]) is
well worth a read. I think it's a very constructive look at the issue that
this post is talking about.

[1]: [http://blogs.valvesoftware.com/economics/why-valve-or-
what-d...](http://blogs.valvesoftware.com/economics/why-valve-or-what-do-we-
need-corporations-for-and-how-does-valves-management-structure-fit-into-
todays-corporate-world/)

~~~
arjunnarayan
This is indeed an important question, best addressed in Ronald Coase's 1937
article "The Nature of the Firm". It is such an influential article that has
its own wiki page, which is quite good:
[https://en.wikipedia.org/wiki/The_Nature_of_the_Firm](https://en.wikipedia.org/wiki/The_Nature_of_the_Firm)

The short answer as to why firms exist (and why it is not markets all the way
down such that every microtask is contracted out to the free market) is
"transaction costs". For the long answer, I suggest you start at the wiki
article, and if interested, read this Economist blog summary:
[http://www.economist.com/node/17730360](http://www.economist.com/node/17730360),
and if still interested, read the original article (you can find it by just
googling for it).

~~~
justincormack
Indeed but we have computers now. Transaction costs are vastly different. The
firm has changed remarkably little. Coase is not very predictive in these
circumstances.

~~~
pjc50
Transaction costs are psychological and informational rather than
administrative. You can send messages instantly around the world, but that
does not help you know _what message to send_.

It's certainly got easier to hire people for work fragments (mturk etc), but
that only works if you can specify the work and verify its quality. This is
the problem of "outsourcing" on a small scale.

------
vijayboyapati
Peter Klein has some very interesting research showing there are limits
imposed on organizations by the problem of economic calculation:
[http://mises.org/document/350/Economic-Calculation-and-
the-L...](http://mises.org/document/350/Economic-Calculation-and-the-Limits-
of-Organization)

This is an application of Mises' work on economic calculation in socialist
economies and why it is so problematic for such economies to allocate capital
without squandering it.

At scale I think this affects companies like Microsoft which, as they grow,
find it harder and harder to allocate resources without an internal price
function. E.g., how many engineers do you put on infrastructure versus Xbox?
The answer isn't obvious because you can't directly measure the profitability
of the infrastructure team. When teams are small (such as in startups) the
leader can kind of guess this stuff, and successful leaders do it well, while
bad ones go out of business. Some companies try create internal markets to
allocate capital but that has problems too, because it causes some level of
friction in the process of how capital is internally allocated.

This is why I think Ycombinator's model is potentially very useful. Instead of
a monolithic structure where capital is essentially moved between divisions
based on the judgment of a single person (the CEO), there is a syndicate of
companies which tend to produce goods that the others need, while still
maintaining a market so that prices can be established and used as a guide for
which projects should receive more (or less) capital.

~~~
lifeisstillgood
I may have missed something - are you saying that ycombinator _requires_ all
it's startups to use say Dropbox and not pay Box? I had not heard this.

If this is just informal is it measurable?

I don't doubt it is effective however - it suggests alumni networks or
diaspora like family networks (strongly suggested in China and India for
example)

~~~
mseebach
I don't quite grasp the Y Combinator analogy, but in the syndicate situation,
each company would be expected to at least try to procure services from the
sister, but not required, and each company would be free to sell its services
to the wider world.

I know of at least one (non-software) corporation that spun off its IT shop,
and that shop ended up doing rather well as an IT consultancy in it's own
right.

Also, if you can reasonably spin off a division in this way, it isn't part of
your competitive advantage, and it then has the benefit of allowing you to
focus more on that.

~~~
TheOtherHobbes
I'm not aware of any mainstream economic theory that describes a limited
network in which everyone is both a customer and a trader.

(I suspect 'hamsters on wheels' comes closest, but it's not very mainstream.)

I think of YC as the modern equivalent of the old music business model: money
gets advanced to potential talent, most of it disappears, some of it returns
as a big hit.

The fact that the talent may be trading with other talent doesn't appear to
alter that dynamic, because the money stays in the system, and you don't get a
big hit until money starts coming in from outside the system.

~~~
mseebach
I probably didn't make my point very clearly. I'm thinking of groups of
companies like Virgin (I'm not sure if it's properly considered a
"syndicate").

I doubt any of the companies are formally bound to do business with any other
by virtue of being in the Virgin group, but it would make sense that the
companies enjoy some kind of (if only informal) "preferred vendor" relation
with each other.

There's no need to describe it in theory as anything else than a number of
independent companies, only with common ownership and perhaps a slightly above
average interconnectedness.

