Acid Test on Point of Views

Referring to my previous entry, Point of Views, I mentioned that could we devise an acid test to see how our point of views would change (or wouldn't) if the scenario changed. This could help us (and help myself too) identify how impartial we are, or help identify that in reality, there is a certain amount of expectations shaping our reactions and like Mukmin mentioned : the mind forms a logical structure of those who read the comments, as long as they feel the same or similar "pain" or "are in the same wavelength" and when there's more of the same wavelength comments the mind tricks you to think "It must be true!"

Let's take the original article, Malaysia ranked 12th most business-friendly country: World Bank and test out the acid test I'm devising on the fly after much thought and ponder.

1. When you first ONLY read the TITLE of the article, how did you FIRST react
1. That's good news
2. Great news, even world bank acknowledges Malaysia is taking steps to improve!
3. What a joke.
4. Cannot be la, maybe someone bribed World Bank to give us good rankings.
5. Let me read the whole article.
2. Did you read the whole article?
1. Yes
2. No
3. Scanned thru
3. Did you google / search for the original World Bank article to understand the parameters used?
1. Yes
2. No
4. Now, imagine if the headlines read " Malaysia's ranking has DROPPED in most business-friendly country: World Bank". How would you react
1. That just one indicator, rest show we are doing good.
2. Can't trust World Bank, they have their propaganda
3. Expected 
4. What a joke, it's confirmed even by World Bank that Malaysia is screwing up.
5. Let me read thru the whole article.

So here's my thoughts, if Mr X chose

•  1.2 and 4.2 : Mr X is contradicting himself. For something Mr X wants to hear, the news is good and World Bank is a reliable source. But when the report is negative, somehow World Bank became untrustworthy.
• 1.4 & 4.4 : Very much same as above assessment wouldn't you agree?
• 1.1 & 4.1 OR 1.3 & 4.3 - might have a level of inclination already, and usually sees what they want to see. 
• For all the above, I'm guessing mostly Mr X wouldn't have read the whole news article. 

How about the other combinations? How many actually read the actual World Bank report?

How would you assess if Mr X chose 1.2 & 4.4 or 1.1 & 4.3? My thoughts? I would think they have the least preset of assumptions and expectations before reading the articles. Or maybe they managed to separate reactions from expectations.

Well, let's call the above the Lukman Iqbal Impartiality Acid Test V1.

Point of Views

I've recently been thinking about point of views. Why would just one statement look different to so many people. Like the adage saying goes, Beauty is in the eye of the beholder. This is partly due to the 'effects of expectation' which Dan Ariely wrote about in his book Predictably Irrational. Among others, expectations shape stereotypes.

Why is it just one statement or a newspaper article results into many many interpretations and comments, sometimes 180' in contrast?

Here's one very interesting example Malaysia ranked 12th most business-friendly country: World Bank , which appeared in a few portals / news. Now just looking at this statement, how would you react? Please comment. Here's an examples of reactions I've seen so far.

Mr A: What a joke.... My tuition centre has been waiting the licensing support letter from district health office for 2 months
Mr B: Malaysia is actually pretty friendly to foreign investors (you are better off not being Malaysian to invest in Malaysia...). Japan has a particularly problem with opening up their domestic market.
Mr C: it means songlap (embezzlement) to da max.
Mr D:  over here, biz can move faster and everything can get done with money...
Mr E: Congratulation to all, we have achieved something good at international front. But, let us also remind ourselves that we have al ot to improve on our domestic ranking, likes Crimes index
Mr F: Good news... only from other news portals.. not from Malaysiakini...Malaysiakini only can do "FITNAH
Mr G:  I go to USA regularly and things are really bad there. I am so glad that I am a Malaysian and our economy is under control. go to USA regularly and things are really bad there. I am so glad that I am a Malaysian and our economy is under control.
Mr H: And there is another report on yahoo as well that Malaysia economy growth is the slowest among Aseans, at 4.4 2012 and 4.7 2013. Ask any business on the streets, and they will tell you business is slow and has slowed down significantly, . Sadly It has been under performing year , Now don't give excuse that our under performance was due to economy crisis in Europe cos Indonesia economy growth was published at six percent and Philippines..

AND SO ON... above are actual excerpts. So how? What's up?

Price discrimination on the Internet

Business and Economic Analysis

This is my individual write-up for my MBA subject BEA, about the price discrimination on the Internet. If you find this reference helpful, please leave a comment. Enjoy, and questions feel free to post. Remember do no plagiarize and also remember this content is easily google-able for checking against copying. It is meant a guidance. Forgive the formatting, it is pretty hard to republish your work onto blog templates.

