Recently, PBS ran two documentaries back-to-back that stunned me with their combined clarity about the dark side of marketing, and why things come crashing down just as we're certain good times are here to stay. They should be required viewing.
Trillion Dollar Bet, a documentary about the infamous Black-Scholes formula, told the story of a risk-reduction equation created by late the Fisher Black, Myron Scholes, and Robert Merton that almost put the world economy down in 1997. The formula brought them the Nobel Prize, and enough backing to create the Long Term Capital Management (LTCM) investment house. Profits were enormous, risk was minimal, and life was good.
Others began to follow their rules, and profits began to slide. But LTCM didn't flinch, or change strategies. Soon it had $100-billion in debt covered by $3-billion in assets, and it was teetering on the brink of collapse. The Federal Reserve and its counterparts had to bail the fund out before it single-handedly brought down the world economy. Apparently, Black-Scholes couldn't model the myriad individual decisions affecting the business macrocosm, especially when competitors grabbed for their slice of the pie.
This stuck with me as I watched The Merchants of Cool, a cynical look at how large corporations promote their brands to Generation Y. The film educated me about "mooks," the crude dudes that actually think Tom Green is funny and The Man Show is high culture; and "midriffs," girls who've been programmed to believe their budding sexuality is their best asset. It showed how the marketing machine reinforces these images while it searches for new trends, repackages them in support of its message, and broadcasts that reflection to, in this case, an immature public. Eventually, this process creates a giant feedback loop where life imitates art, and it's impossible to tell which is chicken and which is egg.
And then I though about Black-Scholes. The conglomerates have yet to realize they are in a LTCM-like death spiral. Each is chasing the latest trend in order to get the greatest return on every marginal dollar. They are competing with each other, and themselves, as they slice the market into finer pieces and use the same formulas across their kingdoms. This sounds like the auto industry.
GM had its own version of the Black-Scholes formula until the lines between divisions blurred. Soon each became nothing but sales arms for common component clones in slightly different clothing. Until GM has unique definitions for each division and a culture to support them, the erosion will continue.
Then there's Ford, VW, DaimlerChrysler, and Renault. As they concentrate platforms and broaden market coverage, each begins to suffer from early forms of the same disease. Markets are being cut into finer and finer slices until they're not just competing against each other, they're competing against themselves.
Mercury's time in the sick bed has reduced its overlap with Ford, but the various members of the company's Premium Automotive Group are starting to look a bit homogenous in both scope and reach. Similarly, VW can't seem to find an unwavering dividing line between its numerous divisions. DCX is integrating Mitsubishi and Chrysler on the low end, and Chrysler and Mercedes in larger cars and Jeeps. When shareholders press for greater returns, the lines between each will become blurred. And you can expect Nissan and Renault to follow the same path, with Renault's lack of a North American presence saving it from competing with itself everywhere.
That's when I thought about a lesson I still have trouble with from time to time: You can't be everything to everyone. I only hope we'll be lucky, and the marketing mooks and midriffs will learn this before it comes crashing down on all of our heads.