4 ms·

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

by jasode 12y ago

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.

ebiester 12y ago
Except that individual departments do bill each other internally. It's how major corporation accounting works.
- jasode 12y ago
  Internal cost accounting, activity-based costing, chargebacks to departments for Xerox photocopies, etc isn't what I'm talking about. The CFO & acct dept does not send a literal invoice to the IT department where the CTO has his own mini accounting staff handle the invoice and cut a check back to the CFO. When corporate counsel reviews a Terms of Agreement for the IT dept's web service API, they don't send an invoice for $400/hour for "legal services". Not dealing with thousands of such "transactions" as explicit costs is one of the reasons firms exists (so the theory goes.) Internal operations do not send purchase orders to each other. They don't remit checks to each other. Each sub department doesn't have their own sales team haggling internal prices & discounts with other department heads. Etc, etc. It's the external companies' interactions that have all those costlier transactions.
  - lifeisstillgood 12y ago
    So iso20022 could well save the world ! Glad to hear it :-) (Sorry sarcasm, spent too long working with ebXML a decade ago and occasionally watch history repeat itself - idea is to achieve "straight through processing" where invoices, tw and CS and so on are international standarss and digitised. It's a nice pipe dream - but the goal is to make a cloud of 100 freelancers as efficient as a firm I can't see it though
    - rahimnathwani 12y ago
      This would not eliminate the effort involved in service/vendor selection, negotiation on terms etc. The invoicing and payment processing part is small compared to the other costs and risks of doing a deal.
      - lifeisstillgood 12y ago
        Actually they are hopin a lot of it will be eliminated - you set a series of limits and vendors can be selected automatically. Seems dubious I agree
  - zaphoyd 12y ago
    In particularly large and decentralized organizations some of these more costly transactions do exist. I routinely prepare invoices for services we provide other departments and their accounting staff (yes we each have our own accounting staff x.x) cut an [electronic] check to my account.
  - luch 12y ago
    > Each sub department doesn't have their own sales team haggling internal prices & discounts with other department heads. Yes they do. I'm working for a fairly large company (several thousand employees) where projects often covers several business units on different physical locations and each department bill their hours to the next down the factory line. For example my team seldom deal with external clients, however our sales man has to fight tooth and nail to protect our margin against other internal dep.
SomeCallMeTim 12y ago
I don't know. The list seems pretty compelling. Almost every one of those items seems like it has to hurt productivity (except for the first; being "more productive in a crisis" can simply indicate non-sustainable practices, and/or a higher tolerance for risk taking that may or may not be healthy long-term). And at least where I'm working now, most (all?) of those inefficiencies are minimized, and the stock price (and revenue, for that matter) just keeps going up. On the other hand, the comment in the article that implies government oversight might be a good idea is laughable. I'm not an anti-government libertarian, but I can't imagine any government doing a good job of micromanaging business decision. And that includes theoretically optimal governments.
- jasode 12y ago
  > Almost every one of those items seems like it has to hurt productivity Sure they do. Nobody is disputing that. We even enjoy Dilbert cartoons that mock many of the items in the article. But the author is talking about inefficiencies in absolute terms. I'm saying for his argument to work, he has to instead consider inefficiency in relative terms. Relative to what? Relative to hypothetical alternatives such as: 100 freelancers with an explosion of external transaction costs & inefficiencies. Or 100-employee firm managed by Federal bureaucrats instead of the shareholders. The bureaucrats also come with their own baggage and inefficiencies. Every alternative organizational scheme will also have a list of 20+ "inefficiencies" because nothing is perfect. What really matters is whether the productivity gained outweighs the unavoidable inefficiencies. The author made no concrete attempt at quantifying the alternatives and compare relative net efficiency.
  - tormeh 12y ago
    https://bookofbadarguments.com/ https://bookofbadarguments.com/ What you're doing is called equivocation, and it's bad. He was talking about efficiency relative to a theoretical maximum where everything is as efficient as absolutely possible. You're either not reading the article or you're consciously trying to alter the meaning of the words in the debate so that you're right. Please stop.
sergiosgc 12y ago
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???)
- outside1234 12y ago
  i don't think he was deriding it. he just doesn't understand that 260M people speak it and that, given that, it was a bad example. French (74M) or Italian (60M) would have been a better examples.
  - jasode 12y ago
    >i don't think he was deriding it. he just doesn't understand that 260M people speak it Right, I wasn't deriding anything. It was just an analogy comparing something quantitative. I know Portuguese is spoken by many millions but it's still much less than 1 billion Chinese or English. I probably chose Portuguese at random instead of Swedish or Swahili because of the recent World Cup. In any case, my point is that measuring economic reach of Portuguese in isolation as "inefficient" is absurd because there are other efficiencies of parenting (unrelated to whatever language they happen to speak) that wasn't counted.
    - sergiosgc 12y ago
      You did deride it, albeit without any ill intention. I also do not feel overly offended by your argument, which is not totally baseless. My comment, read with some distance, came out too harsh. It's just that the metric of speaker headcount/native economic power is not the sole metric for universal language selection, and it is one I do not think is the best. Headcount would have us all speaking mandarin, a language with little really global world reach, and really foreign to all westerners because of its tonal characteristic. English is probably the best option. Huge cultural reach globally via Hollywood, easy phonology and an easy grammar. If spelling could be simplified (or at least made sane) it'd be almost perfect.