Price discrimination on the Internet

TABLE OF CONTENTS

Executive Summary 4

1. Non-Uniform Pricing 5

2. The Internet as a Marketplace 6

3. Price Discrimination on the Internet (Net) 6

3.1. First degree 6

3.2. Second Degree 7

3.3. Third Degree 7

4. Price Discrimination, the Internet and Privacy 8

5. Asymmetric Information 9

6. Conclusion 11

7. Recommendation 12

7.1. Information is power 12

7.2. Government Interference 12

7.3. Internets' Social Networking Power 12

8. Appendix 14

9. Reference 15

Executive Summary

Information about individual consumers' demand curves can be used by organizations to increase their profits by setting up a nonuniform pricing structure. Price discrimination is a form of such nonuniform pricing; and is divided into three degrees namely perfect price discrimination, quantity discrimination and multimarket discrimination respectively. Price discrimination on a social aspect might be negative but could increase economic efficiency and enable better distribution.

The real world internet is not free from price discrimination. The internet has continued to grow into a marketplace offering benefits and challenges to the industry allowing easier distribution of digital information thus reducing marginal costs, but also facilitates piracy. The internet is now common with products and services which are characterized by high fixed costs and low marginal costs, suitable for price discrimination. All three degrees of price discrimination occur on the net, namely auctions, bulk or volume sales and price differentiation by market segments. Search comparison sites have produced Bertrand like outcomes in the retail insurance industry. But on the other hand, other organizations thrive by getting consumer information on the net, however posing concerns over privacy. Privacy is hard to maintain on the Net and has enabled firms to manipulate such information to price discriminate effectively. Firms also focus on providing asymmetric information to negate the downward pressure brought about by low search and switching costs, by affiliating to strong internet portals, advertising and tactics to increase switching costs.

The Internet marketplace will benefit most those that are technically savvy be it the seller or the buyer. Those that choose not to understand the workings of the internet and do not protect their privacy stand to loose out and get discriminated on price. The internet therefore requires its users to be well informed. Government interference should be kept to a minimum, and should step in when clear boundaries of law are broken. The emergence of social networking like Facebook will also shape the economics of the internet marketplace with its power to influence opinion on a good, service or firm altogether.

Non-Uniform Pricing

Monopolies (and other non-competitive firms) can use information about individual consumers' demand curves to increase their profits, i.e. instead of setting a single price, firms use nonuniform pricing: charging consumers different prices for the same product, thus raising profits (Perloff 2009). Carlton & Perloff (2005) explain several types of nonuniform pricing exists including prices discrimination, two-part tariffs, and tie-in sales. A market with theoretically perfect information, perfect substitutes and no transaction costs or prohibition on reselling to prevent arbitrage, price discrimination can only be a feature of monopolistic and oligopolistic markets where market power can be exercised (Daripa & Kapur 2001; Krugman & Obstfeld 2003)

Price discrimination is broken into three types or degrees. Perfect price discrimination (first degree) is where the firm sells each unit at the maximum amount any customer is willing to pay for it. Quantity discrimination (second degree) is when the firm charges a different price for large quantities compared to smaller quantities. Finally the third degree price discrimination, i.e. multimarket is where the firm charges different groups of customers different prices but it charges a given customer the same price for every unit of output sold (Perloff 2009).

Though price discrimination sounds negative and may be viewed negatively by society, Bakos (1998) highlights that it is a powerful tool that allows sellers to increase profits, reduce consumer surplus, and service buyers who would otherwise be priced out of the market, an outcome that increases economic efficiency.

It can be deduced that for firms to price discriminate, especially for the first and third degree type, detail information, characteristics, and the socio-economy status of each customer or group of customer is required.

This paper will discuss the theory of price discrimination in the real world internet business, its implications and recommendations.

The Internet as a Marketplace

Besides personalizing product offerings, the internet has enabled (Bakos 1998):

• Digital information such as music allow perfect copies to be created and distributed almost without cost via the Internet.
  


• Search - it lowers the buyers' cost to obtain information about price and product features as well as sellers cost to communicate such information.
  


• Facilitation – the cost of logistics has been estimated at more than 10% of Gross National Product (GNP). Electronic marketplaces improve information sharing, helping lower cost of logistics and promoting quick, just-in-time deliveries reducing inventories, compounded by information systems replacing physical systems.
  


• Enables new types of price discovery like auction of last minute un-sold airline seats and emergence of intermediaries like Priceline and e-Bay auction.
  

The decline of online privacy has been a boon to organizations' increased ability to price discriminate (Odlyzko 2003).

Price Discrimination on the Internet (Net)

The ability to customize products and prices greatly improves sellers ability to price discriminate (Bakos 1998). All three types of price discrimination are more common in markets which are characterized by high fixed costs and low marginal costs – a situation endemic on the Net (Koch & Cebula 2002). The three degrees of price discrimination are evaluated in the internet sphere.

