Research: Profit vs. Risk

I was thinking of technology, computers, robotics you know...nerd stuff : )

The publicly traded companies must show growth so the push is there, but the board is scared to take risks on projects that may or may not work.

It seems strange that the traded company might have more capital to work with but is less willing to use it on projects that may be higher risk but would have greater rewards.

Drew K

You seem to be trying to find a reason for a rejection....Making decisions on how to proceed is up to the CEO, the board is just a think tank that comes up with ideas on how to handle situations and research ideas and methods, and keep abreast of the opportunities that exist....but these vary with every board...they are individuals with a vested interest in the company(usually large shareholders or retired experts in the field)....Going with a new product or method is not always based on it's merit, but on the conditions in the company or sector or general economic conditions, or pending business, or anything or everything, it's not always a simple process and may be something as simple as a pending change in management or buyout offer....there could be any number of reasons for not adopting a new product or service....as far as risk, this varies with who's in charge....some guys like to take chances, some don't.....

Here is an article related to the dell privitizing that the article I read talked about.

Here is a paragraph from the article where they talk about the quarter to quarter expectations.

• The postponement is a significant setback for Michael Dell and the company's board, which has spent the past five months trying to persuade shareholders to approve the buyout proposal. Supporters believe Dell Inc. stands a better chance of turning around if it can make long-term strategic decisions without worrying about meeting Wall Street's quarter-to-quarter expectations.

And here is another exerpt.

• Now 48, Dell is seeking to turn the company around away from the glare of Wall Street and the demand for short-term, next-quarter results that investors demand from public companies.

Drew K

I think the entire stock market is a BS shell game; one that the government is now actively manipulating.

I'm working for a guy right now that works for SAS. As far as I'm concerned, they are the gold standard for free market, (private) enterprise, and how capitalism is supposed to work.

B.S.

If that were true then investors would immediately invest in more innovation. Investors are not stupid, they want profit and they want growth.

The problem with these reports is that they are usually born out of ignorance or to foster a political belief system or both.

The truth is that business, investing, and innovation are complex fields and that is why you have people getting masters degrees in business.

If it really was so simple everyone would be doing it.

Investors are not stupid, but the analysits want predictabel growth not sporadic. Most of the investors know about investing, but not usually nearly as much about the technology and they can only guess about what the public will think about innovations.

I work for a large company and see the effect of the 'bean' counters in our budget. They want to know what will break before it breaks so they can plan for it. The company is spending significant man-hours right now getting system assesments so they can use computer models to predict when the next failure will occur. I think this is silly, my time would be better spent doing my job instead of researching past performance (the mechanics and foremen already know these trends). Sure, I might pick up on something they missed but they are the mechanical experts who get their hands dirty pulling the shafts, replacing bearings and aligning the equipment.

Point is, parts will break and it is not usually very predictable. Time would be better spent looking into many of the other things we have going on.

In my field the attemtp at predicting and controlling predictable growth results in wasted man-hours. In a company that must stay current with new technology to stay relevant and keep it's share of the market that means taking risks. If the board is pushing for 'predictable' growth without any possibility of loss, they will fall behind.

Drew K

Bottom line of any business is profit making. You can make profit by successfully running existing business and also having R/D wing. If your existing business is able to generate good profits then R/D is subsidiary activity.

Sorry to say that it's exactly that type of thinking that has necessitated that there be bean counters crawling up your butt. If engineers were more engaged with the goals of their employer ("...we have our customers to serve...") instead of thinking that they're above it all ("...the only thing that matters is the engineering/design...") then there would probably be less oversight by the MBA's who are usually clueless about what they oversee.

"... (the mechanics and foremen already know these trends)...", but are they reporting the data so that it can be used to make improvements in the product and/or enable the company to allocate funds for those "unexpected" failures that might cost more than the original price of the broken widget?

As engineers we're systems oriented and tend to want to know everything about where we fit in the engineering side of things, but all too often once it's out of engineering, into production, and finally in the customers' hands, the mentality becomes "...I think this is silly, my time would be better spent doing my job instead of researching past performance..." Imagine what Steve Jobs would have said to you had he heard that..

I bet Steve Jobs would want to talk to me about it. There is a wall between the people who do the work and upper management, a wall that management loves to get around but is usually blocked by middle management (but that is another rant).

It is the customers that I am thinking about, my fear is that profits are driving the market and not the consumers. All the board is concerned about is protecting the investors interests...this quarter. They are not focused on the big picture or how things will be in the long run. That is supposed to be the CEO's job, but how can he do it when the board is pushing so hard for profits profits profits?

I say, do you job and as long as your product stays relevant you will make profits! Sure, you do have to keep in mind that profits are a part of your job but you have to recognize that sometimes the direction you are going is not what is best for your company or industry. How long must an industry be propped up by taxpayer dollars before it is left as no good. How long must we continue using a product just because if we stop using it people will loose their jobs. The best example I can think of is flat tax vs IRS; if we go to a flat tax it will put thousands of IRS workers out of work, saving the govt billions but costing billions to re-job those people.

I don't think engineers are 'above it all', I think they just tend to focus on the job they are given. Ask an engineer to design a product to the best of his/her abilities and you should be prepared to pay for it. Ask them to design a product that is economical and you will get it. The key is to ask for what you want.

Drew K

There's a lot of wisdom from this forum. Years ago, I would agree with Drew, but one lesson I've learned is that even though the answer seems obvious, you don't know if it is, unless you know what the goal of the company is. Look at the goals of the people we're talking about.

Starting from the top, the CEO has a goal of growth and security. If he takes on projects that are deemed too risky, the company may fold - not a good thing. If you don't believe it, take a look at the banking crisis just a few short years ago. The CEO also has to post good numbers or the Board will not approve.

The Board of Directors speaks for the investors. All Boards have very different approaches (I currently sit on four very different Boards), some are very top level, some are micro-managers, some are involved, some let the C Suite do the work and some are chaired by the CEO. I have seen investors get rid of the Board - it's rare, but it happens.

The investors are looking for the best return, but with a certain level of security. Most don't want some cowboy coming in, taking huge risks and destroying the company. Gambling is for Vegas, not the corporate world. Well analyzed risk taking is another story. If the investors aren't getting what they want, they will vote with their feet - sell the shares and move on to another investment. The investors that remain will be upset with the lower share value and if things don't improve, they will oust the board.

I'll share with you some knowledge that I missed in my earlier life, but luckily the mistakes I made were done at a young age and I was able to recover. Here goes: Most people miss out on their once in a lifetime opportunity, because they don't have the capital to buy in. And most of those who do buy in, get squashed because they don't have the capital to see the investment through the "rough" times. Just take a look at small businesses. Sure, some have a "bad" idea and should've never opened the business. But think of all the businesses where you wonder how they survive, but they do. The secret to success is to be an entrepreneur and work for yourself. If you don't believe it, take a look at the wealthy people in your town. Very few were employees.

Simply - ROI is proportional to the risk.

It seems the problem is that so many companies main goal is to make money. I don't see anything wrong with making money, but it is my belief that if you make a good product then the money will follow therefore your goal should to be to make your product.

The problem with money being your only goal, profits and budgeting begin to get in the way of innovation and good manufacturing. When profits are king it becomes tough to invest enough of those profits back into the company.

You do bring up some interesting points though.

Drew K