Podcast Summary

Podcast: New Books Network
Host: Alfred Marcus
Episode: Maxim Sytch, "The Influence Economy: Decoding Supplier-Induced Demand" (Oxford UP, 2025)
Date: November 1, 2025

Overview

This episode features Alfred Marcus (Professor, Carlson School of Management, University of Minnesota) interviewing Maxim Sytch about his new book, The Influence Economy: Decoding Supplier-Induced Demand. The conversation explores how professional service providers—consultants, lawyers, bankers, and others—don't just respond to demand, but often help shape and even create it. This phenomenon, known as "supplier-induced demand" (SID), has far-reaching implications for organizations, value creation, and the broader economy. The discussion is thoughtful, analytic, and rich with both theory and field insights.

Key Discussion Points and Insights

1. Origins and Motivation for the Book

• Initial Focus: Sytch began by examining how outside lawyers propagated unnecessary IP lawsuits, which threatened collaborative business environments.
• Expansion: Realized the pattern extended well beyond litigation to a broader issue of who defines demand for professional services.
• Main Puzzle: "Experts don't just answer the question; they help write that question" (02:36).

2. Supplier-Induced Demand (SID): What It Is and Why It Matters

• Definition: SID occurs when experts actively shape or generate demand for their own services, sometimes nudging clients toward unnecessary engagements.
• Weak vs. Strong SID:
  • Weak Form: Wasted resources on unnecessary services (e.g., redundant accounting checks).
  • Strong Form: Harmful outcomes (e.g., disruptive restructurings, unwinnable lawsuits).
• Not Just an Ethics Issue: SID arises from systemic conditions—uncertainty, expertise asymmetry, weak feedback loops—rather than outright unethical behavior (04:45).
• Quote:

  "SID emerges when contemporary markets mix very specific conditions such as high uncertainty, asymmetric expertise and weak feedback loops."
  — Maxim Sytch [05:30]

3. Uncertainty and the Rise of Professional Services

• Complexity Drives SID: As organizations face increasingly complex and dynamic problems, the reliance on specialized external expertise grows.
• Social Influence: When buyers are unsure, they're more easily influenced by supplier confidence, pedigree, and presentation skills (07:00–13:00).
• AI's Role:
  • AI may help close expertise gaps for some, but pushes professional service firms toward ever more esoteric and complex domains, amplifying SID risk (12:31–13:46).

4. Social Influence vs. Expertise

• Social Influence as a Core Mechanism:

  • Professional service firms thrive not just on expertise, but on perceived excellence (elite degrees, eloquence, reputation), especially when outcomes are hard to measure.
  • Clients often rely subconsciously on these proxies (14:00–15:45).

• Accountability and Escape Hatches:

  • Hiring top-tier consultants provides executives reputational cover—even if outcomes are poor, decisions can be justified by the appearance of having engaged the "best minds" (15:48–17:00).

5. The Changing Institutional Logic of Professional Services

• From Professional to Commercial Logic:
  • Firms have shifted from identity rooted in independent advice and apprenticeship to one driven by sales, billings, growth, and external ownership.
  • Cultural norms—once anti-advertising and partner-owned—now prioritize "eating what you kill" and business development (21:12–26:06).
• Quote:

  “Doing more work became synonymous with creating more value. And that's the bridge of supply-induced demand.”
  — Maxim Sytch [25:23]

6. How SID Unfolds in Practice

• Proactive Selling:
  • Advisors routinely propose new projects and look for new business while on-site with clients.
  • Sometimes clients engage firms for "no good reasons," such as rubber-stamping pre-decided moves or distancing themselves from tough decisions (27:17–29:53).
• Competition: Many client-firm relationships are sticky, with established trust; sometimes firms respond to RFPs, other times they're simply handed business (30:16–31:21).

7. Detection, Feedback, and Organizational Blindspots

• SID is Hard to Detect:

  • Most visible in large-N studies, not in individual cases, because firm-specific projects are often unique, outcomes ambiguous, and narratives after the fact are malleable (32:08–38:09).
  • “Causal ambiguity” means organizations can't reliably learn from past failures (37:00–38:01).