First degree

The first degree price discrimination which involves a firm selling each unit of good or service to the individual who values it most, has witnessed success in auction websites namely eBay (Guttman & Maes 1998; Koch & Cebula 2002). However one limitation exists being the seller generally cannot prevent Net users from reselling the units they just purchased (Koch & Cebula 2002)

First degree price discrimination, in which the buyer is charged his maximal willingness to pay, has long been treated in the literature as an unattainable ideal, however the erosion of privacy and improved IT systems will enable a close approximation to this ideal to be achieved (Odlyzko 2003). Though, Odlyzko (2003) argues it could lead to an Orwellian economy in which a package of aspirin at a drugstore might cost the purchaser $1 if he could prove he was destitute, but $1,000 if he was Bill Gates or simply wanted to preserve his privacy.

Second Degree

More common is second degree or non-linear dependent on the volume or units of purchase, for example internet calls through Voice-Over-Internet-Protocol (VOIP) rates offer flat rates upon certain quantity or for a month of unlimited calls, and different rates for one time calls, refer Appendix-1 (Sykpe 2011). It is noteworthy that Deneckere & McAfee (1996) demonstrated that all parties of these transactions may be better off because there is a possibility that without second degree price discrimination, low quantity / low quality consumers might not be served at all, e.g. Skype would only cater to larger customers only.

Third Degree

Third-degree price discrimination is as common, for example how Dell using its online portal sets different prices for different segments between private, government and individual buyers (Riley 2006).

Therefore the internet has resulted in a veritable orgy of Pigovian price discrimination (Koch & Cebula 2002). Differential pricing is a natural outcome of profit seeking forces and may easily contribute to economic efficiency, and as such forcing a policy of flat pricing in an industry where it is inappropriate due to the nature of the technology may have perverse consequences (Varian 1996).

Price Discrimination, the Internet and Privacy

The internet has opened a new opportunity for commerce, bringing along its own challenges in maintaining privacy. With the reduction in search and switching costs on the net, would a Bertrand-like competitive outcome where firms select independently the prices they charge for the product and that every firm has to supply all the forthcoming demand at the price it is setting be expected (Vives 2001, p. 117)? This does hold true in some sectors where intense online competition has exerted downward pressure on prices, for example in the retail insurance and computer industry (Brown & Goolsbee 2000; Daripa & Kapur 2001; Goolsbee 2000).

The internet allows sellers to collect a remarkable wealth of information about their existing and potential customers, giving retailers some market power, enable better price discrimination, and retailers will find devices to raise switching costs organically from within the product, through loyalty schemes and deliberate product differentiation, allowing them to discriminate in the future (Daripa & Kapur 2001). Electronic marketplaces support personalization and customization by using consumer tracking providing relevant demographics, consumer profiles to estimate their specific preferences, and also information-rich products lend themselves to cost effective customization like delivering an electronic newspaper tailored to the interests of an individual need not be more costly (Bakos 1998)

So since price discrimination requires market power, to what extend would growth of online price comparison services corrode this market power? Daripa & Kapur (2001) comment that existing technology allows retailers to distinguish between customers referred by price-comparison sites and those that access them directly, to the extent that the former are to be more price sensitive, it could set a lower price for those referred by shopping agents and charging higher for the latter.

According to the famous 1993 Pat Steiner cartoon in The New Yorker, "On the Internet, nobody knows you're a dog."But in practice, there are many who not only know you are a dog, but are familiar with your age, breed, illnesses, and

tastes in dog food" (Odlyzko 2003). Net firms utilize the massive experience data they collect on the Net to tailor products to specific customer, offering lower prices if we haven't purchased anything, or sending related offers e.g. travel discounts after buying a book on a tourist destination, or even offer a higher price if our characteristics suggest to them our demand for a particular good is less price elastic (Koch & Cebula 2002). So, the Internet offers not only the possibility of unprecedented privacy, but also of unprecedented loss of privacy, and so far privacy has been losing (Odlyzko 2003).

Search is far from perfect and sellers can sometimes reduce the efficiency of price search services through deliberate obfuscation, secondly the Internet makes it easier for retailers to track their rivals' price and reach rapidly, possibly even making implicit collusion likely, resulting in higher prices (Daripa & Kapur 2001). Clearly, the internet has increased the information available both to the consumer and the seller, and as such depends on how each side makes the best advantage of the available information. But on a whole the answer is not straightforward, as part of the difficulty lays in that the Internet increases the information available both to sellers and buyers, therefore depends on the relative ability of each side to manipulate and use that information to their advantage (Daripa & Kapur 2001).

Asymmetric Information

As discussed if search costs continue to fall, sellers are worse off since buyers can find the lowest-cost seller, while buyers benefit from the lower prices and their improved ability to find products that fit their needs. The dynamics of friction-free markets are not attractive for sellers that had previously depended on geography or customer ignorance to insulate them from the low-cost sellers in the market (Bakos 1998).

