Opening statements like this always annoy me. The article opens with this as a blatant failure of the CEO because they were not an engineer. The rest of the article is more or less fine, but it is...
Ultimately, Otellini declined. He thought the initial costs would be too high and the resulting sales too low. Since then, Apple has sold 2.3 billion iPhones.
Opening statements like this always annoy me. The article opens with this as a blatant failure of the CEO because they were not an engineer.
The rest of the article is more or less fine, but it is an absolutely absurd premise to base the rest of the article on. In 2005, Moore's law was still in full swing. Companies were throwing shit at the wall to see what stuck everywhere. Choosing not to invest in the iPhone was not some massive failure as CEO nor would investing have shown them as some kind of fortune teller.
Even more, being an engineer would not change the fact that the iPhone and Apple in general were (and are) as much a social status symbol as technically capable machines. I don't think that it would have made more sense to an engineer to invest in it than a non-engineer. Apple was, at this time, doing the "I'm a Mac / I'm a PC" ads. They were leaning hard into social status, not machine specs. That is not a way to win over engineers in my experience.
It does not seem like this article uses that idea as a basis for the rest of it. It starts with that but as reporting of popular theory of what went wrong in those situations before it rebuts the...
It does not seem like this article uses that idea as a basis for the rest of it. It starts with that but as reporting of popular theory of what went wrong in those situations before it rebuts the idea. The second part of the article immediately begins dismantling the idea.
Most of this article is about this actual thesis:
In simplified terms, we can think of companies as organized to create value and sustain themselves by capturing a portion of the created value as financial profit. When executives, board members, and major investors manage companies by and for the bottom line, they operate on a theory of the company as a vehicle solely for capturing profit.
To argue this thesis, the article refutes the idea that this happens because the CEO is an x by trade and not a y, and is pointing out that the way that the executive and managerial class in general are looking at companies are the core of the problem, and that it happens regardless of the CEO's educational background. There's even one example halfway through the article where it points out the CEO of RTX is neither an MBA type nor an engineer, but a lawyer.
As part of refuting the idea that the educational background of the CEO would have fixed matters, it specifically points out that engineers are not that different from a "finance type" when it comes to such large-scale business decisions specifically due to their educational focus later in the article:
Though MBAs, financiers, managers, or accountants are perhaps more inclined to view a company as a vehicle for capturing profits or intangibly contributing to society, there is nothing preventing trained engineers from inclining toward the same views as well. After all, engineers are formally trained in engineering, not in an alternative theory of business management.
The gist of what this article is arguing is that when these companies started, they were daring and innovating through their focus on engineering innovations. But as leadership changes hands, the focus on the companies change to maintaining the bottom line rather than surging forward the same way, causing a zombification of the company which then leads to these situations. It returns to what Intel's decision should have been later in the article but it's not framed as "What an engineering CEO would have chosen" but rather what the focus of the company should have been as an engineering company overall:
When Intel passed on the iPhone, it was forgoing an expensive and complicated project in many ways at odds with the technical attributes of Intel’s more arcane and power-hungry chips, which were more suited for desktop computers than phones. This saved Intel a lot of money in the short run. But in the long run, it amounted to giving up Intel’s leadership in a still rapidly-growing computing industry. Both value creation and profit capture would have likely been better served in the long run by taking the chance and using it as an opportunity to mobilize Intel’s engineers.
It's easy to make an argument that the engineering company should keep engineering and be entrepreneurial and swashbuckling... but there's counter examples to that as well. Kodak had the...
The gist of what this article is arguing is that when these companies started, they were daring and innovating through their focus on engineering innovations. But as leadership changes hands, the focus on the companies change to maintaining the bottom line rather than surging forward the same way, causing a zombification of the company which then leads to these situations. It returns to what Intel's decision should have been later in the article but it's not framed as "What an engineering CEO would have chosen" but rather what the focus of the company should have been as an engineering company overall:
It's easy to make an argument that the engineering company should keep engineering and be entrepreneurial and swashbuckling... but there's counter examples to that as well. Kodak had the fundamental engineering for digital photography and spent copious sums of money to grab that market. And completely failed... in retrospect, it's hard to see a strategy where they could have been successful. On the other hand, Fujifilm also was facing extinction, and used it's portfolio to focus on completely other markets and doesn't make any money on photography. The engineering swashbuckling startup answer - was wrong for Kodak, but right for Fujifilm.
