Paul Wallbank – Brilliant Communications

Tag: managerialism

  • Bringing manufacturing home

    Bringing manufacturing home

    In the 1980s General Electric, like most US companies, sent most of its appliance manufacturing offshore.

    Now its coming home.

    The Atlantic Magazine looks at how General Electric is resuscitating manufacturing at Kentucky’s Appliance Park as management finds US workers are more skilled and productive than their equivalents in Mexico or China.

    An important part of the article is how critcal supply chains are; manufacturing hubs rely upon having a community of skilled service providers and suppliers around the factories while being close to customers improves and simplifies logistics.

    In the latter case, it now take hours or days to deliver products to customers’ stores or warehouses rather than the five weeks it takes from China.

    The cost of those goods is lower too, the Kansas made GeoSpring heater sells for $1299 while the Chinese product sells for $1599.

    What is most notable though is how designers and managers now have a better understanding of the manufacturing process; where under the oustourced model the difficulties in assembly were none of their business, now they are far more deeper and directly involved.

    This really goes to the core of what an organisation does – in the 1980s it was fashionable to talk of the “virtual corportation” where everything the business did was outsourced except for the managers who were employed solely to pocket their bonuses.

    In the 1990s and early 2000s that “virtual corporation” became a reality as manufacturing and customer support were offshored and logistics was outsourced.

    One of the best examples was customer support where looking after the needs of those who buy the company’s products were secondary to the need to cut costs.

    This focus on cost cutting over customer service hurt Dell badly in the 2000s and it continues to hurt many organisations – particularly telcos and banks – today.

    The weakness in the “virtual corporation” model was the company ended up adding little more value than the brand name and eventually those offshored manufacturers and call centres took control of the business’ goodwill and intellectual property.

    Eventually the hidden costs of offshoring became too obvious for even the most craven, KPI driven manager to ignore and suddenly manufacturing in the Western world became competitive again.

    Sadly, the fixation on dirt cheap labour has damaged many industries beyond the point where they can be salvaged with too many skilled workers lost and the ecosystem of capable suppliers destroyed. These are costs where tomorrow’s managers will rue the short sighted actions of yesterday’s corporate leaders.

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  • Comparing Management costs

    Comparing Management costs

    Telecoms analyst site Asymco has a look at how much Samsung spends on marketing compared to other tech companies, particularly Apple, with Coca-Cola added as a sanity check from outside the bubble.

    While the results are stunning with Samsung dwarfing the others, the Asymco story also touches on the total cost of sales and general administration expenses with the observation that, as a proportion of revenue, Sumsung’s are soaring while Apple’s are declining.

    Teasing those figures out a bit more is interesting, when we track the sales and general administration costs of all the business we see that with the exception of Apple they’ve been remarkable flat in straight dollar terms over the last three years.

    Of course this comparison is a little unfair as this is an absolute number, not as a proportion of revenue and as Horace Dediu points out in the Asymco posts Apple’s expenses as a ratio to sales has fallen.

    For companies like HP, Dell and Microsoft where sales have been stagnant or falling it might be that the ratio is rising while spending is flat.

    We’ll tease these figures out over the next few days.

    In the meantime, the fact that Samsung is spending such an awesome amount on marketing should cause us to treat Android sales figures with caution as that spend in undoubtedly inflating their sales figures. More on that in the future as well.

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  • Whitman’s managerial mountain

    Whitman’s managerial mountain

    This week’s announcement by HP that it will take a nearly nine billion dollar write down on the $10 billion investment it made in British business intelligence software business Autonomy shows how a once proud company can be laid low by a managerial culture.

    HP’s purchase of Autonomy was a classic example of the Silicon Valley greater fool exit where the founders and investors of a business find a foolish buyer – in this case HP – to overpay for the operation.

    In HP’s case it appears they overpaid by $8.8 billion dollars, this follows a $8 billion dollar write down earlier this year on the 2008 acquisition of Electronic Data Systems.

    HP’s management are now claiming Autonomy’s managers defrauded them and the deal has been referred to the US Securities and Exchange Commission and the UK Serious Fraud Office – a point which Autonomy’s former CEO, Mike Lynch, describes as nonsense given 300 HP managers and two major accounting companies carried out due diligence on the firm.

    For HP this is another humiliation on a decade of embarrassment largely caused by poor leadership with poorly chosen CEOs including the hubristic Carly Fiorina, followed by the poster boy of entitled managerialism, Mark Hurd, who in turn was succeeded by the haplessly incompetent Leon Apotheker.

    Apotheker was the wrong person to undo the mistakes of his predecessors however at least with the Autonomy purchase he was trying to clamber onto a technology trend before it left the station, unlike both Hurd and Fiorina who had missed opportunities and entered markets way too late. Although like Apotheker, they overpaid for acquisitions like Palm, EDS and 3Com.

