What
attracts people to particular companies? Why are companies
successful over the long run? These
two questions have been on my mind lately. Over my career, I have
worked for companies with widely different business models.
One
company I worked for depended on constantly coming up with innovative
new ideas. The company’s main advantage was with the engineers
it employed. The company was absolutely atrocious at controlling
costs. New products that had little or no competition allowed the
company to make lots of money on each item sold, and they could
absorb their inability to control costs.
Another
company I worked for was really good at controlling costs. Not a lot
of big ideas were coming out of that group, but they were very good
at producing a quality product at a low price and the customers
responded by buying their product.
Of
these two companies, I really enjoyed working for the second much
more than the first. It is great working for a company where
everyone actually works. Like really works.
Having
a CFO say, “Hey I can get that done myself — don’t
worry about it” would be a miracle in most companies. But in
that company it was common. To me, it just feels better when
everyone is helping out instead of having certain people just sit
around and think of things for other people to do.
What
is the killer for these two companies?
The
death knell of the first company is that other companies become
better at innovating than they do. This is exactly what has happened
and the company no longer exists in its prior form. (Sales of this
company were in the tens of billions of dollars.) When the company
tried to compete on price they utterly failed. The fall was fast and
furious. The market really is brutal.
The
second company dies in a different way. The people that made the
company so successful were there when I got started. They understood
what it took to be successful year after year in such a competitive
environment. Then the people that built the company started to
leave.
At
first, the new people could not execute the changes they wanted to
make. The new people that were brought in would say, “That’s
not the way we did it at XXXXXX (name of failed company).”
There
were enough of the old guard left in management so the new ideas that
did nothing to increase revenue and just added to the cost of the
business were rejected. But eventually enough of the builders were
gone and the new blood started forcing out more of the old guard till
there was nothing left to protect the business from these “brilliant”
people that came from other failed companies to run a successful one.
This
type of company dies a slow painful death.
The
company makes lots of money so adding a person here or there really
does not make a difference, does it? Adding a whole new level of
vice presidents is really needed and what is the harm? We make so
much money, right?
The
new buzzword in business is “innovation,” and so we need
to be just like Google and have an innovation center, right (even
though our customer will never pay for the cost of an innovative
product)? And so it goes on and on.
Every
year there is something new to spend money on that neither increases
revenue nor saves money. The company painfully, slowly, loses its
competitive advantage on cost and never seems to be able to get it
back. By the time management tries to revert to the original core
values, there is no one left that knows how it was done. But they
really know how to have meetings with a lot of people that do
absolutely nothing to make the company successful.
To
answer my questions at the beginning of the article, the first
company attracts people that want to get paid a lot of money for
attending meetings.
The
second company attracts people that like to work.
What
makes a company successful over the long run? Really, I do not think
that any company is protected from incompetent management, so all are
vulnerable. But, somehow passing on the core values and knowledge
from one managerial generation to the next is necessary, and then
hiring competent people makes it sufficient for future continued
success.
Adam Smith is obviously not the actual name of the author of this column. The real author has
worked for two Fortune 500 companies, one privately held company, and a public accounting
firm. His undergraduate degree was in accounting, and he earned an MBA for his graduate
degree. He also has completed coursework for a PhD. in finance. He continues to be employed
by one of the Fortune 500 companies.
The author grew up in the Washington D.C. area but also lived for several years in Arizona. He
currently resides with his family on the East Coast.
The author has held various callings in The Church of Jesus Christ of Latter-day Saints.