Psst... Ready to join TalkBass and start posting, make new friends, sell your gear, and more?  Register your free account in 30 seconds.

things go to hell when the bean counters take over

Discussion in 'Off Topic [BG]' started by nonsqtr, Aug 7, 2004.


  1. nonsqtr

    nonsqtr The emperor has no clothes!

    Aug 29, 2003
    Burbank CA USA
    I've noticed a trend in corporate America, which is that the bean counters always tend to optimize for profit. It seems like whenever the money people get to where they actually "run" the company, things start going downhill. Sometimes it's really obvious, like they're trying to bleed every last dollar out of the enterprise, and when there ain't no more, they sell the company and disappear into the ether. Sometimes it's not so obvious, like when the product quality gradually gets worse and worse (kind of like the concept of putting a frog in water and turning the heat up "slowly"). My question is, why is there so much greed? Why can't people be satisfied with a nice juicy six percent profit? Seems to me there's something incredibly irresponsible about driving things to the brink of collapse. The financial outlook in most companies these days is on the order of two to five years, and there's hardly any incentive to look beyond that (especially since the demise of "lifetime employment"). Then you hear about these CEO types that have houses with 17 bathrooms, yet they're siphoning off pension funds to make the payments. What's up with that? What the heck are they teaching people in business school these days?
     
  2. Folmeister

    Folmeister Knowledge is Good - Emile Faber Supporting Member

    May 7, 2003
    Tomball, Texas
    Globalism happened. Sometimes we are victims of our own success. Corporate Capitalism has grown beyond the simple competition of local markets, where small forms battle for market-share through innovation and quality production. When businesses outgrow their localized environments, they lose the sense of community that allowed them to attract consumers with things like good customer service and attractive environments. Once a company is big enough, it enters a whole new realm of competition where much larger corporate Leviathon's greedily snap up smaller firms in the pursuit of continued growth. Those massive conglomerates are not picky. Diversity means greater earnings potential. Just look at GE. They do just about everything.

    Modern, global capitalism is surely a clash of titans. The playing field is vast and the stakes incredible. To win at the global level, you must do some important things:

    1. Grow
    2. Increase earnings through growth (capital expansion)

    What I see is that modern corporate executives receive massive salaries to ensure that growth. Now, you can do it several ways. One of the most popular seems to be the economizing route. You streamline all operations to reduce costs and keep prices competitive. So, you sacrifice all those things we like from local firms:

    1. Customer service
    2. Individualized attention

    What you end up with is Wal-Mart. Its a self-perpetuating money-making entity that, even as the world's largest retailer, must continue to show profitability. You cut wages, pensions, employee benefits, and keep the unions out. You sap all available resources in a community - tax breaks, entitlement programs, general aid funds - and bend them to your needs.

    So, Wal-Mart pays their employees miserable wages, who don't care about customers, customer care, or individualized service. They just empty the trucks of the mass-produced goods and get them to the floor. The perfect Taylorist system. Efficient, economical, and profitable. Wal-Mart wins the game!

    Remember, Capitalism has but one goal: make a profit. In this game, nice guys finish last!
     
  3. LiquidMidnight

    LiquidMidnight

    Dec 25, 2000
    It's rather self-defeating to have a 5 year business plan since the economy has become so dynamic. When creating a business plan, you have to allow flexability to meet the demands of the market. This includes all of the things that you can't really prepare for, both big (9/11) or small (minor stock drops).

    Capitalism is great because it allows anyone with an idea to control their destiny, but it's terrible because it allows people with large amounts of money to destroy the same people with the idea. The result is what Folmiester talked about. Smaller companies use to be able to control "niche" markets, but that's becoming a thing of the past because the large corporations are so huge, they can control the main markets and the "niche" markets.

    Sometimes, corporations are a nessecary evil because they're the only ones with the resources to provide certain products/services. It's when they start dipping into the Ma and Pa businesses, that things become a problem.

    I'm not a treehugger, but I wish businesses were more environmentally responsible. I remember I use to go by this major road construction on my way to work. I looked up and saw them burning trees that they had logged. I couldn't help think, "What a waste".
     
  4. nonsqtr

    nonsqtr The emperor has no clothes!

    Aug 29, 2003
    Burbank CA USA

    Interesting concept. That's what I was trying to get at. Doesn't a short term outlook sometimes conflict with the concept of the longer term business vitality of the organization? In other words, in today's world, a new executive can sign on with a company, make some changes, and then leave, in the same way that a politician might stay in office for a term or two. The goal seems to be to hold things together just long enough so things don't fall apart till you leave. With the short-term view, there often seems to be a lot of "thrashing" (in terms of a company's policies, and the way they do business, as well as the day to day operations), and changing a company is usually an expensive proposition. For instance, an executive in a software company might come on board and say, "okay folks, from now on we're all going to follow the XYZ lifecycle metholodogy", and then they have to buy new toolsets, train everyone to use them, etc etc. Then when the next executive takes over, it'll be method ABC instead of XYZ, and the whole thing has to happen all over again. Same concept in government, when the new electee takes over, they have to change all the signs, all the stationery, etc etc. The end result is that it costs the consumer a lot of money. Then amidst all that, there's endless pressure for profits, especially if it's a publicly held company. The inevitable result is that companies tend to move towards the "profit is everything" model, 'cause eventually they reach a point where they can't survive any other way.
     
