Using the Balanced Scorecard as a Strategic Management System

As companies around the world transform themselves for competition that is based on information, their ability to exploit intangible assets has become far more decisive than their ability to invest in and manage physical assets. Several years ago, in recognition of this change, we introduced a concept we called the balanced scorecard. The balanced scorecard supplemented traditional financial measures with criteria that measured performance from three additional perspectives—those of customers, internal business processes, and learning and growth. (See the exhibit “Translating Vision and Strategy: Four Perspectives.”) It therefore enabled companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they would need for future growth. The scorecard wasn’t a replacement for financial measures; it was their complement.

Recently, we have seen some companies move beyond our early vision for the scorecard to discover its value as the cornerstone of a new strategic management system. Used this way, the scorecard addresses a serious deficiency in traditional management systems: their inability to link a company’s long-term strategy with its short-term actions.

Most companies’ operational and management control systems are built around financial measures and targets, which bear little relation to the company’s progress in achieving long-term strategic objectives. Thus the emphasis most companies place on short-term financial measures leaves a gap between the development of a strategy and its implementation.

Managers using the balanced scorecard do not have to rely on short-term financial measures as the sole indicators of the company’s performance. The scorecard lets them introduce four new management processes that, separately and in combination, contribute to linking long-term strategic objectives with short-term actions.

The first new process—translating the vision—helps managers build a consensus around the organization’s vision and strategy. Despite the best intentions of those at the top, lofty statements about becoming “best in class,” “the number one supplier,” or an “empowered organization” don’t translate easily into operational terms that provide useful guides to action at the local level. For people to act on the words in vision and strategy statements, those statements must be expressed as an integrated set of objectives and measures, agreed upon by all senior executives, that describe the long-term drivers of success.

The second process—communicating and linking—lets managers communicate their strategy up and down the organization and link it to departmental and individual objectives. Traditionally, departments are evaluated by their financial performance, and individual incentives are tied to short-term financial goals. The scorecard gives managers a way of ensuring that all levels of the organization understand the long-term strategy and that both departmental and individual objectives are aligned with it.

The third process—business planning—enables companies to integrate their business and financial plans. Almost all organizations today are implementing a variety of change programs, each with its own champions, gurus, and consultants, and each competing for senior executives’ time, energy, and resources. Managers find it difficult to integrate those diverse initiatives to achieve their strategic goals—a situation that leads to frequent disappointments with the programs’ results. But when managers use the ambitious goals set for balanced scorecard measures as the basis for allocating resources and setting priorities, they can undertake and coordinate only those initiatives that move them toward their long-term strategic objectives.

The fourth process—feedback and learning—gives companies the capacity for what we call strategic learning. Existing feedback and review processes focus on whether the company, its departments, or its individual employees have met their budgeted financial goals. With the balanced scorecard at the center of its management systems, a company can monitor short-term results from the three additional perspectives—customers, internal business processes, and learning and growth—and evaluate strategy in the light of recent performance. The scorecard thus enables companies to modify strategies to reflect real-time learning.

None of the more than 100 organizations that we have studied or with which we have worked implemented their first balanced scorecard with the intention of developing a new strategic management system. But in each one, the senior executives discovered that the scorecard supplied a framework and thus a focus for many critical management processes: departmental and individual goal setting, business planning, capital allocations, strategic initiatives, and feedback and learning. Previously, those processes were uncoordinated and often directed at short-term operational goals. By building the scorecard, the senior executives started a process of change that has gone well beyond the original idea of simply broadening the company’s performance measures.

For example, one insurance company—let’s call it National Insurance—developed its first balanced scorecard to create a new vision for itself as an underwriting specialist. But once National started to use it, the scorecard allowed the CEO and the senior management team not only to introduce a new strategy for the organization but also to overhaul the company’s management system. The CEO subsequently told employees in a letter addressed to the whole organization that National would thenceforth use the balanced scorecard and the philosophy that it represented to manage the business.

National built its new strategic management system step-by-step over 30 months, with each step representing an incremental improvement. (See the exhibit “How One Company Built a Strategic Management System…”) The iterative sequence of actions enabled the company to reconsider each of the four new management processes two or three times before the system stabilized and became an established part of National’s overall management system. Thus the CEO was able to transform the company so that everyone could focus on achieving long-term strategic objectives—something that no purely financial framework could do.

Translating the Vision

The CEO of an engineering construction company, after working with his senior management team for several months to develop a mission statement, got a phone call from a project manager in the field. “I want you to know,” the distraught manager said, “that I believe in the mission statement. I want to act in accordance with the mission statement. I’m here with my customer. What am I supposed to do?”

The mission statement, like those of many other organizations, had declared an intention to “use high-quality employees to provide services that surpass customers’ needs.” But the project manager in the field with his employees and his customer did not know how to translate those words into the appropriate actions. The phone call convinced the CEO that a large gap existed between the mission statement and employees’ knowledge of how their day-to-day actions could contribute to realizing the company’s vision.

Metro Bank (not its real name), the result of a merger of two competitors, encountered a similar gap while building its balanced scorecard. The senior executive group thought it had reached agreement on the new organization’s overall strategy: “to provide superior service to targeted customers.” Research had revealed five basic market segments among existing and potential customers, each with different needs. While formulating the measures for the customer-perspective portion of their balanced scorecard, however, it became apparent that although the 25 senior executives agreed on the words of the strategy, each one had a different definition of superior service and a different image of the targeted customers.

The exercise of developing operational measures for the four perspectives on the bank’s scorecard forced the 25 executives to clarify the meaning of the strategy statement. Ultimately, they agreed to stimulate revenue growth through new products and services and also agreed on the three most desirable customer segments. They developed scorecard measures for the specific products and services that should be delivered to customers in the targeted segments as well as for the relationship the bank should build with customers in each segment. The scorecard also highlighted gaps in employees’ skills and in information systems that the bank would have to close in order to deliver the selected value propositions to the targeted customers. Thus, creating a balanced scorecard forced the bank’s senior managers to arrive at a consensus and then to translate their vision into terms that had meaning to the people who would realize the vision.

Communicating and Linking

“The top ten people in the business now understand the strategy better than ever before. It’s too bad,” a senior executive of a major oil company complained, “that we can’t put this in a bottle so that everyone could share it.” With the balanced scorecard, he can.

One company we have worked with deliberately involved three layers of management in the creation of its balanced scorecard. The senior executive group formulated the financial and customer objectives. It then mobilized the talent and information in the next two levels of managers by having them formulate the internal-business-process and learning-and-growth objectives that would drive the achievement of the financial and customer goals. For example, knowing the importance of satisfying customers’ expectations of on-time delivery, the broader group identified several internal business processes—such as order processing, scheduling, and fulfillment—in which the company had to excel. To do so, the company would have to retrain frontline employees and improve the information systems available to them. The group developed performance measures for those critical processes and for staff and systems capabilities.

Broad participation in creating a scorecard takes longer, but it offers several advantages: Information from a larger number of managers is incorporated into the internal objectives; the managers gain a better understanding of the company’s long-term strategic goals; and such broad participation builds a stronger commitment to achieving those goals. But getting managers to buy into the scorecard is only a first step in linking individual actions to corporate goals.

The balanced scorecard signals to everyone what the organization is trying to achieve for shareholders and customers alike. But to align employees’ individual performances with the overall strategy, scorecard users generally engage in three activities: communicating and educating, setting goals, and linking rewards to performance measures.

Communicating and educating.

Implementing a strategy begins with educating those who have to execute it. Whereas some organizations opt to hold their strategy close to the vest, most believe that they should disseminate it from top to bottom. A broad-based communication program shares with all employees the strategy and the critical objectives they have to meet if the strategy is to succeed. Onetime events such as the distribution of brochures or newsletters and the holding of “town meetings” might kick off the program. Some organizations post bulletin boards that illustrate and explain the balanced scorecard measures, then update them with monthly results. Others use groupware and electronic bulletin boards to distribute the scorecard to the desktops of all employees and to encourage dialogue about the measures. The same media allow employees to make suggestions for achieving or exceeding the targets.

The balanced scorecard, as the embodiment of business unit strategy, should also be communicated upward in the organization—to corporate headquarters and to the corporate board of directors. With the scorecard, business units can quantify and communicate their long-term strategies to senior executives using a comprehensive set of linked financial and nonfinancial measures. Such communication informs the executives and the board in specific terms that long-term strategies designed for competitive success are in place. The measures also provide the basis for feedback and accountability. Meeting short-term financial targets should not constitute satisfactory performance when other measures indicate that the long-term strategy is either not working or not being implemented well.

Should the balanced scorecard be communicated beyond the boardroom to external shareholders? We believe that as senior executives gain confidence in the ability of the scorecard measures to monitor strategic performance and predict future financial performance, they will find ways to inform outside investors about those measures without disclosing competitively sensitive information.

Skandia, an insurance and financial services company based in Sweden, issues a supplement to its annual report called “The Business Navigator”—“an instrument to help us navigate into the future and thereby stimulate renewal and development.” The supplement describes Skandia’s strategy and the strategic measures the company uses to communicate and evaluate the strategy. It also provides a report on the company’s performance along those measures during the year. The measures are customized for each operating unit and include, for example, market share, customer satisfaction and retention, employee competence, employee empowerment, and technology deployment.

Communicating the balanced scorecard promotes commitment and accountability to the business’s long-term strategy. As one executive at Metro Bank declared, “The balanced scorecard is both motivating and obligating.”

Setting goals.

Mere awareness of corporate goals, however, is not enough to change many people’s behavior. Somehow, the organization’s high-level strategic objectives and measures must be translated into objectives and measures for operating units and individuals.

The exploration group of a large oil company developed a technique to enable and encourage individuals to set goals for themselves that were consistent with the organization’s. It created a small, fold-up, personal scorecard that people could carry in their shirt pockets or wallets. (See the exhibit “The Personal Scorecard.”) The scorecard contains three levels of information. The first describes corporate objectives, measures, and targets. The second leaves room for translating corporate targets into targets for each business unit. For the third level, the company asks both individuals and teams to articulate which of their own objectives would be consistent with the business unit and corporate objectives, as well as what initiatives they would take to achieve their objectives. It also asks them to define up to five performance measures for their objectives and to set targets for each measure. The personal scorecard helps to communicate corporate and business unit objectives to the people and teams performing the work, enabling them to translate the objectives into meaningful tasks and targets for themselves. It also lets them keep that information close at hand—in their pockets.

Linking rewards to performance measures.

Should compensation systems be linked to balanced scorecard measures? Some companies, believing that tying financial compensation to performance is a powerful lever, have moved quickly to establish such a linkage. For example, an oil company that we’ll call Pioneer Petroleum uses its scorecard as the sole basis for computing incentive compensation. The company ties 60% of its executives’ bonuses to their achievement of ambitious targets for a weighted average of four financial indicators: return on capital, profitability, cash flow, and operating cost. It bases the remaining 40% on indicators of customer satisfaction, dealer satisfaction, employee satisfaction, and environmental responsibility (such as a percentage change in the level of emissions to water and air). Pioneer’s CEO says that linking compensation to the scorecard has helped to align the company with its strategy. “I know of no competitor,” he says, “who has this degree of alignment. It is producing results for us.”

As attractive and as powerful as such linkage is, it nonetheless carries risks. For instance, does the company have the right measures on the scorecard? Does it have valid and reliable data for the selected measures? Could unintended or unexpected consequences arise from the way the targets for the measures are achieved? Those are questions that companies should ask.

Furthermore, companies traditionally handle multiple objectives in a compensation formula by assigning weights to each objective and calculating incentive compensation by the extent to which each weighted objective was achieved. This practice permits substantial incentive compensation to be paid if the business unit overachieves on a few objectives even if it falls far short on others. A better approach would be to establish minimum threshold levels for a critical subset of the strategic measures. Individuals would earn no incentive compensation if performance in a given period fell short of any threshold. This requirement should motivate people to achieve a more balanced performance across short- and long-term objectives.

Some organizations, however, have reduced their emphasis on short-term, formula-based incentive systems as a result of introducing the balanced scorecard. They have discovered that dialogue among executives and managers about the scorecard—both the formulation of the measures and objectives and the explanation of actual versus targeted results—provides a better opportunity to observe managers’ performance and abilities. Increased knowledge of their managers’ abilities makes it easier for executives to set incentive rewards subjectively and to defend those subjective evaluations—a process that is less susceptible to the game playing and distortions associated with explicit, formula-based rules.

