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Quick story: I was the CFO for a company that sold to a private equity group (PEG). I took over as the CEO as the founders retired, leaving me to deal with the

• peteradio 5y ago
  I worked at a place with a lean 6 sigma certified specialist who towards the end of the companies doom effectively had the lead engineer cleaning out molding machines to track down every last tiny molded part that over the course of several years of continuous running had flung outside of its target. Same guy told me if the coke machine ever stole my change that he'd help me get it back from the vendor.
  • 7thaccount 5y ago
    All the lean sigma stuff seems like another useless management fad to me that only benefits consultants. Is that what you're saying here?
    • peteradio 5y ago
      I'm only speaking towards this one particularly useless buffoon, but the fact that he was allowed to wield any sort of power over anyone says something.
    • Spooky23 5y ago
      It’s an expression of distrust. If you ever work in government, procurement people think like that because their goal is objective competitive process that that meets the minimum standard to fulfill the purpose. There’s a certain logic to it. You don’t want to see random government employees driving around in Teslas, so generally speaking they will be in nondescript 4-door sedans. Having a human say “no” makes them accountable, so a complex process will determine what kind of car you need. Taken to extreme, it becomes a problem. Procurement officers get lazy and focus on their process instead of the needs of the customer. So they treat humans like Ford Tauruses and allow vendors who understand how to game the process walk out the door with millions.
    • thereddaikon 5y ago
      Like many management system fads, it started as a useful kernel of wisdom or obvious maxim that idiots ran with and turned into a monster. In the case of six sigma, the idea is about constantly optimizing your workflows and not accepting "we've always done it this way" as an excuse. But most people lack the critical thinking skills to correctly apply wisdom when necessary and instead need a solid framework to operate within. That's how these things inevitably develop. Just like how Agile is supposed to be about getting working code over being bogged down in process but inevitably ends up with with half baked products that have massive issues. Six Sigma also gets applied to industries it has no business being in. The mentality works best when you have a fixed workflow. In manufacturing it would be if you are making a lot of one thing. You can do a lot of optimizing. But I have seen it employed in organizations where every project was vastly different. Instead of a lean approach it should have, and previously was, following a house of quality philosophy. This happened to be in an industry where cost was rarely a consideration but performance and reliability were.
      • 7thaccount 5y ago
  • doctor_eval 5y ago
    This is the kind of thinking that is wrecking a business I’ve just quit. Management consultant decides that we need more customers so instructs us to open the product up globally. We explain that this is likely to be both expensive (lots of testing needed due to the usual geographic differences), but more important, based on our collected data and the use case (geographically local content), this expensive change is statistically likely to result in only a single new customer (literally, one). But “every customer counts” so other activities which are likely to result in more customers are put on hold to capture a single customer. The problem in these cases is often that the management consultant doesn’t consider the resource limitations and opportunity costs of their decisions, particularly if they come from a much larger business. If you have only one lead engineer, then getting them to chase discarded parts (or, in my case, a single customer) makes no economic sense at all. Quite often, the problem is not a focus on measurement per se, but rather the very human problem of focusing only on those metrics that support the analyst’s intuition.
• jancsika 5y ago
  > The moral of the story is that people with analyst mindsets play an essential role in our economy, but sometimes giving those people power over large organizations can have disastrous consequences. I'm gonna cosplay an "analyst mindset": 1. Need to measure costs and benefits of slashing benefits/pay. 2. A benefit-- slashing benefits/pay allows us to hit some obvious financial goal 3. A cost-- Uh oh, I don't yet know how to reliably measure any of the costs. 4. Good analysts don't take action without measuring. 5. I'm a good analyst. Conclusion: I cannot take the action of slashing benefits/pay The only way to make it work is to add a step "3b: cherry pick metrics for the costs of slashing benefits/pay such that the phony metrics justify the decision management already wants to make of slashing benefits/pay." But now we've shifted from "analyst mentality" to "the mindset of the little Beetle-like bureaucrats described by George Orwell in 1984."
  • andrei_says_ 5y ago
    If you are a good analyst with a bonus tied to quarterly profits increase, can you be still a good analyst? Do you sacrifice your own monetary benefit to save a company? But then what about your family? I don’t think analysts are not smart enough or not caring enough. But institutionalized greed corrupts the integrity of everyone.
