Business Strategy for Efficient Markets & Economic Rents

Every organisation that is in the market for profit, aims to having equal access to all information pertaining to economic actors, so that it can formulate and execute winning strategy for itself. It thus means, although preferring to be alone but having no option, organisations fight for market information. Thus, giving rise to ‘EFFICIENT MARKETS’. In essence market is built of many organisations but is characterised & known by behaviours of those actors which are dominant in the market. Consequently, prices are known to every one for a product, as they are in a chain from raw material to finished goods; only changing their role of input to output.  It does mean that one has to price its product in such a way that it is neither overpriced nor under-priced.  Overpriced products will not get sufficient buyers and under-priced products will be deluged with buyers and therefore may not be able to supply to all. Automatically efficient markets eliminate odds and works for bringing in equilibrium constantly.

Despite having Efficient or perfect markets, organisations work for better & better ECONOMIC RENTS that is better than average return on investment.

This pull and push of the market and its players, forces to look for strategies which can adequately support a player’s wish for higher rent. But incoherent selection of business strategy instead of helping a business may lead to its failure and wiping off from the market. There are innumerable strategies in the business literature from Ansoff’s Strategy Matrix to Porter’s five forces but they are based on different dimensions and meant to be used for different situation. For example BCG matrix is to know cash flow status of an organisation while Porter’s work well for setting up a new business and that too should be used for single business. These strategies are generally employed to increase economic rent and very precisely make an organisation know what factors can effect it so that the organisation can take counter steps.

Another important aspect to know is difference between business tools and full-fledged business strategies. Like, SOWT analysis, Learning & Experience Curve, Life Cycle are some of the tools being used to decipher a business health. These tools entirely differ and therefore be used not as a strategy as is the case for BCG Matrix, GE/McKinsey Matrix etc.

Strategists and readers, when you look for a tool or technique, first you should clearly spell out what are you looking for.