One company we have studied takes an intermediate position. It bases bonuses for business unit managers on two equally weighted criteria: their achievement of a financial objective—economic value added—over a three-year period and a subjective assessment of their performance on measures drawn from the customer, internal-business-process, and learning-and-growth perspectives of the balanced scorecard.

That the balanced scorecard has a role to play in the determination of incentive compensation is not in doubt. Precisely what that role should be will become clearer as more companies experiment with linking rewards to scorecard measures.

Business Planning

“Where the rubber meets the sky”: That’s how one senior executive describes his company’s long-range-planning process. He might have said the same of many other companies because their financially based management systems fail to link change programs and resource allocation to long-term strategic priorities.

The problem is that most organizations have separate procedures and organizational units for strategic planning and for resource allocation and budgeting. To formulate their strategic plans, senior executives go off-site annually and engage for several days in active discussions facilitated by senior planning and development managers or external consultants. The outcome of this exercise is a strategic plan articulating where the company expects (or hopes or prays) to be in three, five, and ten years. Typically, such plans then sit on executives’ bookshelves for the next 12 months.

Meanwhile, a separate resource-allocation and budgeting process run by the finance staff sets financial targets for revenues, expenses, profits, and investments for the next fiscal year. The budget it produces consists almost entirely of financial numbers that generally bear little relation to the targets in the strategic plan.

Which document do corporate managers discuss in their monthly and quarterly meetings during the following year? Usually only the budget, because the periodic reviews focus on a comparison of actual and budgeted results for every line item. When is the strategic plan next discussed? Probably during the next annual off-site meeting, when the senior managers draw up a new set of three-, five-, and ten-year plans.

The very exercise of creating a balanced scorecard forces companies to integrate their strategic planning and budgeting processes and therefore helps to ensure that their budgets support their strategies. Scorecard users select measures of progress from all four scorecard perspectives and set targets for each of them. Then they determine which actions will drive them toward their targets, identify the measures they will apply to those drivers from the four perspectives, and establish the short-term milestones that will mark their progress along the strategic paths they have selected. Building a scorecard thus enables a company to link its financial budgets with its strategic goals.

For example, one division of the Style Company (not its real name) committed to achieving a seemingly impossible goal articulated by the CEO: to double revenues in five years. The forecasts built into the organization’s existing strategic plan fell $1 billion short of this objective. The division’s managers, after considering various scenarios, agreed to specific increases in five different performance drivers: the number of new stores opened, the number of new customers attracted into new and existing stores, the percentage of shoppers in each store converted into actual purchasers, the portion of existing customers retained, and average sales per customer.

By helping to define the key drivers of revenue growth and by committing to targets for each of them, the division’s managers eventually grew comfortable with the CEO’s ambitious goal.

The process of building a balanced scorecard—clarifying the strategic objectives and then identifying the few critical drivers—also creates a framework for managing an organization’s various change programs. These initiatives—reengineering, employee empowerment, time-based management, and total quality management, among others—promise to deliver results but also compete with one another for scarce resources, including the scarcest resource of all: senior managers’ time and attention.

Shortly after the merger that created it, Metro Bank, for example, launched more than 70 different initiatives. The initiatives were intended to produce a more competitive and successful institution, but they were inadequately integrated into the overall strategy. After building their balanced scorecard, Metro Bank’s managers dropped many of those programs—such as a marketing effort directed at individuals with very high net worth—and consolidated others into initiatives that were better aligned with the company’s strategic objectives. For example, the managers replaced a program aimed at enhancing existing low-level selling skills with a major initiative aimed at retraining salespersons to become trusted financial advisers, capable of selling a broad range of newly introduced products to the three selected customer segments. The bank made both changes because the scorecard enabled it to gain a better understanding of the programs required to achieve its strategic objectives.

Once the strategy is defined and the drivers are identified, the scorecard influences managers to concentrate on improving or reengineering those processes most critical to the organization’s strategic success. That is how the scorecard most clearly links and aligns action with strategy.

The final step in linking strategy to actions is to establish specific short-term targets, or milestones, for the balanced scorecard measures. Milestones are tangible expressions of managers’ beliefs about when and to what degree their current programs will affect those measures.

In establishing milestones, managers are expanding the traditional budgeting process to incorporate strategic as well as financial goals. Detailed financial planning remains important, but financial goals taken by themselves ignore the three other balanced scorecard perspectives. In an integrated planning and budgeting process, executives continue to budget for short-term financial performance, but they also introduce short-term targets for measures in the customer, internal-business-process, and learning-and-growth perspectives. With those milestones established, managers can continually test both the theory underlying the strategy and the strategy’s implementation.

At the end of the business-planning process, managers should have set targets for the long-term objectives they would like to achieve in all four scorecard perspectives; they should have identified the strategic initiatives required and allocated the necessary resources to those initiatives; and they should have established milestones for the measures that mark progress toward achieving their strategic goals.

Feedback and Learning

“With the balanced scorecard,” a CEO of an engineering company told us, “I can continually test my strategy. It’s like performing real-time research.” That is exactly the capability that the scorecard should give senior managers: the ability to know at any point in its implementation whether the strategy they have formulated is, in fact, working, and if not, why.

The first three management processes—translating the vision, communicating and linking, and business planning—are vital for implementing strategy, but they are not sufficient in an unpredictable world. Together they form an important single-loop-learning process—single-loop in the sense that the objective remains constant, and any departure from the planned trajectory is seen as a defect to be remedied. This single-loop process does not require or even facilitate reexamination of either the strategy or the techniques used to implement it in light of current conditions.

Most companies today operate in a turbulent environment with complex strategies that, though valid when they were launched, may lose their validity as business conditions change. In this kind of environment, where new threats and opportunities arise constantly, companies must become capable of what Chris Argyris calls double-loop learning—learning that produces a change in people’s assumptions and theories about cause-and-effect relationships.

Budget reviews and other financially based management tools cannot engage senior executives in double-loop learning—first, because these tools address performance from only one perspective, and second, because they don’t involve strategic learning. Strategic learning consists of gathering feedback, testing the hypotheses on which strategy was based, and making the necessary adjustments.

The balanced scorecard supplies three elements that are essential to strategic learning. First, it articulates the company’s shared vision, defining in clear and operational terms the results that the company, as a team, is trying to achieve. The scorecard communicates a holistic model that links individual efforts and accomplishments to business unit objectives.

Second, the scorecard supplies the essential strategic feedback system. A business strategy can be viewed as a set of hypotheses about cause-and-effect relationships. A strategic feedback system should be able to test, validate, and modify the hypotheses embedded in a business unit’s strategy. By establishing short-term goals, or milestones, within the business-planning process, executives are forecasting the relationship between changes in performance drivers and the associated changes in one or more specified goals. For example, executives at Metro Bank estimated the amount of time it would take for improvements in training and in the availability of information systems before employees could sell multiple financial products effectively to existing and new customers. They also estimated how great the effect of that selling capability would be.

Another organization attempted to validate its hypothesized cause-and-effect relationships in the balanced scorecard by measuring the strength of the linkages among measures in the different perspectives. (See the exhibit “How One Company Linked Measures from the Four Perspectives.”) The company found significant correlations between employees’ morale, a measure in the learning-and-growth perspective, and customer satisfaction, an important customer perspective measure. Customer satisfaction, in turn, was correlated with faster payment of invoices—a relationship that led to a substantial reduction in accounts receivable and hence a higher return on capital employed. The company also found correlations between employees’ morale and the number of suggestions made by employees (two learning-and-growth measures) as well as between an increased number of suggestions and lower rework (an internal-business-process measure). Evidence of such strong correlations help to confirm the organization’s business strategy. If, however, the expected correlations are not found over time, it should be an indication to executives that the theory underlying the unit’s strategy may not be working as they had anticipated.

Especially in large organizations, accumulating sufficient data to document significant correlations and causation among balanced scorecard measures can take a long time—months or years. Over the short term, managers’ assessment of strategic impact may have to rest on subjective and qualitative judgments. Eventually, however, as more evidence accumulates, organizations may be able to provide more objectively grounded estimates of cause-and-effect relationships. But just getting managers to think systematically about the assumptions underlying their strategy is an improvement over the current practice of making decisions based on short-term operational results.

Third, the scorecard facilitates the strategy review that is essential to strategic learning. Traditionally, companies use the monthly or quarterly meetings between corporate and division executives to analyze the most recent period’s financial results. Discussions focus on past performance and on explanations of why financial objectives were not achieved. The balanced scorecard, with its specification of the causal relationships between performance drivers and objectives, allows corporate and business unit executives to use their periodic review sessions to evaluate the validity of the unit’s strategy and the quality of its execution. If the unit’s employees and managers have delivered on the performance drivers (retraining of employees, availability of information systems, and new financial products and services, for instance), then their failure to achieve the expected outcomes (higher sales to targeted customers, for example) signals that the theory underlying the strategy may not be valid. The disappointing sales figures are an early warning.

Managers should take such disconfirming evidence seriously and reconsider their shared conclusions about market conditions, customer value propositions, competitors’ behavior, and internal capabilities. The result of such a review may be a decision to reaffirm their belief in the current strategy but to adjust the quantitative relationship among the strategic measures on the balanced scorecard. But they also might conclude that the unit needs a different strategy (an example of double-loop learning) in light of new knowledge about market conditions and internal capabilities. In any case, the scorecard will have stimulated key executives to learn about the viability of their strategy. This capacity for enabling organizational learning at the executive level—strategic learning—is what distinguishes the balanced scorecard, making it invaluable for those who wish to create a strategic management system.

Toward a New Strategic Management System

Many companies adopted early balanced scorecard concepts to improve their performance measurement systems. They achieved tangible but narrow results. Adopting those concepts provided clarification, consensus, and focus on the desired improvements in performance. More recently, we have seen companies expand their use of the balanced scorecard, employing it as the foundation of an integrated and iterative strategic management system. Companies are using the scorecard to:

  • clarify and update strategy;
  • communicate strategy throughout the company;
  • align unit and individual goals with the strategy;
  • link strategic objectives to long-term targets and annual budgets;
  • identify and align strategic initiatives; and
  • conduct periodic performance reviews to learn about and improve strategy.

The balanced scorecard enables a company to align its management processes and focuses the entire organization on implementing long-term strategy. At National Insurance, the scorecard provided the CEO and his managers with a central framework around which they could redesign each piece of the company’s management system. And because of the cause-and-effect linkages inherent in the scorecard framework, changes in one component of the system reinforced earlier changes made elsewhere. Therefore, every change made over the 30-month period added to the momentum that kept the organization moving forward in the agreed-upon direction.

Without a balanced scorecard, most organizations are unable to achieve a similar consistency of vision and action as they attempt to change direction and introduce new strategies and processes. The balanced scorecard provides a framework for managing the implementation of strategy while also allowing the strategy itself to evolve in response to changes in the company’s competitive, market, and technological environments.
by Robert S. Kaplan and David P. Norton

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What makes us feel good about our work?

I have been writing blogs about several businesses, political economy, and politic issues. Those blogs have been collected about specific themes from various authors. In those blogs I have tried to simplify some topics so that can be understandable even for individuals who are not from filed which specific topic covers, for example; Corporate Finance.
I have resolved that next „level“ of blogs will be short talks from experts, but not lectures for experts or ones in Universities, but lectures that are short, and understandable for every person.

The second is 
Dan Ariely Professor of Psychology and Behavioral Economics,Fuqua School of Business Duke University.


I want to talk a little bit today
 about labor and work. When we think about how people work, the naive intuition we have is that people are like rats in a maze — that all people care about is money, and the moment we give people money, we can direct them to work one way, we can direct them to work another way. This is why we give bonuses to bankers and pay in all kinds of ways. And we really have this incredibly simplistic view of why people work and what the labor market looks like.