Therefore sellers have responded in a number of ways, through further advertisement on the web and using referral from highly regarded websites trying to get the upper hand in providing asymmetric information. Asymmetric information is likely to generate price dispersion (some consumers paying higher prices than others) and the mean price paid by all combined could be higher (Bryjolfsson & Smith 1999, 2000). Some sellers make it difficult to compare the price of alternative product offerings, and they attempt to collect information about buyers that allows more effective price discrimination. Airlines, for example, have implemented extremely complicated and ever-changing fare structures, flight restrictions, and ticket availability, sometimes offering hundreds of fares for travel between certain pairs of destinations (Bakos 1998).

In certain cases where quality may be uncertain and/or experience goods are involved, a comfortable branded portal (e.g Yahoo!) may signal consumers that a good or service advertised therein is reliable and of high quality (Kihlstrom & Riordan 1984; Nelson 1974).

Therefore significant asymmetric information is achieved through heavy marketing and affiliation. In 2001, firms were expected to spend $8.1 billion advertising on the Net and by 2004, it was projected that this spending will have risen to $24.5 billion, or 8% of all advertising expenditure (Lawrence 2001).

Basically even though some net advertising diminish search costs because they supply factual information about price and quality to consumers therefore exert downward pressure on prices, the opposite is true for advertising focusing on branding a good or service which is to diminish price elasticity of demand so that sellers have an enhanced ability to raise prices and / or retain customers (Koch & Cebula 2002)

Conclusion

It has been discussed that price discrimination requires some pre-requisites to work in markets and such characteristics were observed on the internet as a marketplace. Interestingly most consumer have taken the internet for granted and assumed that it always offers lower prices compared to brick and mortar shops, but the research quoted has indicated that this is not true in every case.

Instead it is those who are internet savvy, knowing how to guard their privacy that would get the best o the internet. In fact, those that can tweak their own internet profile can disguise themselves and get the best of bargains. On the other hand, the same applies for the seller, of which can best manipulate such information on the net and provide an asymmetric layer of information will likely be better off in reaping profits and market share. Interestingly though as discussed price discrimination brings out economic efficiency, and is not always a bad thing.

So the question that arises is governments role in this area which has been vague. The problem is that price discrimination often does provide real measurable gains for social and economic welfare and is not just a measure for increasing profits of sellers, as is often suspected (Odlyzko 2003). Increased price discrimination is often associated with increased competition as well as increased economic activity, and works to decrease profits (Odlyzko 2003) but Perloff (2009) states that in a perfect price discrimination compared to competition, total welfare is the same, consumers are worse off, and firms are better off .

Recommendation

Based on the above, recommendations are made as below:

Information is power

Consumers need to be educated and need to be aware that the internet is not free from price discrimination, and must possess the knowledge and tools to determine what information is shared and what is private. They will need to know how to safe-guard their private information, and be aware of their rights. The objective is to prevend a shift of consumer surplus to producer surplus (Bailey 1998).

Business alike will need to be aware of consumer patterns, preference and characteristics. Undeniable, providing fast, easy access to products required by customers of which prior to purchase can be checked for reviews regardless of demographic difference is one of the boons to the internet business. Customers value and prefer this convenience, and sellers will need to have such technology to continue to provide and enhance such. This is the true value of the internet, and continuing to provide such services will see further growth in the industry.

Being the 'average consumer'

Consumers may develop a strategy that while not perfect, would result in them being treated like and "average consumer" which conteracts a retailer's price discrimination strategy. Consumers can use anonymous gateways (hiding their Internet Protocol (IP) address), to create a virtual identity, as such with no information about the consumer, the retailer can only set a price for an average consumer (Bailey 1998)

Internets' Social Networking Power

The consumer now has a strong force that previously did not exist. Social networking sites like Facebook and Youtube has enabled a window for consumers to create significant impacts to companies, by either liking, complaining or demanding changes from companies, which has had snowball effects, to extent where governments are also vary of such power of the social networks. If used properly, such networks provides a strong yet free consumer powered mechanism to drive sellers to provide the best of their goods and services or risk major market share losses.

Ad-hoc institutions of Regulations

The internet community must continue developing and maintaining ad hoc institutions such as chat sites, community review sites like tripadvisor, that circulate information and provide the leverage for public pressure against inappropriate cyberspace behavior (Weiss & Mehrotra 2001). Online ventures like TRUSTe which operates much like the better business bureau, stamping its seal of approval on those digital enterprises that conform to established privacy principles should be given more prominence. The consumer should demand such seals of approval before deciding on a purchase or service (Weiss & Mehrotra 2001).

