Signaling

After several weeks of delays I have finally finished reading Competitive Strategy by Michael Porter. Although the book may seem relatively academic, there is still a large amount of content that is applicable to the way we observe things. Due to the thorough nature of the book I have decided to choose one topic in particular that stands out to me and address it independently.

Every moment of every day we interpret messages and signs from our surroundings. Whether it be visual or verbal, and on occasion emotional or physical we pick up these signals and react accordingly. After reading Competitive Strategy I have begun to realize that there are conscious ways that an individual person or entity can control the way they are perceived through signals. Within the book Porter interprets signals as a method for firms to inhibit preemption, prevention, action, or reaction amongst their competitors. In their simplest form, signals act as a method of communication both by inhibiting emotions through positive sentiment or inversely through fear. By paying attention to signals we can interpret the appropriate messages to gain a direct or indirect indication of intentions, motives, goals, and other consequential circumstances.

I know that management for some America’s most successful enterprises use the media as a primary mode for delivering signals to their competition. America’s best CEO’s are not only intelligent, energetic, hardworking, punctual, and outgoing but they are also masters of psychology and of controlling perceptions. I question whether this conscious effort to control the way competitors think and feel at its deepest root is a form of outright manipulation and potentially a unique character trait to define leadership prowess.

Despite an individuals signaling capability, competition in its purest form will continue to produce the brightest, best, and most capable individuals to lead American enterprise. I agree that signaling is essential for a firm to be successful. You may refer to the recent Bank of America acquisition as a perfect case for the critical nature of signaling.

Several months ago Kenneth Lewis indicated that he had no desire to make an acquisition under the current market conditions just prior to purchasing a convertible stake in Countrywide. Ironically he was able to lock down the largest mortgage originator uncontested in January with no rebuttal to date. This type of signal can not go uncontested and I would expect in the relatively short term for the well capitalized firms, most likely Wells Fargo to make an acquisition to increase deposit levels and customer base.

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