I thought the thing with Kodak is that they didn't take advantage of their early work on digital photography and then got surpassed quickly when everyone else focused on it? Either way, the...
I thought the thing with Kodak is that they didn't take advantage of their early work on digital photography and then got surpassed quickly when everyone else focused on it?
Either way, the article seems to be more in favour of a company dying a death by taking risks like that rather than persisting in a zombified status of recouping profit off of old work.
Kodak started shifting their business from film to digital in the early 90s and started really heavy M&A in the late 90s. And despite that, Kodak would have earned a better return by not investing...
Kodak started shifting their business from film to digital in the early 90s and started really heavy M&A in the late 90s. And despite that, Kodak would have earned a better return by not investing at all in digital after the early 90s and hung up its gloves.
Fujifilm shows an alternative approach, but they ironically didn't go into digital photography primarily and instead focused on excellence in using its chemical portfolio to build products.
Oh god and those awful iPod ads with Bonno. I'm sure that's about 30% of my disdain for Apple right there. Yea Yea Yea Yea Yea Yea Yea Yea The ads in question. They are super annoying with the...
Oh god and those awful iPod ads with Bonno.
I'm sure that's about 30% of my disdain for Apple right there.
Yea Yea Yea Yea Yea Yea Yea Yea
The ads in question. They are super annoying with the "Your iPod is the most important part of you" vibe. But Vertigo is also an exceptionally annoying song that was at peak play time when I was at peak pre-DVR TV viewing. At least the other ads made decent backround noise when I walked away from the TV.
If you dial all the way back to "primitive capitalism" and the early theories of "why capitalism" when you considered an economic system, one of the main reasons to embrace it was to offer some...
Rather, the problem seems to stem from a particular way of thinking about what a company even is, what its goals are, and what measures are or are not appropriate to achieve those goals. In simplified terms, we can think of companies as organized to create value and sustain themselves by capturing a portion of the created value as financial profit. When executives, board members, and major investors manage companies by and for the bottom line, they operate on a theory of the company as a vehicle solely for capturing profit. When this happens, the difficult and holistic question of creating value in the first place—a question unique for every company—simply goes unaddressed. It is treated as a permanently solved, one-time problem that no longer merits attention or resources; at Boeing, for instance, senior engineers were reportedly told they were no longer needed because Boeing’s products were “mature,” as if it was impossible for further progress in airplanes to ever be made. The focus is instead on raising profit margins and share prices through cost-cutting and various other attempts to improve efficiency or appeal to investors. This school of thought appears to be the dominant one in the influential U.S. financial sector and might be termed “shareholder capitalism.”
The careful alignment of people and priorities needed to deliver efficiency, quality, and innovation can be irreparably shattered with just one chief executive who temporarily prioritizes a different goal.
If you dial all the way back to "primitive capitalism" and the early theories of "why capitalism" when you considered an economic system, one of the main reasons to embrace it was to offer some sort of organized framework for collaboration. Meaning, capitalism provided a guidebook for resources to be combined toward a single goal that would (presumably) be otherwise out of reach of a single individual.
In simpler terms, you have a need to be filled, and the filling of it is too expensive, too much, for a single entity to tackle. Thus, you combine entities (be they individuals or other businesses) and use the unified resources to reach that goal. A town might need a dam, but no one person in the town can afford to pay for it; so everyone "buys a share" and the dam can now be afforded. And the dam could be a dam, or a factory, or a fire station ... anything really. Any large project.
This was the fundamental reason for why capitalism was 'needed'. Shares. Which are really just a fancy way of saying "we'll all chip in." You don't say "give me money", you say "I'll sell you some shares." Then you take those proceeds and fund the company towards its goal. The shares make it neater, more organized; and offer a neat and organized way to divide up any subsequent gains from the company. Profits in other words.
Later, we added a theoretical layer to this. Someone envisioned a solution to an issue that didn't yet exist, but also saw a way to maybe research toward it. Investigating, studying, doing science in so many words. They'd then sell shares to fund the research, and out of that we got most of the things we now think of as key parts of the industrialized, electronic, software, high-tech world we live in today.
People wanted long distance communications, for example, and by funding research (theoretical as well as practical engineering) into the issue we went from the Pony Express (literally guys on horses that ride across a route handing over a message one to the next) to the internet of today where you can tap-tap-tap on a computer or phone and in seconds probably be talking to someone anywhere on the planet.
