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Some micro economics: An enterprise is supposed to add resources until the marginal revenue equals the marginal cost. In this case, it means the additional rev
by johnrob 17y ago
Some micro economics: An enterprise is supposed to add resources until the marginal revenue equals the marginal cost. In this case, it means the additional revenue produced by the employee equals the salary.
Some of these 'efficient' companies are likely leaving value on the table by not adding resources to the point of zero marginal profit.
- Goladus 17y agoIt's kind of strange to call Craigslist an enterprise, in that case. Realize that the chart you are reading is revenue divided employees. It is not a measure of the actual revenue generated by each employee divided by his individual salary. Calculating marginal revenue and marginal costs is not that simple for the sort of IT companies listed.
- johnrob 17y agoThe point I was trying to make was that the proposed corporate 'metric' could easily oppose basic economic best practice. That said, it should be no surprise that Craigslist is at the top - they might be leaving more value on the table than any other company in the world.
- arijo 17y agoDo you have facts that backup your hypothesis?
- jasonwatkinspdx 17y agoStrategic choices don't exist in isolation however. Craigslist owes it's success to a deliberate focus on pleasing it's audience (well that and luck of course). If the prevailing attitude had been on of extracting all available value, it's likely craigslist would't have survived to see it's current success. They would have wasted away at some local maximum. While in theory it's true that you should always make moves that are +ev, in reality we cannot approach the complexity of operating a business that way. Change has a huge cost in organizations, and the larger and more varied the lines of business you're dealing in, the more expensive that change is. Put a different way: organizations aren't markets. Organizations can't be ignorant of economic principles, but economic principles alone, particularly microeconomic ones, do not completely prescribe strategy.
- netcan 17y agoAnother way to look at that is that (eg Craigslist) with high revenue/employee money on the table are those with potential: Craigslist aren't going in top gear. Apple are having trouble keeping up. They have more profitable things to do with their time then take all possible money off the table.