General updates and Miscellany - Page 2

Velociryx · May 30, 2002, 21:57

And to chime in a bit on the side discussion born of this thread, I gotta agree with Og on it.

In fact, one of the articles made mention of something relevant to the discussion, IMO.

The notion that, due to the high turnover rate in the industry (partly brought on by the fact that design houses as a rule live close to the bone, surviving via tablescraps fed to them by the publishers), the gaming industry is constantly reinventing the wheel.

Yes, it's true that small, nimble design houses invariably spring up to take the place of the older, more established ones that sink, but rather than truly innovate, they incrementally change, and spend much of their time re-inventing stuff that has already been done (basic GUI interface, MP code, etc).

Imagine if there was a design house that didn't have to abide by the industry standard rules of the game to survive. Imagine such a company stockpiling working bits of standardized code for games, much the same way companies that produce bizapps and utilities do. Less time spent reinventing the wheel is more time spent innovating, no? But fledgling design houses never seem to be in a position to do that.

-=Vel=-

TCO · May 30, 2002, 21:59

Quote:

Originally posted by Velociryx

That said, carry on with the side conversation!

-=Vel=-

Thanks chief! Do I just need to keep you happy or do I need to watch out for Kermit calling my posts off topic?

Velociryx · May 30, 2002, 22:06

Well said, Papa GP, and just so you know...I *do* respect your input and expertise where the business end is concerned.

True, we may disagree on some of the particulars, but I recognize that you're a smart guy and you conduct yourself with the kind of confidence that comes from success. So yes...have no fear or doubt that your words are not only being heard, but they're being listened to.

And as to the drinks....you know, Atlanta is not so far away....

I must confess to absolutely despising the 285 loop (only place I've *ever* gotten stuck in a freakin traffic jam at three in the morning!), but aside from that, perhaps we should kick back and have a few of those drinks in the near future....sounds like we both get pretty intense when talking about our favorite subjects....I'll ramble on endlessly about my ideas on game design and crafting good stories and such if you let me!

As to the off topic nature of the conversation....this is the general thread. The conversations at hand may not relate directly to the CB project, that's true, but there is a certain value to them in the sense that they're instructive re: business operations and such.

So in that regard, while the conversation now raging is a bit OT from the earlier one, I view the general thread as being organic in its essential nature, and prone to grow and twist where it will.

Carry on! It's on topic in the general sense!

-=Vel=-

TCO · May 30, 2002, 22:10

Quote:

Originally posted by Velociryx
And to chime in a bit on the side discussion born of this thread, I gotta agree with Og on it.

In fact, one of the articles made mention of something relevant to the discussion, IMO.

The notion that, due to the high turnover rate in the industry (partly brought on by the fact that design houses as a rule live close to the bone, surviving via tablescraps fed to them by the publishers), the gaming industry is constantly reinventing the wheel.

Yes, it's true that small, nimble design houses invariably spring up to take the place of the older, more established ones that sink, but rather than truly innovate, they incrementally change, and spend much of their time re-inventing stuff that has already been done (basic GUI interface, MP code, etc).

Imagine if there was a design house that didn't have to abide by the industry standard rules of the game to survive. Imagine such a company stockpiling working bits of standardized code for games, much the same way companies that produce bizapps and utilities do. Less time spent reinventing the wheel is more time spent innovating, no? But fledgling design houses never seem to be in a position to do that.

-=Vel=-

I think a big part opf the problem comes from the labor market itself. There are a lot of cheap employees out there. There are a lot of prima donnas. There are a lot of people getting frustrated with the indsutry and leaving it. There are new people, like y'all coming in all the time.

The big integrated houses are able to acheive some of the continutity that you discuss.

An intersting point that he makes which I agree with is the need for mor evolutionary (less revolutionary) game design. Wrt civ3, I would have been happy if they just did the following:

-removed the cheats which Ming coumented in his protion of the list
-updated the graphics
-added a couple new units, buildings and civs
-made the AI smarter (not by stripping features but by desinging better subroutines...like AS's subroutine for settler behavior.)

That would have done it for me. Civ2 is a GREAT game. Just tweak it and make it smarter and I'd be happy...and so would a large portion of then people who bought Civ2.

Instead, they put in a bunch of new features tha didn't all work and in some cases screwed up some of the good parts that were in Civ2...oh and finished with a product that was not polished. (This is exactly what the article writer warned about.)