    In Fiorina’s case she had missed the dot com boom and subsequent bust while trashing the company’s brand by competing with Dell in the low end, lousy margin consumer PC industry.

    Hurd’s solution was services, as shown by the $14 billion dollar acquisition of EDS. At the same time he took an axe to HPs costs and continued Fiorina’s gutting of HP’s core competences in R&D and high end industrial technology.

    Like all managerialists, Mark didn’t apply the cost cutting mantra to himself, staying at the best hotels and flying the world on corporate jets like a latter Bourbon. A list of his expenses, along with the salaries for himself and his senior executive buddies, would embarrass a third-world kleptocrat.

    When he left HP under the cloud of a sexual harrassment scandal, the board gave him a settlement of over $40 million dollars rather than the $27 million he was entitled to.

    Most infamously, in the scandal that bought him down, a company ‘hostess’ claimed he stopped by an ATM in Madrid to show her the million he kept on call in his checking account.

    It’s instructive that Roman emperors would have a slave reminding them that they were only mortal. Today’s managerial heroes have ‘hostesses’ to remind them of their entitled position of being hairy chested, virile heroes of 20th Century capitalism; even as their 1980s thinking destroyed shareholder wealth on an industrial scale.

    One could ask why a company like HP would need ‘hostesses’ – particularly at a time when cost cutting was mandating office lights were turned off at 6pm. Just the fact pretty ladies could be on the company payroll to solely to stroke the egos of senior male executives is enough in itself to illustrate the mess HP had become.

    With over $16 billion in write downs this year, sacking the eye-candy for over-privileged middle aged executives is the easier task for current HP CEO Meg Whitman. Whether she can manage to save HP from over a decade of poor management remains to be seen, but the shareholders will be hoping.

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  • Incurious George and the cult of managerialism

    Incurious George and the cult of managerialism

    “Do you not read papers?” Thundered the BBC’s John Humphrys to the corporation’s Director General during an interview over the broadcaster’s latest scandal.

    That exchange was one of the final straws for the hapless George Entwhistle’s 54 day leadership of the British Broadcasting Corporation where the Jimmy Savile scandal had seen him labelled as ‘Incurious George’ for his failure to ask basic questions of his subordinates.

    Humphry’s emphasised this when discussing the Newsnight program’s advance notice of the allegations they were going make;

    You have a staff, but you have an enormous staff of people who are reporting into you on all sorts of things – they didn’t see this tweet that was going to set the world on fire?

    A lack of staff certainly isn’t the BBC’s problem, the organisation’s chairman Chris Patten quipped after Entwhistle’s resignation that the broadcaster has more managers than the Chinese Communist Party.

    George Entwhistle’s failure to ask his legion of managers and their failure to keep the boss informed is symptomatic of modern management where layers of bureaucracy are used to diffuse responsibility.

    In every corporate scandal over the last two decades we find the people who were paid well to hold ‘responsible’ positions claimed they weren’t told about the nefarious deeds or negligence of their underlings.

    Shareholders suffer massive losses, taxpayers bail out floundering businesses and yet senior executives and board members happily waddle along blissfully content as long as the money keeps rolling in.

    If it were just private enterprise affected by this managerialism then it could be argued that the free market will fix the problem. Unfortunately the public sector is equally affected.

    Managerialism infects the public service as we see with the BBC and it’s political masters  and the results are hospital patients die, wards of the state abused, known swindlers rob old ladies and agencies continually fail to deliver the services they are charged to deliver.

    Again the layers of management diffuse responsibility; the Minister, the Director-General and the ranks of Directors with claims to the executive toilet suite’s keys are insulated from the inconvenience of actually being responsible for doing the job they are paid to do.

    Managerialism and incuriousity are fine bedfellows, in many ways Incurious George Entwhistle is the management icon of our times.

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  • Here’s where the fees go

    Here’s where the fees go

    Becoming a partner of Goldman Sachs is a path to riches and is admission into the highest elites of the Western World’s corporatist society.

    The Guardian looks at the process of becoming a Goldman Sachs partner from joining the company as an ‘analyst’ or ‘associate’ through to achieving the highest partner level.

    What’s notable about the story are the layers of management and their grandiose titles; the position of “vice-president” being a case in point where it is the next step up for associates and analysts rather than the seat of power such a title suggests.

    The sheer number of these vice-presidents and Managing Directors, estimated in the hundreds by the Guardian, is another notable point. The fact there are nearly 500 partner positions in the firm indicates just how fat the fees must be to pay these people.

    If Goldman Sachs and their clients were private companies their fees and remuneration would be their own business. Since the Global Financial Crisis, Goldman Sachs and its too-big-to-fail competitors now are explicitly underwritten by the world’s taxpayers.

    That should make us all concerned at just how much our grandchildren are going to have to pay for the generous lifestyles of today’s banking elites.

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