Government Interference

Government interference should be kept at a minimum and as a supervisory role. However strict regulations and determinants should be set to ensure no un-authorized sale or sharing of user information happens, and companies be liable to safe-guard such information what was provided by the customer if and when privacy was requested. Some websites have fine-print which by default opts-in a member into sharing of private information with other parties, and similar dubious tactics should be policed. However the overall sales and purchase on the internet should just be governed by the laws and norms that already exist. Putting too much pressure on online sales could dampen the industry on a whole.

Appendix

Appendix 1

Reference

Bailey, JP 1998, 'Internet Price Discrimination: Self-Regulation, Public Policy, and Global Electronic Commerce', University of Maryland.

Bakos, Y 1998, 'The emerging role of electronic marketplaces on the internet', Communications of the ACM, vol. 41, no. 8, pp. 35-42.

Brown, J & Goolsbee, A 2000, 'Does Internet Make Markets More Competitive? Evidence from the Life Insurance Industry', NBER Working Paper 7996.

Bryjolfsson, E & Smith, M 1999, 'Frictionless Commerce? A Comparison of Internet and Conventional Retailers', Massachusetts Institute of Technology.

Bryjolfsson, E & Smith, M 2000, 'The Great Equalizer? Consumer Choice Behavior at Internet Shopbots', Massachusetts Institute of Technology.

Carlton, DW & Perloff, JM 2005, Modern industrial organization, 4th edn, Pearson/Addison Wesley.

Daripa, A & Kapur, S 2001, 'Pricing on the Internet', Oxford Review of Economic Policy, vol. 17, no. 2, pp. 202-16.

Deneckere, R & McAfee, RP 1996, 'Damaged Goods', Journal of Economics and Management Strategy, vol. 5, no. 2, pp. 149-74.

Goolsbee, A 2000, 'Competition in the Computer Industry: Online versus Retail', in Graduate School of Business, University of Chicago.

Guttman, RH & Maes, P 1998, Cooperative vs. Competitive Multi-Agent Negotiations in Retail Electronic Commerce, Springer Berlin / Heidelberg, Cambridge MA.

Kihlstrom, RE & Riordan, M 1984, 'Advertising as a Signal', Journal of Political Economy, vol. 92, pp. 427-50.

Koch, JV & Cebula, RJ 2002, 'Price, Quality, and Service on the Internet: Sense and Nonsense', Contemporary Economic Policy, vol. 20, no. 1, pp. 25-37.

Krugman, PR & Obstfeld, M 2003, International Economics - Theory and Policy, Addison Wesley.

Lawrence, S 2001, 'Online Advertising Growth Cools in 2001', Industry Standard, vol. 4, no. 79.

Nelson, P 1974, 'Advertising as Information', Journal of Political Economy, vol. 82, pp. 729-54.

Odlyzko, A 2003, 'Privacy, Economics, and Price Discrimination on the Internet', paper presented to ICEC, Pittsburgh, PA.

Perloff, JM 2009, Microeconomics, 5th edn, Pearson Addison Wesley.

Riley, G 2006, Markets and Market Systems, Eton College, viewed 10 April 2011, <http://tutor2u.net/economics/revision-notes/a2-micro-price-discrimination.html>.

Sykpe 2011, Skype Unlimited Calls, viewed 8 May 2011, <http://www.skype.com/intl/en-us/prices/payg-rates/&~~SPECIAL_REMOVE%21#%7E%7Egt;.

Varian, HR 1996, 'Differential pricing and efficiency', First Monday, vol. 1, no. 2.

Vives, X 2001, Oligopoly pricing: old ideas and new tools, illustrated, reprint edn, MIT Press.

Weiss, RM & Mehrotra, AK 2001, 'Online Dynamic Pricing:Efficiency, Equity and the Future of E-commerce', VIRGINIA JOURNAL of LAW and TECHNOLOGY, vol. 6, no. 11.

--> ps this entry is the 5th in my series of MBA written assignments. The previous one is titled What Makes Someone A Better Business Leader which you can read by clicking here.

WHAT MAKES SOMEONE A BETTER BUSINESS LEADER

The paper is from the subject Leadership and Management (L&M). I found the topic rather interesting, with the local lecturer beingvery informed and having a vast array of experience. And as usual, once my results are out, I publish my report at my blog. Hopefully readers find it an insightful reading material, and can serve as an example of a write up. Remember no plagiarism, (this content is easily google'able).

So here's my forth post, after the third post some time back titled PROGRESSING POSITIONS TO ISSUES AND INTERESTS COMBINED WITH FRAMING TACTICS.

