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Companies tend to not think in the long term - they are encouraged by investors, lenders and the market to think in very short planning horizons. A recent expe

Companies tend to not think in the long term - they are encouraged by investors, lenders and the market to think in very short planning horizons. A recent experience when trying to get a personal mortgage as a company director underscored this: "Your profits are down! Your business must be failing!!" "No, we opted to re-invest some of the substantial amount of cash we're sitting on, and therefore took a hit to profitability this year so as to be more profitable in the future." "So your business is failing?" Consider this at a grand scale and you understand the incentives within which corporations operate. Everything is about the quarterly earnings report.

JoeAltmaier 11y ago
Worse. Its about management bonuses. "Should we compensate floor mechanics better in our factory? How would that affect my bonus this quarter? It would be smaller? Then hell no." That's all it takes to explain myopic businesses. And so much of our manufacturing sector are motivated in just this way.
- pc86 11y ago
  Self-interest is not necessarily myopia. The problem in your example is that payroll somehow affects a manager's bonus which is asinine (not saying it's not common).
  - JoeAltmaier 11y ago
    Profit includes everything, affects everything. And that's the common (universal?) stockholder-value metric.
eldavido 11y ago
This isn't as crazy as it sounds. Look at a typical main street business: retailer, car dealership, restaurant, etc. There is no "R&D". Profits scale linearly with revenue; it's not so crazy to jump from "profit is down" to "business is failing". In fact, the very definition of a "high-technology company" is one that reinvests a large amount of revenue into development. The exact threshold varies, but 20-30% and most people agree you're into "high tech" land. For comparison, consumer product goods companies like P&G spend some 10% of their revenue on marketing/advertising. http://adage.com/article/special-report-pg-at-175/procter-gamble-s-advertising-spending-1987-2012/237974/ http://adage.com/article/special-report-pg-at-175/procter-ga... The real issue is that "Business" doesn't yet understand the economics of software companies. They have no tangible assets, their cash cycles are vastly different from most other companies, and they grow in discontinuous, sharp, nonlinear ways. You'll see this bias all over the economy if you look. "Silicon Valley companies are overhyped, THEY HAVE NO PROFITS" "That company is failing, it's going under" Amazon is the grand counterexample, look at how much of a head-scratcher that company is to Wall Street to get an idea of how puzzling this is to Joe Business Guy.

JoeAltmaier 11y ago

Worse. Its about management bonuses. "Should we compensate floor mechanics better in our factory? How would that affect my bonus this quarter? It would be smaller? Then hell no." That's all it takes to explain myopic businesses. And so much of our manufacturing sector are motivated in just this way.

pc86 11y ago
Self-interest is not necessarily myopia. The problem in your example is that payroll somehow affects a manager's bonus which is asinine (not saying it's not common).
- JoeAltmaier 11y ago
  Profit includes everything, affects everything. And that's the common (universal?) stockholder-value metric.

eldavido 11y ago

This isn't as crazy as it sounds. Look at a typical main street business: retailer, car dealership, restaurant, etc. There is no "R&D". Profits scale linearly with revenue; it's not so crazy to jump from "profit is down" to "business is failing". In fact, the very definition of a "high-technology company" is one that reinvests a large amount of revenue into development. The exact threshold varies, but 20-30% and most people agree you're into "high tech" land. For comparison, consumer product goods companies like P&G spend some 10% of their revenue on marketing/advertising. http://adage.com/article/special-report-pg-at-175/procter-gamble-s-advertising-spending-1987-2012/237974/ http://adage.com/article/special-report-pg-at-175/procter-ga... The real issue is that "Business" doesn't yet understand the economics of software companies. They have no tangible assets, their cash cycles are vastly different from most other companies, and they grow in discontinuous, sharp, nonlinear ways. You'll see this bias all over the economy if you look. "Silicon Valley companies are overhyped, THEY HAVE NO PROFITS" "That company is failing, it's going under" Amazon is the grand counterexample, look at how much of a head-scratcher that company is to Wall Street to get an idea of how puzzling this is to Joe Business Guy.