In the age of shareholder value and pennywise,
poundfoolish corporate behaviour…, the disappearance of
the so-called ACME companies and their large laboratories for fundamental and
targeted research will have a negative influence on human development. Many of
their inventions in the fifties and sixties of last century colour our daily
lives in the 21st Century. Now that those laboratories have gone foregood under
pressure of spoilt shareholders, there will probably be an “invention gap” in
the second half of this century.
ACME (i.e.
A(merican) Company Manufacturing Everything) was the universal all-purpose
company from the Looney Tunes cartoons that supplied eternal anti-heroes like
Elmer Fudd and Wile E. Coyote with an endless flow of fireworks and
explosives, building material, electronics and whatever you could think of, to help them catch their drawn adversaries: you name it, they got it.
In real life,
there were also a number of such ACME companies in the last Century: ITT,
AT&T, General Electric, Siemens, Philips, Hitachi and Sony were companies
that sold almost everything electronic and non-electronic to the whole world. Their products ranged from airplane motors to computers, telephones, batteries, cassette tapes, generators, trains, CD players and draglines.
Almost all
these large companies had large laboratories where not only targeted, but also
fundamental physical and chemical research was done. All this research led to
countless inventions and new developments. The unbelieveable standard of life
in the 21st Century would not have been possible without the efforts and
achievements of these laboratories of these and other multinational companies.
However, as
of the Nineties of last century, the urge for higher profits and elevated
shareholder value forced many multinational companies to abolish their big
laboratories, as they were “not efficient enough, not visible in the short-term annual
results and much too expensive to be maintained”.
This happened
to Philips that largely abandoned their worldfamous NatLab in the Nineties and Zeroes: initially under pressure of a threatening bankruptcy, a.o. as a result of the excessive expenditure of the laboratory and a series of costly flops and blunders that squandered the company's profits. Later as the consequence of a series of cutbacks by subsequent CEO's.
It also happened to many other companies, like for instance AkzoNobel that sold their top-notch pharmacy branch Organon.
It also happened to many other companies, like for instance AkzoNobel that sold their top-notch pharmacy branch Organon.
Fashionable
expression like focus (i.e. focussing on one or two successful core activities
while abandoning the other, less important or profitable activities of the
companies) and shareholder value (i.e. maximization of the profit and dividend
payments towards the shareholders) got hold
of the boardrooms of the large companies, driven by aggressive, gung ho shareholders.
These shareholders made the executives focus on the (easy) short term profits and revenues, instead of on the long-term where the harder to get, but really interesting profits and revenues lie.
These shareholders made the executives focus on the (easy) short term profits and revenues, instead of on the long-term where the harder to get, but really interesting profits and revenues lie.
A few weeks
ago, the Dutch, Nobelprize-winning professor Ben Feringa spoke about this phenomenon
in Davos, while
pondering about
the start of his career at the Shell Laboratories in The Netherlands.
He noted with
sadness that many of the large corporate laboratories had been closed in the
meantime, “as companies had shifted their
interest towards the short term”. Even the research centres of large universities had often been victimized
by the omnipresent desire for targeted research and short-term gains, under
pressure of the government and the corporate principals of such research. Budgets
for fundamental research have been cut on behalf of targeted research.
Feringa argued
that fundamental research pays off, even if the results of such research seem
to be disappointing or even totally useless in the short term.
According to him
the latter does not mean that it is wasted money, as intermediate results may give imput to new and more successful research or to new applications of used
techniques and methods.
In Davos, Feringa
stated that almost everything in for instance nowadays’ iPhones had been
invented in such research laboratories during the Fourties, Fifties and Sixties
of last century: LCD screens, transistors and many other electronic components that are now part of numerous high-tech electronic devices.
What companies have forgotten, according to Feringa, is that it sometimes takes more than half a century to turn the fruits of fundamental research into viable products that can be brought to the market.
What companies have forgotten, according to Feringa, is that it sometimes takes more than half a century to turn the fruits of fundamental research into viable products that can be brought to the market.
It is 2018
now: when we apply Feringa’s logic to the present day, it means that the
fundamental research and the inventions being done today would create the
solutions and commercial products of 2050 and much, much later.
The fact that
such fundamental research is NOT performed anymore these days (i.e. to a much lesser
degree than in the Fifties – Eighties of the last century), could mean that the
large companies will probably run on empty in the end.
They simply miss the fundamental research, innovative solutions and inventions that they all require in order to develop new, groundbreaking products in the future. You could call this the ultimate form of Pennywise, Poundfoolish: taking a rain check on the future by saving money today.