At the same time, if you think about it, there’s all kinds of strange behaviors in the world around us.Think about something like mountaineering and mountain climbing. If you read books of people who climb mountains, difficult mountains, do you think that those books are full of moments of joy and happiness? No, they are full of misery. In fact, it’s all about frostbite and difficulty to walk and difficulty of breathing — cold, challenging circumstances. And if people were just trying to be happy, the moment they would get to the top, they would say, “This was a terrible mistake. I’ll never do it again.” “Instead, let me sit on a beach somewhere drinking mojitos.” But instead, people go down, and after they recover, they go up again. And if you think about mountain climbing as an example, it suggests all kinds of things. It suggests that we care about reaching the end, a peak. It suggests that we care about the fight, about the challenge. It suggests that there’s all kinds of other things that motivate us to work or behave in all kinds of ways.

And for me personally, I started thinking about this after a student came to visit me. This was a student that was one of my students a few years earlier. And he came one day back to campus. And he told me the following story: He said that for more than two weeks, he was working on a PowerPoint presentation. He was working in a big bank. This was in preparation for a merger and acquisition. And he was working very hard on this presentation — graphs, tables, information. He stayed late at night every day. And the day before it was due, he sent his PowerPoint presentation to his boss, and his boss wrote him back and said, “Nice presentation, but the merger is canceled.” And the guy was deeply depressed. Now at the moment when he was working, he was actually quite happy. Every night he was enjoying his work, he was staying late, he was perfecting this PowerPoint presentation. But knowing that nobody would ever watch that made him quite depressed.

So I started thinking about how do we experiment with this idea of the fruits of our labor. And to start with, we created a little experiment in which we gave people Legos, and we asked them to build with Legos. And for some people, we gave them Legos and we said, “Hey, would you like to build this Bionicle for three dollars? We’ll pay you three dollars for it.” And people said yes, and they built with these Legos. And when they finished, we took it, we put it under the table, and we said, “Would you like to build another one, this time for $2.70?” If they said yes, we gave them another one. And when they finished, we asked them, “Do you want to build another one?” for $2.40, $2.10, and so on, until at some point people said, “No more. It’s not worth it for me.” This was what we called the meaningful condition.People built one Bionicle after another. After they finished every one of them, we put them under the table. And we told them that at the end of the experiment, we will take all these Bionicles, we will disassemble them, we will put them back in the boxes, and we will use it for the next participant.

There was another condition. This other condition was inspired by David, my student. And this other condition we called the Sisyphic condition. And if you remember the story about Sisyphus, Sisyphus was punished by the gods to push the same rock up a hill, and when he almost got to the end, the rock would roll over, and he would have to start again. And you can think about this as the essence of doing futile work. You can imagine that if he pushed the rock on different hills, at least he would have some sense of progress. Also, if you look at prison movies, sometimes the way that the guards torture the prisoners is to get them to dig a hole and when the prisoner is finished, they ask him to fill the hole back up and then dig again. There’s something about this cyclical version of doing something over and over and over that seems to be particularly demotivating. So in the second condition of this experiment, that’s exactly what we did. We asked people, “Would you like to build one Bionicle for three dollars?”And if they said yes, they built it. Then we asked them, “Do you want to build another one for $2.70?”And if they said yes, we gave them a new one, and as they were building it, we took apart the one that they just finished. And when they finished that, we said, “Would you like to build another one, this time for 30 cents less?” And if they said yes, we gave them the one that they built and we broke. So this was an endless cycle of them building and us destroying in front of their eyes.

Now what happens when you compare these two conditions? The first thing that happened was that people built many more Bionicles — they built 11 versus seven — in the meaningful condition versus the Sisyphus condition. And by the way, we should point out that this was not a big meaning. People were not curing cancer or building bridges. People were building Bionicles for a few cents. And not only that, everybody knew that the Bionicles would be destroyed quite soon. So there was not a real opportunity for big meaning. But even the small meaning made a difference.

Now we had another version of this experiment. In this other version of the experiment, we didn’t put people in this situation, we just described to them the situation, much as I am describing to you now,and we asked them to predict what the result would be. What happened? People predicted the right direction but not the right magnitude. People who were just given the description of the experiment said that in the meaningful condition people would probably build one more Bionicle. So people understand that meaning is important, they just don’t understand the magnitude of the importance, the extent to which it’s important.

There was one other piece of data we looked at. If you think about it, there are some people who love Legos and some people who don’t. And you would speculate that the people who love Legos will build more Legos, even for less money, because after all, they get more internal joy from it. And the people who love Legos less will build less Legos because the enjoyment that they derive from it is lower. And that’s actually what we found in the meaningful condition. There was a very nice correlation between love of Lego and the amount of Legos people built. What happened in the Sisyphic condition? In that condition the correlation was zero. There was no relationship between the love of Lego and how much people built, which suggests to me that with this manipulation of breaking things in front of people’s eyes, we basically crushed any joy that they could get out of this activity. We basically eliminated it.

Soon after I finished running this experiment, I went to talk to a big software company in Seattle. I can’t tell you who they were, but they were a big company in Seattle. And this was a group within this software company that was put in a different building. And they asked them to innovate and create the next big product for this company. And the week before I showed up, the CEO of this big software company went to that group, 200 engineers, and canceled the project. And I stood there in front of 200 of the most depressed people I’ve ever talked to. And I described to them some of these Lego experiments, and they said they felt like they had just been through that experiment. And I asked them, I said, “How many of you now show up to work later than you used to?” And everybody raised their hand. I said, “How many of you now go home earlier than you used to?” And everybody raised their hand. I asked them, “How many of you now add not-so-kosher things to your expense reports?” And they didn’t really raise their hands, but they took me out to dinner and showed me what they could do with expense reports. And then I asked them, I said, “What could the CEO have done to make you not as depressed?” And they came up with all kinds of ideas. They said the CEO could have asked them to present to the whole company about their journey over the last two years and what they decided to do.He could have asked them to think about which aspect of their technology could fit with other parts of the organization. He could have asked them to build some prototypes, some next-generation prototypes, and seen how they would work. But the thing is that any one of those would require some effort and motivation. And I think the CEO basically did not understand the importance of meaning. If the CEO, just like our participants, thought the essence of meaning is unimportant, then he [wouldn’t] care. And he would tell them, “At the moment I directed you in this way, and now that I am directing you in this way, everything will be okay.” But if you understood how important meaning is, then you would figure out that it’s actually important to spend some time, energy and effort in getting people to care more about what they’re doing.

The next experiment was slightly different. We took a sheet of paper with random letters, and we asked people to find pairs of letters that were identical next to each other. That was the task. And people did the first sheet. And then we asked them if they wanted to do the next sheet for a little bit less moneyand the next sheet for a little bit less money, and so on and so forth. And we had three conditions. In the first condition, people wrote their name on the sheet, found all the pairs of letters, gave it to the experimenter. The experimenter would look at it, scan it from top to bottom, say “uh huh” and put it on the pile next to them. In the second condition, people did not write their name on it. The experimenter looked at it, took the sheet of paper, did not look at it, did not scan it, and simply put it on the pile of pages. So you take a piece, you just put it on the side. And in the third condition, the experimenter got the sheet of paper and directly put it into a shredder. What happened in those three conditions?

In this plot I’m showing you at what pay rate people stopped. So low numbers mean that people worked harder. They worked for much longer. In the acknowledged condition, people worked all the way down to 15 cents. At 15 cents per page, they basically stopped these efforts. In the shredder condition, it was twice as much — 30 cents per sheet. And this is basically the result we had before.You shred people’s efforts, output, you get them not to be as happy with what they’re doing. But I should point out, by the way, that in the shredder condition, people could have cheated. They could have done not so good work, because they realized that people were just shredding it. So maybe the first sheet you would do good work, but then you see nobody is really testing it, so you would do more and more and more. So in fact, in the shredder condition, people could have submitted more work and gotten more money and put less effort into it. But what about the ignored condition? Would the ignored condition be more like the acknowledged or more like the shredder, or somewhere in the middle? It turns out it was almost like the shredder.

Now there’s good news and bad news here. The bad news is that ignoring the performance of peopleis almost as bad as shredding their effort in front of their eyes. Ignoring gets you a whole way out there.The good news is that by simply looking at something that somebody has done, scanning it and saying “uh huh,” that seems to be quite sufficient to dramatically improve people’s motivations. So the good news is that adding motivation doesn’t seem to be so difficult. The bad news is that eliminating motivations seems to be incredibly easy, and if we don’t think about it carefully, we might overdo it. So this is all in terms of negative motivation or eliminating negative motivation.

The next part I want to show you is something about the positive motivation. So there is a store in the U.S. called IKEA. And IKEA is a store with kind of okay furniture that takes a long time to assemble.(Laughter) And I don’t know about you, but every time I assemble one of those, it takes me much longer, it’s much more effortful, it’s much more confusing. I put things in the wrong way. I can’t say enjoy those pieces. I can’t say I enjoy the process. But when I finish it, I seem to like those IKEA pieces of furniture more than I like other ones.

And there’s an old story about cake mixes. So when they started cake mixes in the ’40s, they would take this powder and they would put it in a box, and they would ask housewives to basically pour it in, stir some water in it, mix it, put it in the oven, and — voila! — you had cake. But it turns out they were very unpopular. People did not want them. And they thought about all kinds of reasons for that. Maybe the taste was not good. No, the taste was great. What they figured out was that there was not enough effort involved. It was so easy that nobody could serve cake to their guests and say, “Here is my cake.”No, no, no, it was somebody else’s cake. It was as if you bought it in the store. It didn’t really feel like your own. So what did they do? They took the eggs and the milk out of the powder. (Laughter) Now you had to break the eggs and add them. You had to measure the milk and add it, mixing it. Now it was your cake. Now everything was fine.

Now I think a little bit like the IKEA effect, by getting people to work harder, they actually got them to love what they’re doing to a higher degree.

So how do we look at this question experimentally? We asked people to build some origami. We gave them instructions on how to create origami, and we gave them a sheet of paper. And these were all novices, and they built something that was really quite ugly — nothing like a frog or a crane. But then we told them, we said, “Look, this origami really belongs to us. You worked for us, but I’ll tell you what, we’ll sell it to you. How much do you want to pay for it?” And we measured how much they were willing to pay for it. And we had two types of people. We had the people who built it, and we had the people who did not build it and just looked at it as external observers. And what we found was that the builders thought that these were beautiful pieces of origami, and they were willing to pay for them five times more than the people who just evaluated them externally. Now you could say, if you were a builder, do you think that, “Oh, I love this origami, but I know that nobody else would love it?” Or do you think, “I love this origami, and everybody else will love it as well?” Which one of those two is correct? Turns out the builders not only loved the origami more, they thought that everybody would see the world in their view. They thought everybody else would love it more as well.

In the next version we tried to do the IKEA effect. We tried to make it more difficult. So for some people we gave the same task. For some people we made it harder by hiding the instructions. At the top of the sheet, we had little diagrams of how do you fold origami. For some people we just eliminated that. So now this was tougher. What happened? Well in an objective way, the origami now was uglier, it was more difficult. Now when we looked at the easy origami, we saw the same thing: Builders loved it more, evaluators loved it less. When you looked at the hard instructions, the effect was larger. Why? Because now the builders loved it even more. They put all this extra effort into it. And evaluators? They loved it even less. Because in reality it was even uglier than the first version. Of course, this tells you something about how we evaluate things.

Now think about kids. Imagine I asked you, “How much would you sell your kids for?” Your memories and associations and so on. Most people would say for a lot, a lot of money — on good days. (Laughter)But imagine this was slightly different. Imagine if you did not have your kids, and one day you went to the park and you met some kids, and they were just like your kids. And you played with them for a few hours. And when you were about to leave, the parents said, “Hey, by the way, just before you leave, if you’re interested, they’re for sale.” (Laughter) How much would you pay for them now? Most people say not that much. And this is because our kids are so valuable, not just because of who they are, but because of us, because they are so connected to us and because of the time and connection. And by the way, if you think that IKEA instructions are not good, think about the instructions that come with kids. Those are really tough. (Laughter) By the way, these are my kids, which, of course, are wonderful and so on. Which comes to tell you one more thing, which is, much like our builders, when they look at the creature of their creation, we don’t see that other people don’t see things our way.

Let me say one last comment. If you think about Adam Smith versus Karl Marx, Adam Smith had the very important notion of efficiency. He gave an example of a pin factory. He said pins have 12 different steps, and if one person does all 12 steps, production is very low. But if you get one person to do step one and one person to do step two and step three and so on, production can increase tremendously.And indeed, this is a great example and the reason for the Industrial Revolution and efficiency. Karl Marx, on the other hand, said that the alienation of labor is incredibly important in how people think about the connection to what they are doing. And if you make all 12 steps, you care about the pin. But if you make one step every time, maybe you don’t care as much.