~~~
TheOtherHobbes
Virgin are primarily a brand, not a syndicate.

Branson owns Virgin Management who are the central VC/Management corp. He has
varying stakes in the other companies which vary from outright ownership,
majority holding, minority holding, to brand licensing deals with occasional
informal management input but no shareholding.

Bottom line is the different businesses are independent. Branson probably gets
perks like free travel, and maybe some of the Virgin execs do. But I'm not
aware of any loose internal market or preferred vendor relationship.

I'm trying and failing to think of an example of the model you're suggesting.
(Which doesn't mean there isn't one - just that I'm not familiar with it.
Maybe the recent Apple/IBM deal?)

It's an interesting model, but I'm not sure how well it works when customers
can also be potential competitors. AFAIK syndication traditionally works
better when relationships are distant and there's no immediate danger of
competition.

------
fiatmoney
On the _inside_ , firms are usually set up as something like communist
autocracies (formally everyone subordinate to the CEO, no internal prices,
budgets set by fiat, etc). This has the advantage of reducing transaction
costs (which in classical theory of the firm, is why they exist in the first
place) but results in some of the same pathologies.

~~~
TheOtherHobbes
Including a Cult of Personality, in too many cases.

Even if it's not always wreathed around individuals, the role has been
mythologized to an unhealthy, even a ridiculous extent which has allowed many
CEOs to ignore consequences and accountability.

But my suspicion is that in the general case, all systems tend towards
aristocracy and oligarchy, no matter how they dress on the outside, and that
every system evolves its own Theory of Social Privilege to legitimise and
promote certain kinds of relationships and transactions and prevent others.

~~~
rhizome
Indeed, we see entire industries rewarding failure.

------
staticshock
The market pressures faced by firms (which, I'm assuming, are responsible for
anything you might view as "firm efficiency") are similar to evolutionary
pressures faced by any living creature. Evolution doesn't create "perfect" or
"efficient" creatures, but predominantly creatures that are just "good
enough." If you can live long enough to reproduce and pass on your genes,
you're in the club.

An animal with no natural predators, for instance, may get bigger and less
adept at fighting off potential threats (after some generations,) which is
kind of similar to the stagnation of a monopoly.

------
rayiner
> My working hypothesis to explain these inefficiencies is that the people and
> supporting coalitions closest to them tend to gain from them, and that
> selection pressures on political coalitions are often much stronger than
> selection pressures on firms.

Economists have a term for this, the principal-agent problem:
[http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem](http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem).
It is a key issue in understanding why corporations deviate from the efficient
ideal. Most of the examples listed boil down to principal-agent problems.

Consider, for example, poison pills. A company might adopt a poison pill
because its executives and board feel that they might get replaced in a
takeover. On the flip side, they may realize that the acquisition will be
disastrous, and the other company's executives may be pushing for it because
it feathers their own nests.

I don't think any economist thinks that firms are actually efficient. They use
it as an idealized model for analysis, just as an engineer might use an
idealized linear model of a more complex physical system.

~~~
csdrane
In case you weren't aware, the author of that post, Robin Hanson, is indeed an
economist. So I imagine he is well aware of the principal-agent problem.

------
jasode
The article's logic is flawed. It lists 19 inefficiencies but such a list is
not as persuasive as the author thinks.

What we ultimately care about is the _net_ efficiency of the firm. Does the
elimination of internal transaction costs _outweigh_ the other inefficiencies
the author points out? Internal economic exchanges as explicit transaction
costs don't exist within the firm (e.g. acct dept does not send an invoice to
the CTO for CPA work relating to budgeting the capital purchases of rack
servers. And IT does not charge acct dept for upgrading the desktops web
browser from IE6 to IE9.)

To prove the author's idea, the comparison would be something like:

A firm of 100 employees with those 19 inefficiencies underperforms and is less
profitable than a loose confederation of 100 freelancers with their particular
inefficiencies. (The 100 freelancers would also have a unique list of
inefficiencies -- because nothing is perfect.)

We could also itemize 20 "inefficiencies" of the biological family unit. E.g.
the child learns the language of his parents -- maybe Portugese -- instead of
learning the most marketable and global language such as Chinese or English.
The child eats some meals from grandmother's recipes instead of eating a
scientifically designed diet for peak growth. And so on. Does such a list of
inefficiencies convince society that Plato's idea of taking _all_ children
from parents and assigning them government custody is a better idea? That's
the type of logic I see in the article.

