Dan Bowman sent over this ongoing series at Forbes. I’d seen the first couple of parts of it, but didn’t realize it was still ongoing. In light of new Amazon tablet rumors, it takes on new relevance.
It’s a thought-provoking look at the state of U.S. manufacturing today, and the state of management. I don’t know if the author thinks it’s too late to reverse this decline, but presumably no. Otherwise he wouldn’t be writing it, probably.
To me, the biggest problem is the focus on quarterly reports. Do what’s best for the next quarter to appease shareholders, and if it’s only a short-term gain and ultimately proves to be a long-term loss, so be it. It’s probably going to be somebody else’s problem by then anyway.
The problem with shareholders is that there are two types: investors and speculators. Investors buy things and hold them for years, hoping the value will increase. Speculators buy things and flip them for quick profits. Businesses should regard investors as friends, and just acknowledge the speculators’ existence.
The problem is, the focus on quarterly results is great for speculators, and not so great for investors, especially when the result is a long-term loss.
The example the author keeps going back to is outsourcing. On the surface, it looks good. Companies farm out less-profitable work to other companies so they can focus on the activities that bring in more profit. But, over time, the companies you outsource to grow into competitors. In one example, Dell finds itself increasingly competing with Asus, which started out as a minor supplier but grew its capabilities to the point where it can now build entire computers, and most of the components inside them.
In a better-managed example, both Seagate and Western Digital outsourced most of the components that go into their hard drives, but the reason they’re in position today to buy their competitors based in the Far East is because they didn’t outsource the most difficult part of the work. By keeping something secret, they’ve remained viable while Dell and HP settle for making desktop computers with lower and lower margins as time goes on. But that’s not an entirely fair comparison–Seagate is a private company, and as such, doesn’t have to listen to demand from speculator shareholders who care only about the short term.
Beyond all that, the outsourcing has hurt more than just the companies. With fewer manufacturing jobs, there are fewer people who can afford to buy the products we can still design.