A case study in common repeated board room stupidity... HJ Heinz quarterly results.

[Gonad the Barbarian]

Your first sentence strike me as so bizarre I can't adequately comment on it here. Be aware that economics is an offshoot of accounting and couldn't exist without accounting in the first place.

That's completely incorrect. Economics is foremost a study of human behavior. One of those pesky things accountants love to ignore. Along with utility, marginal changes, expectations, opportunity costs and whole host of other things in their tunnel vision focus on arithmetic.

 

[MagnusTheBrewer]

I thought you were not from the USA?
Not sure whom you have me confused with, I'm an American from Tucson at the moment.
Where do you get the idea companies are acting as you say? Every article, news story, television report and radio commentary in the last 20 years?

Both management and economists are doubtful of the future. There is no optimism. I don't see how one can fairly say such decisions are merely based on any accountants' "snap shot" of current conditions. This decision strikes me as one that fits perfectly into long range economic predictions, and corporate strategies developed with that in mind.

IIRC, I just saw a poll where 64% expect economic conditions to get worse. If so, these closings seem entirely logical/expected.

I think most companies have already responded thusly. I do not expect to see much more. The other thing to do in such times is push for more efficiency: Make more with less. Here again this has been going on for some time. But in the face of falling, or very slow rising, demand that's about your only option for improving the business; and that's what these people are paid to do.

Unfortunately, this bodes poorly for getting back to pre-recession employment levels, and that is widely conceded by those actually in business.

IMO, the last 'real' economic growth we had was from Intel/Windows/Internet which drove a huge increase in productivity, and until we get something similar to drive economic growth we're going to flounder around. We need something to help really grow the 'pie' and not just fight over who gets what size slice.

Fern

From what I see, companies, like the public, are sitting around cutting costs while waiting for the economy to improve. My point is that companies need to stop following the precepts being taught by financial "experts" and business schools because they are partially responsible for the mess we're in.

Corporations do directly affect the economy not only through the money they earn and spend but, the example they set for other corporations. Half of the financial analysis out there is based on what other companies are doing. Companies need to start leading, "vision" needs to stop being a trite buzz word and, personal responsibility needs to replace corporate anonymity.

 

[MagnusTheBrewer]

Sorry Magnus, you don't appear to have a grasp of the reality of how business processes work.

I know exactly how business processes work. My point is that those processes are wrong as demonstrated by our current economy.

 

[JS80]

sao123 obviously would make a great Fortune 500 CEO.

 

[Fern]

That's completely incorrect. Economics is foremost a study of human behavior. One of those pesky things accountants love to ignore. Along with utility, marginal changes, expectations, opportunity costs and whole host of other things in their tunnel vision focus on arithmetic.

No it isn't.

Both economics and finance are offshoots from accounting.

You only need consider it for a nanosecond, for without accounting and the data it generates you have no economics.

Accountants do not focus on arithmetic, but rely heavily upon it (in it's broader meaning) as a tool.

Fern

 

[Gonad the Barbarian]

No it isn't.

Both economics and finance are offshoots from accounting.

You only need consider it for a nanosecond, for without accounting and the data it generates you have no economics.

Accountants do not focus on arithmetic, but rely heavily upon it (in it's broader meaning) as a tool.

Fern

Economics exists any time humans deal with scarcity. Accounting only enters the picture when there's money involved. And that's where it stays. You're an accountant aren't you?

 

[Fern]

-snip-
Corporations do directly affect the economy not only through the money they earn and spend but, the example they set for other corporations. Half of the financial analysis out there is based on what other companies are doing. Companies need to start leading, "vision" needs to stop being a trite buzz word and, personal responsibility needs to replace corporate anonymity.

I know exactly how business processes work. My point is that those processes are wrong as demonstrated by our current economy.

I recommend you familiarize yourself with exec type literature. Try CFO magazine, they have a site and I think it's free.

There is a lot of "vision" out there. Maybe not the type you want or like.

As to the "processes" that are wrong as demonstrated by our economy, I'm firmly convinced it's NOT the businesses' process that are wrong, it's somebody else's processes that are to blame.