~~~
sergiosgc
If you're going to deride my native language, at least spell Portuguese right.

Portuguese is actually quite an interesting native language. It is Latin
based, so you pick up French, Spanish, Italian and Romanian easily. Plus,
since it is a periphery language, it has evolved less and is thus complex.
Impossible grammar, irregular verbs all around and lots of phonemes. Top it
off with a stress timed prosody and unstressed vowel suppression. If you grok
European Portuguese, you can grok anything.

(anything other than German. " _Das_ Mädchen". Seriously? Das???)

~~~
nhaehnle
> (anything other than German. "Das Mädchen". Seriously? Das???)

It certainly seems silly, but this is actually an example of one of the few
rules in German. The "chen" in "Mädchen" means that it is a diminutive form
(of the same word that is known as "maid" in English), and diminutive forms
are _always_ neutral in German.

~~~
sergiosgc
I know the reasoning. Das Mädchen is one of my pet peeves, largely because of
personal cultural bias. Portuguese has no neutral gender, and I got introduced
to neutral genders when learning English. Because of English, my association
is that neutral is for inanimate stuff (and, strangely, pets). It fits poorly
on little girls :-)

Now, imagine the fun in Portuguese, without neutrals: Every noun is either
masculine or feminine, with near zero rules. A bike is feminine, a car is
masculine, as is a plane or a boat, but a speedboat is feminine. Bottle is
feminine, but glass isn't. Fork is masculine, unlike knife. I couldn't learn
this today if I hadn't learned as a toddler.

For all the cursing I say at German when learning, we're in no position to
criticize...

------
Pitarou
In essence, this is quite a simple matter. Here's _Theory of the Firm 101_ for
you:

In the real world, pure free market economies are inefficient. (If you think
otherwise, you've never tried to co-ordinate a complex project with multiple
independent contractors.)

In the real world, pure bureaucracies are inefficient. (Think North Korea, or
the old Soviet Union.)

But they are inefficient in _different ways_. It turns out that we can improve
efficiency if we have islands of bureaucracy (firms) in a sea of free market
competition. And, since these firms get to keep some of that efficiency gain
for themselves, that's what happens: one way or another, people organize
themselves into firms, and reap the benefits.

------
aasarava
It's really import to look for ways to make your organization more efficient
(and these are good starting points) -- but I think there's a common
misunderstanding between this sort of efficiency and the efficiency that
economists talk about in relation to firms.

Correct me if I'm wrong, but economists don't mean firms are "smooth flowing".
They are saying that firms are more efficient relative to other firms and one-
on-one marketplaces.

E.g., it's inefficient for individuals to go directly to a marketplace to buy
parts for a printer and then to find someone to assemble those parts. It's
much more efficient for a firm to step in and handle the sourcing of the parts
and to create a single place where people can buy them.

That doesn't mean the firm has to be completely without internal friction.

------
mynegation
Many things (and not just in a corporate world) seem to be inefficient until
you understand the undercurrents, hidden factors and incentive structure.

Take for example hiring consultants. Why would you want to hire someone to get
the watch off of your hand and tell you the time, as the joke goes? One factor
is that consultants are used as the way to spread responsibility for important
decisions. Consulting firms know that they may take (part of the) fall for
someone and everyone plays this game. Another thing is that department or
division may need to spend the budget, lest next year they are allocated less
money.

~~~
eru
The behaviour is understandable. But it is still inefficient in the
economically sense of the term.

------
josephpmay
I have an interesting hypothesis: firm inefficiency leads to greater income
inequality.

Think about it. Generally, smaller, newer firms are more efficient than older,
larger firms. Greater firm inefficiency means that more older firms will be
replaced by newer firms (whether by market position or outright bankruptcy).
Average consumers can only invest in older, established firms, and, indeed,
many 401k's are tied-up in stocks of 50+ year old companies. Millionaires,
however, by being certified investors, can invest in many startups, a small
portion of which will eventually become large, established firms in the
future. This causes the rich to gain money, and others to loose it.

Let me give a (contrived) example. Let's say you wanted to invest in a car
company in 2005. If you were an average investor, you may have put your money
in (old) GM, whose stock is now worthless. If you were a billionaire, you
could have split your money between Tesla, ZAP, and Project Better Place. ZAP
and PBP are now defunct, but you would have made a boatload of money off of
Tesla.

~~~
VintageCool
According to this article in the Economist, large firms are more efficient.

"Big firms are generally more productive, offer higher wages and pay more
taxes than small ones. Economies dominated by small firms are often sluggish."