  5. It's not really a trend, it's really an element of capitalism. Companies that do it like you describe are examples of poor management and poor leadership. They are doomed to failure. They often lack the leadership, foresight and responsibility to ensure long-term stability; they seek short-term gains. Sometimes it is out of greed, but most often it is succumbing to the immediate pressures around them - their stock prices, the board of directors demanding immediate results.

    There are often ways to cut costs and improve service. Good leaders find ways to do it that do not sacrifice the long-term strength of the company - that really make things better.

    Citing Walmart is a perfect example - but maybe not for why you'd think. For a time, they have offered a product that people wanted - providing the lowest prices for a wide range of goods in one location. But I think the tide has turned, they have become so consumed with price that quality suffers and there will be a backlash. I predict that unless they change their focus, they will be just like KMart within 10 years. Some other company or companies will come along and give the consumers what they want. Target may be the most obvious example right now - I know so many people that have stopped going to Walmart and only go to Target for their "department store needs" (sic). They pay more, but prefer the atmosphere and the quality.

    I just believe in capitalism and see it as economic evolution. Those that can provide best for the consumer will eventually win. Sometimes it can be brutal and there are a lot of misguided attempts, but in the long run, it works and the best survive.
     
  6. canopener

    canopener

    Sep 15, 2003
    Isle of Lucy
    I think there's a lot going on here that the average joe can't even begin to speculate. Global economics are complicated, and posting this question in a forum like this would probably yield a bunch of cloudy answers based on big business stereotypes.
     
  7. Folmeister

    Folmeister Knowledge is Good - Emile Faber Supporting Member

    May 7, 2003
    Tomball, Texas
    Yes, that may be. But, I have faith in the intellectual insight of my fellow TBers. Would you rather people not talk about such things? That would be worse than speculating on such issues. When we discuss things, we may face the danger of actually learning something along the way.

    I think all of us have seen the effects of diminishing markets in the face of global competition. The small businesses that can not operate in the shadow of the multi-national chains in our own communities. Probably the worst example of this type of ephemeral short-term thinking is found in the current trends in education to run schools and school districts like businesses. I have direct experience with this sort of thing, and I can find no greater example of "bean-counters" destroying once-vital communities and employee morale.
     
  8. canopener

    canopener

    Sep 15, 2003
    Isle of Lucy
    I'd be curious to hear your definition of "diminishing markets" (not that I'm disagreeing, I'm just wondering the basis of that term).

    I would hope that one would know that "bean-counting" happens at all levels of business. Ever go into your local music dealer to try out an amp that you've had your eye on, only to find they've stopped carrying that brand and switched to another? I stopped into my local tobacconist recently to pick up a tin of Mac Baren Dark Twist, only to find out that the proprietor switched to selling only bulk blend tobaccos, instead of tinned. Why? Cutting costs. It was in his best interest to make profit. My girlfriend, who worked at a locally owned jeweler did not get her yearly bonus (nor did any of their employees) because their sales goal was not met. It happens on all levels, in all forms of business. But we choose to pick on the big, in-human corporate machine because we can.

    But I suppose great criticism comes with great success...
     
  9. LiquidMidnight

    LiquidMidnight

    Dec 25, 2000
    Speaking of.....

    Yesterday I went to the county fair and ran into my old health teacher. It seems that my old high school is in a heap of financial trouble. They took out a 10 million dollar bond for renovations. The problem is, they had to pay 4 million in interest. This resulted in the school seeking out sponsors to pay the interest, and then the school had to repay it's sponsors. Now they are going crazy with cutting cost, and teachers with 30 years of tenure are getting cut back to part-time.

    What kind of idiot(s) would make that kind of goof? First off, 40% interest is freakin' insane. Second, because of management and executive screwups, it's the suborinates and ultimatley the students who have to suffer.
     
  10. LiquidMidnight

    LiquidMidnight

    Dec 25, 2000
    I don't think anyone is saying that the botton line isn't important. Unless you are a non-profit business, you are in the market to make money. It's when you start making bad decisions for short-term profits, while business suffers in the long-term, that it becomes a problem.
     
  11. Beans, beans, the musical fruit...
     
  12. bassturtle

    bassturtle

    Apr 9, 2004
    That is a terrific point. Wanna be my banker?
     
  13. bassturtle

    bassturtle

    Apr 9, 2004
    Man, this is a good post. It's amazing to me that more people don't realize that there is sooooo much more to having a 'successful' business than the bottom line. I wish more and more companies thought about stuff like that.

    Don't get me wrong, I'm a capitalist pig and love every second of it, but there's so much more to life than a dollar figure. What happened to relationships? What happened to people doing the things that they loved?