Velociryx · May 30, 2002, 22:16

An excellent point, GP, and to bring our earlier discussion back into the side conversation a bit, I think I may have hit upon one of the reasons we are on somewhat different pages re: our ideas.

Essentially what I am describing is more of a Foundation than a Corporation.

Foundations are generally self sustaining (from cross subsidization, or really fat bankrolls left them by wealthy individuals, or such similar things), that exist for a specified purpose. They may sometimes behave similarly to corporations, but are in fact, quite different animals, and the "normal" rules of economics don't generally apply to them (in the sense that, regardless of market conditions, the Foundation exists to serve whatever purpose its creator(s) envisioned....unbound by competitive constraints or any other considerations.

-=Vel=-

TCO · May 30, 2002, 22:17

Vel, PM with your real life particlars (name, location, phone #). I'll reply with mine. If you are in ATL (ever fly through?) let me know ahead of time if possible. I will buy you a brew...and probably be more gentle in person than I am on the boards.

Are you near 85? I drive up every now and then to DC. Could stop en route.

WRT 285, don't sweat it. I live WELL within the Perimeter (in the city rather than the burbs.) As long as you arrive at ATL outside of rush hour, you are fine. I live in VA Highlands, walking distance to bars and stuff. Traffic is no issue there, country cousin.

Velociryx · May 30, 2002, 22:22

Just sent the PM, Master GP, and while I'm not terribly close to I-85 (20, 26, and 95 are the highways that run through Columbia), I can get to 'lanta in +/- four hours, depending on prevailing winds, speed traps, and good fortune in nestling my little truck in between some big rigs heading westward.

Walking distance to the bars is a good thing, BTW....after a few hours spend finding the bottom of several pitchers of Margaritas or somesuch, driving can be a bit of a test...

-=Vel=-

TCO · May 30, 2002, 22:42

Quote:

Originally posted by Velociryx
An excellent point, GP, and to bring our earlier discussion back into the side conversation a bit, I think I may have hit upon one of the reasons we are on somewhat different pages re: our ideas.

Essentially what I am describing is more of a Foundation than a Corporation.

Foundations are generally self sustaining (from cross subsidization, or really fat bankrolls left them by wealthy individuals, or such similar things), that exist for a specified purpose. They may sometimes behave similarly to corporations, but are in fact, quite different animals, and the "normal" rules of economics don't generally apply to them (in the sense that, regardless of market conditions, the Foundation exists to serve whatever purpose its creator(s) envisioned....unbound by competitive constraints or any other considerations.

-=Vel=-

Very interesting comment. I would just add a few things. Foundations are generally tax exempt. Maybe something you could consider...but you may have a hard time convincing the IRS to recognize a "computer game charity".

Foundations typically have a portfolio of investments that basically approximates a mutual fund. Nowadays it is often just a set of mutual funds. They also typically have long time horizons and spread their bets. So they will put a bit of money in several different places. If you only plan on betting on one item...and on doing it now. There is less need to set up a foundation. You would just directlyu invest in that project/charity/research. If the converse is true, you really may need to get hundreds of millions like incred said.

I would also mention that most foundations would be very hesitant to give money to a biologist who was working on cancer research part time. They want to give their money to people who are focused on the task. Just like a VC. They may not care about profitability, but they do want to get high returns in terms of success. And these are more lilkely from someone who is focused.

TCO · May 30, 2002, 22:45

Quote:

Originally posted by Velociryx

Just sent the PM, Master GP, and while I'm not terribly close to I-85 (20, 26, and 95 are the highways that run through Columbia), I can get to 'lanta in +/- four hours, depending on prevailing winds, speed traps, and good fortune in nestling my little truck in between some big rigs heading westward.

Walking distance to the bars is a good thing, BTW....after a few hours spend finding the bottom of several pitchers of Margaritas or somesuch, driving can be a bit of a test...

-=Vel=-

I have 10+ bars in a 3 block radius of my house.

How far are you from DC? I could consider making a side trip on my way up.

Ogie Oglethorpe · May 30, 2002, 22:53

Hey GP,

Hopefully Vel will let us ramble here a while. If not, I'll soon be relocated to Atlanta and we can follow this up over a round or two or three (youget the point) of drinks.

Topic One

Do I think companies are investing in R&D enuff?

Well firstly, I think companies don't reinvest in their core competancies enough. If R&D is their core competancy then that may apply. If its large capital expenditures that are the barrier to market entry and they are good at it then that may be the ticket. If it is great customer service etc. etc. The prob as I see it is the same one I alluded to earlier with Vel. In order to capitalize on synergy, one truly need understand their inherent strenghts and weaknesses.