The problem with all of this is the financial layer. As the article's author discusses. The focus, goal, of "a corporation" shifted from solving a problem to simply making money. There's an exchange in Pretty Woman, where a corporate raider who's experiencing a foundational shift in his life outlook laments to his cutthroat lawyer "we don't make anything anymore." And the lawyer, astounded, says "we make money."
Profit is not inherently evil. But it's really close to the line when people, humans, become involved. Lots of things that are kind of basic and straightforward on their own become evil when human greed gets mixed into it.
Today's "business world" lauds profit. Things, whatever those things might be, exist only to wring out profit. Those things could be services, they could be a product, they're just a vehicle to squeeze money out of the world.
Which is not what most successful companies used to be built by. Built for. They were built to do something. A specific thing. To do something tangible and productive. They created and refined a product because that product had value. Or created and refined a service because that service had value. Intel, Apple, Microsoft, Boeing, General Electric, Ford, these were companies created to supply a product or service.
And now you have today's world, where companies are nothing more than a brand. And that brand, whatever it used to be and used to represent, is now just some kind of input variable in an MBA's profitability calculation. It's how, as the article references, you end up with Boeing deciding to end-run safety regulations and industry practices while trying to "create value" in the form of a new plane.
Not a good plane, or a safe plane, or a plane that can safely and efficiently do plane things. The 737 Max was simply a way to create value, first and foremost. Not tangible value. Financial value. Profit.
Anything in it, around it, because of it, that didn't create that financial value was useless, extraneous, and bad. Something to be excised from the process. So safety regulations that dictated how planes that didn't fly like other planes should have pilots specifically trained for that model of plane were inconvenient. Were unprofitable. So they were ignored and people died.
This is how the entire business world operates now, thanks to "advanced capitalism" focusing solely on profit.
A company exists in the world. Not some nebulous world. This world. The same world you and I live in. We, they, all of us, share this world. We all have needs, and at the end of the day, when you brush back all the bullshit, those needs are tangible.
That silly thread that's blown up on the forum right now, where everyone's outlining some "vote for me platform." Some of the suggestions were really silly. Some were super narrow and really just represented a prejudice or preference of that single poster.
My platform would be the following:
A company, a business entity, has to have a tangible, physical, product or service needed by society. If it doesn't, it cannot exist.
If the company exists only to "make money" it's not needed, and is in fact increasingly likely to be doing Evil and Harming Society. If you want to make money, you have to provide value to the rest of us who would be paying you for some reason. That would be the reason we pay you; because you're providing tangible value to us.
Any company that exists only to "make money", to "amalgamate other companies" is not a needed company. Break it up, destroy it, scatter it to the winds. Go find a useful thing to do if you want to "make money." Useful. The moment a company "grows" or "evolves" to the point where it only "makes money" and not something actually useful ... pitchforks, torches, prisons.
One of the hard realities is that leadership is difficult and it's much easier to manage something that you have a background in. I'm much better at managing technology and ERP systems than I am...
One of the hard realities is that leadership is difficult and it's much easier to manage something that you have a background in. I'm much better at managing technology and ERP systems than I am at managing manufacturing for instance. Moreover, single mission firms are much more likely to be successful than conglomerates. You can see this mostly in the fall of General Electric and their idea of success through management expertise.
I disagree with the author that Chaebol or the Japanese equivalents - Keiretsu - represents a viable path for most businesses. These structures lead to tunneling and propping up failing firms. So you end up with several strong firms propping up zombie firms. Moreover, since there is usually a bank in the middle, the bank can be then propped up which has larger ramifications for the country's economy.
Boeing ironically tried to get more focused by divesting the parts manufacturing into Spirit. I don't think that was as well thought out because Spirit was still integral to their overall supply chain with Boeing as their largest customer. So in essence, it made a multi headed hydra and they lost the single direction of one company owning soup to nuts. Spirit + Boeing is a closer to a chaebol than two single focused companies doing what they're good at.
Finally, beating up MBAs is entertaining, but most firms are led by an expert in their industry who has industry chops plus MBA plus lots of additional training. Focusing on the MBA is fun, but probably missing the major issue.
Opening statements like this always annoy me. The article opens with this as a blatant failure of the CEO because they were not an engineer.
The rest of the article is more or less fine, but it is an absolutely absurd premise to base the rest of the article on. In 2005, Moore's law was still in full swing. Companies were throwing shit at the wall to see what stuck everywhere. Choosing not to invest in the iPhone was not some massive failure as CEO nor would investing have shown them as some kind of fortune teller.