And I think that in the Industrial Revolution, Adam Smith was more correct than Karl Marx, but the reality is that we’ve switched and now we’re in the knowledge economy. And you can ask yourself, what happens in a knowledge economy? Is efficiency still more important than meaning? I think the answer is no. I think that as we move to situations in which people have to decide on their own about how much effort, attention, caring, how connected they feel to it, are they thinking about labor on the way to work and in the shower and so on, all of a sudden Marx has more things to say to us. So when we think about labor, we usually think about motivation and payment as the same thing, but the reality is that we should probably add all kinds of things to it — meaning, creation, challenges, ownership, identity, pride, etc. And the good news is that if we added all of those components and thought about them, how do we create our own meaning, pride, motivation, and how do we do it in our workplace and for the employees, I think we could get people to both be more productive and happier.

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Michael Porter: Why business can be good at solving social problems

 

I have been writing blogs about several businesses, political economy, and politic issues. Those blogs have been collected about specific themes from various authors. In those blogs I have tried to simplify some topics so that can be understandable even for individuals who are not from filed which specific topic covers, for example; Corporate Finance.
I have resolved that next „level“ of blogs will be short talks from experts, but not lectures for experts or ones in Universities, but lectures that are short, and understandable for every person.
I will begin with Professor Michael Porter!

 

Michael Porter: Why business can be good at solving social problems!

I think we’re all aware that the world today is full of problems. We’ve been hearing them today and yesterday and every day for decades. Serious problems, big problems, pressing problems. Poor nutrition, access to water, climate change, deforestation, lack of skills, insecurity, not enough food, not enough healthcare, pollution. There’s problem after problem, and I think what really separates this timefrom any time I can remember in my brief time on Earth is the awareness of these problems. We’re all very aware.

Why are we having so much trouble dealing with these problems? That’s the question I’ve been struggling with, coming from my very different perspective. I’m not a social problem guy. I’m a guy that works with business, helps business make money. God forbid. So why are we having so many problems with these social problems, and really is there any role for business, and if so, what is that role? I think that in order to address that question, we have to step back and think about how we’ve understood and pondered both the problems and the solutions to these great social challenges that we face.

Now, I think many have seen business as the problem, or at least one of the problems, in many of the social challenges we face. You know, think of the fast food industry, the drug industry, the banking industry. You know, this is a low point in the respect for business. Business is not seen as the solution.It’s seen as the problem now, for most people. And rightly so, in many cases. There’s a lot of bad actors out there that have done the wrong thing, that actually have made the problem worse. So this perspective is perhaps justified.

How have we tended to see the solutions to these social problems, these many issues that we face in society? Well, we’ve tended to see the solutions in terms of NGOs, in terms of government, in terms of philanthropy. Indeed, the kind of unique organizational entity of this age is this tremendous rise of NGOsand social organizations. This is a unique, new organizational form that we’ve seen grown up.Enormous innovation, enormous energy, enormous talent now has been mobilized through this structure to try to deal with all of these challenges. And many of us here are deeply involved in that.

I’m a business school professor, but I’ve actually founded, I think, now, four nonprofits. Whenever I got interested and became aware of a societal problem, that was what I did, form a nonprofit. That was the way we’ve thought about how to deal with these issues. Even a business school professor has thought about it that way.

But I think at this moment, we’ve been at this for quite a while. We’ve been aware of these problems for decades. We have decades of experience with our NGOs and with our government entities, and there’s an awkward reality. The awkward reality is we’re not making fast enough progress. We’re not winning.These problems still seem very daunting and very intractable, and any solutions we’re achieving are small solutions. We’re making incremental progress.

What’s the fundamental problem we have in dealing with these social problems? If we cut all the complexity away, we have the problem of scale. We can’t scale. We can make progress. We can show benefits. We can show results. We can make things better. We’re helping. We’re doing better. We’re doing good. We can’t scale. We can’t make a large-scale impact on these problems. Why is that?Because we don’t have the resources. And that’s really clear now. And that’s clearer now than it’s been for decades. There’s simply not enough money to deal with any of these problems at scale using the current model. There’s not enough tax revenue, there’s not enough philanthropic donations, to deal with these problems the way we’re dealing with them now. We’ve got to confront that reality. And the scarcity of resources for dealing with these problems is only growing, certainly in the advanced world today, with all the fiscal problems we face.

So if it’s fundamentally a resource problem, where are the resources in society? How are those resources really created, the resources we’re going to need to deal with all these societal challenges?Well there, I think the answer is very clear: They’re in business. All wealth is actually created by business. Business creates wealth when it meets needs at a profit. That’s how all wealth is created. It’s meeting needs at a profit that leads to taxes and that leads to incomes and that leads to charitable donations. That’s where all the resources come from. Only business can actually create resources.Other institutions can utilize them to do important work, but only business can create them. And business creates them when it’s able to meet a need at a profit. The resources are overwhelminglygenerated by business. The question then is, how do we tap into this? How do we tap into this?Business generates those resources when it makes a profit. That profit is that small difference between the price and the cost it takes to produce whatever solution business has created to whatever problem they’re trying to solve. But that profit is the magic. Why? Because that profit allows whatever solutionwe’ve created to be infinitely scalable. Because if we can make a profit, we can do it for 10, 100, a million, 100 million, a billion. The solution becomes self-sustaining. That’s what business does when it makes a profit.

Now what does this all have to do with social problems? Well, one line of thinking is, let’s take this profitand redeploy it into social problems. Business should give more. Business should be more responsible.And that’s been the path that we’ve been on in business. But again, this path that we’ve been on is not getting us where we need to go.

Now, I started out as a strategy professor, and I’m still a strategy professor. I’m proud of that. But I’ve also, over the years, worked more and more on social issues. I’ve worked on healthcare, the environment, economic development, reducing poverty, and as I worked more and more in the social field, I started seeing something that had a profound impact on me and my whole life, in a way.

The conventional wisdom in economics and the view in business has historically been that actually, there’s a tradeoff between social performance and economic performance. The conventional wisdom has been that business actually makes a profit by causing a social problem. The classic example is pollution. If business pollutes, it makes more money than if it tried to reduce that pollution. Reducing pollution is expensive, therefore businesses don’t want to do it. It’s profitable to have an unsafe working environment. It’s too expensive to have a safe working environment, therefore business makes more money if they don’t have a safe working environment. That’s been the conventional wisdom. A lot of companies have fallen into that conventional wisdom. They resisted environmental improvement. They resisted workplace improvement. That thinking has led to, I think, much of the behavior that we have come to criticize in business, that I come to criticize in business.

But the more deeply I got into all these social issues, one after another, and actually, the more I tried to address them myself, personally, in a few cases, through nonprofits that I was involved with, the more I found actually that the reality is the opposite. Business does not profit from causing social problems,actually not in any fundamental sense. That’s a very simplistic view. The deeper we get into these issues, the more we start to understand that actually business profits from solving from social problems.That’s where the real profit comes. Let’s take pollution. We’ve learned today that actually reducing pollution and emissions is generating profit. It saves money. It makes the business more productive and efficient. It doesn’t waste resources. Having a safer working environment actually, and avoiding accidents, it makes the business more profitable, because it’s a sign of good processes. Accidents are expensive and costly. Issue by issue by issue, we start to learn that actually there’s no trade-offbetween social progress and economic efficiency in any fundamental sense. Another issue is health. I mean, what we’ve found is actually health of employees is something that business should treasure,because that health allows those employees to be more productive and come to work and not be absent. The deeper work, the new work, the new thinking on the interface between business and social problems is actually showing that there’s a fundamental, deep synergy, particularly if you’re not thinking in the very short run. In the very short run, you can sometimes fool yourself into thinking that there’s fundamentally opposing goals, but in the long run, ultimately, we’re learning in field after field that this is simply not true.

So how could we tap into the power of business to address the fundamental problems that we face?Imagine if we could do that, because if we could do it, we could scale. We could tap into this enormous resource pool and this organizational capacity.

And guess what? That’s happening now, finally, partly because of people like you who have raised these issues now for year after year and decade after decade. We see organizations like Dow Chemical leading the revolution away from trans fat and saturated fat with innovative new products.This is an example of Jain Irrigation. This is a company that’s brought drip irrigation technology to thousands and millions of farmers, reducing substantially the use of water. We see companies like the Brazilian forestry company Fibria that’s figured out how to avoid tearing down old growth forest and using eucalyptus and getting much more yield per hectare of pulp and making much more paper than you could make by cutting down those old trees. You see companies like Cisco that are training so far four million people in I.T. skills to actually, yes, be responsible, but help expand the opportunity to disseminate I.T. technology and grow the whole business. There’s a fundamental opportunity for business today to impact and address these social problems, and this opportunity is the largest business opportunity we see in business.

And the question is, how can we get business thinking to adapt this issue of shared value? This is what I call shared value: addressing a social issue with a business model. That’s shared value. Shared value is capitalism, but it’s a higher kind of capitalism. It’s capitalism as it was ultimately meant to be, meeting important needs, not incrementally competing for trivial differences in product attributes and market share. Shared value is when we can create social value and economic value simultaneously. It’s finding those opportunities that will unleash the greatest possibility we have to actually address these social problems because we can scale. We can address shared value at multiple levels. It’s real. It’s happening.

But in order to get this solution working, we have to now change how business sees itself, and this is thankfully underway. Businesses got trapped into the conventional wisdom that they shouldn’t worry about social problems, that this was sort of something on the side, that somebody else was doing it.We’re now seeing companies embrace this idea. But we also have to recognize business is not going to do this as effectively as if we have NGOs and government working in partnership with business. The new NGOs that are really moving the needle are the ones that have found these partnerships, that have found these ways to collaborate. The governments that are making the most progress are the governments that have found ways to enable shared value in business rather than see government as the only player that has to call the shots. And government has many ways in which it could impact the willingness and the ability of companies to compete in this way.

I think if we can get business seeing itself differently, and if we can get others seeing business differently, we can change the world. I know it. I’m seeing it. I’m feeling it. Young people, I think, my Harvard Business School students, are getting it. If we can break down this sort of divide, this unease, this tension, this sense that we’re not fundamentally collaborating here in driving these social problems,we can break this down, and we finally, I think, can have solutions.

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International Relations


1. National Interest

Most theories of international relations are based on the idea that states always act in accordance with their national interest, or the interests of that particular state. State interests often include self-preservation, military security, economic prosperity, and influence over other states. Sometimes two or more states have the same national interest. For example, two states might both want to foster peace and economic trade. And states with diametrically opposing national interests might try to resolve their differences through negotiation or even war.

 

2. Theories of International Relations

International Relations employs three theories that political scientists use to explain and predict how world politics plays out. To define the theories of Realism, Liberalism, and Constructivism we will explore how each theory views anarchy, power, state interests, and the cause of war.

All theories agree that the world is in anarchy and because of this it is helpful to start with a definition of anarchy and what it implies. Anarchy, for theories that deal with international relations, refers to the world as a whole having no government. There are individual states that have varying degrees of power and sovereignty in their own land, but clearly there is no single state that makes laws for the whole world. This presents problems and dangers for entities operating in the anarchic world and a need for a system that will guide the actions of these entities. However, while all three theories discussed in this paper accept that the world is in a state of anarchy, how they believe governments should, and do, deal with this problem differs in each theory.

 

3. Realism  and Neo-Realism

  • Realism

Realist theory holds that events in the world follow one basic system; a Hobbesian system where everyone must be viewed as a threat and the only way to survive is to gain more power than your rivals. Because there is anarchy in the international world, Realists believe that greater power is the only way for states to secure their sovereignty, and this leads to the belief that states are the main players in international politics because the system discourages individuality in favor of these types of power struggles. Central to Realists, is the belief that power must be defined in military terms, and stronger military power will lead states to what Relists believe are in their ultimate interests, either a hegemon for Offensive Realists or to a balance of two powerful states for Defensive Realists. This, for Realists, is the ultimate goal because of the belief that states view all politics with an eye to gaining more power than their competition in order to secure their safety. They argue that the system works to constantly balance power: states gain power through war and military intimidation in order to counter a threat, which causes them to be a threat in turn, so that other states have to balance against them as they struggle to become a hegemon. Ideally, for the safety of a Defensive Realist state, the balance of power would polarize on two equal sides, providing a world that has far fewer players to engage in conflict and an almost stalemate like situation that offers little opportunity to engage powerful states in war with weaker states. Offensive Realists argue that a Hegemon works to remove opportunities for states to engage in war by providing one powerful state that can block the ambitions of weaker states but itself feels no need to gain more power through war.