    Ah well....just waxing poetic I guess.
     
  14. Folmeister

    Folmeister Knowledge is Good - Emile Faber Supporting Member

    May 7, 2003
    Tomball, Texas
    What I am referring to is the domination of local, national, and global markets by what amount to retail monopolies. When no other business can compete with, say, Wal-Mart, where is the competition that sets wages, rents, and returns? The big Capitalist winners often destroy what defines a market-driven environment. It's the dreaded monopoly syndrome. Plus, that market is, essentially conquered and it takes further economizing to increase profits. Hence the cutting of wages to bare subsistence and the elimination of health benefits for workers that can't make contracts with any other competitor.

    No doubt about that! Sure we pick on the giants, but why not? We like the idea of community and dislike that which we can't affect with our power as consumers. We also do not like the feeling of being taken advantage of. Big corporations often sap community resources with little regard for the effect, creating as much damage as good.
     
  15. Folmeister

    Folmeister Knowledge is Good - Emile Faber Supporting Member

    May 7, 2003
    Tomball, Texas
    It is an epidemic that is killing what is left of our public educational system. Administrators often make rash choices to rationalize their positions and rarely have the real expertise to handle such tasks. The worst part is when administrators make the transition from self-centered educators to clueless, self-centered, amature business-people. Who gets hurt? Everybody else! Accountability rarely is part of those business plans.
     
  16. Folmeister

    Folmeister Knowledge is Good - Emile Faber Supporting Member

    May 7, 2003
    Tomball, Texas
    It's the difference between economics and political economy.
     
  17. nonsqtr

    nonsqtr The emperor has no clothes!

    Aug 29, 2003
    Burbank CA USA
    Doing some further investigation on this topic, I came across the following interesting argument. From the point of view of an organization being able to deliver services, there's an optimal size. The particular paper I was reading was talking about "government", but I'm sure the same thing applies to corporations. Here's the gist of the logic. Consider what happens when a city grows. At first, when you have a small town, it has difficulty delivering services, and they're very expensive. For example, let's consider the trash collectors. When a small town wants to buy a garbage truck, that may be a relatively "big" expense compared to the city budget. Also, hiring a person to drive it, costs the small town a fair amount of money. Therefore they can usually only afford to hire one person, and have one truck, which means that the service is generally slow and inefficient, and the incremental tax rate for the service may be a relatively big percentage of any given taxpayer's check.

    Then, as the city grows, they get some economies of scale. The service becomes cheaper and more effiicient, because now they can get quantity discounts by buying ten trucks at a time, and they can hire eleven drivers instead of ten, so when any one person gets sick there's someone else to cover the route. Plus, any given driver can make more pickups per day, 'cause the people tend to live close together and so the routes tend to remain compact. At this point, the percentage of any given resident's tax check that goes to garbage collection may be relatively smaller than for a small town, reflecting the economies.

    However, when the city grows very big, it has to hire more managers to manage the services, and the amount of overhead increases (people to administer the new employees, people to "plan" the complex new routes, buildings to house the vast new fleet of garbage trucks, etc etc). At some point the city starts losing some efficiency because of the size and complexity of the larger operation. People's tax bills start going up again, because they have to pay for all the overhead too, instead of just the services.

    You get the picture. Someone actually worked this out based on a survey of the cost of doing business in cities across the US, and they came up with the answer that the "optimal" size of a city is right around a hundred thousand residents. Below that, people pay a premium for "one-off" services. Above that, people pay a premium for administration and overhead.

    So, that's an interesting concept when it's applied in the corporate world. From a profit standpoint, there would seem to be an "optimal" size for (for instance) a manufacturing operation. There would seem to be little "external" benefit for growing a corporation too large. From the consumer's perspective, they're going to end up paying for administration and overhead. From the stockholder's perspective, they're going to lose profits and dividends for the same reason. The moral of the story could be, that the benefits of big corporations are largely "internal". In other words, one reaches a point where self-perpetuation becomes increasingly important. Which, I think, supports my earlier point that there's some kind of "threshold" at which a corporation can no longer survive without "optimizing for profit". As people mentioned, cutting goods and services (and the quality thereof) is usually the most expedient solution.
     
  18. LiquidMidnight

    LiquidMidnight

    Dec 25, 2000
    While I'm not sure of who all is exactly on the school board, many of the officers are simply just people from the community. (whom were probaly voted on because of politics/nepotism)

    I don't know - when it comes to huge financial decisions like the one I mentioned, maybe someone with an MBA should be making the decisions instead of a bunch of yokels from the community. But then again, someone with that kind of background may be a little too expensive for a school district to afford........BUT then again, after bungles like the one I mentioned, you can't afford to not have someone who knows what they are doing.
     
  19. LiquidMidnight

    LiquidMidnight

    Dec 25, 2000
    A good book you should check out is, Staying Street Smart, by Mark McCormack. There's a lot of great information in there that reminds people about creating lasting business strategies in this age of the fast dollar.