And so, as a matter of fact, we are all living in the Age of Pennywise, Poundfoolish. Of course, you could argue that Elon Musk of Tesla has fired a Tesla car into outer space, using one of his own innovative rockets – the Falcon Heavy rocket – as a proof of his own innovative force.
They simply miss the fundamental research, innovative solutions and inventions that they all require in order to develop new, groundbreaking products in the future. You could call this the ultimate form of Pennywise, Poundfoolish: taking a rain check on the future by saving money today.
And so, as a matter of fact, we are all living in the Age of Pennywise, Poundfoolish. Of course, you could argue that Elon Musk of Tesla has fired a Tesla car into outer space, using one of his own innovative rockets – the Falcon Heavy rocket – as a proof of his own innovative force.
Isn’t that exciting?!
But please
explain me then how much Musk’s rocket technology differs from the groundbreaking
Saturn 5 Rocket that Freiherr Wernher von Braun developed and built in the Fifties and
Sixties of last century. I think you will know the answer.
The only great difference between the Saturn and Musk’s Falcon Heavy rocket is the fact that parts of the latter could land on earth again, thus reducing the costs of a launch considerably. However, when this is the only technological breakthrough in fifty years of rocket science since the Apollo launches, than it is quite disappointing, isn’t it?!
And it is the same with the self-driving car. The (computer and telematica) technology behind it is both innovative and exciting, but the majority of the foundations for it has been invented in the sixties and seventies of the previous century.
This proves that good inventions go a long way, but also take a long time to turn into something profitable. When the fundamental research – leading to such inventions – is not performed anymore, the innovation might stop eventually.
The only great difference between the Saturn and Musk’s Falcon Heavy rocket is the fact that parts of the latter could land on earth again, thus reducing the costs of a launch considerably. However, when this is the only technological breakthrough in fifty years of rocket science since the Apollo launches, than it is quite disappointing, isn’t it?!
And it is the same with the self-driving car. The (computer and telematica) technology behind it is both innovative and exciting, but the majority of the foundations for it has been invented in the sixties and seventies of the previous century.
This proves that good inventions go a long way, but also take a long time to turn into something profitable. When the fundamental research – leading to such inventions – is not performed anymore, the innovation might stop eventually.
And to make
things worse: virtually the only companies that ARE heavily investing in
(fundamental) research are information-driven companies, like Amazon, Facebook,
Uber, AirBnB, Google and Apple. Companies that mainly sell and exploit information and customer data, but hardly sell tangible products (i.e. except for Apple of course).
The research of these companies is probably mainly aimed at slicing up the human mind in order to see what makes us all tick. The results of this research will make people more sensitive for the products and services of these companies, as well as for the targeted adverts of (now) Facebook and Google. I dare to state that such research will make us all more addicted to usage of information technology and social media in general; something that does not make us more happy per sé.
The research of these companies is probably mainly aimed at slicing up the human mind in order to see what makes us all tick. The results of this research will make people more sensitive for the products and services of these companies, as well as for the targeted adverts of (now) Facebook and Google. I dare to state that such research will make us all more addicted to usage of information technology and social media in general; something that does not make us more happy per sé.
In other words: this is not
the group of companies that would take us to the stars in another galaxy; rather the contrary, I
would say!
The
disappearance of the large laboratories is a symptom of a much bigger problem
in the Age of Pennywise, Poundfoolish. Another important symptom is the slow, but definitive disappearance of the large conglomerates like Philips, Sony,
Siemens and General Electric.
Even though
the companies and their names remain on the market (mostly), they have often changed beyond
recognization. Many of their former subsidiaries and divisions have been sold or turned into
independent companies, under pressure of modern executive managers and
aggressive shareholders.
In case of
Philips, the Dutch multinational electronics company, this has happened to for
instant the divisions Lighting (now Philips Lighting which has an independent quotation and is cut loose from the mother company), semiconductors (now NXP), lithographic semiconductor technology (split into ASML and ASMI) and televisions/flat screens (sold to the Chinese TP
Vision).
This de facto split up
of the former Dutch ACME company Philips
is very much regretted by former CEO Jan “Hurricane Gilbert” Timmer.
Timmer was responsible for the largest rescue operation in the history of Philips, in which 45,000 people lost their job, but his efforts kept the company afloat and made it turn back to prosperity.
Due to his past, Jan Timmer is an unsuspected, but nevertheless influential advocate of the large conglomerates that Philips once was and a very important one.
Timmer was responsible for the largest rescue operation in the history of Philips, in which 45,000 people lost their job, but his efforts kept the company afloat and made it turn back to prosperity.
Due to his past, Jan Timmer is an unsuspected, but nevertheless influential advocate of the large conglomerates that Philips once was and a very important one.