Our businesses are, and have been for some time, rapidly expanding elsewhere/overseas. Their business models and processes are also rapidly evolving, and quite successfully too.

If the grass/plants in your yard aren't growing worth a damn, yet they're growing wonderfully in your neighbors' yards is it the grass's/plant's fault? I don't think so. Blaming businesses for not growing here is like blaming the grass itself for not growing in your yard.

We, and I mean the fed/state/local govts and us people, have managed to screw things up so that businesses no longer find us that attractive and are migrating elsewhere. This in spite of probably being the world's largest single homogeneous market in terms of consumers. China realizes it and is taking advantage of it. Somehow we've made it better to be located elsewhere and we need to figure that out and fix it.

Expecting businesses to change because, well we're the USA and you should because we want you to is akin to expecting the laws of physics to change because we find them inconvenient. It's unrealistic, useless wishful thinking IMO.

Fern

 

[Throckmorton]

Economics is a social science... accounting is a job

 

[Ns1]

You make a profit by staying ahead of the curve while controlling costs NOT, by reacting to what has happened before.

isn't that...what they're doing?

 

[MotF Bane]

A company's responsibility is to it's stakeholders, and stakeholders want profits.

What are things that a company can control?
- manufacturing costs, PP&E costs, employment costs

What are things a company can't control?
- consumer confidence, commodity costs, economic uncertainty

This.

 

[Fern]

Economics exists any time humans deal with scarcity. Accounting only enters the picture when there's money involved. And that's where it stays. You're an accountant aren't you?

You can't measure or quantify scarcity with accounting.

Without the numbers (and theory etc) from accounting you got nothing in either economics or finance. Economists use data generated buy accountants as their foundation and then add on it to etc.

I have a degree in accounting and finance, which means study in economics and arithmetic (calc, stats etc) and other biz areas.

Fern

 

[MagnusTheBrewer]

isn't that...what they're doing?

No, it's an attempt to retroactively control costs. Think of a negative control loop.

 

[Gonad the Barbarian]

You can't measure or quantify scarcity with accounting.

Without the numbers (and theory etc) from accounting you got nothing in either economics or finance. Economists use data generated buy accountants as their foundation and then add on it to etc.

I have a degree in accounting and finance, which means study in economics and arithmetic (calc, stats etc) and other biz areas.

Fern

If you're trying to argue that accounting has the sole lock on basic math I won't bother arguing any more with you. But can accounting account for anything without some monetary value attached to it? Because economics can.

 

[Ns1]

No, it's an attempt to retroactively control costs. Think of a negative control loop.

WTF are you talking about?

Straight out of your OP

Their solution to this problem is to streamline manufacturing, close plants, and layoff workers.

= cutting costs for the future

I mean how is this retroactive? The company is profitable today, and the company is cutting costs because of these factors that it has identified.

profit in the second quarter...$237 million, $251 million...same period a year ago.

 

[MagnusTheBrewer]

I recommend you familiarize yourself with exec type literature. Try CFO magazine, they have a site and I think it's free.

There is a lot of "vision" out there. Maybe not the type you want or like.

As to the "processes" that are wrong as demonstrated by our economy, I'm firmly convinced it's NOT the businesses' process that are wrong, it's somebody else's processes that are to blame.

Our businesses are, and have been for some time, rapidly expanding elsewhere/overseas. Their business models and processes are also rapidly evolving, and quite successfully too.

If the grass/plants in your yard aren't growing worth a damn, yet they're growing wonderfully in your neighbors' yards is it the grass's/plant's fault? I don't think so. Blaming businesses for not growing here is like blaming the grass itself for not growing in your yard.

We, and I mean the fed/state/local govts and us people, have managed to screw things up so that businesses no longer find us that attractive and are migrating elsewhere. This in spite of probably being the world's largest single homogeneous market in terms of consumers. China realizes it and is taking advantage of it. Somehow we've made it better to be located elsewhere and we need to figure that out and fix it.

Expecting businesses to change because, well we're the USA and you should because we want you to is akin to expecting the laws of physics to change because we find them inconvenient. It's unrealistic, useless wishful thinking IMO.

