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

[Fern]

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.

No. They are betting that the costs (investment, really) of these measures (plant closings) will be substantially less than the future savings generated by the closings.

Closing plants, and releasing skilled employees is very expensive. In fact, in this case they've estimated it to cost them $26 million.

So, they are making a $26 million 'investment' that they expect to return them substantially more.

When information (economic forecasts etc) indicate that investing/spending $26 million to open new plants will make them substantially more then they'll do that.

Fern

 

[Fern]

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

Look at China.

As the gardener they've 'fertilized' regions with free or low costs land for businesses, lost cost capital and reduced taxes and businesses are growing there.

Most in-depth analyses attribute little in their competitive advantage in manufacturing PV solar cells to cost of labor.

Fern

 

[Gonad the Barbarian]

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

I'm well aware more is being asked of accountants than just bean counting in modern business. Which is exactly what prompted my initial comment. Economics is not an offshoot of accounting, accountants are not economists +.

 

[MagnusTheBrewer]

No. They are betting that the costs (investment, really) of these measures (plant closings) will be substantially less than the future savings generated by the closings.

Closing plants, and releasing skilled employees is very expensive. In fact, in this case they've estimated it to cost them $26 million.

So, they are making a $26 million 'investment' that they expect to return them substantially more.

When information (economic forecasts etc) indicate that investing/spending $26 million to open new plants will make them substantially more then they'll do that.

Fern

You just said in 'accountese' what I did or, at least my intent was. Either way, they're still betting on themselves to fail. If you like referring to it as continuing economic downturn, it's no less accurate.

The difference between good management and good financial planning is good managers know that profits come from investing in good employees. Good financial planners can only tell you how to manage the money the employees make. Do you see the difference?

 

[Ns1]

You just said in 'accountese' what I did or, at least my intent was. Either way, they're still betting on themselves to fail. If you like referring to it as continuing economic downturn, it's no less accurate.

Which is fine as long as you accept the possibility that this is the correct bet.

 

[Gonad the Barbarian]

Do you see the difference?

To a hammer everything looks like a nail.

 

[Fern]

I'm well aware more is being asked of accountants than just bean counting in modern business. Which is exactly what prompted my initial comment. Economics is not an offshoot of accounting, accountants are not economists +.

Please go to this academic site and read the page (I can't copy and paste)

http://www.jstor.org/pss/246843

Fern

 

[MagnusTheBrewer]

Look at China.

As the gardener they've 'fertilized' regions with free or low costs land for businesses, lost cost capital and reduced taxes and businesses are growing there.

Most in-depth analyses attribute little in their competitive advantage in manufacturing PV solar cells to cost of labor.

Fern

And employee abuse, pollution and, rapacious business practices can't be blamed on the poor plants, right? I mean a a company's gotta make a buck, right? It's not the plants fault or responsibility that the previous "gardeners" forced them to move and salt the earth behind them, right?

This analogy crap is outta hand. Business has exactly as much to do with the business environment in the U.S. as the government does. Business chooses to take the easiest route and go exploit other nations leaving chaos behind while whining about how hard it is to do business in the U.S.

 

[MagnusTheBrewer]

Which is fine as long as you accept the possibility that this is the correct bet.

It's only the correct bet if everyone else or, at least the majority, bets the other way. Think about it, if everyone bets on themselves to lose, what incentive is there not to and, who pays all the winners (losers)?

We're right back to the current mess we're in. It's a downward spiral and can only be reversed by managing companies to win rather that managing the money earned by the companies to increase.

 

[Gonad the Barbarian]

Please go to this academic site and read the page (I can't copy and paste)

http://www.jstor.org/pss/246843

Fern

Not looking at economics beyond where it overlaps with accounting is exactly my point.

 

[Ns1]

It's only the correct bet if everyone else or, at least the majority, bets the other way. Think about it, if everyone bets on themselves to lose, what incentive is there not to and, who pays all the winners (losers)?

Once again, what the hell are you talking about? You are making this way harder than it has to be.

Either way, they're still betting on [a] continuing economic downturn...

If future economy = in the shitter, then bet = correct

 

[Gonad the Barbarian]

If future economy = in the shitter, then bet = correct

Of course it is when the betters are also the players on the court.

 

[MagnusTheBrewer]

Once again, what the hell are you talking about? You are making this way harder than it has to be.



If future economy = in the shitter, then bet = correct

Companies don't function in a vacuum no matter how much they act like they do. Companies have interactions with other companies, employees and, customers.

If a company "bets on itself to lose" as in laying off workers, downsizing, rightsizing or, whatever label from hell is being abused by corporate shills, the economy suffers. All those other companies, employees and, customers start thinking they need to be more cautious in their investments. Whether it's buying a widget on the way home from work, looking for work in a more stable company or, deciding not to pursue mergers, acquisitions or, combined investments.

In effect, everyone "bets on themselves to lose" and so, does. The company who started it all, only "wins" if the world around them stays the same or miraculously starts buying, building and working again. If the economy gets even worse, the company once again closes operations, lays of workers and generally sticks it's head in the sand. Do you see the analogy now?

 

[Ns1]

In effect, everyone "bets on themselves to lose" and so, does. The company who started it all, only "wins" if the world around them stays the same or miraculously starts buying, building and working again. If the economy gets even worse, the company once again closes operations, lays of workers and generally sticks it's head in the sand. Do you see the analogy now?

