Accounting Practices Have the Character of Natural Monopolies Which is a Potential Source of their Demise

One of the most important contemporary scholars in the strategy domain is Canadian-American Roger Martin. He has published extensively over many years and is, in my view, one of the very few, very important, writers on the process of strategy creation and execution. He, correctly in my view, presents strategy as an ongoing process of directing a business towards its the aspirational objective(s) of management. His book, co-authored by AG Lafley (ex-CEO of Procter & Gamble), Playing to Winn: How Strategy Really Works is a must read for anyone serious about building a winning business (or any other entity.)

Martin recently responded to a Twitter post in which the poster (Richard Hulse) expressed disappointment that there was not more reaction to his question on how strategy applies to natural monopolies as much as it does for “normal” businesses in competitive markets.

The question was brilliantly answered by Roger is a very important one IMHO. His response gave me pause to realize that many businesses that have a loyal customer base due, in the main, to convenience and/or high switching costs enjoy a kind of natural monopoly.

As a consultant working in the public accounting domain, and I see many firms seeking to grow by acquisition and marketing rather than by innovating in ways to improve the value they deliver to their clients. They get away with this because their clients have high perceived switching costs not because they are delighted with the value received from the relationship.

These firms intuitively, or intentionally, ignore their existing clients (as Martin says, “get horribly out of shape and bloated” while seeking to win more business through price & promise marketing (or worse, through acquisition of an equally bad firm) which inevitably attracts poor quality clients and stretches their capacity utilization beyond its effective operating limit; which incidentally, is why they are so enamored with “tools” to improve efficiency. Interestingly, the disastrous effect of the pursuit of efficiency is yet another of Martin’s brilliant insights. This in turn lowers the value they deliver to all their clients including their good ones. Ultimately they stagger in mediocrity, are acquired, or disintegrate simply because they never played to win.

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