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There is a sense in which the entire modern age is a fortuitous consequence of the human ability to make an ad hoc voluntary response. People did not specifically evolve to be able to drive a car or to be able to type a text message into a smartphone. However, we did evolve to be able to do whatever we were able to imagine. There once was a one-legged high school athlete who played football without an artificial leg but who nevertheless could hop so quickly and forcefully that he could catch and tackle a runner. Such a skill demonstrates the flexibility, hence the robustness, of the motor system.
In this chapter, we shall see that voluntary action involves two distinct stages: planning and performance.
• During the planning stage, involving the parietal and the premotor or supplementary motor cortex, various final postures from previous successful acts are retrieved, and one is selected and modified for the current situation.
• During the performance stage the plan is encoded for specific body parts in the motor cortex, initiated by the basal ganglia, and translated into a motor program for making the necessary muscle movements by the cerebellum. The neural system includes multiple top-down pathways that exert multiple levels of control of the action towards its target under the guidance of feedback. Furthermore, unrelated perceptual and motor activity is inhibited.
• A successful action results in the encoding of the final posture of the action. Over time, when a familiar action is repeated in a similar context, it is necessary only to retrieve and execute a posture plan for rapid, errorless performance. Skill learning is the result of the accumulation of posture plans.
• The ability to learn skills makes a wide range of actions possible. A boy does not even need two legs to be able to play football.
Consider all that is involved in the simple act of pointing at a target. In order to perform the action, the motor system must be able to encode the location of the target and the hand, initiate the movement of the hand, encode the changing location of the hand in real time, and use this information to adjust its motion to the target and initiate the movement of the fingers into a pointing posture.
People like to look for things. From Where's Waldo? to countless video games, searching for visual targets is considered by many people to be fun. Paleontologists hunt for dinosaur bones, anthropologists hunt for human bones, and archeologists hunt for the debris of ancient civilizations. Quarterbacks search for the open receiver and point guards search for the open shooter. Merchants stock miles of shelves in giant stores with confidence that customers will be able to find what they look for. People can routinely detect and respond to task relevant targets so quickly that they can drive vehicles through crowded streets safely much more quickly than any person can walk or run. The general name for this ability to control perception so that what is important is seen or heard is attention.
Attention refers to voluntary actions that are used to control perception. Seeing and hearing are the consequence of looking and listening. The control of perception involves either of two tasks. One task is to select a single target for processing, such as when you listen to a single conversation during a party. The other task is to divide attention among several targets, such as when you drive a car down a crowded street. In this chapter we will see the following.
• Selective attention involves three stages: target specification, search, and target identification. The frontal cortex, where the target is specified, selects for the target by the inhibition of all perceptual input that is not target-related.
• Because the human information-processing system can plan and perform only one ad hoc voluntary response at a time, the bottleneck imposed by serial responding limits the number of targets that can be identified and responded to. Tasks that require independent ad hoc responses to multiple targets are called divided attention tasks. Divided attention inevitably results in missed targets and lower responses. Multitasking results in poorer performance than performing the tasks separately.
• Target selection is not entirely determined by top-down control from the prefrontal cortex and parietal cortex. Emotional arousal may also play a role. Emotional arousal increases the inhibition of distracters, narrowing perceptual processing to just the emotionally significant target. In other words, one cannot ignore something sufficiently threatening.
About attention
People do not passively see and hear but actively look and listen. The same neural systems that evolved to control motor movements control perception as well.
Burger Behemoth Plc is a successful chain of fast-food restaurants, with a large network of restaurants around the country, some of which are franchised and others fully owned. Its brand has come to stand for standard, tasty, convenient, and quick meals, and it has enormous customer loyalty among families with young children below 12, and also among busy executives on the road. However, growth is slowing, and greater health awareness among consumers has led to a general disenchantment with fast food. The CEO of Burger Behemoth is contemplating some new businesses that they might enter. A candidate has emerged from internal discussion: the children's theme park business.
During the same discussion it was suggested that Mighty Monkey, Inc., an experienced player in the theme park business, might be a good partner to collaborate with. If Burger Behemoth were to decide to enter the theme park business through a collaboration with Mighty Monkey, which mode should they choose: non-equity alliance, equity alliance, or acquisition?
Inorganic growth: the costs and benefits of equity ownership in strategic partnerships
Broadly speaking, there are three modes of inorganic growth: non-equity alliances, equity alliances, and outright acquisition. Note that these forms of strategic relationship may also occur for reasons other than entering a new business – for instance, growth within a business or to help exit a business through outsourcing. However, most of what we know about choosing between these modes of growth will still apply.
It is useful to think about all strategic relationships as relationships between firms that cannot be managed by a contract alone. Non-equity alliances typically rely on contracts. However, they constitute alliances (rather than, say, simple procurement agreements) if the contract alone is insufficient, and a close working relationship is also needed between partners to adapt to changing circumstances and issues not specified in the contract.
Equity ownership can serve as an important supplement to contracts in alliances. Equity alliances involve one party taking an equity ownership stake in the other, and this could be reciprocal. When the equity stake of one party exceeds a threshold of around 25 percent in the other (this level varies across countries), then a right to veto is created. If a party's stake exceeds 50 percent in the other, then in effect it has gained control over it.
You are a Vice President of Strategic Alliances at WonderWorld, a producer of candy. You are contemplating entering into an alliance with one of two candidates. With company A, a producer of children's animation movies, the goal is to use the movie's main characters to promote the candy. With company B, a supplier of one of the main ingredients, the idea is to set up a just-in-time (JIT) supply relationship to lower inventories. Which alliance would be easier to manage?
When discussing the synergy operators in Chapter 2, we noted that these provide potential benefits from jointly operating two businesses. Yet, collaboration does not automatically arise if there are synergies. There are impediments to be overcome and these generate costs, which we refer to as governance costs. Governance costs are the frictions that prevent two businesses operating smoothly together to realize synergies. They act as “taxes” that eat into the potential benefits from synergies when they are attempted to be extracted.
Governance costs, along with synergies, constitute two of the most important concepts in corporate strategy. The reason is that together they determine governance structure – the choice about joint or separate ownership of businesses between which there are synergies. The fundamental idea linking these concepts can be stated very simply: to exploit a potential synergy, pick a governance structure that unlocks the most value net of the costs of governance. In Part II of this book (Decisions about portfolio composition: increasing the scope of the corporation, Chapters 4 through 6), we analyze in great detail how synergies and governance costs impact decisions on the ownership choices of the corporation (e.g., whether to diversify, to ally or acquire, or to grow inorganically or organically). In this chapter, we highlight the origins of governance costs.
Where do governance costs come from?
Governance costs are the costs of achieving effective collaboration, over and above the direct cost of what is being exchanged. The governance costs that arise under common ownership are referred to as the ownership costs. The governance costs that arise in interactions between independent firms are referred to as transaction costs. In both cases, governance costs arise from impediments to cooperation and coordination (which are both necessary for successful collaboration) and the measures needed to control these (see Figure 3.1).
TechnoSystems Plc is a successful software company that specializes in operating systems. It sees an opportunity to expand into a new niche software sector, productivity applications. LittleCo. is a small unlisted company that has developed award winning products in the productivity applications domain, but does not have much of a brand name or customer base yet. It has emerged as a candidate for acquisition by TechnoSystems. How would you value the firm? How would you plan the post-merger integration?
An acquisition occurs when one company buys another company, or a business of that other company. A merger occurs when a new company is formed and the acquirer and target companies are dissolved. Mergers and acquisitions (M&As) are different for tax purposes and similar for many strategic purposes. We focus on their communalities rather than differences and will mostly use the term “acquisitions” to talk about both.
There are several stages in an M&A process involving people and experts from within and outside the acquirer–target firms: target selection, valuation and negotiation, due diligence, integration, and post-deal evaluation (see Figure 11.1).
Much of the strategic thinking on when to do an M&A (as opposed to an alliance or organic growth), described in Chapters 4, 5, and 6, must be completed before beginning the first step of the M&A process, target selection. During the valuation and negotiation phase, the acquirer estimates how much the target is worth and finds a price that is acceptable to both. Due diligence refers to a period in which the acquirer, having made an offer, is granted access to private data by the target to verify its valuation. Implementation refers to the process of achieving the desired level of integration of activities across acquirer and target in order to extract synergies. Evaluation refers to a post-transaction review of what went right and wrong. This is particularly useful for serial acquirers, whose transactions tend to be similar enough to apply learning from prior transactions to future ones.
There are enormous technical complexities at each stage, and in all likelihood professional outside advisors (investment bankers, consultants, lawyers, and technical experts) will be involved. Our aim is to give the reader a map of the terrain, and a broad framework to bound and manage this complexity.
Automatic responses play only a limited role in our behavior because life is not perfectly predictable. If a lifetime of events was perfectly predictable then every animal could be born able to automatically make every response it would ever need to make, and cognition would be unnecessary. However, life is not perfectly predictable. To make it possible to respond to unpredicted challenges in the world, an elaborated nervous system evolved that made voluntary action possible. The advantage of voluntary over automatic, involuntary action is that it can be ad hoc. Faced with something unexpected, an animal can craft a response it has never made before. Social creatures face a lifetime of new social experiences that require ad hoc responses. For example, dogs that are allowed on furniture often sit where other family members sit. This is how I came to share a chair with my golden retriever. The dog would have to move whenever I wanted to sit down. Across the room was the sliding door to the backyard. The retriever learned that, to go out, he should touch the door. One day, when I was sitting in the chair, the dog touched the door. I got up and walked over to the door. Before I could open it, the dog ran back and sat in the chair!
Cognition begins with the control of voluntary action. In this chapter we will see that cognition evolved to make it possible for an animal to perform novel actions in response to novel, hence unexpected, events.