What Makes Someone a Better Business Leader

TABLE OF CONTENTS

Executive Summary. 4

1. Definition. 5

2. Are Good Leaders Born?. 6

2.1. Good Leaders are not one of a kind. 7

3. Leadership Practices. 8

4. Self Awareness and Conquering Adversity to Emerge Stronger 10

5. Learnings from ‘Not Good’ Business Leaders. 11

6. Summary. 14

7. Refernce. 15

Executive Summary

Many definitions exist for a leader. What is common among these many definitions is leadership should achieve an objective using certain means and approaches. Leadership is present in businesses, governments and other entities. This paper will focus on the business aspect only. A business enterprise function is to perform its economic activities effectively. Therefore a better business leader is someone who achieves an objective using certain means to bring economic benefits at a level higher and more efficient than average.

Not all business leaders are born, and definitely not all are alike. Better business leaders can be made, with a lot of hard work and time. Though there exist many definitions and characteristics about better business leaders, not all leaders are the same and cannot be ‘cookie-cut’. The one major consensus is that better leaders are self-aware. Possessing self awareness and conquering adversity to emerge stronger is a trait seen among many successful leaders. One of the most reliable indicators and predictors of true leadership is an individual’s ability to find meaning in negative events and to learn from even the most trying circumstances.

Leaders are able to lead not dictate people on a journey of learning that will reveal new insights about creating value. Kouzes & Posner (2007) define five practices to achieve this: by modeling the way, subsequently inspiring a shared vision. Then challenging the process and enabling others to act. Finally encouraging the heart by making people feel like heroes.

Based on TIME’s Top 10 Crooked CEOs among others Enron: greed and unethical is the cause. Therefore while exploring and growing ones’ capabilities, the fundamentals must remain intact: effectively communicating, taking responsibility and adhering to moral values.

It can be summarized that there is no one definition of a better business leader, but it is a title for individuals who delivery long term results, while growing oneself and team members, doing it ethically.

1. Definition

There are good leaders, average leaders, and then there are better leaders. Leaders exist in many situations, in family nucleus, in non-profit organizations, in religious sects and also in business. This paper will focus on the business aspect of a better leader. There are many definitions for leadership, with definitions varying depending on situations. For example Drucker (1955) defines leadership as the lifting of a person’s vision to a higher sight, raising performance to a higher standard, and building a person’s personality beyond its normal limitations meanwhile Chemers defines leadership as the “process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task” (cited in Riggio, Murphy & Pirozzolo 2002, p. 140). What is common among these many definitions is leadership should achieve an objective using certain means and approaches.

O'Sullivan & Sheffrin (2007) defines business as a legally recognized organization designed to provide goods and/or services to consumers (for a profit). Whereas according to Drucker (1955), a business enterprise is an organ of society which function is to perform its economic activities effectively. Blagg & Young (2001) quotes John Kotter, HBS professor that leadership in business is going through significant socioeconomic revolution, comparing it the only other two socioeconomic revolutions of this magnitude: the move from hunting and gathering to agriculture and from agriculture to industry.

With leadership and business defined, what defines a better business leader? Better is basically defined comparatively to good, being of a higher standard, or more effective than other things or people (Cambridge 2008). George et al.(2007) comment that achieving superior results over a sustained period of time is the ultimate mark of a true leader.

Therefore a better business leader is an individual that can successfully achieve objectives through people and avenues, enabling an entity to perform economic activities more effectively and sustained over a period of time.

2. Are Good Leaders Born?

Kouzes & Posner (2007) stresses that leadership is not the private reserve of a few charismatic people, it is a process ordinary people use when they are bringing forth the best from themselves and others. Goleman (2004) argues that a strong leader will not be complete without emotional intelligence. He adds that fortunately, emotional intelligence can be learned, though not easy, it takes time and most of all, commitment (Goleman 2004). Blagg & Young (2001) quote HBS professor David Thomas that leaders are 90 per cent made, mostly from abilities which are brought to the fore by their experience in life.

Goleman & Boyatzis (2008) comment that having a talent of good instincts is widely recognized as an advantage for a leader in any context, whether in reading the mood of one’s organization, or in conducting a delicate negotiation with the competition. Goleman & Boyatzis (2008) deduce that it is not easy to increase one’s social intelligence, and the only way to develop social circuitry effectively is to undertake hard work.

Therefore it can be concluded that though there are individuals who would be more apt and boast strong emotional intelligence and leadership traits, scholars mostly concur that by being self-aware on ones experience and working hard, one can achieve the road towards becoming a better business leader.

2.1. Good Leaders are not one of a kind

So if good leaders can made and groomed, would they all be one of a kind, i.e. possess a cookie-cutter leadership style?

Both ex-CEO of Lloyds Bank (Pitman 2003) and George et al. (2007) agree that there is no definitive style, or traits of great leaders and their secrets to their success. George et al. (2007) insist that if there existed a cookie-cutter leadership style, individuals would be forever trying to imitate it, making themselves into personae (a façade), not people, and others would see through them immediately.