They only need to sell as much as their PP&E can optimally produce, as alluded to by

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.

Anyway, we're not going to change each others opinions so let's just move on. You can have the last word if you want, I'm leaving this thread to concentrate on more important matters (wrangling enough ATOT'ers to start a UO guild)

 

[MagnusTheBrewer]

They only need to sell as much as their PP&E can optimally produce

How do they plan to do that if the economy continues to worsen?

As for the last word, I've no doubt the resident denizens of P&N will see to that. Good luck with the uo guild.

 

[Ns1]

How do they plan to do that if the economy continues to worsen?

As for the last word, I've no doubt the resident denizens of P&N will see to that. Good luck with the uo guild.

That's why it's a bet right?

okay I'm done now

 

[Gonad the Barbarian]

That's why it's a bet right?

okay I'm done now

Well, there's an actual answer. They continue to shrink as the economy worsens. As do all the players. Which causes the economy to worsen. Which causes them to shrink more. Which causes the economy to worsen. And on...

 

[Double Trouble]

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

My thoughts exactly. This thread contains some very curious posts showing a thorough lack of understanding of economics and how companies work. I'm an exec in finance for a fortune 100 company, I think have a pretty decent understanding of how these things work since I live it every day.

OP is suggesting that layoffs and offshoring are shortsighted ways to contain costs, that will end up hurting the company in the long run. Companies don't exist in a vacuum, and they have to take into account what is going on around them when making decisions.

Companies face competition. If they don't drive efficiency and cost control, they'll get crushed by their competition because the competition will offer similar products at a better price point. It's nice to say "keep your staff, don't lay off, don't offshore" and all that, but it runs headlong into reality in the marketplace.

 

[Throckmorton]

People like to pretend that capitalism is somehow altruistic. We get taught in school that Henry Ford paid his workers good wages so they could buy his cars. That doesn't even make sense... it took a lot more than just the Ford factory workers buying Ford cars for Ford to succeed.

 

[Gonad the Barbarian]

I'm an exec in finance for a fortune 100 company, I think have a pretty decent understanding of how these things work since I live it every day.

The rest of us are living it every day as well.

Companies face competition. If they don't drive efficiency and cost control, they'll get crushed by their competition because the competition will offer similar products at a better price point. It's nice to say "keep your staff, don't lay off, don't offshore" and all that, but it runs headlong into reality in the marketplace.

Lack of production efficiency might tank a business but lack of a customer base will tank entire industries. And the unemployed, underemployed, and debt ridden typically don't make good customers. We have a big picture problem and only people with small picture solutions.

 

[bfdd]

this is exactly why laissez-faire capitalism fails.

Because some people are douche bags? Why not just get rid of the douche bags? I don't mean with like regulations or anything, I mean literally getting rid of them. Just stop doing business with them or kill them. Some people don't deserve to live, it's a cold hard truth.

 

[Pulsar]

The rest of us are living it every day as well.


Lack of production efficiency might tank a business but lack of a customer base will tank entire industries. And the unemployed, underemployed, and debt ridden typically don't make good customers. We have a big picture problem and only people with small picture solutions.

You are 100%, unequivacably and totally WRONG.

One needs to only look at the automotive companies to see what happens when companies end up being altruistic (whether they wanted to or not isn't the question) and paying significantly above what they can afford to pay.

They go bankrupt.

You are placing the blame on the symptom, and not the cause. The CAUSE is that the supply of money in this country is dropping as we pay other countries to manufacture (i.e. add value) to products and then purchase them.

Money doesn't grow on trees, and we've been sending it overseas for 40 years.

 

[sao123]

You are 100%, unequivacably and totally WRONG.

One needs to only look at the automotive companies to see what happens when companies end up being altruistic (whether they wanted to or not isn't the question) and paying significantly above what they can afford to pay.

They go bankrupt.

You are placing the blame on the symptom, and not the cause. The CAUSE is that the supply of money in this country is dropping as we pay other countries to manufacture (i.e. add value) to products and then purchase them.

Money doesn't grow on trees, and we've been sending it overseas for 40 years.

well golly gee... another common but shortsited board room decision which ultimately is leading to their own demise!!


1 corporation cannot be blamed for the downward spiral we are in, but collectively they ALL are at fault. 1 coproration cannot stop the downward spiral, but collectively they all must.

 

[Jhhnn]

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

And they're huge in lassez-faire capitalism, leading to the false prosperity credit bubble of the 1920's & the real misery of the 1930's.

The only reason we didn't see that cycle repeat in 2008 was massive govt intervention in the wake of the greatest credit bubble in history, the Ownership Society.

Corporate conventional thinking in a balance sheet recession/ depression only makes the situation worse, not better, because it's applied in a systemic way. Heinz isn't the only company doing this, at all. Corporate profits are at an all time high, corporate cash reserves, too, but unemployment remains unacceptably high. Ultimately, it'll hurt them too, but in the meanwhile Execs take home their enormous bonuses, so it's all good, right?

Who says you have to kill it to eat it? They're eating it now, killing it later. Chomp!

 

[Throckmorton]

well golly gee... another common but shortsited board room decision which ultimately is leading to their own demise!!


1 corporation cannot be blamed for the downward spiral we are in, but collectively they ALL are at fault. 1 coproration cannot stop the downward spiral, but collectively they all must.

How would they act collectively?

The only means we have for collective action is the government.