Monday, 11 March 2013

A Company in Decline

It is never a good move for a company CEO to get involved in decisions that should be taken by their management. A move that undermines the very skill they employ people for and a decision that can result in a huge reduction in talent. This was what happened at Yahoo when the CEO Marissa Mayer decided to remove the opportunity for employees to work from home. Home working was touted as the future for offices in an ever globalising economy that would reduce the overheads of companies, reduce pollution by cutting commuting, improve the chances of employment for the disabled and provide jobs to remote locations that would otherwise be unavailable easing the burden on the housing stock in cities and towns. This announcement is a blow to all who work for this company and leaves many with only a few months to find alternative employment.

What it demonstrates when a CEO begins tweaking company HR policies is that they are in free fall. A well organised, profitable and innovative company utilises many different working practices and often these decisions are simply left in the hands of imediate line managers to make judgements about the benefit to the company of any individual wishin to take up a flexible working arrangement. This decision making has been removed from Yahoo managers who are being told that they have obviously got it so badly wrong that they have had to completely withdraw this flexible working option. A CEO of a successful growing company would never usually get involved in such decisions as they would be busy actually growing the company and providing leadership that could improve the profit of the organisation. If a CEO is revoking HR policies they are clearly not busy enough trying to save the company. Since her appointment Marissa has yet to provide a clear direction for the future of Yahoo.

Another point this highlights is that perhaps companies have a natural shelf life and should not continue beyond their peak. There are hundreds of examples of technology companies that grow large on the back of a boom and then begin to decline as the industry moves on, they then desperately attempt to purchase back their market share by buying up small companies and inhaling them into their own corporate machine. Unfortunately most small start ups and ideas need a driving force behind them, someone who generated the original idea with a vision of where it could end up. By buying a company you are removing a lot of the drive that got them any prominence in the first place and then trusting its success to a workforce that is so far removed from their original mission that they are unable to add any value or enthusiasm. Another great example of this would be RBS who had a huge expansion on the back of company buy outs, this led them to multi billion pound profits annually only to come crashing down in 2008. Of those original companies bought they are being slowly disposed of to other companies and some have even completely dissipated. This kind of expansion can only occur when you have bled dry your original mission and are unhappy to maintain a good service for your basic founding idea. If RBS had simply stayed committed to providing personal and corporate banking they would arguably now be reporting annual profits in excess of 1 billion instead of owing the treasury thousands of pounds and being constantly fined by authorities across the globe.

What is the driving factor behind these huge corporations buying up and diversifying beyond recognition? Profit. Unfortunately with most shareholder owned businesses it is seen as the primary objective of any organisation. A stable profit annually is seen as a poor investment for the stock market that thrives on boom and bust. Hopefully some large failures will have resulted in some rethinking across the board rooms of big companies, a sustainable profitable business should remain such by constantly improving what they do, all ventures into different areas should be taken with a huge amount of due diligence and risk modelling.

As much as this stands true for large companies this advice could be used by small business too. Never forget your custom base, your original service or product that made you profitable. Expansion may seem like a great idea but if it comes at the expense of your original business this can prove dangerous ground. Always insulate your profit making business from any expansion by ensuring the mechanism exists to not only maintain but also improve your current operation, either with a dedicated workforce or a great management team. Greed is the quickest way to bankruptcy.