HBS professor Joe Badaracco questions that if a person acts more like a manager yet makes an organization significantly does better without all the noise, are they mere managers (Blagg & Young 2001)? Clearly there are leaders who are extrovert like Richard Branson, but there are many successful introvert leaders as well, like Bill Gates (Kahnweiler 2009).

The following will present and discuss certain practices, traits and skills for being a better business leader, while maintaining that better business leaders are able to build on themselves, through feedback and self-reflection, successfully adjusting to the environment and required styles.

3. Leadership Practices

Kouzes & Posner (2007) define five practices of exemplary leadership. Firstly is to model the way, leaders create standards of excellence and then set an example for others to follow. One way of looking at modeling the way is to apply the research interviews by Bennis & Thomas (2002) that great leaders possess four essential skills, namely the ability to engage others in shared meaning, a distinctive and compelling voice, a sense of integrity and finally the most critical of the four, ‘adaptive capacity’- the ability to transcend stresses, and to emerge stronger than before. Practicing this four essential skills will enable a leader to clearly model the way for employees of an organization.

Secondly inspire a shared vision: envisioning exciting and ennobling possibilities, subsequently enlisting others in this common vision. HBS professor Nitin Nohria agrees, stating that effective leaders are masters of the classical elements of rhetoric, being able to distill their message however complex it may be to something that is accessible to those who many not share their knowledge or background, an example of this being GE’s Jack Welch, who is astonishingly articulate and able to convey complicated concepts in just a few phrases (Blagg & Young 2001).

Thirdly is to challenge the process, leading to a change in the status quo, challenges ranging from new products, process flows, and trying out something knew with the informed risks of failure., Forth is enable others to act, grand visions do not become realities through the actions of a single person, but requires a team effort with solid trust and strong relationships embedded.

The last step, is encouraging the heart: leaders recognize and reward accomplishment of individuals, keeping hope and determination alive consequently making people feel like heroes (Kouzes & Posner 2007). This is in agreement with Pitman (2003) who emphasizes that leaders are able to lead not dictate people on a journey of learning that will reveal new insights about creating value.

Two of the practices defined by Kouzes & Posner, namely enable others to act and encourage the heart, is resonated by Buckingham (2005) who stresses that a great leader ‘releases’ instead of transforms, constantly tweaks the environment so that the unique contribution, the unique needs, and the unique style of each employee can be given free rein. He further stresses that the success of a manager will depend almost entirely on his or hers ability to do this (Buckingham 2005). In the practical perspective many real business leaders do agree to a certain extent about the importance of developing people and that different people have different capabilities. For example Jack Welch known as a tough leader believes that there some who fit and excel in their jobs and then there are some that don’t fit and have moved on to be successful, finding their niche (Welch & Welch 2005).

Buckingham’s (2005) concept can be related to a combination of Goleman’s (2000) coaching and affiliative leadership styles, which Goleman states is focused more towards personal development than on immediate work-related tasks. He explains that the affiliative style focuses on praises and positive aspects only, while the coaching style focuses more on personal development which is time consuming rather than on immediate work related tasks (Goleman 2000). For these reasons, these styles are used least often as many leaders don’t have time in the high pressure economy for the slow and tedious work of coaching and affiliating, but instead need immediate results (Goleman 2000). Contrast in thoughts can be observed where Jack Welch the fast result oriented high achiever believes in letting go people who do not perform in an environment so that they can grow in other suitable environment (Welch & Welch 2005), while Buckingham stresses that great managers don’t try to change a person but make best of their talents (Buckingham 2005).

4. Self Awareness and Conquering Adversity to Emerge Stronger

Bennis & Thomas (2002) conclude in their research that one of the most reliable indicators and predictors of true leadership is an individual’s ability to find meaning in negative events and to learn from even the most trying circumstances. Put another way, the skills required to conquer adversity and emerge stronger and more committed than ever are the same ones that make for extraordinary leaders (Bennis & Thomas 2002).

Steve Jobs who was recently recognized as the fourth most influential managing Gurus (Kneale 2009) exemplifies this through his life story. In his Commencement Address to Stanford he shared that he had faced many challenges in life: having being adopted, being poor, dropping out of college and finally at age 30 he was fired by his own company Apple (Jobs 2005). However years later he has come back, bringing greater success to companies under him namely Apple and Pixar (Jobs 2005). He reflects that it turned out getting fired from Apple was the best thing that could have ever happened to him (Jobs 2005). It is this characteristics of emerging successfully through challenges that Bennis & Thomas (2002) stress are the crucibles or mold that makes one an extraordinary leader.