• Quote:

  “You just don't know. That's the analogy I have for supply-induced demand... In any individual case, it would be very, very difficult to discern.”
  — Maxim Sytch [44:07]

8. Systemic Reforms and Practical Guardrails

• Separation of Diagnosis and Delivery:
  • Drawing analogy to medicine, recommend one firm diagnose problems, another implement solutions (45:52–48:15).
  • Richer documentation, more time to pause before action, and fewer incentives to recommend unneeded actions.
• Cultural Shifts Needed:
  • Celebrate professionals who recommend inaction or turn away business when it’s not warranted—reward relationship credibility over constant business generation [50:00–51:46].

9. Cognitive and Action Biases

• Bias Toward Action:
  • Commercial logic equates value to visible activity; professionals fear being seen as complacent if they recommend pausing or not engaging (53:51–55:30).
  • Awareness of biases can help, though the late Daniel Kahneman was skeptical of this approach’s effectiveness.

10. Industry Scope and Variation

• Where SID is Most Prevalent:

  • Law, accounting, consulting, engineering, technology, design—essentially all high-end professional services show these dynamics (56:04–56:40).
  • Estimated at ~$8 trillion sector globally.

• Healthcare as a Parallel:

  • Original SID research comes from medicine; e.g., past tonsillectomy booms.

• SID Potential Across Industries:

  • Any time buyers don’t have the expertise to even ask the right questions, they’re especially vulnerable (58:22–59:18).

11. Advice for Executives and Buyers

Top Recommendations [59:53–61:58]:

• Selectively insource complex and uncertain work. Retain internal experts to reduce dependence on outside suppliers and close expertise gaps.
• Create "SWAT teams" of trusted, independent advisors to review high-stakes projects and monitor for creeping/unnecessary work.
• Maintain strong internal consulting capacity, especially in areas like legal, tech, and M&A, to avoid being at the mercy of outside firms (62:24–62:36).
• Beware of outsourcing expertise, not just cost or operations.

12. Future Research & Closing Thoughts

• Sytch is now researching “legal and regulatory entrepreneurship”—how companies not only follow but shape the laws regulating them, sometimes through same professional intermediaries.
• Invitation to submit to a special issue of California Management Review on this topic (63:19–64:54).

Notable Quotes

• On the influence of experts:

  "In complex, high uncertainty arenas, experts don't just answer the question... they often help write that question."
  — Maxim Sytch [02:36]

• On incentives versus deeper logics:

  “It becomes strikingly obvious that none of this can be fixed with simple ethics interventions.”
  — Maxim Sytch [25:48]

• On the core challenge:

  "Combating supply-induced demand and finding the strategies to fight it... is a lot harder than identifying the problem."
  — Maxim Sytch [59:53]

Timestamps for Key Segments

• [02:22] Origins and Motivation for the Book
• [03:37] What is Supplier-Induced Demand?
• [07:09] Why Uncertainty Enables SID
• [12:07] Role of AI and Social Influence
• [21:12] Professional to Commercial Logic Shift
• [27:17] How Proactive Selling Occurs
• [32:08] Why SID is Hard for Firms to Detect
• [45:52] Reform: Split Diagnosis from Delivery
• [53:51] Bias for Action in Services
• [59:53] Sytch’s Practical Advice to Executives
• [63:19] Next Research Directions

Memorable Moment

• The $20 Auction Analogy [43:37]: Sytch explains escalation of commitment, likening the inability to recognize sunk costs to the challenge of spotting supply-induced demand:

  “In real life, you simply don’t know … you just don’t know.”

Final Takeaway

The influence economy is not about a few unethical actors—it's a systemic shift where complexity and expertise gaps allow professional advisors to shape not just solutions, but the very problems organizations believe they face. Recognizing the conditions that enable supplier-induced demand is essential for leaders who want to safeguard value, retain core expertise, and ensure organizational decisions are truly needs-driven.