Wednesday, September 13, 2006

Getting the Business

Start with what is right rather than with what is acceptable. ~ Peter Drucker

During my recent discussions of the Space Frontier Foundation and commercial space flight over at Explorations, the gentlemen who disagreed with my assessment took issue with my attitude toward business. Although only one went so far as to imply that I am a socialist, both clearly felt that I was a typical commie-pinko-liberal-tree-hugging-private-enterprise-hating noodle brain.

Well, maybe not that bad, but they weren't happy with my attitude. Unfortunately, the business world keeps giving me reasons to feel that way.

Everyone is probably aware of the massive battery recall that Dell has had to make because of a small problem with Sony batteries bursting into flame. Now, Dell has gone to some lengths to make the recall process as painless as possible, which is great if you haven't had a laptop catch fire yet. It seems, though, that Dell may not have been as prompt as they might have been.

The Inquirer reports that Dell and Sony had some conversations months before the recall about potential problems with Sony's manufacturing methods for the lithium-ion batteries. Based on the meetings, Sony made changes to their manufacturing methods, but it was decided not recall any of the potentially defective batteries.

Oops.

Ironically, the article, dated August 21, mentions a possibility that Apple might be affected, but that the "official line" was that no action was required. Just a few days later, Apple issued a similar recall.

That slurping sound you hear is coming from lawyers licking their chops.

If this were an isolated incident, one would be willing to write it off. But it comes virtually on the heels of Sony's attempt to place DRM software on users' PC's without their knowledge that was effectively a rootkit that could be used by Sony or (as it turned out) any hacker to invade your PC in a variety of ways, none of which are to the users' advantage.

It also raises haunting echoes of the Ford Pinto fiasco of many years ago, where concerns were raised about potential fires from gas tanks rupturing if the car was hit from the rear. More recently, General Motors had a similar fiasco with the so-called "side-saddle"” gas tanks in some of their pickups that also burst into flame on collision. What was bad in both situations was the presence of internal documentation that showed that engineers were concerned about the dangers of the designs (evidently being a different group of engineers from the ones that did the designing). The companies decided to ignore the advice, with the result that they suffered from hideous publicity and expensive lawsuits.

And all of the above doesn't take into account purely illegal actions like the stock option tomfoolery that has Dell, McAfee, and about 100 other U.S. companies being investigated by the SEC. Then, there's the little matter of HP's hiring detectives to obtain phone records to determine which board member was leaking information to the press. That one is so egregious that the California Attorney General is investigating.

Of course, HP has come down hard on the person "responsible", board chair Patricia Dunn, by "firing" her. Actually, she is losing her high-paying chair job and being demoted to a slightly-less-high-paying director's position.

I won't even mention Enron.

How long does it take for corporations to learn? Don't they teach these people anything in MBA classes, like, say, ethics and the regulatory process?

Or has the pursuit of a quick buck taken complete charge of our business leaders to the point that having a few consumers get hurt is just part of the profit/loss equation? Is corporate ethics so completely dead that no company's leadership can be trusted?

Businesses have never been as white as the driven snow. The nature of competition is such that people who run companies are going to do whatever they can to gain an advantage. The difference is that in times past there was more emphasis on making the product right. If you could make your product better than anyone else and do it at a good price, you were going to win the fight. Of course, the idea was to wipe out all your competition so you could charge whatever you want. But monopolistic practices are another discussion.

Business planning was based on supplying some sort of value, either a real good product at a high price (like a Cadillac) or a serviceable product at a low price (like a Volkswagen). This was a long-range proposition; you had to invest money today, and possibly make less immediate profit, to score big later. The philosophy has changed since the 1960's to one of immediate gains at the expense of long-term viability. Get the stock up now; we'll worry about next year when it comes. Once the stock is up, you can then rake in the dough using those not-to-regulation stock options.

My father, who was in the restaurant business, had very strong feelings about how this came about. He blamed it on the MBAs, based in part on his own experiences. He worked for restaurant management companies, the sort that ran many restaurants, often in hotel chains. As the companies began to hire MBAs, the emphasis moved, in his mind, from the quality and variety of the menus to cost-cutting measures that would look good for a while. Trouble was, in the long run, customers would drift away because the food wasn't as good as it was or because favorite menu items had disappeared.

I don't know that it's that simple. There's no doubt that corporate leadership doesn't understand the manufacturing methods and the products as well as they once did, but it would be simplistic to blame everything on that. It would also be simplistic to think that, in the olden days, all businesses were ethical because they weren't. But, the cut-throatedness used to be between the competitors. Now it's the consumer and the ordinary shareholder who's getting it more and more often. That's a worrisome trend.

These things have happened before with the railroad trusts, stock manipulations during the late nineteenth and early twentieth centuries, the Standard Oil monopoly, and the like. Sooner or later, there is always a backlash, from consumers and stockholders. The backlash now is evident in the ever-increasing market share of Asian companies in the auto and electronics industry.

Some might take comfort in Sony's troubles, but the Koreans, Taiwanese, and other Japanese corporations are still doing fine, making better products all the time at low prices. So American corporations had better learn that doing the right thing is going to be the only way to get a grip on domestic markets again. If they don't, well, there are plenty of others willing to move in. And American investment dollars will follow them. That doesn't even count China's potential, which should scare the heebie-jeebies out of boards of directors.

Better start thinking about the long-term effects of poor products and fast-and-loose ethics, folks, because the short-term is shorter than you think.

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