I had an ongoing facebook conversation with a friend over the last few days. The topic is about outsourcing in companies. He and I shared the same feeling that senior management of the American companies worry more about short term financial success and sacrifice long term interest.
Ever since dot come bubble, we have housing bubble, and then the great recession. All the problems can be traced back to the shifting investing philosophy from long term to short term. Everyone (me included during the dot com bubble) wants to make a quick buck and have unreasonable expectation of return from investments in stocks. The impact on the management is that they must do everything to meet Wall Street's expectations, no matter what. The end result is that, companies like Enron played the accounting game to keep stock price up. For other more honest CEOs, they would not try to cheat or break the law, instead they cut cost to meet the financial expectations or outsource to reduce costs. One might ask what is wrong with outsource? My answer is that, there is nothing wrong if you can provide the same level of quality product or service. More often, the quality suffered. I can still remember calling DELL and received bad service. Apparently I was not alone. A few years back, DELL bashing was so great that they had to move some part of the phone support back to the U.S. DELL's image suffered greatly and its market shares had dropped from number 1 to number 3 according to the most recent data analysis.
The great recession made the matter worse. The reduced demand from consumers added additional pressure to the companies. To many CEOs, the only way to keep their profits is to reduce cost. Not many dare to invest more to produce better products (Intel and Apple maybe the exceptions). The traditional way of thinking that company must be responsible to all the stakeholders, not just to the stockholders is no longer true. Today's stockholders are more mobile than ever before. Remembered day-traders? Technology makes online trading costs at the friction of the old broker fees. Investors can move their money to anywhere around the world in seconds so long term investment philosophy is no longer fashionable today. CEOs must realize that short term gains may hinder their companies' long term health. In another word, investors interests (short term) may not align with the long term success of the company. Decisions to reduce cost, outsource, or layoffs should not harm long term viability of the company.
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Sadly enough some CEO's nowadays are more interested about their own personal gain that they completely loose sight of whats best for the company. I do agree that even though measures like outsourcing, layoffs, salary reductions, etc might prove benefitial in the short term; in the long term, it just hurts the company. I get the "joy" of experiencing all this first hand.
ReplyDeleteI think you make an excellent point here. Long term growth is much more important than a lot of companies here seem to believe. It brought to mind this really interesting video by an ex-Bank of America employee: http://consumerist.com/2009/11/ex-bank-of-america-employee-tells-all-in-youtube-video.html
ReplyDeleteShe mentions how she was one of the best collectors in her area and actually bringing in quite a bit of money for BofA, and was in their long-term self interest to encourage... yet because of their short-term profit policies, the things she did got her fired.
At the same time, it is the short-term outlook that helps small companies get off the ground and do really innovative things, so it's important to not write off a short-term outlook entirely.