by jasode 12y ago

ebiester 12y ago

Except that individual departments do bill each other internally. It's how major corporation accounting works.

jasode 12y ago
Internal cost accounting, activity-based costing, chargebacks to departments for Xerox photocopies, etc isn't what I'm talking about. The CFO & acct dept does not send a literal invoice to the IT department where the CTO has his own mini accounting staff handle the invoice and cut a check back to the CFO. When corporate counsel reviews a Terms of Agreement for the IT dept's web service API, they don't send an invoice for $400/hour for "legal services". Not dealing with thousands of such "transactions" as explicit costs is one of the reasons firms exists (so the theory goes.) Internal operations do not send purchase orders to each other. They don't remit checks to each other. Each sub department doesn't have their own sales team haggling internal prices & discounts with other department heads. Etc, etc. It's the external companies' interactions that have all those costlier transactions.
- lifeisstillgood 12y ago
  So iso20022 could well save the world ! Glad to hear it :-) (Sorry sarcasm, spent too long working with ebXML a decade ago and occasionally watch history repeat itself - idea is to achieve "straight through processing" where invoices, tw and CS and so on are international standarss and digitised. It's a nice pipe dream - but the goal is to make a cloud of 100 freelancers as efficient as a firm I can't see it though
  - rahimnathwani 12y ago
    This would not eliminate the effort involved in service/vendor selection, negotiation on terms etc. The invoicing and payment processing part is small compared to the other costs and risks of doing a deal.
    - lifeisstillgood 12y ago
      Actually they are hopin a lot of it will be eliminated - you set a series of limits and vendors can be selected automatically. Seems dubious I agree
- zaphoyd 12y ago
  In particularly large and decentralized organizations some of these more costly transactions do exist. I routinely prepare invoices for services we provide other departments and their accounting staff (yes we each have our own accounting staff x.x) cut an [electronic] check to my account.
- luch 12y ago
  > Each sub department doesn't have their own sales team haggling internal prices & discounts with other department heads. Yes they do. I'm working for a fairly large company (several thousand employees) where projects often covers several business units on different physical locations and each department bill their hours to the next down the factory line. For example my team seldom deal with external clients, however our sales man has to fight tooth and nail to protect our margin against other internal dep.

SomeCallMeTim 12y ago

I don't know. The list seems pretty compelling. Almost every one of those items seems like it has to hurt productivity (except for the first; being "more productive in a crisis" can simply indicate non-sustainable practices, and/or a higher tolerance for risk taking that may or may not be healthy long-term). And at least where I'm working now, most (all?) of those inefficiencies are minimized, and the stock price (and revenue, for that matter) just keeps going up. On the other hand, the comment in the article that implies government oversight might be a good idea is laughable. I'm not an anti-government libertarian, but I can't imagine any government doing a good job of micromanaging business decision. And that includes theoretically optimal governments.

jasode 12y ago
> Almost every one of those items seems like it has to hurt productivity Sure they do. Nobody is disputing that. We even enjoy Dilbert cartoons that mock many of the items in the article. But the author is talking about inefficiencies in absolute terms. I'm saying for his argument to work, he has to instead consider inefficiency in relative terms. Relative to what? Relative to hypothetical alternatives such as: 100 freelancers with an explosion of external transaction costs & inefficiencies. Or 100-employee firm managed by Federal bureaucrats instead of the shareholders. The bureaucrats also come with their own baggage and inefficiencies. Every alternative organizational scheme will also have a list of 20+ "inefficiencies" because nothing is perfect. What really matters is whether the productivity gained outweighs the unavoidable inefficiencies. The author made no concrete attempt at quantifying the alternatives and compare relative net efficiency.
- tormeh 12y ago
  https://bookofbadarguments.com/ https://bookofbadarguments.com/ What you're doing is called equivocation, and it's bad. He was talking about efficiency relative to a theoretical maximum where everything is as efficient as absolutely possible. You're either not reading the article or you're consciously trying to alter the meaning of the words in the debate so that you're right. Please stop.

sergiosgc 12y ago

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???)

outside1234 12y ago
i don't think he was deriding it. he just doesn't understand that 260M people speak it and that, given that, it was a bad example. French (74M) or Italian (60M) would have been a better examples.
- jasode 12y ago
  >i don't think he was deriding it. he just doesn't understand that 260M people speak it Right, I wasn't deriding anything. It was just an analogy comparing something quantitative. I know Portuguese is spoken by many millions but it's still much less than 1 billion Chinese or English. I probably chose Portuguese at random instead of Swedish or Swahili because of the recent World Cup. In any case, my point is that measuring economic reach of Portuguese in isolation as "inefficient" is absurd because there are other efficiencies of parenting (unrelated to whatever language they happen to speak) that wasn't counted.
  - sergiosgc 12y ago
    You did deride it, albeit without any ill intention. I also do not feel overly offended by your argument, which is not totally baseless. My comment, read with some distance, came out too harsh. It's just that the metric of speaker headcount/native economic power is not the sole metric for universal language selection, and it is one I do not think is the best. Headcount would have us all speaking mandarin, a language with little really global world reach, and really foreign to all westerners because of its tonal characteristic. English is probably the best option. Huge cultural reach globally via Hollywood, easy phonology and an easy grammar. If spelling could be simplified (or at least made sane) it'd be almost perfect.