In spite of
his high age of 86 years, Hurricane Gilbert still has a sharp vision on the
current multinational companies that are much more monolithic than their peers in the last
century, as the following snippets of an interview of Jan Timmer with Het
Financieele Dagblad prove:
The most important reason for Timmer
to write his book discloses itself at the end of it. There he starts a ‘personal
quest’ to find the causes for the massive shrinkage of the multinational. From a
conglomerate that is active in the production of telephones, computers,
lighting, semiconductors and chip machines, Philips turned into a producer of
medical equipment alone. Especially the executive move to abandon the origin of the
company – the Light division – was the reason for Timmer to express his
thoughts on paper.
“In Africa I saw how large
South-African companies were organized. They were set up as conglomerates, in which the
separate parts had a quotation at the stock exchange. The mother company kept
the majority of the shares, but the subsidiaries had an independent management
team and an own Profits & Losses account. Such a set up had been my ultimate goal for Philips,
instead of the large firesale that took place during the last decades.”
“Should Philips have kept a majority share in
Lighting?”
“Yeah. With Philips as majority
shareholder, Lighting would have been better protected. Otherwise it becomes a
bitesize chunk. That is the biggest drawback and risk of mono companies [i.e. companies
with one single range of products – EL].
You can’t warrant continuity with that.
After I left the mindset took a wrong
turn. At the beginning of this century the company came in the grasp of
American ‘corporate fashions’ like focus and share buybacks. After the sale of
Polygram Philips was financially healthy again and thus the company should have
made plans for the future.
We sold Semiconductors in 2006. But then what?! We should have made a blueprint for what to do with the money. Unfortunately, I don’t have the idea that there was a plan. All that focussing that Philips did only makes a company vulnerable.”.
We sold Semiconductors in 2006. But then what?! We should have made a blueprint for what to do with the money. Unfortunately, I don’t have the idea that there was a plan. All that focussing that Philips did only makes a company vulnerable.”.
I agree so much with what Jan Timmer stated in that interview. Roughly three years ago, I expressed similar doubts in Philips’ current strategy in one of my articles:
Philips was an opaque company with an
opaque geographical structure, opaque profit centres, an opaque production and
marketing structure, opaque cash flows and opaque profits. There were just
simply too many products, too many plants, too many departments, too many
geographical profit centres and too many management layers and managers,
leading to numerous ‘islands in the stream’ doing their own things,
irrespective of what the executive management wanted.
But yet, it always seemed to work
after all…
That is, until the company fell in the
hands of a series of managers with less passion for engineering than for
shareholder value, short-term economics and commercial management.
After a few extremely expensive
inventions and developments went awry, because they were ill-thought through,
poorly marketed, superfluous or simply too far ahead of their time, the
subsequent CEO’s have torn the company slowly, but surely apart.
Factory after factory in The
Netherlands and other Western European countries has been shut down, while the
production moved to the Eastern European and Asian low wage countries. The
head-office left its century-old roots in the city of its founders Eindhoven,
in exchange for a new establishment in the more ‘mondain’ Amsterdam, which was
close to international airport Schiphol.
And the number of subsidiaries,
production lines and business units of Philips that were either merged with
other companies through joint ventures, have been turned into independent
companies or have been sold to other companies, has been long and growing:
ASML, NXP, Polygram, Whirlpool, UPC and LG Philips LCD to name only a few.
After yet another strategic turnaround
in the past decade, that should change the company into a leading developer of
healthcare equipment, the company existed only of three main divisions:
Consumer Lifestyle, Healthcare and Lighting. And since last year, Philips Lighting
is also tagged with a “For Sale” sign.
This was definitely a shock for the
avid endorsers of Philips, as Lighting was the oldest branch of the company. On
top of that, during the last, very turbulent decades it has often been the last
straw for the company to clutch at, when all else failed. The lighting branch
has traditionally been a very stable cash cow over the years and Philips did
more than its share of inventions, on their way towards effective and extremely
energy-efficient lighting solutions.
The only
thing that we all can do is hoping that the classic conglomerate companies, that have been responsible for so many inventions and so many cool products, can
wrestle themselves loose from these disturbing trends of 'focusing' and ‘shareholder value’, in
order to get away from the Age of Pennywise, Poundfoolish.
There should
be a future for innovative conglomerates that think about their long-term interests, their personnel and
their customers, rather than thinking about the immediate needs of their shareholders alone.
And there should be a future too for the large physical and chemical laboratories that brought the world so many scientific breakthroughs and cool inventions.
The human race is now more than ever dependent on that, in the age of climate change and global heating, leading to worse global droughts and higher sea levels than ever.