Even more, being an engineer would not change the fact that the iPhone and Apple in general were (and are) as much a social status symbol as technically capable machines. I don't think that it would have made more sense to an engineer to invest in it than a non-engineer. Apple was, at this time, doing the "I'm a Mac / I'm a PC" ads. They were leaning hard into social status, not machine specs. That is not a way to win over engineers in my experience.
It does not seem like this article uses that idea as a basis for the rest of it. It starts with that but as reporting of popular theory of what went wrong in those situations before it rebuts the idea. The second part of the article immediately begins dismantling the idea.
Most of this article is about this actual thesis:
To argue this thesis, the article refutes the idea that this happens because the CEO is an x by trade and not a y, and is pointing out that the way that the executive and managerial class in general are looking at companies are the core of the problem, and that it happens regardless of the CEO's educational background. There's even one example halfway through the article where it points out the CEO of RTX is neither an MBA type nor an engineer, but a lawyer.
As part of refuting the idea that the educational background of the CEO would have fixed matters, it specifically points out that engineers are not that different from a "finance type" when it comes to such large-scale business decisions specifically due to their educational focus later in the article:
The gist of what this article is arguing is that when these companies started, they were daring and innovating through their focus on engineering innovations. But as leadership changes hands, the focus on the companies change to maintaining the bottom line rather than surging forward the same way, causing a zombification of the company which then leads to these situations. It returns to what Intel's decision should have been later in the article but it's not framed as "What an engineering CEO would have chosen" but rather what the focus of the company should have been as an engineering company overall:
It's easy to make an argument that the engineering company should keep engineering and be entrepreneurial and swashbuckling... but there's counter examples to that as well. Kodak had the fundamental engineering for digital photography and spent copious sums of money to grab that market. And completely failed... in retrospect, it's hard to see a strategy where they could have been successful. On the other hand, Fujifilm also was facing extinction, and used it's portfolio to focus on completely other markets and doesn't make any money on photography. The engineering swashbuckling startup answer - was wrong for Kodak, but right for Fujifilm.
I thought the thing with Kodak is that they didn't take advantage of their early work on digital photography and then got surpassed quickly when everyone else focused on it?
Either way, the article seems to be more in favour of a company dying a death by taking risks like that rather than persisting in a zombified status of recouping profit off of old work.
Kodak started shifting their business from film to digital in the early 90s and started really heavy M&A in the late 90s. And despite that, Kodak would have earned a better return by not investing at all in digital after the early 90s and hung up its gloves.
Fujifilm shows an alternative approach, but they ironically didn't go into digital photography primarily and instead focused on excellence in using its chemical portfolio to build products.
Oh god and those awful iPod ads with Bonno.
I'm sure that's about 30% of my disdain for Apple right there.
Yea Yea Yea Yea Yea Yea Yea Yea
The ads in question. They are super annoying with the "Your iPod is the most important part of you" vibe. But Vertigo is also an exceptionally annoying song that was at peak play time when I was at peak pre-DVR TV viewing. At least the other ads made decent backround noise when I walked away from the TV.
I will never forgive them.
If you dial all the way back to "primitive capitalism" and the early theories of "why capitalism" when you considered an economic system, one of the main reasons to embrace it was to offer some sort of organized framework for collaboration. Meaning, capitalism provided a guidebook for resources to be combined toward a single goal that would (presumably) be otherwise out of reach of a single individual.
In simpler terms, you have a need to be filled, and the filling of it is too expensive, too much, for a single entity to tackle. Thus, you combine entities (be they individuals or other businesses) and use the unified resources to reach that goal. A town might need a dam, but no one person in the town can afford to pay for it; so everyone "buys a share" and the dam can now be afforded. And the dam could be a dam, or a factory, or a fire station ... anything really. Any large project.
This was the fundamental reason for why capitalism was 'needed'. Shares. Which are really just a fancy way of saying "we'll all chip in." You don't say "give me money", you say "I'll sell you some shares." Then you take those proceeds and fund the company towards its goal. The shares make it neater, more organized; and offer a neat and organized way to divide up any subsequent gains from the company. Profits in other words.
Later, we added a theoretical layer to this. Someone envisioned a solution to an issue that didn't yet exist, but also saw a way to maybe research toward it. Investigating, studying, doing science in so many words. They'd then sell shares to fund the research, and out of that we got most of the things we now think of as key parts of the industrialized, electronic, software, high-tech world we live in today.
