Plans sound great, but that’s not how the economy really works.
When economists think about an economy with multiple goods and services, and a price for each, we sometimes ask, how does the real economy get to the “right” price for each good? We sometimes fall back on the idea of tatonnement, which I was taught is the French word for the sound that a blind person makes tapping with a cane. We are groping in the dark for the right solution.
Businesses grope about in many ways. Price is just one issue; corporate strategy is another. Should we have a limited number of products, or customize everything? Should we add some limited service branches, or make all products available everywhere we do business?
Too often the discussion of corporate strategy sounds like we are trying to find the one right corporate strategy for all time. In reality, we’re never really sure that we have the right strategy, the right products, and the right prices. And even if we had the right stuff last year, have external conditions changed so that we need to change our business?
The groping around that companies do can be done more efficiently or less efficiently. In this series of posts, I will highlight the importance of trial and error to the economy, and I’ll illustrate examples of good practice with trial and error. Let me know what you think of all of this.