Because realists believe that power is gained through war or the threat of military action they also believe that there is no such thing as lasting alliances or peace, due to this power grabbing system. They see no reason to believe that states can ever trust each other. Realists believe that the system is against states; that because of anarchy, states are forced to constantly take into account that others might have more power than them or are planning to gain more power and are so forced to do the same against all possible allies in order to secure their own safety.

Neorealism shuns classical realism’s use of often essentialist concepts such as “human nature” to explain international politics. Instead, neorealist thinkers developed a theory that privileges structural constraints over agents’ strategies and motivations.

Neo-Realism

Neorealism holds that the international structure is defined by its ordering principle, which is anarchy, and by the distribution of capabilities, measured by the number of great powers within the international system. The anarchic ordering principle of the international structure is decentralized, having no formal central authority, and is composed of formally equal sovereign states. These states act according to the logic of self-help–states seek their own interest and will not subordinate their interest to another’s.

States are assumed at a minimum to want to ensure their own survival as this is a prerequisite to pursue other goals. This driving force of survival is the primary factor influencing their behavior and in turn ensures states develop offensive military capabilities, for foreign interventionism and as a means to increase their relative power. Because states can never be certain of other states’ future intentions, there is a lack of trust between states which requires them to be on guard against relative losses of power which could enable other states to threaten their survival. This lack of trust, based on uncertainty, is called the security dilemma.

States are deemed similar in terms of needs but not in capabilities for achieving them. The positional placement of states in terms of abilities determines the distribution of capabilities. The structural distribution of capabilities then limits cooperation among states through fears of relative gains made by other states, and the possibility of dependence on other states. The desire and relative abilities of each state to maximize relative power constrain each other, resulting in a ‘balance of power’, which shapes international relations. It also gives rise to the ‘security dilemma’ that all nations face. There are two ways in which states balance power: internal balancing and external balancing. Internal balancing occurs as states grow their own capabilities by increasing economic growth and/or increasing military spending. External balancing occurs as states enter into alliances to check the power of more powerful states or alliances.

 

Liberalism and Neo-liberalism

Liberal theory too, believes in the view that states are seeking military power to combat anarchy. However, it views the players involved in different terms than Realists and offers a different solution to the problem of war. For Liberal theory, there is hope for world peace if states seek common ground, forming alliances and institutions for policing the world powers. This would all lead to the ultimate goal of Liberal thought, which is a totally interdependent world.

Liberals, unlike Realists, take into account the individual attributes that states possess and allow for the idea of lasting alliances based on common beliefs and ideas and attribute more power to common institutions then to states. Instead of focusing on the simple survival of states as they try to become a hegemon, Liberals believe that common ideas can lead states into interdependence and so remove allies as threats to sovereignty. They emphasize that the real power for states comes of mutually held ideas like religion, language, economies, and political systems that will lead states to form alliances and become interdependent. Such alliances will lead to strong institutions that work to prevent war between states, keeping competition to other political realms and removing the need for a state to secure its sovereignty through hegemony or balancing as per the Realist system. Institutions will, according to Liberal theory, act as a policing power and collectively bring states to punish, with war or economic sanctions, those states that don’t cooperate with the collective system.

Neo-liberalism

Global events and trends of the last quarter of the 20th century, such as the 1973 oil crisis, spurred a new liberal backlash to realism that would lead to the emergence of neoliberalism, also known as neoliberal institutionalism.
Neoliberals see the world as being dominated by complex interdependence: a paradigm in which states are not seen as the only important actors, national security is not the exclusive objective of states (economic issues are at least of equal importance), and military force is often not an effective nor desirable solution to interstate conflict. This concept was first introduced by political scientists Robert O. Keohane and Joseph S. Nye in their 1977 book Power and Interdependence.

Neoliberalism acknowledges that the international system is anarchic, but adds that states are heavily influenced by international regimes when making decisions. International regimes can be defined as “implicit or explicit principles, norms, rules and decision-making procedures around which actors’ expectations converge in a given area of international relations” (Krasner).

According to neoliberal theory, reciprocity is an effective way to promote long-run cooperation in an international system characterized by anarchy and self-help. This “tit-for-tat” strategy is quite simple in theory: if you do me good, I will do you good; if you do me bad, I will do you bad.

Some core concepts that serve as the foundation of both classical liberalism and neoliberalism are:

  • The world can be improved for all through cooperation, democratization, institutions, and interdependence.
  • States are not the only important actors. IGOs, NGOs, and multinational corporations significantly influence world politics, too.
  • Free trade reduces armed conflict and benefits all stakeholders economically

 

Constructivism

The final theory we will discuss is Constructivism. Constructivist theory has, unlike Realism and Liberalism, people at the heart of its definition of power and takes into account that people make up the states and institutions that work within the anarchy of the world. Constructivists view individual people and the ideas that they believe in are what gives these things meaning. They argue that power does not reside in the state or institutions, but rather in ideas that people use and collectively come to believe in. For Constructivists, anarchy, economies, and alliances are what people decide to make of them, that is, they can change if people choose to view them differently. Working with this theory would lead Constructivists to view the reasons for a state going war as being only as clear cut as we would make it. Since the reasons for a state to act are based on what people believe, if people believe in a balance of power system then that is what they will act on, and the same can be said for the belief that institutions will prevent war. For Constructivists it is even possible that some as yet unknown way of looking at the situation could emerge as people adjust their ideas about war and socially acceptable reactions to different situations.

 

 Conclusion

Each theory provides its own reasoning for why states and people act the way they do when confronted with questions such as world anarchy, power, state interests, and the cause of war. As such, in any given situation there will always be multiple explanations for actions taken or not taken. In the end it may just be that a mix of these theories best describes the international world of politics, as each theory compensates for the weaknesses in the others.

A theory of international relations is a set of ideas that explains how the international system works. Unlike an ideology, a theory of international relations is (at least in principle) backed up with concrete evidence. The two major theories of international relations are realism and liberalism.

Source: Waltz, Kenneth (2001): “Structural Realism after the Cold War”

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How to Become the Boss of Tough Negotiatons?

 Bad negotiation leads to these things automatically: anger, resentment, crying, slavery, and poverty.

So it’s very important to constantly study yourself, study the negotiations you’ve done, and try to improve so you don’t experience the above, which can be easily avoided.

Every day for the past 20 years I’ve learned something new about negotiation. Mostly I learned how to screw myself over by doing bad negotiations. You learn more from a bad negotiation than a good one.

Communication is the thread that weaves humans into humanity.

Make sure the result brings you life and love. Tomorrow is 100% based on the negotiations you do today.

When I do the below, when I live life as gently and positively as possible, then my negotiations work out, and then my tomorrows and the tomorrows of the people around me are pleasant.

I’ve learned about negotiation while selling a company, while buying a company, while closing a sale, while buying services, while getting married, while getting divorced, while figuring out what to do with my life, while screwing up my life (in a BIG way), and all the variety of things in life that happen in between. 10,000 negotiations.

I haven’t read any books on negotiation and there may be better suggestions than these. But this is what works for me and I think what will work for others but try for yourself.

So if you have to do a negotiation TODAY, do these things and tell me if they work. And offer more suggestions please.

– NO.

Say “No”.

I told this to someone the other day who is about to get fired from his job. Don’t act like it’s a done deal. Getting fired is a legal action. It’s always a negotiation with many more moving parts than people realize.

Say “No” and that you need to “think about it”. They’ll say something like, “this is not a negotiation”. You can say, “That’s ok, I need to think about this.”

Give it 24 hours. Think about everything that’s happened to you on the job. Think about what you need to get a new job or career. Do the techniques listed below.

In general, with everything you negotiate, give yourself permission to think about it. Else, it’s manipulation and not negotiation.

– DON’T BE A CHILD.

Don’t “meet in the middle”. Here is a dumb negotiation that never really happens:

You offer $40, I offer $20, and we meet in the middle at $30.

I love cartoons but I wouldn’t try to learn how to negotiate from “Family Guy”.

The middle stuff never happens. Many people think it does so they always start off negotiations with being inauthentic.

Always be honest. Say what you want and why. Negotiation equals Authenticity. Without authenticity you lose the tires on your car.

Then you end up going nowhere.

– LET THE OTHER SIDE HELP YOU.

There’s the trick, “I have to talk to X”. Where you have some other X who needs to confirm.

But this is just a trick. It works when you have it and when you don’t have it, it’s useless.

So I will give a better trick: get the other side of your negotiation to be X. In other words, get them to negotiate against themselves.

The word “against” is wrong. The only way the negotiation is going to work is if they are happy also. So “against” also means “for”.

They clearly want something from you. That’s why you guys are at the table in the first place. If they don’t want something from you, then you’ve lost before you’ve started.

So here’s how what you say: “I’m new at this. You guys are the grandmasters of negotiation. If a grandmaster plays a novice then he will always win. So help me out, if you were me, what would you do?”

And then NO MATTER WHAT THEY SAY, you say, “but seriously, if you were ME, what would you do. Again, I’m just a novice. I have no clue what I’m doing. Help me out here.”And they will help you out. Because they want the deal to close and you really do need their help, else the deal will never close.

Is this being inauthentic?

No. Because you want as much information on the table as possible. If they help you, then you have more information, and can be even more authentic. If anything, you might end up helping them more than they help you.

– MY LIST IS BIGGER THAN YOURS.

Have more items than they have. Let’s say you are negotiating a book advance. They offer a $10,000 advance and they can’t budge higher.

That’s fine. Now make your list of other things: how much social media marketing will they do, what bookstores will they get you into, who has control over book design, what percentage of foreign rights, of digital rights, you can get. Do royalties go up after a certain number of copies are sold, will they pay for better book placement in key stores, will they hire a publicist? And so on.

Before every negotiation. Make a list. Make the list as long as possible. If your list is bigger than theirs (size matters) then you can give up “the nickels for the dimes”.

This is not just about negotiation. This is to make sure that later you are not disappointed because there is something you forgot. Always prepare. Then you can have faith that because you prepared well, the outcome will also go well.

– SECRET VALUE.

Let’s say someone is buying your company. It may seem like all they are doing is buying the assets of your company. But they are also buying the “negative imprint” of your company. In other words, they are buying: “nobody else can buy your company”.

They can say, “Well, we don’t care about that.” Then fine. See if it’s true. Offer your services to other companies.

If you can’t walk away from a negotiation, then you aren’t negotiating. You’re just working out the terms of your slavery.

– IF IT’S NOT EASY, THEN WALK AWAY.

If a negotiation is not easy, then it means you need to work harder to develop more value to offer.

Negotiation should always be easy, else you need to take a step back and be patient for when it becomes easy.

NEVER waste time chasing down a difficult negotiation. Else you will lose, you will be unhappy, the other side will be unhappy (even though they got you cheap, they will secretly think you are worthless) and you will have wasted time and squandered money.

IMPORTANT: Every day, your body requires energy to survive, to think, to do well, to be happy. You don’t get infinite energy.

One way to replenish energy is to sleep. The other way is to eat well and to exercise.

But another way to replenish energy is to live a gentle life. As gently as possible. So your energy grows and is used where it is needed.

Which means all negotiations need to be smooth else they result in anxiety and fear and guessing and out guessing and much future depletion of energy.

And then you die faster than the one who lived gently.

Try this. Next time you are in a negotiation, don’t forget to relax your face.

– OPTIONS EQUAL FREEDOM.

For instance, a freelance employee has the ability to take on more than one job. An employee can’t take on more than one job and everything he does on company time is owned by the company. That’s slavery.

When you rent, try to give yourself as many options as possible to leave.

When you get married, make it clear in advance what you want (maybe one side wants kids and the other doesn’t) and how this can be resolved.

