RE: Fw: Back to Serfs and Royalty?

From: Harvey Newstrom (
Date: Sun Sep 02 2001 - 10:37:49 MDT

Robert J. Bradbury wrote,
> > This is exactly what my posting said. Cost-cutting alone is not
> enough. It
> > must be followed by changes of working methodologies.
> Harvey, I think you are being a little harsh with regard to the management
> of large companies. The larger the company the more inertia you have
> and the harder it is to turn-on-a-dime.

I'm not sure why you think I am being harsh. I am not making up these
rules. I am observing how markets work. Companies that can't adapt fast
enough will fail. Laying off employees without adapting won't work. Yes it
is hard, but that is business. If a company can't make it in the free
market, they will be eliminated. That's just how it is. Why blame me for
being harsh? The market will act this way whether I point it out or not.

> Take the recent example of Lucent. Once a great high-tech-company.
> One whose managment failed to predict turns in their markets and bet
> on the wrong development path. My understanding is that the
> market for their primary product, telco switch exchanges, dried
> up over a couple of years; and they bet that very-high-bandwidth
> optical equipment would be a large market when everyone went
> with intermediate-bandwith equipment.
> Net result -- no sales and a big bloated manufacturing force.
> Are you suggesting that they should have walked into their factories
> a year ago and said "Today we are going to make lightbulbs"?
> I think not.

Not lightbulbs, but they should expand into a market that wants to buy their
services. Since the market doesn't want to buy very-high-bandwidth optical
equipment, they aren't getting sales. This is cause-and-effect. This is
not harshness. (By the way, Lucent has other problems with their products
not working right and a lack of support.)

> Because of the market treatment of those misjudgments, the stock took it
> on the nose and then the engineer bleed started because their options were
> so far underwater that it made no sense to stay. The management at that
> point is looking at having to take desperate measures or lose the guts
> of the company.
> Management's solution -- lay off workers until your manufacturing
> capacity matches your sales and sell off assets until your capital
> is sufficiently great that you can weather the storm.

If they are changing their manufacturing capacity to match sales and selling
off assets, then this is what I am arguing for. If they just laid off
workers to appease stockholders, but are doing nothing to change the
direction of the failing company, then this is what I am arguing against. I
never said layoffs are bad. I said layoffs without fixing anything else is
not enough.

> The market looks for certain "signs" that management is doing something.
> You can't make clear what your long term development strategy is without
> giving the competitors an edge. It looks to me like announcing layoffs
> is one of the few "visible" tools that managers have.

This is the problem. Many managers use this as a signal that they are doing
things to fix the company. Unfortunately, many managers send only the
signal, and then fail to really do anything internally. My point is that
sending this signal without actually following up to do anything is
misleading. These kinds of managers who didn't manage should not get
raises. Only those who actually changed the company and started being
profitable again deserve raises. The layoff is a sign that a solution
should be on the way, but it is not the solution itself. Many managers and
stockholders forget this. This is why they pour money into a failing
company which has layoff after layoff until there is nobody left and they
are out of business. Then all the investors ask what happened. They
thought the layoffs were going to cut costs. They didn't really understand
the internals of the company they were investing in. They assumed that a
solution was being implemented when none really was.

> Its quite a bit different from the situation in which you are managing a
> private company or a startup where you can get all the shareholders in a
> room and explain precisely what is being done.

I agree with your assessment. However, I am uneasy when investors put money
into something without all the facts. If layoffs are a signal of management
changes, but you can't tell which companies are really making changes and
which ones are merely pretending to change with layoffs, this becomes an
unreliable signal. Managers should not just send this signal, but they
should take real action to rescue their failing companies. Layoffs alone
without change is not the answer.

Harvey Newstrom <> <>

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