We'll go back to Dupont for a sec. (But there is actually a similarityto the business practices Dupie used vs. pharmas today). Dupie relied on the ability to innovate. Each innovation be it Kevlar, Lycra, Teflon, Polyester, Graphic Arts products, etc. established them as a first mover in almost every market they entered. With that came a fat dumb and happy approach to managing their businesses. They leveraged to the hilt their patents knowing full well that no competitors could play in their markets, but it worked.

Point being at some point some clueless CEO forgot this was a core competancy and decided that in order for Dupie to be competitive they would have to be a low cost producer. Dupie of course being foreign to this concept could never adapt. It's like asking a fish to breath air. First order of business in cost cutting measures was to look at mfg costs followed very closely by cutting overhead and indirects resulting in loss of a core competancy (in this case R&D). At the time wall street applauded the action and the short term gain made the CEO quite happy as he exercised his options. (Ironically, Dupont was one of the last in the Industry to follow the cost cutting trends so there was absolutely no way they could ever be cost competitive with competitors that would spring up as patents expired.)

Do I think its a societal issue or a shareholder issue? I guess my point is simply this. Shareholders in demanding the returns they demand are not going to have the best long term interests of the company in mind. Afterall when things get tough there are a number of different ways to make this quarter number look good. This coupled with what I believe are improper incentives to CEO's and overall poor CEO leadership in general (with a couple of notable exceptions) leads to a short term mortgage the future appraoch that the US is all too well known for. Short answer is both. (Whenever I hear of a announcement of a divestiture the hair on the back of my neck stands up. Not so much that the company is looking to shed some diversity if the situation warrants it but moreso I wanna know what the plan is for the cash fromthe sale. The late 80's and 90's were a boon for divesting parts of companies. But more often than not the cash simply evaporated as CEO's simply bought back stock that gave an immediate rise but eventually tanked. No real plan for the growth either internal or via aquisition)

By the by I am not a fan of government doing basic research either. Just my own political views on this as I generally feel the government woefully inept and wasteful.

Point 2 -Do I think that investors will fund long term big ticket/big risk items.

Truthfully I don't think Mr. Market has the patience for it. So no. I don't. Overruns and delayed project starts etc. seem to poison the atmosphere. You may not be a big fan of the MBA weenies ( I'm not either) but one of the first things they learn and most forget is the lesson of sunk costs. Each additional opportunity to invest need forget the sins of the past and need only worry about the probability of success and returns for the future. I don't see that kinna response from Mr. Market. One misstep and your literally hosed.

Point 3 - ABility to raise venture capital. I have no real arguement on anything you posted regarding this. US has always been innovative in finding ways to generate venture capital. In the 80's it was junk bonds, 90's dotcoms, who knows what it will be in in the 2000's but I'm sure some wall street wiz will put together the latest sexy derivative that will be the rage.

Finally, all things are cyclical. RE will again be a rage at some point just as bonds were, stocks are/were/will be. As with everything it depends how long your in for, what return/risk are you willing to take, how much liquidity you need etc.

Og

Edit - Damn you guys cross posted a lot whilst I made up my verbose reply. LOL

Skanky Burns · May 30, 2002, 22:57

Quote:

*Actually neither of us is really a pc slut. We post a lot. But our posts are usually long. Well this one isn't....but usually they are. Umm...and we know who the real slut is. I won't say his name, but the initials are S...K...A...N...K...Y!

Hey, I may post quite a bit, and those posts may be a little on the short side (ok, they are almost exclusively short), but they are always to the point, and either relevant or humourous, sometimes both.

I think you're just naming names to take the focus off of you!

Anyway, don't stop your conversation with Vel/Og, I find this interesting (although I don't have much by way of economic knowledge, besides Econ 101 last semester (which is only useful if someone needs a budget drawn up

) ).

Velociryx · May 30, 2002, 22:59

That'd be pretty sweet too! There's a lil' Mexican place just a few minutes from my house (one of my favorite hangouts, actually). And DC is exactly 479.36 miles from my house, according to MapQuest.

And, I almost cross-posted with Og...nahhh, I think the conversation is just fine, and topical in its way...some excellent discussions going on here, and as always Brother Og, your post is well reasoned and well considered! And, when you get to Atlanta, we'll have to have a wampum big party indeed!

