11 responses to “Weekend Journal — The MBA Playbook”

  1. Dave Vandenbout

    Given that you don’t like the playbook response of 2009, what would you have done differently as the CEO of a hypothetical electronics manufacturer at that time?

    1. Chris Gammell

      I should have been prepared for that question, eh?

      I know of a few companies that highly valued having cash in the bank, even in the best times. I agree with cash management (which I realize is a big part of the MBA playbook). However, I think the MBA playbook talks about hoarding cash even when it’s time to spend it (like in a downturn). At that point I would have started snapping up talent and working on longer term technology advancement,as opposed to evolutionary product releases. It’s the longer term planning and how the MBA playbook seems to be written for the opposite that bugs me.

  2. Dave Vandenbout

    You can do that, but it assumes your competitors are sticking with the old playbook so you can hire their good employees who jump ship. (I assume you don’t want to hire their bottom 10% employees that they are laying off.) And will you really be doing more long-term technology advancement when times are bad than you did previously when times were good? (Seems counter-intuitive: “Oh look, we have less revenue! Let’s work on some far-out concepts for 2016!”) Even with these caveats, I still like your solution better than knee-jerk layoffs and belt-tightening, although I would modify it by laying off *my* bottom 10% and hiring better employees cast-off by my competitors. And we’ve seen some companies do this by surviving off cash during a recession and emerging stronger than their down-sized competitors when the economy recovers.

    But what’s the solution for industry/economy as a whole? Your idea might work if everyone did it, but as soon as one company went back to the old playbook and slashed employees to increase profits, then everyone would have to follow or else their stock values would get crushed. It’s a version of the Prisoner’s Dilemma: “Everything will be great as long as we all trust each other to be on our best behavior, but I can’t trust you so I’m going to screw you before you screw me even though that will make everything collapse.” It’s inherently unstable given the way we currently value companies and make investment decisions.

    So I think the MBA playbook came into existence because that’s the optimal course of action for company survival given the typical management team and the current way companies are valued. Certainly there are exceptional managers out there who can go the way you suggest and be successful but, by definition, they are rare. That’s why they write books about them.

    1. Chris Gammell

      I agree and your experience in the industry is apparent in your response. Sometimes it is a matter of follow the leader, but as Silicon Farmer says in the comment above, “Not going with the playbook is the difference between a leader and a manager.”

    2. Ryan Kapsar

      It’s not a prisoner’s dilemma. Why? Because as soon as you create a network with multiple turns the results dramatically change. In fact, the external knowledge that Chris is complaining about shows that it is not a prisoners dilemma. The input of the knowledge with a choice, and then another iteration means that this is an evolutionary system. Each one of these choices feeds back information into the system which changes the results. Over enough time the methods of the winners during these times will be replicated through spin offs and bold managers that decide to take best practices from them. Chris and I both worked at a company that read Intel’s play book, invest in down turns produce more material and come out a market leader.

      The playbook is dangerous because some of the ideas in it are extremely conservative. These conservative ideas work great during times of comfort and predictably however during crises they are disastrous.

      1. Dave Vandenbout

        Even with repetitions, it’s still a prisoner’s dilemma. Each company has to repetitively decide each quarter (or monthly, weekly, daily…) between two courses of action: one which would be optimal if everyone trusted everyone else not to break the rules, and another which leads to collapse. The reason some companies can break out of the dilemma is because they don’t accept stock price as their sole performance metric. They can do this if they’re private, or if they’re a large enough public company that they aren’t worried about acquisition. And they need the cash and/or employee buy-in to survive for the interim period. If a company meets these criteria, then accelerating during a downturn can work.

  3. SiliconFarmer

    Chris,

    That’s exactly what Andy Grove did at Intel during downturns in the economy or electronics industry. When he had the cash, he invested in the long term during the downturns. Intel came out stronger each time. And we know where that led.

    “Others” have not read his book.

    Not going with the playbook is the difference between a leader and a manager.

  4. Charles J Gervasi

    My understanding of the playbook is you don’t horde cash. Rather, you invest every penny you can get into the business, with the idea that the business needs to be on track to earn more money than average otherwise investors should invest in companies in major indices like S&P500. The need for those profits makes them not horde cash. Cash in the bank would return less than an ave profit and therefore be a drain on profits. These forgone profits would be like paying insurance. A person owning a business would be willing to pay this insurance, but the MBA making the decisions only owns a tiny fraction of the business. The MBA is motivated by having his nice paycheck continue, even if it means forgoing insurance against downtimes. In the same way, the MBA may do something that is bad for the environment, even things that most shareholders don’t like. They’re not paid to do what shareholders would do. Their paid to meet financial goals. Shareholders and analysts can’t get into the deeper issues.

    I don’t blame MBAs, analysts, or shareholders. I suppose I blame the system that doesn’t provide a good feedback path to reward managers for doing things that there shareholders would approve of like keeping some cash for a rainy day or refusing to buy from suppliers that have a record of abusive child labor practices.

  5. Weekend Journal — The Other Direction of Trickle Down Techonomics | Engineer Blogs

    […] I’m not sure about the socio-political feed-ins that allowed raw research investment back then, aside from the specific example of AT&T’s glaring monopoly in the case of Bell Labs. What I do know is that research for the sake of research in a for-profit company seems to makes people (managers) more squeamish these days. Perhaps it was the cold war that drove this thinking and investment? Or other wars? Or maybe it was the populace being more enamored with technology and science because it wasn’t quite as prevalent in their lives? Perhaps if today we did not have the ability to communicate half way across the world using a device in our pocket, maybe we would all dream of one day being able to do so? Why this doesn’t extend these days into the next steps, I don’t know. But what I can see is that we don’t fund large labs these days, often due to concerns about Return on Investment (ROI) and other stalwart units of measure from the MBA Playbook. […]

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    […] much as the thinking behind the policy. In fact, I’m pretty sure the policy originated from the MBA playbook. “Hire the best people, as fast as possible, with as little effort as possible”. […]

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