Review of "Profit Power Economics"

Posted by: Michael Mandel on November 11

Over the next week, as I clean up my desk, I’m going to be doing short reviews of books that I have been meaning to write about. Let’s start with Profit Power Economics, a fascinating new book which combines corporate strategy and economics. The author, Mia de Kuijper, runs her own strategy advisory firm and has a PhD in Economics from Harvard (she stopped by one day, and we had a fun conversation).

The book examines the strategic implications of what de Kuijper calls “The Transparent Economy.” How do companies make money in a world of perfect information, where everyone knows what everyone else is doing, and where competition is absolutely intense? She argues:

Profit power is economic clout—the ability of a company to hold on to the value it itself has created, as well as to extract a share of profits from its competitors, to create incremental value for itself and for its partners in business relationships, and to shape the risks it and others will take on….Being “the best” does not guarantee that your company can hold on to its hard-earned gains. Only profit power does that.

These are not the perfect information markets we learned about in introductory economics, where everyone makes the same profits. You have to have some edge (which she calls “power nodes”) to ensure that you are not squeezed out by the competition.

The link between this book and the “The Big Shift” of the previous post should be clear. Hagel and company are concerned that American companies, on average, are losing ground because of intense competition, with some companies doing much better than others. de Kuijper is concerned with how to make sure your company is in the winning camp. (Her reasoning applies to careers as well)

Profit Power Economics is a very stimulating read, whether you are a business manager or someone trying to figure out the best career path. The book is a bit dense in parts, but well worth the trouble.

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Reader Comments

Ajay

November 11, 2009 10:48 PM

Only an intro and a recommendation, Mike? Come on, where's the incremental value in this post? What's your "power node" here? ;) Seriously, sounds like the typical business book, warmed over business truisms that are far too general to be of any use. But then, I haven't read it. :)

CompEng

November 12, 2009 11:26 AM

That's a pretty roundabout way of addressing the concepts of leverage and bargaining power. Unless there is some new component to this new buzzword I'm not seeing?

Jesse

November 20, 2009 12:35 PM

Well if she really tells the story through the lens of economics it would be quite different from other business books. Most economists would tell you that long run economic profits shrink to zero because of new entrants and competition in the market. This sounds like a rare example of an economist trying to describe what happens in the real world. Interestingly, Das Kapital (not a perennial favorite among business leaders) describes how capital is concentrated among profit producers who then use the capital to exert profit power (in Kuijper's terms) to protect their future profits and further concentrate capital. Of course that kind of thinking led to an idealogy that it not so friendly to free market pundits.

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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