Fern

Comparing yourself to a plant my be accurate for most accountants but, as a gardener, I'd fix the soil where I live rather than go overseas and continue fucking up the soil.

They are expanding overseas because that's the only place left where the outmoded business approach as practiced by American corporations work. You can't have it both ways. Either corporations (and accountants) own up to their responsibility for our current economy so they can help fix it or, we steam right ahead and practice the same exploitive behavior until everyone's economy is at the same low level. But hey, as long as the fat cats get theirs, it's working just fine.

I expect businesses to change because in the long run it's more profitable to do so. However, until the 'long run' is viewed as anything more than how many years til I retire or change jobs, nothing will change.

 

[JS80]

Comparing yourself to a plant my be accurate for most accountants but, as a gardener, I'd fix the soil where I live rather than go overseas and continue fucking up the soil.

They are expanding overseas because that's the only place left where the outmoded business approach as practiced by American corporations work. You can't have it both ways. Either corporations (and accountants) own up to their responsibility for our current economy so they can help fix it or, we steam right ahead and practice the same exploitive behavior until everyone's economy is at the same low level. But hey, as long as the fat cats get theirs, it's working just fine.

I expect businesses to change because in the long run it's more profitable to do so. However, until the 'long run' is viewed as anything more than how many years til I retire or change jobs, nothing will change.

Now I've heard it all. It's the accountants' fault. lol.

 

[MagnusTheBrewer]

WTF are you talking about?

Straight out of your OP



= cutting costs for the future

I mean how is this retroactive? The company is profitable today, and the company is cutting costs because of these factors that it has identified.

First it's not my OP.

Second, they are betting that the money saved by these cost cutting measures will exceed their profit margin in the coming years. I find that rather like betting on yourself to lose. That's why I made the comparison to a negative control loop.

 

[MagnusTheBrewer]

Now I've heard it all. It's the accountants' fault. lol.

Oh, there's plenty of blame to go around but, you just keep skimming posts to find a word to hang your trolling efforts on and be happy.

 

[HumblePie]

No, it doesn't fail. There are cycles in the economy, sometimes up, sometimes down.

And this is where your logic fails. What causes the cycle to go back up? Intervention. It's liek a drug addict that just won't quit on their own. They CAN NOT quit on their own. They need intervention.

Again economic downturns will always continue to spiral down by nature without something to stop them. There has to be a stop gap function implemented somewhere. Usually, through historical precedence, it is the government, but not always.

What Heinz has done is logical for their single business perspective. It wouldn't have even mattered with a good economy as another company would have hired those workers up. But in an economy that is continuing to spiral out of control it only causes more damage in the long run.

However, two things can be usually assured. If a company does not take corrective action for the short term, there is a good chance they will go under before a long term economic corrective action takes place. Also, they can be assured that at some point something will correct the economic downturn for them so they can start the building process back up again. If that said economic corrective action never takes place... well that's part where wars in the past have started.

Anyhow, I digress. It sucks that companies like Heinz are having to do this. We all see that for the current situation it is not a one off company doing this but a small indicator of a larger problem of many companies doing this now all at once. It's hard to fault Heinz for doing it to stay alive while they can, but it is what it is.

 

[Fern]

If you're trying to argue that accounting has the sole lock on basic math I won't bother arguing any more with you.

I don't understand your comment.

But can accounting account for anything without some monetary value attached to it? Because economics can.

Of course. Statistics, probability, weight, # of units, yield curves, measure efficiency, all types of things. Many types of arithmetic are used by accountants. They do much more than compile financial statements or tax returns. Many are employed in consultancy. Accounting, economics, finance and in some cases engineering overlap. E.g., similar to efficiency engineers they can analyze manufacturing operations to determine optimum production etc to minimize costs, maximize efficiency, increase productivity and profits.

While it can be said accounting is built upon the hard science of arithmetic, they are often saddled with making a ton of judgement calls. They are also often tasked with making predictions about the future - forecasts etc based upon assumptions (what predictions aren't based on assumptions?).

I think you're thinking of accountants as 'bean counters'. That went out with pencils and green eyeshades.

