Posted on 08/24/2011 10:45:19 AM PDT by Dick Holmes
How whole industries disappear
Take the story of Dell Computer [DELL] and its Taiwanese electronics manufacturer. The story is told in the brilliant book by Clayton Christensen, Jerome Grossman and Jason Hwang, The Innovator’s Prescription :
ASUSTeK started out making the simple circuit boards within a Dell computer. Then ASUSTeK came to Dell with an interesting value proposition: “We’ve been doing a good job making these little boards. Why don’t you let us make the motherboard for you? Circuit manufacturing isn’t your core competence anyway and we could do it for 20% less.”
Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. On successive occasions, ASUSTeK came back and took over the motherboard, the assembly of the computer, the management of the supply chain and the design of the computer. In each case Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. However, the next time ASUSTeK came back, it wasn’t to talk to Dell. It was to talk to Best Buy and other retailers to tell them that they could offer them their own brand or any brand PC for 20% lower cost. As The Innovator’s Prescription concludes:
Bingo. One company gone, another has taken its place. There’s no stupidity in the story. The managers in both companies did exactly what business school professors and the best management consultants would tell them to do—improve profitability by focus on on those activities that are profitable and by getting out of activities that are less profitable.
(Excerpt) Read more at forbes.com ...
I came across this series of articles reading up on HP's decision to get out of the laptop business. In that case, they calculate that home computers, though a third of their business, are not as profitable as other segments, so they should cut them loose. HP is being stupid, IMO. Besides the free advertising they get from having HP consumer products at home and in the office in constant use, they are going to lose their buying power for components they will need for specialty products they think they would make higher margins on.
this is absolutely classical Business School Thinking (the stuff they teach you when you take an MBA). It is all based on the short-term, quick hit, maximize our near-term value.
Companies were not run like this for the first 200 yrs of our Republic until MBA programs started popping up like mushrooms.
...toadstools.
Focusing on the short term is one of the best ways to ensure you won’t have to deal with the long term.
On the other paw, I work for (and I suspect millions of other Americans work for) companies without which manufacturing ties in asia would mean we’d simply be out of business also. So I guess you’re damned if you do and damned if you don’t.
Does ANYONE in FR Land know of ANY example of ANY Union having a positive impact on the USA Economy in this century ?
I like that, but the way things are set up, the stockholders might punish you for NOT thinking short term. So will the voters, for pols, so they all do.
In theory American companies cannot do this without the Federal governments permission, Federal Export Laws that regulates the control of shared information from US to other countries. ASUSTeK must have got some design information from Dell given the story above.
If the US government is too stingy with permission it can backfire too as companies go bankrupt, it's a worthwhile problem to try to correct.
A union’s purpose is not to address issues with the economy, but with working conditions and such. No doubt life is better for the worker now than 100+ years ago. The problem is that they, like civil rights folks, have outlived their usefulness.
You mean in the past 10 years or so? Nope.
I don't know if that company is still manufacturing batteries in the US. I rather doubt it.
HP is not being stupid at all. Laptops and desktop computers will go the way of the VHS tape.
The new tablet stuff has rendered them obsolete and as the tablets become more powerful there will be no need for personal computers as we understand them, outside of core infrastructure.
Yes, but we do have REALLY GOOD trial lawyers, Gov't regulators, and community organizers....
I’ve not used a tablet myself, but it seems more an entertainment curiosity to me. Maybe others can give some insights i don’t have.
Not sure how we got on the topic of unions. I thought the topic was about management strategies. Unions are not the force they once were, in the private sector these days.
I’ve ragged on this for 20+ years to anyone that would listen. The problem with most companies is that they let the bean counters run them, and the bean counters are present oriented.
An example: the was a local factory that, to make their profits look good at corporate, made no investments in equipment. They were a liquid chemical factory with lots of piping that was literally duct taped together. They constantly did a boom bust as they fixed their machines just enough to do a big production run and then they’d blow something and be down.
Old manager finally retires, new manager comes in. He sees how threadbare things are - and very dangerous - and commits capital to upgrading. Corporate is ticked, profits are down, they question his job, and he finally explains that ‘profits were so good because my predecessor spent no money for upkeep’. He kept his job only because they weren’t OSHA spec and a major work hazard that HAD to be fixed.
Typical American corporate thinking. We don’t understand that investment and innovation is leverage and the present value is greater than if there were none all, even if it requires an up front hit to profit.
ASUS gets my money quite frequently. They are far and away one of the best manufacturers of gaming motherboards.
I have an ASUS mobo, TPM chip (actually Infineon mfg), and 27” monitor by them, and I’ve never had a problem with the equipment or support.
This article just shows me that the Asian chip manufacturers are ahead of the curve. I am leaning heavily against profitable American manufacturing of semiconductors and chips since unions usually demand astronomically higher salaries for less work than the Chicomms can accomplish.
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