    • jscode 5y ago
      Incentives matter and PEGs want companies to grow significantly over the life of their investment. The biggest reward comes from the future sale after you’ve increased the enterprise value 10x. I’m sure that people have made poor decisions for short-term gains, but the real issue is giving immense power to someone who has never actually had to build teams, ship products, or go the extra mile to make customers happy. Being “smart” doesn’t mean you always make good decisions. Some of the most successful entrepreneurs I know aren’t particularly book smart. In fact, much of their success could be attributed to the fact that they just didn’t quit when any other reasonable/normal person would have thrown in the towel.
      • erosenbe0 5y ago
• mrxd 5y ago
  Just to play devil's advocate, surely their approach is more rational than that. They're probably looking at it from the perspective that the business needs to have a profit margin of X in order to justify investing in it. They probably do understand that cutting costs impacts company culture and morale. But shutting the company down probably impacts that much more.
  • jscode 5y ago
    They do understand that cutting costs will have an impact on culture and morale, they just think the marginal benefit exceeds the marginal cost. Keep in mind, PEG managers are chasing a carried interest bonus which they only achieve after covering the minimum return promised to their investors. Plus, leveraged buyouts--which PEGs frequently use--increase a company's risk of failure. Everyone's under intense pressure to perform. Massive Financial Incentives + Highly Leveraged Balance Sheet + Intense Pressure = Risky Decision Making
  • mcguire 5y ago
    "But shutting the company down probably impacts that much more." Is that the only other option?
• musicale 5y ago
  > private equity group The goal of a private equity group can sometimes be be to extract as much money from the company as possible in a given time frame, rather than to ensure the long-term success or survival of the company.
  • giva 5y ago
    And the goal of PEG's empolyees is to get bonuses by hitting the metrics set for them. Metrics are the only goal that means there. It's all about making the numbers look pretty.
• boringg 5y ago
  While your experience sounds painful it also sounds like something that would have happened in the 90s. I don't think most tier 1 organizations still think in that way.
  • bb88 5y ago
    The company exists for the stockholders, not for the employees. Stack ranking is still used widely throughout Fortune 500 companies, which is one of the most culture destroying management practices known to man.
  • apohn 5y ago
    Less than a decade ago I worked at a company that was acquired by a private equity group. What jscode said matches my experience. For a while I also tracked (on Glassdoor and some other sites) companies that were purchased by that firm, and seems like employees at different companies had the same experience. EBITA was king, nothing else matters.
• milesvp 5y ago
  I worked at a company that started to go through the "you can't improve what you don't measure" phase. In general it was good for the org I was in, but I used to have to remind management that there's a corollary to that saying, which is: you necessarily improve things you measure at the expense of the things which are difficult or impossible to measure. This seems to be a hard one for some types to truly grok. A common response is that we need to figure out how to measure it, thinking there was some single magic number that things could be distilled down to. But often even if you figured out how to measure some of them, there's always other intangibles you're not tracking. So you need to always be conscious of it.
  • dwaltrip 5y ago
    It's fascinating to me how many smart people fall into this trap. Can they quantify their love for their partner? No? Well, I guess they have to give up any efforts to improve the relationship.
    • tremon 5y ago
      "If you spend 10% less on birthday presents for your children, will that make them love you 10% less? How can you justify spending this much on presents?"
  • craigyk 5y ago
    I also like to point out in a few similar contexts: even if you could measure all the things, and you could create a perfect/optimal cost function, there would still be no guarantee that you'd be able to find the optimal global solution. So relax.
  • _blu 5y ago
    there's another issue with measuring too much: if you only derive value of that you can measure, you will constantly feel bad when doing things that have no apparent measurable value. So then you say to yourself, relaxing on the sofa has value because it makes you perform better to have breaks. But do you really believe this? And in any case, you still can't help measuring value into relaxing because you are brainwashed into thinking everything must be quantified in order to justify something. So even relaxing or playing video games must be seen in such a context in order for you not to feel bad. it's becoming rediculous.
• hn_version_0023 5y ago
  I’m not the type to pass up making a Star Wars reference, so here goes: “One would think you Jedi would understand the difference between knowledge and… heh heh… wisdom”
• apohn 5y ago
  I worked at a company that went through a private equity acquisition and I have a question you might be able to answer. If you exclude layoffs and incentivized retirement, it seemed to be that a greater percentage of individual contributors left as compared to managers. Lots of managers stuck around for 12+ months, and it seemed like the percentage of managers of managers (e.g. directors, VPs) who stuck around was even greater. Almost the entire C-suite stayed for years after the acquision. Was there any financial or other incentives given to managers to stay? As an individual contributor, the morale was just terrible. I just couldn't understand why the managers and other people in leadership positions stuck around.