People wanted long distance communications, for example, and by funding research (theoretical as well as practical engineering) into the issue we went from the Pony Express (literally guys on horses that ride across a route handing over a message one to the next) to the internet of today where you can tap-tap-tap on a computer or phone and in seconds probably be talking to someone anywhere on the planet.
The problem with all of this is the financial layer. As the article's author discusses. The focus, goal, of "a corporation" shifted from solving a problem to simply making money. There's an exchange in Pretty Woman, where a corporate raider who's experiencing a foundational shift in his life outlook laments to his cutthroat lawyer "we don't make anything anymore." And the lawyer, astounded, says "we make money."
Profit is not inherently evil. But it's really close to the line when people, humans, become involved. Lots of things that are kind of basic and straightforward on their own become evil when human greed gets mixed into it.
Today's "business world" lauds profit. Things, whatever those things might be, exist only to wring out profit. Those things could be services, they could be a product, they're just a vehicle to squeeze money out of the world.
Which is not what most successful companies used to be built by. Built for. They were built to do something. A specific thing. To do something tangible and productive. They created and refined a product because that product had value. Or created and refined a service because that service had value. Intel, Apple, Microsoft, Boeing, General Electric, Ford, these were companies created to supply a product or service.
And now you have today's world, where companies are nothing more than a brand. And that brand, whatever it used to be and used to represent, is now just some kind of input variable in an MBA's profitability calculation. It's how, as the article references, you end up with Boeing deciding to end-run safety regulations and industry practices while trying to "create value" in the form of a new plane.
Not a good plane, or a safe plane, or a plane that can safely and efficiently do plane things. The 737 Max was simply a way to create value, first and foremost. Not tangible value. Financial value. Profit.
Anything in it, around it, because of it, that didn't create that financial value was useless, extraneous, and bad. Something to be excised from the process. So safety regulations that dictated how planes that didn't fly like other planes should have pilots specifically trained for that model of plane were inconvenient. Were unprofitable. So they were ignored and people died.
This is how the entire business world operates now, thanks to "advanced capitalism" focusing solely on profit.
A company exists in the world. Not some nebulous world. This world. The same world you and I live in. We, they, all of us, share this world. We all have needs, and at the end of the day, when you brush back all the bullshit, those needs are tangible.
That silly thread that's blown up on the forum right now, where everyone's outlining some "vote for me platform." Some of the suggestions were really silly. Some were super narrow and really just represented a prejudice or preference of that single poster.
My platform would be the following:
A company, a business entity, has to have a tangible, physical, product or service needed by society. If it doesn't, it cannot exist.
If the company exists only to "make money" it's not needed, and is in fact increasingly likely to be doing Evil and Harming Society. If you want to make money, you have to provide value to the rest of us who would be paying you for some reason. That would be the reason we pay you; because you're providing tangible value to us.
Any company that exists only to "make money", to "amalgamate other companies" is not a needed company. Break it up, destroy it, scatter it to the winds. Go find a useful thing to do if you want to "make money." Useful. The moment a company "grows" or "evolves" to the point where it only "makes money" and not something actually useful ... pitchforks, torches, prisons.
One of the hard realities is that leadership is difficult and it's much easier to manage something that you have a background in. I'm much better at managing technology and ERP systems than I am at managing manufacturing for instance. Moreover, single mission firms are much more likely to be successful than conglomerates. You can see this mostly in the fall of General Electric and their idea of success through management expertise.
I disagree with the author that Chaebol or the Japanese equivalents - Keiretsu - represents a viable path for most businesses. These structures lead to tunneling and propping up failing firms. So you end up with several strong firms propping up zombie firms. Moreover, since there is usually a bank in the middle, the bank can be then propped up which has larger ramifications for the country's economy.
Boeing ironically tried to get more focused by divesting the parts manufacturing into Spirit. I don't think that was as well thought out because Spirit was still integral to their overall supply chain with Boeing as their largest customer. So in essence, it made a multi headed hydra and they lost the single direction of one company owning soup to nuts. Spirit + Boeing is a closer to a chaebol than two single focused companies doing what they're good at.
Finally, beating up MBAs is entertaining, but most firms are led by an expert in their industry who has industry chops plus MBA plus lots of additional training. Focusing on the MBA is fun, but probably missing the major issue.