Wednesday - March 11, 2009
Why Businesses Fail
Or why I'm in law school instead of getting an MBA.
It's because I don't have a lot of respect for the MBA degree, per se. There are plenty of smart people with an MBA, to be sure, but they would have been smart with or without that degree. Mostly what an MBA does is create an artificial barrier to promotion and promote the success of people with more self-interest than is good for a company.
When I worked at Apple, the best job I ever had or will have, a truly stupid decision caused a factory to shut down a year after opening. Apple was having plenty of other problems, Gil Amelio was the CEO and did a terrible job of leading. (hmm a quick look at wikipedia shows he works on the board for Vanguard, which I just noted in my last rant lost me 37% of my 401k last year. Coincidence? Probably not.) I could go on all day about the things Gil and Apple did wrong as a company. But here's what I'll point out from a manufacturing standpoint. Production quotas were to be met exactly: Don't make one computer more or one computer less. If you miss that target by one, it was the same as missing it by a thousand. Of course, this meant that at the end of every month and quarter, we built a couple dozen extra computers and hid them. In computer manufacturing, about 10% can be expected to fail test the first time, so we had to build this secret buffer to make our goals. Stupid. Then, the goals were set by someone somewhere without any rational reason. In October of 1995 we cranked up the factory and built record numbers of computers against all expectations. A month later they realized that no one was buying those computers. To avoid flooding the market, they ended up destroying the computers instead of selling them for less or donating them somewhere.
But those were all mistakes controlled outside of our factory. The mistake I'm more interested in now is the one made when they opened building D in Sacramento. Building D was where they decided to make their own circuit boards on site. It was scheduled to open up shortly after my arrival and was in fact my biggest interest in working at Apple. I was very interested in moving eventually over to the board factory and break into that high potential field. Gary Souza was to be the manager for that place, and he was the man that hired me. I like Gary a lot. But Gary decided to take his sabbatical shortly before start up. At that time Apple granted a six week sabbatical to all employees every six years or so, and if you didn't take it, you lost it forever. While Gary was out, the quality manager, the villian in this tale (but otherwise a very likeable guy) ingratiated himself to someone and snagged Gary's new job.
Putting a quality manager in charge of operations is a really dumb idea. It's like putting putting a safety manager in charge of a battlefield. The new factory got its ISO 9000 certification in record time. I'm sure everyone was very proud of that. But they never made many boards. Someone calculated that they needed to have, I think, three or four production lines to break even on costs. So, naturally they decided to only install 2 lines initially. Sure enough, around the same time that the computer factory next door in building B was destroying excess product (see above), it was very easy for Apple to decide that the board factory wasn't making money and should be closed down.
So, why do businesses fail? Usually it's because someone makes really stupid decisions that turn out to be fatal. I never got to work in that board factory because I was on Gary's team and because the board factory, with its vaunted ISO stamp, shut down exactly a year after starting up. Besides, everytime I walked over to visit, no one was working. If I asked a question about how it worked, they would turn it on, workers would drift over and they would start working again, but mostly out of boredom.
Then I moved to Dell. Dell hasn't failed as spectacularly, but they have hired a layer of managers that all have MBA/Engineering degrees from either MIT or Michigan. The management cliques created were quite powerful and competitive – and cared less for the company than they did for their own displays of brilliance. I had just moved from Dimension to Work Stations while the Optiplex engineers started to expand their staff significantly. The Optiplex leaders decided that they needed a new factory. For some reason, I was asked to attend their engineering planning meeting. Maybe I was supposed to be a spy, but if so, that was lost on me at the time. The Optiplex engineers were justifying a new factory by showing that the new factory could build more of the new computers per labor hour than the old factory could build the old computers for the same labor hours. I pointed out the very obvious fact that both still used two people to build a computer from start to finish, and the only reason the numbers were better is that the newly designed computer was used in the new factory and the old design in the old factory. If the new product were built in the old factory, they'd get the same numbers as the new factory. I was told I was to be just an observer and not invited back. Since that first day of opening up that factory, they have never been able to meet the production capacity that was promised in the beginning, even though millions were spent every year to upgrade it. It took several years, but they finally gave up and shut it down.
After leaving Dell, I went to work for a very small, but successful company in San Marcos, Marshall Gas Controls. They had garnered about 80% to 90% of the US market in propane grill regulators. They had invested heavily in an entirely automated robotic factory to make their product which they intentionally designed to not be easily built by hand, to discourage copy cat manufacturers that had plagued it in the past. I was hired to help them realize the full potential of their factory, they couldn't seem to consistently get above about 50-60% capacity, and often much less than that. By the time I left, the factory was starting to regularly attain 90% capacity. Most of this was due to my colleague, Reese, who was brilliant at measuring and controlling incoming component quality but his work was possible only from the data collection systems that I helped improve and make usable. The factory was really beginning to hum. But then a snag occurred. One of the machines kept jamming and our experience told us that a component was out of spec. Sure enough, the seat disks, perhaps the most important part of a regulator, and in our case too small to be readily seen well by eye, were misshapen. Reese inspected and under the microscope the flaws were obvious.
And now comes the part of this tale that causes me to include this story. My boss, Mark, the cowardly, hypocritical, bible thumping, holier than thou, bigoted smart aleck, made the decision to build the product anyway because he theorized that the testing equipment should stop any bad regulators from getting shipped. Even though we knew of the problem, even though we had enough clout with our suppliers to get a new batch within a day or two, he decided to not tell anyone above him and just send our customers junk. Dangerous, flamethrowing junk. How would you like to be barbecuing some chicken and suddenly get fire balls coming out of your propane regulator?
And that's still not the worst of it. When the customer complained, Mark and his boss tried to hide what happened to the owners of the company. They blamed everything under the sun. They tried to blame me. In fact, another engineer warned me that they would. (I had never worked with such complete red necks before, and the social division in the factory between hispanic engineers and white engineers was pretty dramatic. This was one of the very competent hispanic engineers offering me this pointer, he saved my butt. For a short time anyway.) I redoubled my efforts and was able to prove exactly what happened that caused the problems in testing, problems that I was able to prove existed before I was ever hired and told was perfect. In fact Mark was very clear he didn't want me wasting time on it when he hired me.
But none of that mattered. The biggest customer, Charbroil, dropped our product. The company shut down and moved its operations to Mexico where they made their old style regulator by hand again. I and almost everyone else was let go, including poor Don, one of the three readers of this blog, who had only been with the company for a month after relocating his family from out of town.
In all these cases, these factories were shut down, not because the product was inherently bad, not because business had soured, but because people who were supposed to be smart, people paid to make sound decisions, made dumb ones either through misfeasance or malfeasance. In most cases those people are still employed as managers. No one puts on their resume that they worked at Apple as a director and it was their stupid decision that shut down a potentially profitable factory.
Even Gil Amelio, a man who failed spectacularly as Apple's CEO, is still earning millions of dollars to this day. Once someone is in the club of making that kind of money, they never really leave it. But the disaster left in their wake causes devastation to the lives of people not in that club. These are the people who caused the financial melt down with subprime mortgages. These are the people who thought merging a failing Hewlett Packard with a failing Compaq would make, not one big failing company, but somehow a miraculous and successful company.
I want no part of that anymore. I do not wish to rely on someone else's control of a business. I've seen what the so called smart MBA people do, and I fail to be impressed. I will run my own business soon, and I will fail or succeed based on my own talents and abilities.
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