Timmy elsewhereApril 13, 2014 Tim WorstallTimmy Elsewhere3 CommentsAt the ASI. But companies don’t try to maximise short term profits. previousOh dear Nick, Oh dearnextRitchielogic 3 thoughts on “Timmy elsewhere” Bloke in Germany April 13, 2014 at 6:48 pm A few observations. The drug business (where I declare an interest) is a bit odd in many ways. Especially in that established, in some cases centuries-old companies (albeit after decades of M&A) are still doing basic R&D that pays off, while in more modern sectors a lot of the progress comes from upstarts with a good idea and a few million in VC. The drug companies are increasingly going that way. Leave the risky pre-clinical and early human stuff to an upstart, buy it once it becomes interesting and the startup doesn’t have the financial clout or contacts to get it into phase III (the trials used to find out if it statistically works well enough to get a license). Even in the drug business there was a massive pullback in clinical development in the wake of the financial crisis, and they spend more on sales than on R&D, even despite regulation here. I am old enough to remember being taken to classy restaurants by drug reps or slap-up meals as inducement to get a response to authorities out, now you see pharma stands at conferences with big signs like “Free coffee for everyone except state-licensed physicians in Ohio”. Which interestingly leaves the market open to technical service providers with no financial interest in any purveyor of snake oil, like myself. Second, you are ignoring the human aspect here. Senior management’s personal interest is to maximise short-term profit because that maximises his remuneration in the next job (you know, the one that determines what he gets paid now). These guys are regarded by institutional shareholders as interchangeable cogs of some sort, industry experience be damned. How else do you explain the current Lufthansa CEO moving to the top job at Roche? OK, he worked at DB, so buying trains and fuel and selling tickets being not hugely different from buying planes and fuel and selling tickets makes huge amounts of sense. But what specific skills can he bring to the snake oil business? The world is replete with 3-year CEOs who “turn around” an ailing company. First year – hire an army of clueless 23 year-old graduates from a big management consultancy at €4000 per day plus weekly business class flights and 5 nights in a 5-star to give weekly Powerpoint presentations and fiddle with Excel. Second year – institute the usual recommendation to fire 30% of the staff and overwork the rest. Provision in the redundancy costs and inevitable court cases. Third year – watch the loss turn into a profit and leave the carcass to the next sucker as all your customers leave. Bloke in Germany April 13, 2014 at 6:58 pm I should add, that 3-year strategy has the additional advantage of taking a competitor out of the game – someone who made a sow’s ear out of the golden goose egg you left them. Bloke no longer in Austria April 13, 2014 at 7:21 pm I have to concur with my colleague vom Vaterland. There is a distinction to be made between the entrepreneur/capitalist who, if not actually owning the means of production has a considerable stake in it; and the mature company run by a “management”. These latter companies, invariably run by accountants or people with MBAs, cannot see beyond that year’s bottom line. It is not in their interest to do so. Their remuneration and bonuses depend on how well the company is doing and often by how big savings were that they have made ( if the company is making a loss). These are invariably service companies of some sort, who have no need to consider investing for the future, but rather to sweat the assets (i.e. their human resources) that they have. Some of the firms in this sector are even running shy of Govt. contracts because they can’t be bothered to think 10 years ahead and that the rewards at the end of the contract aren’t worth the investment ( especially if they are useless and waste vast sums on afore-mentioned consultants or generally incompetent management). Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.