  • jscode 5y ago
    > I just couldn't understand why the managers and other people in leadership positions stuck around. Money. Investors typically carve out equity to retain key personnel (i.e., management units/stock). The units are worthless unless the company appreciates in value, so management becomes laser-focused on doing whatever it takes to increase the company's valuation. Everything else becomes a secondary concern.
    • apohn 5y ago
      I had guessed something like this was going on, but reading this just really makes me wonder what's really going on in the minds of a private equity folks. The C-suite and senior leadership were the ones who drove the company to the point that they ended up in the hands of private equity, but they were incentivized to stay. I get that they exiting leadership knows the company and it's hard to find new people. But it just seems so crazy to me. We had teams that had 50%+ percent of people gone between layoffs and attrition. It was comical to see how much stuff fell between the newly formed cracks. I still can't comprehend how much they must have been incentivized to stay when the earth was crumbling around them.
  • salawat 5y ago
    As a one-foot-in manager, I tend to stick around as long as someone is still on the receiving end of one of my policies. Bad practice to not observe the unpleasant consequences with future aspirations to leadership.
• jkingsbery 5y ago
  "Frupidity" is a term I've heard used for this.
• Buttons840 5y ago
  Interesting observation. The PEG managers would probably admit that turnover had some financial cost, but I doubt they ever actually put a number on it and added it to their calculations. Am I right?
• diob 5y ago
  Your story is the story of most companies. I watched "my" company get sold to private equity, and leading up to our "soon" sale they have been slashing the one thing they can, employee benefits (it's been a quick 3 year decline). I've watched more than half our team leave, much to the chagrin of befuddled execs. "Why are they leaving?" "Well, we used to have meaningful raises, bonuses, profit sharing, etc. but you have consistently cut those things." "Yes yes, but why they are leaving?" "...."
  • EForEndeavour 5y ago
    Are you still at this company? What keeps you there?
    • salawat 5y ago
      Someone has to turn out the lights and record the fall for posterity. You've never Grim Reapered a company before?
    • diob 5y ago
      Before we were acquired I managed to get an offer from another company to leave at one point. I knew the founders well, and they knew I was critical to success, so they made me quite the offer to stay. For where I'm at, my salary is far above CoL, so I don't have an incentive to leave yet. That and I got some shares that will vest when the company sells this year. But if I hadn't gotten that bump before acquisition, I'd likely be gone. It's impossible to get a raise now. On the plus side, I now work like it's impossible to get a raise, if you catch my drift. Once it sells, I'll move on to something I love again. Planning to do consulting with some friends who started a co-op.
• hutzlibu 5y ago
  "and it was surprisingly difficult to quantify the impact that terminating an employee or cutting benefits would have on morale/culture/performance" I think it is not surprising, when you consider that a precise weather forecast for more than 3 days is usually considered impossible. When you deal with very complex systems, where small changes can have a big effect via self enforcing feedback loops - how can you expect to calculate all that? And human social dynamics seem to be at least as complicated as the global weather.
  • jscode 5y ago
    I agree. Considering the complexity within organizations, imagine pleading your case to a couple of Stanford MBAs that are 1) incredibly smart, 2) operate in a PE culture that rewards managers that provide others with "negative feedback" to get results, and 3) believe in their hearts that cutting benefits is "optimizing" the business to maximize shareholder value. They can make a compelling counter-argument for just about anything.
    • hutzlibu 5y ago
      I did not meant it as criticism. And I can imagine that situation, which is why I choose a different path, to not be in that position in the first place. Not saying that my path is better, definitely not money wise, but I knew early, that I do not get along with a culture, that is focused on assigning oversimplificated numbers to people, which is what MBA's seems to be mainly about.
      • jscode 5y ago
        I agreed with what you were saying and updated my previous comment for clarity.
• fnord77 5y ago
  another example: Ford and GM accountants making engineering decisions in the 70s and 80s. Poor quality and deaths were the result.
• ren_engineer 5y ago
  this is basically the micro example behind the deindustrialization of the United States. Mitt Romney type corporate raider MBAs outsourcing everything to China for cost savings to maximize short term profit expand this over 50 years by 1000s of similar groups of people doing the same thing and you go from the "Arsenal of Democracy" to begging China for masks and ventilators
  • rob_c 5y ago
    Not just America unfortunately. People at the very top unfortunately now listen to the bean counters far too much. This really does make social problems of an us vs them sort when all of the money manages to drift up with only the false promises of altruism at charity galas being the sign of any of the generated wealth making its way back down to the workers...