"A recent study of American businesses found that the link between company
size and jobs growth disappears once the age of firms is controlled for."

[http://www.economist.com/node/21548945](http://www.economist.com/node/21548945)

~~~
Toenex
That reads more like an opinion piece than a researched article. Not that the
OP is different.

------
clairity
one major inefficiency hinted at but not directly named is the coordination
problem (a la mythical man month). the tech startup ecosystem addresses that
by having each startup "do one thing well" and having a simple way to
coordinate efficiently (monetary payments in exchange for products/services).

there are a number of business school case studies that talk about addressing
coordination inefficiencies in large firms -- toyota (TPS/kanban) and haier
(OEC/SST -
[http://zaipul.wikispaces.com/file/view/The+Haier%27s+Tao+of+...](http://zaipul.wikispaces.com/file/view/The+Haier%27s+Tao+of+innovation+-+a+case+study+of+the+emerging+total+innovation+management+%28TIM%29.pdf))
come to mind.

~~~
duckingtest
This doesn't solve the problem, it just makes it invisible. When you buy
something complex from other company, time spend communicating is not seen as
bureaucracy, but productive work - on your company's end, communication may
well be as efficient as possible. The same can be true at other company. When
you sum the time/money spent on both sides, it's often worse than 'inefficient
bureaucracy' at large company (which does both things internally). It may seem
more inefficient just because people are able to see the entire process.

If small companies really were more efficient, they wouldn't be able to grow
too much, as they would be outcompeted by already existing small companies.
The reverse actually happens.

~~~
clairity
not sure i get your point. i'm talking about the services ecosystem around
tech. when i need servers, i just sign up at heroku. when i need source
control, i get github. when i need agile tools, jira. need an html framework?
bootstrap. analytics? email marketing? sales automation? bookkeeping?
transportation? lodging? etc. etc.

it's super efficient--just go to a website and pay. i spend no time
coordinating my efforts with those companies, and the price i pay tends to
compare very favorably to building it ourselves.

the coordination problem is wrung out of the equation because teams are small
and must compete. haier replicated this within the company with their STS
model: each group in the supply chain effectively "paid" the upstream group
and that became a simple metric for efficiency of coordination.

------
JacobAldridge
I run a number of Capacity Planning projects for small businesses. It's really
not economically feasible for them to determine all of their constraints to
the _n_ th degree, so I usually start with two figures: What is their perfect
world, 100% Capacity / utilisation rate? And then what happens if we subtract
20-30% of that for 'Uncontrollables' and use that as the Real World target.

There's a bit more science behind it than just that, but the end result proves
accurate and practical. Losing 20% doesn't sound like much, until you realise
that's 1 day per week for every full time employee that we conclude will never
be efficient for any decent length of time.

------
holograham
A very interesting list to say the least.

The major component of the mega-corp money saving justification is the
consolidation of overhead functions. e.g. finance, payroll, HR, media

At tiny companies, these tasks are either outsourced or done by the c-level
employees. As a company scales you need departments to handle these things. A
company of 50 people may need 2 HR folks but the tasks for HR can scale
(especially with technology) such that if that same company scaled to 1,000
employees it wouldnt need to hire 20 HR folks (maybe just 10 total needed)
thus saving 10 heads in HR of salary + benefits + office + IT assets +
support. Not insignificant sums.

~~~
porlw
I think that in most large companies the efficiencies produced by economies of
scale are mostly captured by the management hierarchy (in terms of executive
compensation and the support apparatus provided by consultants)

And why not? - the main shareholders are institutional investors who can't
manage investments in hundreds of small companies, so it's not like they're
going to take their money elsewhere.

------
exelius
All models are wrong, but that doesn't mean they're not useful.

OP right in that individual firms are often quite inefficient, but the thought
is that the market will take care of this in the long run: either a new
competitor will arise and disrupt an existing market, or the shareholders will
get rid of the management if the inefficiency is especially egregious.

The thing about macroeconomics is that you basically get to ignore the blips
because on a long enough time scale, the irregularities start to smooth out.
Scientific advances happen in other fields that may significantly disrupt
another industry and vault progress forward, so even if for a while things
were inefficient, the market catches up eventually.

Economics isn't about predicting the future with great accuracy; it's about
gathering as much information as possible to be able to make decisions about
what to do right now. You're playing the odds, and odds are, companies will be
efficient. Sometimes they're not, which is the entire reason we have the stock
market.

