To weigh interests, business schools teach a simple method: ask two dichotomous questions and plot the answers on a 2 X 2 square. Along one side, are the responses to the effect of the action on customers as either Good or Bad. On the other, the same consideration is made, this time regarding the effect of an action on the business itself. Answering these two questions allows quick analysis of whether a project should be pursued, weighed, or rejected. The resulting grid is reminiscent of the Punnet Square. Homozygous recessive is akin to the elusive win-win, while the Heterozygotes fall in the more common grey areas.
While you wouldn’t always think so, MBAs prefer projects which are good for both the customer and the business. However, the MBA doesn't shy away from actions which are unfavorable to one of the two parties so long as the actions are strategic and maximize the long term value of the firm. Mixed responses to the two questions introduced above lead the MBA to consider options, with an eye for the long run, the MBA attempts to maximize profits without losing its best customers.
"Promotions" are actions which benefit the customer more than any harm done to the business. When judged correctly, promotions have a high transaction value even though they may be unfavorable to the business. Groupon capitalizes on this strategy by helping business to generate awareness and goodwill. The business shares with customers the majority of the value it creates. Actions which benefit the customer but aren't necessarily good for the business accumulate Goodwill. Later, the business will have an opportunity to take actions which favor the business at the expense of the customer.
A recent example of cashing in on Goodwill is Netflix upsetting customers by raising its rates and enacting separate billing for postal delivery of DVDs and streaming video. Undoubtedly analysts demonstrated the move is good for Netflix, despite the fact that customers will be lost. Clearly, those customers who stick it out receive less value now that the same product carries a higher price. In the future, greater customer value may return if many more movies are available to stream. Should that happen, customers who are satisfied by streaming alone might discontinue postal DVD delivery, a choice they would otherwise not give much thought to without separate billing. Since the cost to Netflix is greater to ship a DVD than to stream a movie, Netflix will benefit when consumers change their behavior. By billing separately, Netflix encourages customers to drop DVD delivery so that in the future Netflix might discontinue its postal service with less guilt. Despite the fact that customers don’t benefit by this path, the decision supports Netflix’s long term goal to yet again revolutionize the way we watch movies at home.
Should physicians give in to perverse incentives, they breach their fiduciary duty to patients. Whether motivated by greed or the practice of defensive medicine, these actions increase the cost of care without adding value. On the other hand, an action which is not in the best interest of the physician and benefits the patient should be taken. Indeed, a criteria of a profession is to only take actions which benefit the customer. Currently, many hospitals are run by CEOs who approach decisions as an MBA would. To maintain service, and ensure it stands for future generations, physicians must be mindful of when actions harm the business. On average, most decisions the Physician CEO makes would need to benefit the business. However the MBA's approach could be simplified by omitting any option that is not good for patients:
