Few businessmen venture into post-war French philosophy, but Michel Foucault has a lot to offer. He argued that power comes from the organization of information. This is a skill that is often ignored in business, but it is very important for success in the industry. Some leading lights, like Jeff Bezos and Warren Buffett, have used this knowledge to manipulate how their companies are perceived.
The Power of Classification
According to Michel Foucault, taxonomies are extremely important in making sense of the universe. In business, where information structuring significantly affects perceptions, this concept matters a lot.
The idea that power can be exercised through classifying and arranging data is at the heart of Foucault’s notion of classification and taxonomy. By controlling the way information is structured, developers can also control what other people see as reality. Businesses employ taxonomies when organizing their information strategically. For example, firms can categorize their products, services, or finances to highlight new opportunities or present themselves more favourably.
Concealing Weaknesses with Established Taxonomies
Many industries have adopted taxonomies to cover up their flaws. For example, Wall Street firms mix speculative trading gains with steady fees, and IT outsourcing companies utilize vague terms like “solutions” to look good.
Wall Street businesses typically blend the volatility of their trading incomes with stable revenue streams. On the other hand, IT outsourcing companies sometimes name their services under broad, unambiguous terms like “solutions.”. Moreover, this ambiguous language might conceal intricacy and potential risks from customers, making them more attractive to them.
Changing Perceptions: Bezos and Amazon
Smart executives such as Jeff Bezos comprehend the relevance of reclassification.
- In 2015, Amazon changed its focus by highlighting AWS, its profitable cloud-hosting business, thus shifting investor perceptions from a low-margin retail firm into a high-growth tech company.
- Amazon’s rebranding exercise was characterized by a prominent shift from being a traditional retailer to an organization powered by technology.
This reshuffling played an integral role in changing how investors saw it, leading to a significant rise in the value of Amazon on stock exchanges.
Uber and WeWork’s Strategic Reclassification
Amazon’s approach to designing the company’s corporate image and interacting with outsiders, who are encouraged, if not manipulated, to view them through certain lenses that emphasize their profitability as well as growth prospects, is adopted by both Uber and WeWork. It would be strategically useful for Uber to break down its operations based on city and vintage, since such a move allows for showing which areas are profitable and which ones are in the process of being exploited, thus making a meaningful picture of how strong it is performing.
Google’s Alphabet Shift
The restructuring into Alphabet was intended to make clear the scale of Google’s innovation efforts taking place within Google X and other parts of Google that are developing future-oriented technologies. The structure consists of two main segments: Google, which refers to core business operations, and “other bets,” meaning experimental projects. When broken down into Alphabet, there were essentially two divisions: one covering Google itself with all its basic activities like internet search, online advertising, Android operating system development, etc., and another group as “Other Bets,” where innovative endeavours previously known as X Labs now belong among others.
For instance, Waymo and Verily (formerly known as Google Life Sciences), among others, portray this commitment towards exploring new frontiers while maintaining the profitability of their core operations.
Alphabet’s Structure
| Division | Description | Key Projects |
| Core business operations include search, advertising, YouTube, Android, and Google Cloud. | Search, YouTube, Android, Google Cloud, and Google Maps | |
| Other Bets | Experimental and newer initiatives explore future technologies and industries. | Waymo (self-driving cars), Verily (life sciences), Loon (internet balloons), Wing (drone delivery), Calico (biotech) |
Digital Transformation at DBS Bank
DBS, a leading bank in Singapore, categorized its customers as “digital” or “traditional” to highlight its digital transformation. DBS tagged its customers based on their usage of digital products. By allocating costs between digital and traditional groups, DBS could showcase the efficiency and profitability of its digital transformation, significantly impacting the bank’s perception and stock performance.
Digital vs. Traditional Customers
By categorizing customers as digital or traditional, DBS demonstrated the financial benefits of its digital initiatives. Digital customers, often more profitable and cost-efficient, highlighted the bank’s successful shift towards a digital-first strategy.
The Limits of Reclassification
While reclassification can be powerful, it is not foolproof. Companies like GE and IBM have struggled despite efforts to classify parts of their business as high-tech, showing that performance ultimately matters. GE and IBM attempted to reclassify segments of their businesses to align with high-tech trends. However, their efforts were insufficient to offset underlying performance issues, demonstrating that reclassification alone cannot mask fundamental weaknesses.
Applying Foucault’s Business Lessons
Foucault’s insights into the power of taxonomies offer valuable lessons for businesses. Understanding and manipulating classifications can change perceptions and reality, but it requires skill and a clear vision. Businesses can learn from Foucault’s philosophy by strategically reclassifying information to influence perceptions and reveal new opportunities. However, this must be balanced with genuine performance improvements to ensure long-term success.