  • gen220 5y ago
    An oldie that may be an interesting read for those who have had similar thoughts: https://www.theatlantic.com/magazine/archive/1993/12/how-the-world-works/305854/ https://www.theatlantic.com/magazine/archive/1993/12/how-the...
    • AmpsterMan 5y ago
      What a fascinating article. Thank you for sharing!
  • throwawaylinux 5y ago
    That, and the industrial base lobbying to allow "free trade" and subsidize expansion into countries which have high levels of corruption, low environmental protections and worker's rights.
• ninala 5y ago
  Given your background I'd love to talk to you. Since HN doesn't have private messages as far as I know, would you be willing to contact me at the email address in my profile? Thanks! Neil
  • jscode 5y ago
    Check your inbox.
• zeruch 5y ago
  Spent 3 years under a PE group, and the "management by spreadsheet" was very real, and utterly corrosive. The constant squeeze meant eventually everyone started to realize the only people who were going to make any real money/have benefit was a handful of PE folks and their satellites; everyone else would be squeezed until breaking. Even where our CoC were good (as mine was), we knew the eventual pressure would make it all buckle, so get out before it breaks you. Some of us chose to keep ourselves sane.
• rob_c 5y ago
  Granted bean counters fail as leaders (typically) but I would strongly argue it's the job of leaders to explain up front costs and value to been counters. E.g. yes not providing free/cheap coffee/drinks in the office saves money, but it has a damaging cost in terms of employee attitudes and getting people to talk openly in a friendly environment about what they're working on and being able to ask for help. These things can't be directly easily measured but can be quantified in a way that bean counters see the true value of the little extras...
  • citrin_ru 5y ago
    When company stops providing free coffee/snacks many employees will see this as a signal that a company is going down and it is time to look for a new job. Such signals are hard to quantify but they are real.
• greiskul 5y ago
  The thing I have noticed is when the anecdotes and the data disagree, the anecdotes are usually right. There's something wrong with the way you are measuring it. - Jeff Bezos You can think many things of Bezos, but he does know how to make a business make money. Data is important, but things that are hard to measure that you only learn as anectodes is also important.
  • Groxx 5y ago
    Amazon's sprinting decline into absurdly gamed reviews and scam copycat products really doesn't support that quote.
    • bb88 5y ago
      If they don't measure it, does it exist? I'm not disagreeing here, but it could be that the fraud is a drop in the bucket of Amazon revenue. And just trying to get metrics on it, may cost more than what Amazon benefits from it. I tonight bought a 3d printer hotend from the source company, because I couldn't be sure the product I order from Amazon would be genuine. It's pretty bad when the products being sold on Amazon are labeled "Genuine assembled E3D V6 Hotend", when if Amazon gave a shit, it would only need to say "Assembled E3D V6 hotend."
  • Andys 5y ago
    Heh, I wonder if he would apply that to science as well?
    • greiskul 5y ago
      Science advances in strange ways sometimes. Plate tectonics started basically with the anecdote of "south america really looks a lot like it fits into east Africa", but wasn't believed at first due to no hard data. Anedoctes are not data, but when you have some with no data, instead of ignoring it you should take it as a signal to go search if there is data to support it. Great scientists and mathematicians usually have good intuition of things to research, not because they have data, but their mental models of the subject tell them that there should be interesting data there.
• compiler-guy 5y ago
  Great Steve Blank post about this called The Elves Leave Middle Earth. https://steveblank.com/2009/12/21/the-elves-leave-middle-earth-%E2%80%93-soda%E2%80%99s-are-no-longer-free/ https://steveblank.com/2009/12/21/the-elves-leave-middle-ear...
• YeBanKo 5y ago
  Hm… this reminds me of streetlight effect. Not everything that needs improvement/optimization can be measured properly, not everything measurable should be KPI. Tangentially related, I witnessed few times when it caused failure in application of data science to business. The company wasn’t ready, did not have proper data infrastructure, vision or skillset, but still models were built and deployed to no avail.
• sirspacey 5y ago
  I just completed running a transformation of a F500 company and these were the players who shut it down. We were on the cusp of turning the corner and the consequences of their approach are staggering in terms of people, revenue, and client relationships. I’m looking to discover how I might more effectively engage them in the future. Any advice?
  • jscode 5y ago
    This is ultimately a cultural challenge, not an analytical challenge. You don't win cultural battles with intellectual debate, rigorous analysis, or facts. You win cultural battles with politics and power. That means finding a way to get "the wrong people" off the bus and "the right people" on the bus.
    • sirspacey 5y ago
      Never framed it that way before. Definitely maps. Thank you.