This is not the same as a prenuptial (which is purely financial) but an understanding of what both sides want (communication is always good in a marriage) and an understand of how it can be resolved if wants and desires change (i.e. options to leave or change the nature of the relationship).

Sometimes there are not that many options you can negotiate. That’s ok. Just remember the line, “options equal freedom”.

In some cases, you may want to sell your freedom if the price is right.

For me, there is no price that is worth sacrificing freedom. But not everyone is the same and that’s fine.

If someone says, “you can be CEO of Google but you have to work 14 hours a day for 5 years or we take all the money back” you may think that is an ok sacrifice for your freedom. Or not.

But until you sign, you have the option.

This seems like a contradiction. Most people think, “More Money equals more Freedom.”

There’s a balance. You don’t want to be a slave to your bills and debts.

But you don’t want to be a slave to massive downside either. Bernie Madoff was very wealthy for instance, until he went to jail and his son committed suicide.

Everything in life is about having as many options as possible so you can maximize your freedom. “Options” is not the same as money.

Every decision you make, don’t let cognitive biases limit your options. As an example, if you spend $400,000 and 12 years of your life learning how to become a brain surgeon, you now have this HUGE cognitive bias that you MUST be a brain surgeon.

This is not true. Make sure you can always list your options. Don’t succumb to cognitive biases that are just trying to trap you.

– IT’S NOT ME, IT’S YOU.

When you negotiate, you always are bringing something to the table. But the negotiation is not about what YOU own. It’s about the value you can deliver the other person.

The negotiation should be about whoever is bringing the higher value to the table.

As an extreme example, let’s say you are selling your technology to Google. You’ve invested $5 million in the technology. They offer you $10 million.

This seems great, right?

You counter: With this technology, you can generate an extra billion in profits every year!

Now the negotiation is about that billion and not about your five million.

If they say, “No”, then no problem. You say, “Ok, let’s just work together.” And you keep your options open while you talk to other companies and they start to get nervous you might sell to someone else.

Remember: the negotiation should ALWAYS take place on the side where the higher value is. Unless the “secret options” discussed below take precedence.

Which leads me to:

– INFINITE PATIENCE BRINGS IMMEDIATE RESULTS

Note that the words “infinite patience” and “immediate” seem to refer to time. but they don’t. There is no unit of time called “immediate” and no unit of time called “infinite”.

When you have to deal with time in a negotiation, then you lose. If a negotiation has to be done by tomorrow, for instance, or next month.

If you can have infinite patience, then the negotiation will work out. And whether it works out immediately or not, does not matter. You will have immediate results anyway.

What those results are, we don’t know. But infinite patience means that whatever happens next will be all according to plan. New suitors may show up. The negotiation might get finished. Or something new altogether might happen that is good for your life.

Your only goal is to structure your life and business and opportunities so that you can always have that infinite patience. Then the results will ALWAYS be immediate.

Remember that we all go back to the dust. Every word you say, every thought you think, floats upwards into the ozone, then into the memory zone, then into the nothing zone.

The only thing that makes a difference is if you have infinite patience or if you are feeling the slavery chains of time. To nobody else it matters. But to you it does.

If you can’t negotiate with infinite patience, on any aspect of your life, then you lose.

– NEGOTIATE WITH YOUR GUT

Many people think that the brain is where all of the reasoning happens.

And it’s true that this is where you calculate math, and make logical assumptions, and draw logical well-thought out conclusions from your observations.

But your gut and your heart have just as many neurons as the brain. More on this in another post on how to take advantage of these “brains” (although it’s really all one big intelligence system).

Your gut doesn’t say “yes” or “no”. But it does tell you when you are feeling good or bad about something.

Practice listening to your gut. If someone invites you to a meeting of the Ku Klux Klan then your gut will feel pain even faster (I hope) than your head will.

That’s an extreme. But your gut is very much involved in every negotiation you do. You have to practice paying attention to it.

I find that most people don’t practice this. So they make their negotiations with their brain and their gut gets more and more sick.

One way to practice is to try not to do anything today where you feel even the slightest twinge in your gut that this might be wrong.

See what then happens. In this way you learn to trust your gut or at least build a better connection between the gut and the brain.

Let’s say someone invites you to a meeting and you feel a twinge. “But,” your brain might say, “you HAVE to go this meeting. Your Boss will be there.”

Pay attention to the twinge. Maybe you are not prepared enough. Maybe you think it will be a waste of time. Maybe you have other things to do.

Everything is a negotiation. Make your list of reasons why you can’t go bigger than the list of why you can. Negotiate your way out of the meeting.

Listen to your gut just as much as you listen to your brain, if not MORE.

IMPORTANT: 95% of your serotonin (the neurochemical for happiness) is in the gut and not the brain.

So in many cases, the decisions of your gut are much more important for your overall happiness.

DNA doesn’t care about happiness. The only goal of DNA is to replicate itself.

But my guess is you care about your happiness.

– NEGOTIATE WITH YOUR HEART.

I only negotiate with people I like. Else, what is the point of living.

Let’s say you have to negotiate with the IRS. I don’t like the IRS. But the people there are just doing their jobs. I can help them do their jobs by doing a good negotiation with them.

On a bigger scale, there is no sense in selling a company or a service to someone you don’t like.

Both sides will feel remorse. Both sides will be unhappy. And then they will die at some point. A bad negotiation is a cancer of the soul.

– THE SECRET NEGOTIATION

When you negotiate there are really two things being negotiated. The visible negotiation and then all the things that are hidden.

For instance, maybe you are selling your company. But that’s because you might be buying your freedom (if you get a lot of money for your company).

Or if you are getting a book advance, the secret thing (Hugh McLeod calls this “your evil plan”) might be that you feel with a book out you will get speaking opportunities since most books don’t make a lot of money.

Always make sure that a negotiation gives you secret options. Options equals freedom (again). Research thoroughly your secret options. Else, don’t begin the negotiation because you have not prepared properly.

– BE RIDICULOUS.

In the upcoming book, “Think Like a Freak”, Stephen Dubner and Steven Levitt describe the negotiation that the band Van Halen would do with concert organizers.

In the contract Van Halen would require that a jar of M&Ms be delivered to their hotel room at the beginning of a gig and that there would be ZERO brown M&Ms in the jar.

Why would they do this? Are they just being “rock stars” with ridiculous demands?

The answer is interesting: if they get brown M&Ms in the jar, despite this rider in the contract, then they know that the concert organizers were probably not detailed in all the other 1000s of things that go into concert preparation.

This would be a bad sign for Van Halen and force them to pay closer attention to the details of the concert or even force them to abandon the concert altogether.

Throw some ridiculous things into your negotiation. Not only does this make your list bigger but this will allow you to test how much someone really wants you involved and the care and attention they will place on you once the negotiation is finished.

– RENEGOTIATE.

Even the ten commandments were easily broken (Moses actually smashed them and had to go back up the mountain to get new (and DIFFERENT) ones.)

Every day and every interaction is a negotiation. Just because you have a signed and sealed contract doesn’t mean it won’t be broken. Doesn’t mean you cant break it.

I don’t mean this in an unethical way. But if you are unhappy and feel you cannot perform your fullest then make sure you come equipped with two things: the new value you offer the other side (or a big list of value) and what you need to succeed in this value.

People may sometimes seem like they are unreasonable. But if you start off with the suggestions on this entire guide, then when it comes time to renegotiate (and this happens in 90% of situations) then everyone will continue to be reasonable.

Particularly if you are staying physically, emotionally, mentally, and spiritually healthy, which allows you at all times to negotiate with your gut, heart, and brain instead of just the overworked brain.

“But is it against the law to break a contract?”

No. Because the value you bring is constantly changing and the world needs to be adjusted. All contracts can be broken if both sides agree that the world has changed.

And the more options you have, the more the world will change in ways that are positive for both sides.

– PREPARE EVERYTHING. SCRIPT NOTHING.

Make sure you know all of your numbers. All of your lists of wants. All of the other side’s numbers. All similar deals in your industry. All similar deals that the other negotiator has done. As many examples of negotiation, particularly in this arena, that you can find.

Then make sure you are negotiating from a position of strength. People usually think that means, “I have more power than you”.

This is NOT what strength is. That will only result in a bad negotiation that in the long run will satisfy nobody.

Strength simply means physical health (you’re well slept, you’ve eaten well, you feel energy), emotional health (you are dealing with people you like), mental health (you have done your preparation) and spiritual health (you feel fully deserving of the abundance and gratitude that is coming your way).

Having faith in your strength is all you need to bring to the table. Nothing else.

Once you do your preparation have faith that the right negotiation will happen.

– THE BEST NEGOTIATION IS NO NEGOTIATION.

I read recently that “in a good negotiation, both sides end up unhappy”.

This is not true. That’s a horrible negotiation.

In a good negotiation, both sides don’t even realize they were negotiating. Both sides have just made a wonderful change to their lives that will make life better.

This is not a negotiation but a way that two sides can help each other improve their lives and the value they offer the people around them.

– – –

Most important, don’t forget the bigger picture.

The bigger picture is that you get a chance to love what you do. And you get the chance to live life as gently as possible.

This gives you the energy to love what you do.

You don’t need to read all the self-help books on how to “win” a negotiation. There is no winning or losing.

We’re all negotiating with the Universe around us every single second, even right now as you read this.

The good news is, the Universe wants us to win and has given us the sun, air, the ground, and all the people around us who we love so we have the best opportunity to succeed.

Now…don’t blow it.
BY: JAMES ALTUCHER

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Why Utilitarian Ethics Failed of in Political Economy?

Today’s economic orthodoxy is heavily dependent on the idea of utilitarianism, because it is a convenient mechanism that allows economics to be taken more seriously as a natural science. It allows economists to bypass all the inconvenient complications that arise when delving into deeper considerations of ethics and human behavior. The adoption of utilitarianism allows for the use of an additive system that fits well into an economics that is based on mathematics, as we have today.

  • Before going further, it’s worth briefly exploring who Jeremy Bentham was, and what we mean by utilitarianism.

Utilitarianism, or the “greater good” argument, is the belief that is the idea that the “right” course of action is the one that maximizes the overall “good” of a situation. So actions should be judged right or wrong depending on whether they increase or decrease human happiness, or utility. In economic-speak, utilitarian is used as the rationale behind the crucial assumption of rationality of consumers – that agents (i.e. people) consume so as to maximize their “utility”. Bentham put it thus: “Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do.”

On the face of it, utilitarianism has some appeal. But a simple thought experiment, first articulated by American philosopher Robert Nozick in 1974, puts the simplicity of utilitarianism in stark focus. Nozick hypothetically proposes the “experience machine”: a machine that would give you any experience you so desire. So if you wanted to experience the thrill of climbing Machu Picchu, so be it. But all the while you would be hooked up to this machine, not knowing that you were there. In other words, you would actually believe you were climbing Machu Picchu. Would you plug yourself into the machine? As long as you’re living your heart’s desire, does it matter whether its real or not?

Nozick believes that most people would choose not to be plugged into this experience machine. This implies that it is somehow important whether these experiences are real or not. The reality of life is important: people want to actually do certain things, achieve certain goals, rather than simply feel the pleasure associated with it. However, if utilitarianism held strong, then the pleasure associated with actions would be all that mattered, and we would choose the machine. It is clear then, that there are other things besides simple pleasure that people consider intrinsically valuable.

While different forms of utilitarianism have attempted to come to grips with this and other complications, this was not so for Jeremy Bentham. He proposed a form of ‘felicity calculus’, where the pleasure and pain that arises from different actions could be quantified and determined by addition and subtraction. This sort of simplistic rationale is too tempting to resist for orthodox economists. For Bentham, different pleasures vary only in their intensity and duration, and not quality. He even said himself, “the game of push-pin is of equal value with the arts and sciences of music and poetry.” Reductionism at its finest! This form of thinking has given rise to “homo economicus”: economic man. Homo economicus, meant to represent each and every one of us, is a narrow, self-interested individual who’s only concern is to maximize his or her consumption of goods and services. In physical terms, the assumption that we are all homo economicus is akin to the assumption that, for practical purposes, all cows are spheres.

The concept of utility is core to understanding economic orthodoxy today, and yet the assumption of rationality is based on an outdated and unrealistic form of utilitarianism that is not, and has never been, applicable to real life. Luckily, we have fields of economics, such as behavioral economics, that have attempted to move beyond this mode of thinking, and incorporating knowledge from other fields such as psychology in altering models to be more realistic. But neo-classical economic theories are still based on this idea, and despite strong attempts from many directions to reform the discipline, it clings stubbornly to such discredited beliefs.