• To make voluntary action possible, at the top of the spinal cord, layer upon layer of representational, computational, and control structure was added, forming brains of increasing complexity, which provided increasingly sophisticated control of voluntary action. The great advantage of a voluntary ad hoc system of action is that it can craft new responses to novel situations, and so respond to change. The great advantage of learning is that successful new actions can be incorporated into future behaviors.
• Voluntary action is synonymous with consciousness. The control of voluntary action is synonymous with cognition.
• Social groups are so effective at dominating their environments that a member's success at raising a family depends more on his or her social standing than any other factor. […]
Before we went to Paris, I suggested to my eight-year-old son that it would be fun to walk to the top of the Eiffel Tower. At first he was dubious, but when we got there he embraced the task with great enthusiasm. Soon he was bounding up the stairs at rapid clip, and we reached the top far in advance of the rest of our party, who waited for the elevator. Very much pleased with myself, when we returned home I asked him what he enjoyed most about the trip to Paris. He answered, unhesitatingly, “The Empire State Building.”
Clearly, this was a retrieval error. It demonstrates that encoding the representation of an object or event is not sufficient to ensure an accurate memory later on. A recall task requires you to respond with information not in the question – for example, what you enjoyed best on your trip to Paris. In a recall task, the cue may be distinguished from the target response it elicits. In a question-and-answer format, the question is the cue, and the answer is the target of the recollection. In a navigation task, the goal is the cue, the location of the goal is the target, and the mental map containing the sequence of movements to the goal is the recollection.
Recall frees human thought and action from the constraints of the immediate environment. Recognition makes it possible to respond to whatever is immediately at hand (Chapter 10). However, self-cuing makes it possible to recall, hence think about, anything one has experienced.
The region now known as South Asia consists of five large nations – India, Pakistan, Bangladesh, Nepal and Sri Lanka, and several smaller nations. Most debates and controversies in the economic history of South Asia usually relate to the area and population under India, Pakistan and Bangladesh, which together formed a large part of the territory of the British Indian Empire between 1858 and 1947.
This area is geographically very diverse, containing the Himalayan mountains in the north, the huge fertile floodplains of the two great Himalayan river systems, the Indus and the Ganges, the world's largest delta, a long coastline, arid uplands, tropical dry forests and savannah and the Thar desert in the west. It is also socially very mixed, consisting of many language groups, almost all religions of the world and social practices in one region that are vastly different from those in another. Politically, too, the region was never united. The densely populated floodplains and deltas were territories where several large empires formed and disintegrated from before the Christian Era. These empires lived mainly on land taxes. The seaboard and the arid zones, on the other hand, were controlled by smaller and poorer states, usually more dependent on trade. A loose integration of these worlds was achieved during the reign of the great Mughal emperors (1526–1707), but it did not last. The empire fell apart in the early eighteenth century, giving rise to a cluster of semi-independent successor states.
With its geography and history being as varied as just described it is surprising that the economic history of South Asia should exist as a coherent discourse at all. The reason that it does has to do with the trajectory that unfolded after the fall of the Mughal Empire. Two developments imparted a certain unity in the pattern of economic change thereafter. First, the British Empire in South Asia, which rose to power between the mid-eighteenth century and the mid-nineteenth, achieved a degree of political, bureaucratic and military centralization that the region had not seen before. The process of centralization built upon a different system of taxation and, in turn, a different relationship between the state and the elites from before.
North-western Europe played a crucial role in the world economy: it was the pioneer of the ‘modern’ market economy and of ‘modern economic growth’ that resulted from it, and came to control large parts of the world. At the same time, there were quite different roads to modernity, even in this relatively small part of the world; the United Kingdom held the middle in between early developers (in the Low Countries) and latecomers (the Nordic countries and Ireland). The urban, most dynamic core of the region was in Flanders and Brabant in the late Middle Ages, then moved to Holland in the seventeenth century, and crossed the North Sea in the second half of that century, when England started its growth spurt that would result in the Industrial Revolution of the post-1750 period. After 1800 the techniques and institutions of the Industrial Revolution began to spread from the UK to Belgium at first, but within a few decades to almost all parts of north-western Europe. Gradually, the process of economic growth spread to the rest of the region; the nineteenth century saw the ‘catching up’ of the northern countries, which had not developed rapidly before 1800. In the twentieth century this process of convergence within north-western Europe continued; after 1945 the UK lost its prominent place within the world economy to become the ‘sick man’ of the region in the 1960s and 1970s, but it rebounded afterwards. The northern countries continued their spectacular advance during the twentieth century, becoming the best examples of welfare states with strong economies based on high levels of human capital formation and innovativeness.
There are many stories to tell about the economic development of this region, but we have to focus on three: (1) why this part of the world experienced rapid economic expansion between 1500 and 1850, resulting in the British Industrial Revolution; (2) how this economic core region developed after 1850, when its model – and in particular its technologies – were increasingly copied elsewhere; and (3) how the more ‘marginal’ parts of the region (Scandinavia, Ireland) caught up from about the mid-nineteenth century onwards.