Corporate Thinking

In my last post I promised that I would give an example of what I meant by a "Deus ex Machina" model by considering the behaviour of a large company. I work for just such a company. A large German multi-national with tens of thousands of employees. Nobody can know everything that goes on within such a company, and that includes the board of directors.

Although I am an engineer I work closely with the marketing department. The responsibility of marketing is to match the supply side (production) with the demand side (sales). As such marketing has an excellent view of how the company is operating.

The company that I work for has been struggling. It has not made a profit for ten years. In fact it has made substantial losses for much of this time. Within companies that are struggling interesting things start to happen. Ambitious people that perceive that their careers are not best served by staying with the company make their way to competitors. The people that remain are usually very focussed on retaining their jobs. In successful companies working to keep ones job is usually aligned with making sure the company is successful by complying with the directions of the board. In a struggling company this is not the case. In a struggling company the board usually wants to cut costs, and this is not likely perceived to be in the interests of the employees. As a result the employees may seek to frustrate the actions of the board.

The various component parts of the struggling company start to malfunction. Salesmen, who are usually measured by revenue targets, start to panic when confronted by a purchasing manager at a customer. Thoughts of preserving profit margin fly out the window as the salesman seeks to ensure that the business can be booked regardless of the selling price. They will co-operate with marketing and engineering while it suits them to do so, but will knife them in the back if the appear obstructive. Meanwhile marketing, normally measured in terms of profit targets, will find that the profit targets cannot easily be met and therefore they will try to excuse this by also focussing on revenue growth. Thus they will happily work with the salesmen to push the product prices to low levels, as showing management the successful winning of a new account is better than walking away empty handed.

[It should be noted that the purchasing manager at the customer smells the weakness of the salesman from a struggling supplier. He may choose to avoid a struggling supplier altogether, but if not he will certainly pressure that salesman for lowest cost. He will not be concerned that his falsehoods about the competition might be discovered - he knows the salesman from the struggling supplier is, in practice, on his side and won't challenge him.]

Having pushed prices down too low, marketing will then put pressure on production to reduce production costs. Production, which is normally measured in terms of production efficiency, knows that full efficiency can only be achieved with a factory running at capacity. Thus production will promise that the manufacturing cost can be met, to ensure that the end customer will take the product and the factory will be filled to capacity. They can afford to lie since they don't actually work for marketing. They will simply charge the cost of the product to the company and then make excuses later for not reducing manufacturing costs to a profitable level - probably knifing marketing in the back at the same time.

You can probably already see that this is a recipe for disaster. The prices of the product are too low to make a profit. But worse than this, over time the factory will become full to capacity with products which are loss making. To recover this situation the board of directors could choose to end production of these products or push up the price to end customers. Either is unlikely to be well received by the market! And cutting production of the unprofitable product is likely to leave the factory empty and thus inefficient until new products can be used to fill it again. In any case, unless the attitude of the employees is changed the same process will repeat again.

So the board of directors has a problem. They need to either increase the product profit margin or cut costs. An Anglo-Saxon company would probably adopt the latter, but this is a German company so this is not what happens. The German company takes on yet more debt to acquire smaller companies with profitable products to feed through the production, in the hope of gradually improving the profitability of the company as a whole. But there is a problem. The board of directors puts the newly acquired small company in charge of one its German middle-management teams. The middle-management team like this. They want to protect their own well-paid jobs! So they strip the newly acquired small company bare of anything of value and leave the employees of that company out in the cold. Those latest employees will be first out the door when the next round of redundancies occur of course! Meanwhile the acquisition can hardly be said to be successful. The attitude of sales and marketing is still weak, so the end customer purchasing manager finds he is able to push the prices down yet again! The board finds their plans have been frustrated!

This is what happens at my German employer. You can see that whilst the board ultimately wants the company to be successful and the employees also want to protect their jobs, the reality is that the company is propelling itself towards disaster. The company develops its own persona when taken as a whole. It is nervous, jittery, depressed and indecisive. But you can also see that the board really has a hell of a task on its hands to turn the company around. The attitudes of the employees would have to change. They would need to be made to feel safe in their jobs, and in a struggling company that is difficult.

It is my contention that government of all kinds tends to be like running a failing company. Except when fighting a major war, there is little "buy-in" from the citizens with government policy. Generally people prefer to frustrate attempts to be "governed". Perhaps that is a good thing, but wouldn't it be better if government took us in a direction we were inspired by? A direction we had faith in? In my next few blog posts I will consider the various systems of society (capitalism, communism, socialism and democracy) and why they fail to inspire the people. In the meantime I would be interested to hear from any of you of organisations that you have been a part of that seem to have developed their own kind of madness!