For better understanding lets explain  basic postulates of Utilitarianism

  • Of the Principle of Utility.

I. Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do, as well as to determine what we shall do. On the one hand the standard of right and wrong, on the other the chain of causes and effects, are fastened to their throne. They govern us in all we do, in all we say, in all we think: every effort we can make to throw off our subjection, will serve but to demonstrate and confirm it. In words a man may pretend to abjure their empire: but in reality he will remain subject to it all the while. The principle of utility recognizes this subjection, and assumes it for the foundation of that system, the object of which is to rear the fabric of felicity by the hands of reason and of law. Systems which attempt to question it, deal in sounds instead of sense, in caprice instead of reason, in darkness instead of light.

But enough of metaphor and declamation: it is not by such means that moral science is to be improved.

II. The principle of utility is the foundation of the present work: it will be proper therefore at the outset to give an explicit and determinate account of what is meant by it. By the principle of utility is meant that principle which approves or disapproves of every action whatsoever. According to the tendency it appears to have to augment or diminish the happiness of the party whose interest is in question: or, what is the same thing in other words to promote or to oppose that happiness. I say of every action whatsoever, and therefore not only of every action of a private individual, but of every measure of government.

III. By utility is meant that property in any object, whereby it tends to produce benefit, advantage, pleasure, good, or happiness, (all this in the present case comes to the same thing) or (what comes again to the same thing) to prevent the happening of mischief, pain, evil, or unhappiness to the party whose interest is considered: if that party be the community in general, then the happiness of the community: if a particular individual, then the happiness of that individual.

IV. The interest of the community is one of the most general expressions that can occur in the phraseology of morals: no wonder that the meaning of it is often lost. When it has a meaning, it is this. The community is a fictitious body, composed of the individual persons who are considered as constituting as it were its members. The interest of the community then is, what is it?— the sum of the interests of the several members who compose it.

V. It is in vain to talk of the interest of the community, without understanding what is the interest of the individual. A thing is said to promote the interest, or to be for the interest, of an individual, when it tends to add to the sum total of his pleasures: or, what comes to the same thing, to diminish the sum total of his pains.

VI. An action then may be said to be conformable to the principle of utility, or, for shortness sake, to utility, (meaning with respect to the community at large) when the tendency it has to augment the happiness of the community is greater than any it has to diminish it.

VII. A measure of government (which is but a particular kind of action, performed by a particular person or persons) may be said to be conformable to or dictated by the principle of utility, when in like manner the tendency which it has to augment the happiness of the community is greater than any which it has to diminish it.

VIII. When an action, or in particular a measure of government, is supposed by a man to be conformable to the principle of utility, it may be convenient, for the purposes of discourse, to imagine a kind of law or dictate, called a law or dictate of utility: and to speak of the action in question, as being conformable to such law or dictate.

IX. A man may be said to be a partizan of the principle of utility, when the approbation or disapprobation he annexes to any action, or to any measure, is determined by and proportioned to the tendency which he conceives it to have to augment or to diminish the happiness of the community: or in other words, to its conformity or unconformity to the laws or dictates of utility.

X. Of an action that is conformable to the principle of utility one may always say either that it is one that ought to be done, or at least that it is not one that ought not to be done. One may say also, that it is right it should be done; at least that it is not wrong it should be done: that it is a right action; at least that it is not a wrong action. When thus interpreted, the words ought, and right and wrong and others of that stamp, have a meaning: when otherwise, they have none.

XI. Has the rectitude of this principle been ever formally contested? It should seem that it had, by those who have not known what they have been meaning. Is it susceptible of any direct proof? it should seem not: for that which is used to prove every thing else, cannot itself be proved: a chain of proofs must have their commencement somewhere. To give such proof is as impossible as it is needless.

 

XII. Not that there is or ever has been that human creature breathing, however stupid or perverse, who has not on many, perhaps on most occasions of his life, deferred to it. By the natural constitution of the human frame, on most occasions of their lives men in general embrace this principle, without thinking of it: if not for the ordering of their own actions, yet for the trying of their own actions, as well as of those of other men. There have been, at the same time, not many perhaps, even of the most intelligent, who have been disposed to embrace it purely and without reserve. There are even few who have not taken some occasion or other to quarrel with it, either on account of their not understanding always how to apply it, or on account of some prejudice or other which they were afraid to examine into, or could not bear to part with. For such is the stuff that man is made of: in principle and in practice, in a right track and in a wrong one, the rarest of all human qualities is consistency.

XIII. When a man attempts to combat the principle of utility, it is with reasons drawn, without his being aware of it, from that very principle itself. His arguments, if they prove any thing, prove not that the principle is wrong, but that, according to the applications he supposes to be made of it, it is misapplied. Is it possible for a man to move the earth? Yes; but he must first find out another earth to stand upon.

XIV. To disprove the propriety of it by arguments is impossible; but, from the causes that have been mentioned, or from some confused or partial view of it, a man may happen to be disposed not to relish it. Where this is the case, if he thinks the settling of his opinions on such a subject worth the trouble, let him take the following steps, and at length, perhaps, he may come to reconcile himself to it.

 

1. Let him settle with himself, whether he would wish to discard this principle altogether; if so, let him consider what it is that all his reasoning’s (in matters of politics especially) can amount to?

2. If he would, let him settle with himself, whether he would judge and act without any principle, or whether there is any other he would judge an act by?

3. If there be, let him examine and satisfy himself whether the principle he thinks he has found is really any separate intelligible principle; or whether it be not a mere principle in words, a kind of phrase, which at bottom expresses neither more nor less than the mere averment of his own unfounded sentiments; that is, what in another person he might be apt to call caprice?

4. If he is inclined to think that his own approbation or disapprobation, annexed to the idea of an act, without any regard to its consequences, is a sufficient foundation for him to judge and act upon, let him ask himself whether his sentiment is to be a standard of right and wrong, with respect to every other man, or whether every man’s sentiment has the same privilege of being a standard to itself?

5. In the first case, let him ask himself whether his principle is not despotical, and hostile to all the rest of human race?

6. In the second case, whether it is not anarchial, and whether at this rate there are not as many different standards of right and wrong as there are men? and whether even to the same man, the same thing, which is right today, may not (without the least change in its nature) be wrong tomorrow? and whether the same thing is not right and wrong in the same place at the same time? and in either case, whether all argument is not at an end? and whether, when two men have said, “I like this,” and “I don’t like it,” they can (upon such a principle) have any thing more to say?

7. If he should have said to himself, No: for that the sentiment which he proposes as a standard must be grounded on reflection, let him say on what particulars the reflection is to turn? if on particulars having relation to the utility of the act, then let him say whether this is not deserting his own principle, and borrowing assistance from that very one in opposition to which he sets it up: or if not on those particulars, on what other particulars?

8. If he should be for compounding the matter, and adopting his own principle in part, and the principle of utility in part, let him say how far he will adopt it?

9. When he has settled with himself where he will stop, then let him ask himself how he justifies to himself the adopting it so far? and why he will not adopt it any farther?

10. Admitting any other principle than the principle of utility to be a right principle, a principle that it is right for a man to pursue; admitting (what is not true) that the word right can have a meaning without reference to utility, let him say whether there is any such thing as a motive that a man can have to pursue the dictates of it: if there is, let him say what that motive is, and how it is to be distinguished from those which enforce the dictates of utility: if not, then lastly let him say what it is this other principle can be good for?

 

 Value of a Lot of Pleasure or Pain, How to be Measured.

I. Pleasures then, and the avoidance of pains, are the ends that the legislator has in view; it behaves him therefore to understand their value. Pleasures and pains are the instruments he has to work with: it behaves him therefore to understand their force, which is again, in other words, their value.

II. To a person considered by himself, the value of a pleasure or pain considered by itself, will be greater or less, according to the four following circumstances:

1. Its intensity.

2. Its duration.

3. Its certainty or uncertainty.

4. Its propinquity or remoteness.

 

III. These are the circumstances which are to be considered in estimating a pleasure or a pain considered each of them by itself. But when the value of any pleasure or pain is considered for the purpose of estimating the tendency of any act by which it is produced, there are two other circumstances to be taken into the account; these are,

5. Its fecundity, or the chance it has of being followed by sensations of the same kind: that is, pleasures, if it be a pleasure: pains, if it be a pain.

6. Its purity, or the chance it has of not being followed by sensations of the opposite kind: that is, pains, if it be a pleasure: pleasures, if it be a pain.

These two last, however, are in strictness scarcely to be deemed properties of the pleasure or the pain itself; they are not, therefore, in strictness to be taken into the account of the value of that pleasure or that pain. They are in strictness to be deemed properties only of the act, or other event, by which such pleasure or pain has been produced; and accordingly are only to be taken into the account of the tendency of such act or such event.

IV. To a number of persons, with reference to each of whom to the value of a pleasure or a pain is considered, it will be greater or less, according to seven circumstances: to wit, the six preceding ones; viz.,

1. Its intensity.

2. Its duration.

3. Its certainty or uncertainty.

4. Its propinquity or remoteness.

5. Its fecundity.

6. Its purity.

And one other; to wit:

7. Its extent; that is, the number of persons to whom it extends; or (in other words) who are affected by it.

 

V. To take an exact account then of the general tendency of any act, by which the interests of a community are affected, proceed as follows. Begin with any one person of those whose interests seem most immediately to be affected by it: and take an account,

1. Of the value of each distinguishable pleasure which appears to be produced by it in the first instance.

2. Of the value of each pain which appears to be produced by it in the first instance.

3. Of the value of each pleasure which appears to be produced by it after the first. This constitutes the fecundity of the first pleasure and the impurity of the first pain.

4. Of the value of each pain which appears to be produced by it after the first. This constitutes the fecundity of the first pain, and the impurity of the first pleasure.

5. Sum up all the values of all the pleasures on the one side, and those of all the pains on the other. The balance, if it be on the side of pleasure, will give the good tendency of the act upon the whole, with respect to the interests of that individual person; if on the side of pain, the bad tendency of it upon the whole.

6. Take an account of the number of persons whose interests appear to be concerned; and repeat the above process with respect to each. Sum up the numbers expressive of the degrees of good tendency, which the act has, with respect to each individual, in regard to whom the tendency of it is good upon the whole: do this again with respect to each individual, in regard to whom the tendency of it is good upon the whole: do this again with respect to each individual, in regard to whom the tendency of it is bad upon the whole. Take the balance which if on the side of pleasure, will give the general good tendency of the act, with respect to the total number or community of individuals concerned; if on the side of pain, the general evil tendency, with respect to the same community.

VI. It is not to be expected that this process should be strictly pursued previously to every moral judgment, or to every legislative or judicial operation. It may, however, be always kept in view: and as near as the process actually pursued on these occasions approaches to it, so near will such process approach to the character of an exact one.

VII. The same process is alike applicable to pleasure and pain, in whatever shape they appear: and by whatever denomination they are distinguished: to pleasure, whether it be called good (which is properly the cause or instrument of pleasure) or profit (which is distant pleasure, or the cause or instrument of, distant pleasure,) or convenience, or advantage, benefit, emolument, happiness, and so forth: to pain, whether it be called evil, (which corresponds to good) or mischief, or inconvenience or disadvantage, or loss, or unhappiness, and so forth.

VIII. Nor is this a novel and unwarranted, any more than it is a useless theory. In all this there is nothing but what the practice of mankind, whosesoever they have a clear view of their own interest, is perfectly conformable to. An article of property, an estate in land, for instance, is valuable, on what account? On account of the pleasures of all kinds which it enables a man to produce and what comes to the same thing the pains of all kinds which it enables him to avert. But the value of such an article of property is universally understood to rise or fall according to the length or shortness of the time which a man has in it: the certainty or uncertainty of its coming into possession: and the nearness or remoteness of the time at which, if at all, it is to come into possession. As to the intensity of the pleasures which a man may derive from it, this is never thought of, because it depends upon the use which each particular person may come to make of it; which cannot be estimated till the particular pleasures he may come to derive from it, or the particular pains he may come to exclude by means of it, are brought to view. For the same reason, neither does he think of the fecundity or purity of those pleasures.