------
rythie
Most of these problems are due to employees looking out for themselves and
their own career. Almost all employees stand to gain nothing from a large
company they work for, doing well. Even if the company does badly, any work
they've done on their career whilst there will help them get a new job
(salary, seniority, achivements etc.)

~~~
michaelochurch
_Almost all employees stand to gain nothing from a large company they work
for, doing well. Even if the company does badly, any work they 've done on
their career whilst there will help them get a new job (salary, seniority,
achivements etc.)_

No, the employees want their companies to do well. If you're at a place for 3
years or longer, its reputation will affect yours.

However, most of them can't really do anything that would have a significant
effect on the performance of the company. On the day-to-day microtrades,
they're going to do what favors themselves. No one (except an idiot, or
someone with 20+ percent in stock) would get fired for his own company's sake.

The claim that employees "don't care" is off. It's always better to be at a
successful company than a failing one, all else equal. They do favor their own
interests, of course, when there is a conflict.

It is true that those with substantial power in an organization (who can
effect its macroscopic performance) tend to be egregiously selfish and
possibly toxic. There are bad actors out there, and the executive overpay of
the past 30 years has only made it more profitable for executives to trash
their own companies (through externalized costs, so they don't get caught) if
they can bolster their careers by doing so. We're way past the point of
getting increasing quality per dollar paid to executives.

~~~
rythie
Performance wise it's still going to be the same company you joined. For
example, Microsoft hasn't done well over the last few years, but people are
mostly still going to be still impressed you worked there.

------
mempko
I am happy to see that people are slowly rediscovering socialism.

However, the "efficiency" argument is one of the poorest arguments because
"efficiency" has always been a hustle. There is no way to predict and even
measure all the effects of an economic decision to make any judgement based on
efficiency.

------
dj-wonk
To give this some context, Dr. Hanson lists a number of ways why firms go not
behave as suggested by traditional economic theories. See also:
[https://en.wikipedia.org/wiki/Theory_of_the_firm](https://en.wikipedia.org/wiki/Theory_of_the_firm)

------
Htsthbjig
There is not such a thing as a perfect company.

There are companies that are more efficient than others.

Not that big companies for example are "more efficient" because they are big
enough.

For example, Apple or Google pay very low taxes, because they could move,
leaving lots of highly qualified people and technology behind. No state wants
that, so they have negotiation power with gobertment, and they could pay lower
taxes.

------
mathattack
There is always a principal/agent problem in large companies. "What's in it
for me?" differs from "What's in it for the company?" Much of management and
leadership is related to overcoming this issue.

------
porter
Yet another blog that I want to subscribe to via email, but can't (easily).
This kind of thoughtful analysis is missing from today's obsession with
listicles.

~~~
notduncansmith
[http://www.overcomingbias.com/feed](http://www.overcomingbias.com/feed) \+
[https://ifttt.com/recipes/4447-rss-mail](https://ifttt.com/recipes/4447-rss-
mail)

I made it easy :)

------
mrcactu5
why is the author so reluctant to agree these inefficiencies exist? is he
afraid of biases in his own list?

Also "smart sincere people" is not a notion I am used to hearing in academic
discourse. If he is going to be critical, I wonder how he characterizes this
notion Is it purely from a game-theory perspective?

~~~
Sniffnoy
See e.g. [http://www.overcomingbias.com/2009/12/the-smart-sincere-
synd...](http://www.overcomingbias.com/2009/12/the-smart-sincere-
syndrome.html)

He also refers to "smart sincere" people as "nerds", so you can search his
blog for that as well.

------
ttty
TIL: "Modeling is always a tradeoff between realism and understanding."

------
michaelochurch
Warning: this is a huge topic. For further reading:

Venkatesh Rao's series on the Gervais Principle:
[http://www.ribbonfarm.com/2009/10/07/the-gervais-
principle-o...](http://www.ribbonfarm.com/2009/10/07/the-gervais-principle-or-
the-office-according-to-the-office/)

My series on the same issue (organizational inefficiency):
[http://michaelochurch.wordpress.com/2013/02/19/gervais-
princ...](http://michaelochurch.wordpress.com/2013/02/19/gervais-principle-
questioned-macleods-hierarchy-the-technocrat-and-vc-startups/)

In a picture: [http://gapingvoid.com/2004/06/27/company-
hierarchy/](http://gapingvoid.com/2004/06/27/company-hierarchy/)

Short version: firms are inefficient because organizations are innately prone
to a predictable degeneracy of the group into three sets of people, none of
which is capable of meeting an organizations trifecta of demands:
subordination, dedication, and strategy (working on the right things). A
person who is strategic in his personal life is going to either optimize for
least-work/most-comfort (Macleod "Loser" strategy) or most-yield/least-
subordination (Macleod "Sociopath"). By definition, those who are subordinate
and dedicated are _not_ strategic in their work lives, and probably not
equipped to run a company for that reason.