George et al (2007) findings that when 75 members of Stanford Graduate School of Business Advisory Council were asked to recommend the most important capability for leaders to develop, they answered nearly unanimously: self awareness. George et al (2007) therefore recommend that leaders should learn from their own life story, know oneself authentically, practice their values and principles, balancing extrinsic and intrinsic motivations, and finally build a support team and stay grounded. This is further supported by Blagg & Young (2001) quoting a Harvard Business School (HBS) professor Nitin Nohria, “Every one of us has experiences, but we aren’t all open to learning from those experiences in the same way”, stressing that one characteristic most leaders have in common is the capacity to learn and change throughout their lives.

5. Learnings from ‘Not Good’ Business Leaders

Most discussions about a better business leader take examples of successful and highly regarded leaders. It is also informative to analyze on the other side of the horizon: business leaders who have failed. Having an understanding of this perspective will provide a ‘to-avoid’ guideline besides the generally discussed ‘to-do’ guideline towards achieving greatness in leadership. Undoubtedly many leaders have succeeded, many have failed as well.

There are average leaders, then there are better leaders, and finally there are ‘crooked’ leaders. Leaders like Madoff and CEOs of Enron, had been regarded as good leaders for years, so what led to these leaders now being branded among the Top 10 Crooked CEOs (TIME 2009)? TIME (2009) claims that the reason for this is greed and being unethical.

Lewis (1985) identifies two points that are of importance to the theoretical foundations of ethical decisions: (1) one’s business ethics cannot be separated from his or her personal ethics and (2) business will never be any more ethical than the people who are in business. Meanwhile Allio (2007) explains that causes of this current ethical epidemic include the leaders’ personality disorders, akrasia (weakness of will), flawed values, and avoidance of reality.

Seeger & Ulmer (2003) elaborate that the demise of Enron is grounded on the failure of principle: a communication based responsibility of leaders, namely: (a) communicating appropriate values to create a moral climate, (b) maintaining adequate communication to be informed of organizational operations and (c) maintaining openness to signs of problems. Cohan (2002) concurs that the Enron scandal highlights ‘a recurring communication dysfunction within the organizational structure of the corporation itself’.

Allio (2007) summarizes that the emergence of bad leadership can be averted if leaders pay attention to the welfare of stakeholders, listen to alternative points of view, rely on their team for support, foster a culture of integrity and cultivate personal awareness. This is in fact among the recommendations made by George et al (2007) that leaders should practice their values and build a support team to stay grounded.

Seeger & Ulmer (2003) note that the examination of Enron re-affirms the role for leadership and suggests that leaders are obligated both to model and to communicate appropriate ethics and standards in congruence with their behavior. They further add that leaders are responsible about the operations of their organizations even in an era of decentralization and self–managing teams, keeping themselves informed and engaged in organizational operations. And finally, leaders have to be open to bad news, dissent, warnings and problem signs (Seeger & Ulmer 2003).

Seeger & Ulmer (2003) point out, that responsibility, perhaps because it is so fundamental to organization relationships and processes, is often overlooked, with the focus more on strategies and processes. Therefore the glamorous keywords: traits, practices and emotional intelligence skills are undoubtedly important to become a better business leader, but the basic fundamentals of ethics, communication and responsibility must not be overlooked. Indeed, Hamm (2006) believes that the real job of leaders is to inspire the organization to take responsibility for creating a better future, where the most critical tool for making this happen is effectively communicating.

Enron practiced a punitive ‘rank and yank’ appraisal system, where low rated employees tended to leave, and middle rated employees faced strong possibility of being ‘yanked’ within the next year, creating a cut-throat culture leading to deception and fraud practices to show profits (Tourish & Vatcha 2005). Drucker (1994) points out that what is required of good leaders is not just genius-ness or cleverness, but hard work and conscientious. They do not dismiss failure as a result of incompetence, but treat it as a symptom of “systems failure, and do not take credit for unexpected success but treat it as a challenge to their assumptions (Drucker, PF 1994). By dismissing failure as incompetence, Enron had created an environment leading to corrupt accounting practices and exaggerated results, which was bound to fail eventually.

6. Summary

I tend to agree with George et al. (2007), that no one can be authentic by trying to imitate someone else. They further emphasize that you can learn from others’ experience but there is no way to be successful when you are trying to be like them. (George et al. 2007). David Thomas, HBS professor puts it simply that increasingly the people who are most effective are those who essentially are both managers and leaders (Blagg & Young 2001).

Mastrangelo, Eddy & Lorenzet (2004) conclude from an extensive literature study, leaders must be concerned with both task and people related issues at workplace, i.e. professional leadership behaviors and personal leadership behaviors. They further elaborate that professional leadership works through the personal leadership to impact willing cooperation.

While exploring and growing ones’ capabilities, the fundamentals of leadership must remain intact: effectively communicating, taking responsibility and adhering to moral values.

It can be summarized that there is no one definition of a better business leader, but it is a title for individuals who delivery long term results, growing one self and team members while doing it ethically.

7. Refernce

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