Thus much for pleasure and pain, happiness and unhappiness, in general, ee come now to consider the several particular kinds of pain and pleasure.

Sources:

  1. http://ndpr.nd.edu/news/33890-the-cambridge-companion-to-nozick-s-anarchy-state-and-utopia/
  2. http://www.princeton.edu/~achaney/tmve/wiki100k/docs/Robert_Nozick.html
  3. http://www.nybooks.com/articles/archives/1975/mar/06/the-right-to-be-rich-or-poor/
  4. Anarchy, State, and Utopia by the American political philosopher Robert Nozick, http://www.colorado.edu/philosophy/provisionalia/nozick.pdf
  5. http://plato.stanford.edu/entries/utilitarianism-history/
  6. http://www.utilitarianism.com/jeremy-bentham/index.html 

The 33 Strategies of War for Managers

“THERE IS NO PIECE , ONLY DIFERNT STATE OF WAR”-Nietzsche

         PREPARTION STATEGIES

  1. Do not fight the past

The Guerrilla-War-Of-The-Mind Strategy-What most often weighs you down and brings you misery is the past. You must consciously force yourself to react to the present moment. Be ruthless on yourself; do not repeat the same tired methods. Wage guerrilla war on your mind, allowing no static lines of defense — make everything fluid and mobile.

  1. Amidst the turmoil of events, do not lose your presence of mind

The Counterbalance Strategy-In the heat of battle, the mind tends to lose its balance. It is vital to keep you presence of mind, maintaining your mental powers, whatever the circumstances. Make the mind tougher by exposing it to adversity. Learn to detach yourself from the chaos of the battlefield.

  1. Create a sense of urgency and desperation

The Death-Ground Strategy-You are your own worst enemy. You waste previous time dreaming of the future instead of engaging in the present. Cut your ties to the past — enter unknown territory. Place yourself on “death ground”, where your back is against the wall and you have to fight like hell to get out alive.

 

  ORGANIZATIONAL (TEAM) WARFARE

The next 3 strategies are about making the most of your team. Ideas and tactics mean nothing without an organized, responsive, creative, and motivated army.

  1. The Command-And-Control

Command Strategy- The problem in leading any group is that people inevitably have their own agendas. You have to create a chain of command in which they do not feel constrained by your influence yet follow your lead. Create a sense of participation, but do not fall into groupthink — the irrationality of collective decision making.

  1. Segment your forces

The Controlled-Chaos Strategy-The critical elements in war are speed and adaptability — the ability to move and make decisions faster than the enemy. Break your forces into independent groups that can operate on their own. Make your forces elusive and unstoppable by infusing them with the spirit of the campaign, giving them a mission to accomplish, and then letting them run.

  1. Transform your war into a crusade

Morale Strategy-The secret to motivating people and maintaining their morale is to get them to think less about themselves and more about the group. Involve them in a cause, a crusade against a hated enemy. Make them see their survival as tied to the success of the army as a whole.

 

   DEFENSIVE WARFARE

The next four strategies will reveal defensive warfare is the height of strategic wisdom — a powerful style of waging war.  Get ready to master the arts of deception.

  1. Pick your battles carefully

The Perfect-Economy Strategy-We all have limitations — our energies and skills will take us only so far. You must know your limits and pick your battles carefully. Consider the hidden costs of war: time lost, political goodwill squandered, an embittered enemy bent on revenge. Sometimes it is better to wait, to undermine your enemies covertly rather than hitting them straight on.

  1. Turn the tables

The Counterattack Strategy-Moving first — initiating the attack — will often put you at a disadvantage: You are exposing your strategy and limiting your options. Instead, discover the power of holding back and letting the other side move first, giving you the flexibility to counterattack from any angle. If your opponents are aggressive, bait them into a rash attack that will leave them in a weak position.

  1. Create a threatening presence

Deterrence Strategies-The best way to fight off aggressors is to keep them from attacking you in the first place. Build up a reputation: You’re a little crazy. Fighting you is not worth it. Uncertainty is sometimes better than overt threat: If your opponents are never sure what messing with you will cost, they will not want to find out.

10. Trade space for time

The Non-Engagement Strategy-To retreat in the face of a strong enemy is not a sign of weakness but of strength. By resisting the temptation to respond to an aggressor, you buy yourself valuable time — time to recover, to think, to gain perspective. Sometimes you can accomplish most by doing nothing.

 

  OFFENSIVE WARFARE

The next 11 strategies outline the form of warfare practiced by the most successful captains in history.

The secret to their success is a blend of strategic cleverness and audacity — it will give all of your attacks much greater force.

11. Lose battles but end the war

Grand Strategy-It’s the art of looking beyond the battle and calculating ahead. It requires that you focus on your ultimate goal and plot to reach it. Let others get caught up in the twists and turns of the battle, relishing their little victories. Grand strategy will bring you the ultimate reward: the last laugh.

12. Know your enemy

The Intelligence Strategy-The target of your strategies should be less the army you face than the mind or women who runs it. If you understand how that mind works, you have the key to deceiving and controlling it. Train yourself to read people, picking up the signals they unconsciously send about their innermost thoughts and intentions.

13. Overwhelm resistance with speed and suddenness

The Blitzkrieg Strategy-In a world in which many people are indecisive and overly cautious, the use of speed will bring you untold power. Striking first, before your opponents have time to think or prepare, will make them emotional, unbalanced, and prone to error.

14. Control the dynamic

Forcing Strategies-People are constantly struggling to control you. The only way to get the upper hand is to make your play for control more intelligence and insidious. Instead of trying to dominate the other side’s every move, work to define the nature of the relationship itself. Maneuver to control your opponents’ minds, pushing their emotional buttons and compelling them to make mistakes.

15. Hit them where it hurts

The Center-Of-Gravity Strategy-Everyone has a source of power on which he or she depends. When you look at your rivals, search below the surface for that source, the center of gravity that holds the entire structure together. Hitting them there will inflict disproportionate pain. Find what the other side most cherishes and protects — that is where you must strike.

16. Defeat them in denial

1The Divide-And-Conquer Strategy-Never be intimated by your enemy’s appearance. Instead, look at the parts that make up the whole. By separating the parts, sowing dissension and division, you can bring down even the most formidable foe. When you are facing troubles or enemies, turn a large problem into small, eminently defeat able parts.

17. Expose and attack your opponent’s soft flank

The Turning Strategy-When you attack people directly, you stiffen their resistance and make your task that much harder. There is a better way: Distract your opponents’ attention to the front, then attack them from the side, where they least expect it. Bait people into going out on a limb exposing their weakness, then rake them with fire from the side.

18. Envelop the enemy

The Annihilation Strategy-People will use any kind of gap in your defenses to attack you. So offer no gaps. The secret is to envelop your opponents — create relentless pressure on them from all sides and close off their access to the outside world. As you send their weakening resolve, crush their willpower by tightening the noose.

19. Maneuver them into weakness

The Ripening-For-The-Sickle Strategy-No matter how strong you are, fighting endless battles with people is exhausting, costly, and unimaginative. Wise strategist prefer the art of maneuver: Before the battle even begins, they find ways to put their opponents in positions of such weakness that victory is easy and quick. Create dilemmas: Devise maneuvers that give them a choice of ways to respond — all of them bad.

20. Negotiate while advancing

The Diplomatic-War Strategy-Before and during negotiations, you must keep advancing, creating relentless pressure and compelling the other side to settle on your terms. The more you take, the more you can give back in meaningless concessions. Create a reputation for being tough and uncompromising, so that people are back on their heels before they even meet you.

21. Know how to end things

The Exit Strategy-You are judged in this world by how well you bring things to an end. A messy or incomplete conclusion can reverberate for years to come. The art of ending things well is knowing when to stop. The height of strategic wisdom is to avoid all conflicts and entanglements from which there are no realistic exits.

 

 UNCONVENTIONAL (DIRTY) WARFARE

The following 11 strategies will give a greater understanding of the diabolical psychology involved in dirty warfare, helping to arm you with the proper defense. It gets nasty.

22. Weave a seamless blend of fact and fiction

Misconception Strategies-Since no creature can survive without the ability to see or sense what is going on around it, make it hard for your enemies to know what is going on around them, including what you are doing. Feed their expectations, manufacture a reality to match their desires, and they will fool themselves. Control people’s perceptions of reality and you control them.

23. Take the line of least expectation

The Ordinary-Extraordinary Strategy-People expect your behavior to conform to known patterns and conventions. Your task as a strategist is to upset their expectations. First do something ordinary and conventional to fix their image of you, then hit them with the extraordinary. The terror is greater for being so sudden. Sometimes the ordinary is extraordinary because it is unexpected.

24. Occupy the moral high ground

The Righteous Strategy-In a political world, the cause you are fighting for must seem more than just the enemy’s. By questioning your opponents’ motives and making them appear evil, you can narrow their base of support and room to maneuver. When you find yourself come under moral attack from a clever enemy, do not whine or get angry; fight fire with fire.

25. Deny them targets

The Strategy Of The Void-The feeling of emptiness or void — silence, isolation, non-engagement with others — is for most people intolerable. Give your enemies no target to attack, be dangerous but elusive, then watch as they chase you into the void. Instead of frontal battles, deliver irritating but damaging side attacks and pinprick bites.

26. Seem to work for the interests of others while furthering your own

The Alliance Strategy-The best way to advance your cause with the minimum of effort and bloodshed is to create a constantly shifting network of alliances, getting others to compensate for your deficiencies, do your dirty work, fight your wars. At the same time, you must work to sow dissension in the alliances of others, weakening your enemies by isolating them.

27. Give your rivals enough rope to hang themselves

The One-Upmanship Strategy-Life’s greatest dangers often come not from external enemies but from our supposed colleagues and friend who pretend to work for the common cause while scheming to sabotage us. Work to instill doubts and insecurities in such rivals, getting them to think too much and act defensively. Make them hang themselves through their own self-destructive tendencies, leaving you blameless and clean.

28. Take small bites

The Fait Accompli Strategy-Overt power grabs and sharp rises to the top are dangerous, creating envy, distrust, and suspicion. Often the best solution is to take small bites, swallow little territories, playing upon people’s relatively short attention spans. Before people realize it, you have accumulated an empire.

29. Penetrate their minds

Communication Strategies-Communication is a kind of war, its field of battle is the resistant and defensive minds of the people you want to influence. The goal is to penetrate their defenses and occupy their minds. Learn to infiltrate your ideas behind enemy lines, sending messages through little details, luring people into coming to the conclusions you desire and into thinking they’ve gotten there by themselves.

30. Destroy from within

The Inner-Front Strategy-By infiltrating your opponents’ ranks, working from within to bring them down, you give them nothing to see or react against — the ultimate advantage. To take something you want, do not fight those who have it, but rather join them — then either slowly make it your own or wait for the moment to stage a coup d’état.

31.Dominate while seeming to submit

The Passive-Aggression Strategy-In a world where political considerations are paramount, the most effective form of aggression is the best hidden one: aggression behind a compliant, even loving exterior. To follow the passive-aggression strategy you must seem to go along with people, offering no resistance. But actually you dominate the situation. Just make sure you have disguised your aggression enough that you can deny it exists.

32. Sow uncertainty and panic through acts of terror

The Chain-Reaction Strategy-Terror is the ultimate way to paralyze a people’s will to resist and destroy their ability to plan a strategic response. The goal in a terror campaign is not battlefield victory but causing maximum chaos and provoking the other side into desperate overreaction. To plot the most effective counter-strategy, victims of terror must stay balanced. One’s rationality is the last line of defense.

33. Nothing is nothing is absolute-THINK AL THE TIME ABOUT WAR

Strategy of  situations-Situations WARS can be similar but they are not identical so use this strategies as guide lines for creating  your own strategies which can be mix of any above mentioned strategies. Defense strategies can be mixed with offensive strategies, etc.

 

“Life is endless battle and conflict, and you cannot fight effectively unless you can identify your enemies. Learn to smoke out your enemies, to spot them by the signs and patterns that reveal hostility. Then, once you have them in your sights, inwardly declare war. Your enemies can fill you with purpose and direction. “Source: Robert Greene’s The 33 Strategies of War.

Strategies are modified from Robert Greene’s The 33 Strategies of War!
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