Strategically subordinate but not dedicated "Losers" do the bare minimum and
won't push themselves beyond how far they are managed. Among the strategic and
dedicated (but not subordinate) "Sociopaths" there are some good people, but
plenty of narcissists and bad actors as well. Cleaning up the messes made by
their Sociopath bosses and Loser underlings are the Clueless middle managers,
who are subordinate _and_ dedicated but not strategic. For various reasons,
these three sets are not good at working together but usually play against
each other, with one dominant archetype characterizing the organization. (In
VC-funded startups, it's Clueless; at Enron, it was the bad kind of Sociopath.
In most checked-out mediocre companies, it's the Loser.)

There are "good Sociopaths" out there (e.g. "sheep dogs") and I'm probably one
of them, but they're often at a disadvantage against the bad ones. Often they
get sick of taking on political risk (for games whose prizes cannot be enjoyed
fully by the most ethical people; power of any kind is most valuable to those
who will be corrupt with it) and become Losers with age. A few might be able
to start their own companies, but VC won't help them because VC-funded
startups are all about Cluelessness (which is why VCs have their chicken-hawk
fetishism for very young, white, upper-class men).

Fixing this problem is possible, even in larger companies, but very few
organizations view it as worth the cost, especially in the circa-2014 startup
game where companies are built to be sold, not to last more than 5 years (in
which case MacLeod-style degeneracy will just be starting to impede
performance, but is unlikely to kill the thing). Why? The classical
explanation (from MBAs and investors and even founders) for why they keep
starting crappy companies is that they can't afford the risk of alternative
organization styles (e.g. Valve's open allocation) while _also_ innovating on
product, as if there were some finite pool of risk and "all of it" had to be
allocated to product innovation. I strongly disagree. I think they're full of
shit and trying to justify their own mediocrity. But that's what they say.

~~~
sinetek
In my view, the elephant in the room is central banking. It's hard to know the
true value of a company anymore, as the stock market it flooded with trillions
of $$$$ (the dow jones is at an all time high). Surely that capital is going
to be misallocated based on your criterion; power _starts_ in the hands of
those sociopath VC's as the money gets created in startup valuation.

Twitter is valued at more than 30 billion dollars, yet it has never sold a
single thing in its life.

Likewise, the OpenSSL folks scrape by trying to find enough capital to not
make the entire economy collapse from a buffer overflow.

Haskell folks have trouble finding jobs despite being the most brilliant
coders out there (some criterion: # of bugs, quality of tools).

\-- sinetek, who wishes someone would listen

~~~
sinetek
Also, I'm a student of your work. Thank you for opening my post-classroom
eyes, Mike.

~~~
nostrademons
FWIW, someone for whom the Gervais hierarchy is interesting or novel is almost
certainly in the Clueless category. The Sociopath reaction to hearing about it
is "Goddamn, this is going to result in some hassles when getting people to do
what I want. I better discredit or minimize it." The Loser reaction is "Well
duh, I'm surprised this is news to anyone. I'm going to go over to my friend's
house now."

~~~
S4M
That's quite an interesting point, and totally agree on the reaction of the
Loser and the Clueless.

Concerning the Sociopath, it's not clear to me, because I think some of them
manage to themselves to genuinely think they are doing good work, for the good
of the whole company. I've seen cases where I couldn't understand if they were
really good comedian (or: if I could be so easily fooled :-( ) or if they
really believed what they were saying.

~~~
nostrademons
These are caricatures to make the point - of course most people aren't going
to be twirling their evil-villain mustaches. I'd say that the defining
characteristic of MacLeod Sociopaths is that they are _self-interested_ , not
that they are _evil_ ; if their interests align with yours, they're actually
quite good, and most of them actively work to align their interests with a
large number of people. Much easier to get things done that way.

The vast majority of MacLeod Sociopaths would just keep silent on discussions
about the MacLeod hierarchy, as there's fairly little they could gain from
participating in the discussion, and it just makes them look Clueless. That
was my initial plan, but I'm a pretty recent Sociopath and it still doesn't
quite sit right for me, so I'll indulge my momentary impulse toward
Cluelessness.