TBH, I don't what all they are doing now. I've been doing taxes for 30 years and am drawing on all the crap I had to learn to get my Masters and pass the CPA exam.

Fern

 

[Pulsar]

This is perhaps the funniest post I've ever read, and clearly highlights a total lack of economic understanding.

A business makes money by selling product. They need a certain amount of infrastructure to make that product. However, because of economy of scale, you need to sell a certain amount of that product to make a profit with a certain amount of infrastructure.

So when the market depresses itself, the first thing that a company does it start looking at projections. Where will we be in 3 years? 5 years? After all, a product lifespan can be up to 10 years, so we need to plan in advance. How much money do we need to launch new product and still be profitable?

So based on projections, they need to right-size their infrastructure (fixed costs) so that the volume they expect in the future will make enough profit to cover those fixed costs.

HINT: HJ Heinz is not cutting costs to become profitable. They are MAKING a profit. They are cutting costs because their projections show that the economy is going to REMAIN depressed, and they have too much infrastructure for the volumes they think they'll sell for the next 5-10 years.

OP is a fail, and so are the people agreeing with him who don't understand basic business economics and planning.

IF businesses were worried more about their workers jobs than they are about profits, well, we'd call them "government", and they'd be so deep in debt that they'd have gone out of business a long long time ago.

 

[Fern]

Comparing yourself to a plant my be accurate for most accountants but, as a gardener, I'd fix the soil where I live rather than go overseas and continue fucking up the soil.
-snip-

Business isn't the gardener, govt is.

Fern

 

[ShawnD1]

I have bolded and italicized 2 specific passages within this piece.

They cite their profits being down because of economic hardships from
1) low consumer confidence
2) rising commodity costs
3) high unemployment
4) economic uncertainty

Their solution to this problem is to streamline manufacturing, close plants, and layoff workers. So to combat reduced profits caused by the above, they are going to take steps which create more of the above? So you can have to do this vicious cycle all over again next quarter?

Workers losing their jobs or absorbing pay cuts causes:
1) low consumer confidence
3) high unemployment
4) economic uncertainty


Profits margings lessening caused by 1,3,4 causes other companies to:
2) rising commodity costs


Does anyone see the contradiction in this logic? This is an abysmal decision, not just by HJ heinz, but by all major corporations.


The only way our current depression is going to end, with consumer confidence rising, is to artifically boost the workforce, not weaken it.

So... let me into the board room and ill fix all their problems with a simple statement... "a strong workforce causes strong consumption, and strong consumption causes strong profits."

/end of my rant for the day.

The general theory of what you're saying is right, but your scaling is off. Heinz fires maybe 1000 people. The economy is bad and consumer confidence is down because millions of people are unemployed. Their 1000 people is a drop in the bucket. 999000 unemployed instead of 1000000 unemployed is basically the same; consumer confidence would still be down.

 

[Ns1]

This is perhaps the funniest post I've ever read, and clearly highlights a total lack of economic understanding.

A business makes money by selling product. They need a certain amount of infrastructure to make that product. However, because of economy of scale, you need to sell a certain amount of that product to make a profit with a certain amount of infrastructure.

So when the market depresses itself, the first thing that a company does it start looking at projections. Where will we be in 3 years? 5 years? After all, a product lifespan can be up to 10 years, so we need to plan in advance. How much money do we need to launch new product and still be profitable?

So based on projections, they need to right-size their infrastructure (fixed costs) so that the volume they expect in the future will make enough profit to cover those fixed costs.

HINT: HJ Heinz is not cutting costs to become profitable. They are MAKING a profit. They are cutting costs because their projections show that the economy is going to REMAIN depressed, and they have too much infrastructure for the volumes they think they'll sell for the next 5-10 years.

OP is a fail, and so are the people agreeing with him who don't understand basic business economics and planning.

IF businesses were worried more about their workers jobs than they are about profits, well, we'd call them "government", and they'd be so deep in debt that they'd have gone out of business a long long time ago.

:thumbsup:

 

[MagnusTheBrewer]

Business isn't the gardener, govt is.

Fern

No wonder you're an accountant, business is the gardener, gov't is the landlord.