Thursday, June 04, 2009

Big Business Distortion

So my wife recently changed jobs within her firm.

She went from managing $750 million in *costs* to managing $150 million (and dropping) in *revenue*. The pay is the same while the scrutiny and intensity is much, much higher.

She had to take this lateral move over to the *revenue* side because workers earn sooooo much more there. This is flat-out ridiculous. A penny saved IS a penny earned, after all. Meanwhile, the department she ran for years is now blowing up because, well, she left. Obviously, if they had compensated her commensurate with her responsibilities, she wouldn't have jumped ship.

But this is how Big Business rolls; they are all about growth and market share; costs be damned; and profits....well they too can be managed and easily transformed into the *next guy's problem*.

Why are large corporations' priorities so distorted?

Well, I assume it's a temporal thing. They just enjoyed a 30 year bull market in bonds and credit. But I think it also has to do with how freakin' big and bureaucratic they are. And, let's not forget that these Big companies are passively-owned and third-party-run enterprises. Compare their stinginess with that of your local pub owner or other proprietors.

A while back I mentioned the guy who used to own my watering hole:

I knew the now-deceased bar owner of Chaucers in Philadelphia pretty well and he was one cheap bastard. He regulated the amount of soap his bartenders used to wash glasses. He demanded a head on draught beer to shave his keg costs that 2%. He even put weird tape contraptions on the waitstaff's pens because he was convinced that they often rolled off the bar and into the trashcan. Meanwhile this filthy rich tightwad was always telling me about his million dollar semiconductor bets.

Of course one can't mint a fortune from simply pinching pennies....but, at the very least, the geniuses running Corporate America today ought remember the remedial math from their government school days, and put costs and revenues back on parity in their thinking.

See also - Marginalizing Revenue.


Taylor Conant said...


Intuitively I agree with this and I often find myself marveled by all the Big Business stupidity I witness around here, but then I try to stop and think, "Maybe there is a reason why things are the way they are that I am simply unaware of at the moment." Often, when I think of some more efficient solution to some problem I perceive, I realize that my solution wouldn't work because it wouldn't address some incentives that are in place that cause the seemingly inefficient status quo to remain in place.

Do you have specific examples or ideas as to why Big Business focuses on what it does, or how a Small Business growing into a Big Business might be able to avoid those pitfalls? Or is it unavoidable? And if so, does that seem to imply there is a "natural" prohibition against extremities of size because those businesses hit that peak and become unwieldy and unprofitable and eventually give up their market share partially or completely (bankruptcy)?

Also, you seem to be addressing two different ideas-- Big Business is inefficient business, and publicly-owned business is unaccountable business. Are they inseperable, or is it possible for a private company to be a Big Business that's inefficient?

What do you think?

Taylor Conant said...


Addendum: Interesting timing on this, LvMI just posted an excerpt from Mises' Human Action called "What Business Management is and what it is not"