Failures of American Management
This post concerns a painful subject for most Americans. It will help explain the failures of modern American business management. In the 1990’s, I started getting an MBA. Later due to painful things in my life, I switched to getting a Master’s degree in counseling. Afterwards, I could put an MS behind my name on a resume. I did take a bunch of the MBA courses and accounting courses. Lets look at a basic equation accounting equation “Product cost = Labor cost + Material costs + other incidental costs”.
Most MBA Managers do not really understand labor costs
Management with an MBA see labor as an expense. Lower the labor cost – earn more money. The important point I will make in this post follows. Labor is not an expense cost, Labor is resource to increase revenue. The rest of the discussion in this post will be examples illustrating this logic flaw.
Jack Welch and the continued failure of GE
Jack Welch was the CEO of GE from 1981 to 2001. He built GE into a super-conglomerate that owned a major bank and NBC. However that business model has since been cast aside as overly complex, and in retrospect, it’s clear that Welch’s shopping spree masked problems. Those problems blew up when he left.
Quick List of GE’s failures caused by Jack
1. Massive layoffs destroyed business knowledge. For several years he laid of 10% of the company workers. For a business this amounts to the same thing as cutting out 10% of your brain. See this video about these layoff. When I worked as a consultant at GE, the workers left were arrogant and mean. They also did not have a good knowledge base!
2. Those poor decisions he made about mergers and acquisitions have contributed to the on going cash crunch at GE. This giant company no longer generates enough money to pay for investments in the business and dividends for shareholders.
3. GE Capital became a huge liability during the financial crisis. It got so bad that GE couldn’t borrow money when the overnight lending market vanished, forcing it to get an emergency investment from Warren Buffett and other investors.
4. They out sourced and branded GE products. Closed plants and moved production off shore away from America!
5. Union busting – GE had 110 unions. They used the layoffs to reduce the number and power of the Unions.
By the way, I will not buy any GE product now. I had neighbors in the mid 1980’s who worked for GE. I saw the effect the layoffs had on them. Thus, I boycott any and all GE products now. After being at GE, I told folks to not buy their stock. Have gotten thank by them years later.
Moving on
Therefore many managers in the mid 1990’s followed Jack’s lead. “Doing more with less” was the quote, often heard. I worked at a large utility company. The labor cost was 19-20% of the gross revenue. The CEO’s with an MBA’s saw this as an expense to be cut. They went from 13,000 employees to 11,000 (note – these are rounded off numbers but show the 2,000 employee drop). His Goal was to get to 8,500 employees. I was one of those axed by his minions. I was going thru a divorce and the good Baptist manager thought I was evil person.
How this effect us now
Meanwhile, these business trends are effecting us now in 2024. In the later 1990’s, a study came out showing that engineers made better decisions than MBA’s in start up businesses. The reason, engineers made better decisions and also added into the equation “research and development”. Research, development and knowledge are a key to business success. My friend Ricky who is a Union leader. Taught me how to fold things. He also said you need team work to move heavy objects. The right wing types and rich business leaders, see unions as bad for business. They want to destroy them. They see this as being conservative and want to see the return of the Gilded age before unions. Yes, I am pro union!
So what has happened
Our labor force wealth has declined as has our average wealth vs inflation. Many of our products and production plants were sent offshore starting in the 1970’s to the 2020’s. Even a great deal of our food is off shored coming from other countries. They don’t really tell you that in the grocery stores. Bell peppers are grown in Africa and South America. The US has issues with cattle lots being too close to fields thus we get contaminated meat. This is seen in other produce now. Again, bad management decisions.
A Quick Summary
Misunderstanding labor costs caused a reduction in our labor force since the 1980’s. A companies labor force has knowledge and expertise that increase revenue. Research and development helps companies offset labor cost by increasing employee productivity by providing better tools. Thus management not understanding this concept leads to failures in American management of our work force. Thus we need better educated management that gets this idea. Labor is a resource not an expense!
Note – GE has had to sell off a great deal of it’s business to stay solvent. As the graft above illustrates, GE stock is junk now. Many other companies have had the same issues. Also when you call a help line and get a “representative” who does not speak good English nor does not understand you. Again, poor company management – better sell their stock!