-=Vel=-

xRamsesx · May 30, 2002, 23:08

Vel and GP talking like old friends??

Methinks it's prolly the lack of sleep affecting my perceptive abilities ...

Since I see some of you are well versed on business practices, I have a question about the game dev/publishing industry? A few months ago I was researching the rates paid by publishing companies and apparently it ranged from 10% for new dev. teams to 30% for the established ones. I understand (more or less) why payout rates are so low for new dev. teams due to the high risk the publishing company is taking, but for established companies that are almost guaranteed to produce a hit, why the low 30% (at least i think 30 is pretty low). Does advertising, tech support, packaging & distribution really cost that much? My question might seem naive, but I've thought about it time and time again and can't seem to justify why established dev. companies accept such low rates. Or is it because the industry is still more or less in its infancy so things haven't quite settled in favor of the dev. shops yet?

Any of you business gurus have an answer for me?

Ogie Oglethorpe · May 30, 2002, 23:14

Xramses,

I'll be the first to admit, I don't know. Never had much to deal with either publishers or game developers. I assume there is a reason even if its only that there isn't enough competition.

Maybe someone else has a clue.

Og

Velociryx · May 30, 2002, 23:17

Hiya Ram!

Papa GP and I were just discussing the possibility of some drinkages! We shall have to get you down this way soon too, to join us!

Did you get my message sent via the Illuminatus? The plan is to turn GP into a *total* drooling CB convert and make him one of the Skanky Mafia's chief assassins...this, combined with his business experience (we'll also make him the head biz-guy type person), is another important step in our bid for global domination! (insert maniacal laugh track here)

Meanwhile, Moomin' will head up our drop-shock troops....first target will be Tampa (and after the successful insertion, we can roll in Skanky Mafia units for control), and with GP and Og in 'lanta, that'll give us a solid tri-state area as a base....

-=Vel=-

xRamsesx · May 30, 2002, 23:22

Quote:

Originally posted by Velociryx

Hiya Ram!

Papa GP and I were just discussing the possibility of some drinkages! We shall have to get you down this way soon too, to join us!

Did you get my message sent via the Illuminatus? The plan is to turn GP into a *total* drooling CB convert and make him one of the Skanky Mafia's chief assassins...this, combined with his business experience (we'll also make him the head biz-guy type person), is another important step in our bid for global domination! (insert maniacal laugh track here)

Meanwhile, Moomin' will head up our drop-shock troops....first target will be Tampa (and after the successful insertion, we can roll in Skanky Mafia units for control), and with GP and Og in 'lanta, that'll give us a solid tri-state area as a base....

-=Vel=-

I think I like that

Global Domination, here we come!

ravagon · May 31, 2002, 00:03

Bavarian Illuminati, Skanky Mafia, Frustrated Dead Poets Society ...
If it doesn't stop soon somebody's gonna have to make a list of those Society's NOT involved in Candle'Bre. It'd be much shorter.

Does anybody have much info on where exactly Paradox (of EU fame) came from, how they've done things, etc?
Running off first EU, then EU2, now expanding into the crusades and the 20th century wars ... all in small steps - releasing in one area at a time, (using the revenue from one release to fund the next whilst growing all the time?) - seems to be the sort of thing you guys could/are aim(ing) for - albeit on a smaller scale at first (I don't think the initial EU was exactly voluntary although most of the testers seem to be fan-volunteers).
They seem to have come up with an absolute gem of a strategy game and with their Blizzard-like continuous patching/fixing - their ever-growing fan-base seems pretty satisfied too judging by the 2 or so malcontents that have shown up here...

TCO · May 31, 2002, 01:08

Og,

I don't think any company has "R/D" as a core competence. They may have R/D as a core competence in a given area. but not overall. Dupont had this strategy that said they were going to be a life science company and were going to be smart R/D players and innovaters in pharma/chemicals/biotech/ag products. But it worked out PRETTY crappy for them. There really weren't that many R/D synergies from chemicals to pharma. Sure its all "chemistry". But polymer processing and new molecule research in pharma don't really cross-fertilize much. It was a pipe dream.

(BTW, I figure you are probably at the bid D, so don't take it personally.)

The other thing to realize is that businesses mature. Look at polymers. There have been NO major new (new chemical formula) commercial polymers since 1972! Sure, there's been new work in materials proccessing, in formulations (mixes), and in cheaper production methods. But no big new polymers. look at a chart showing polymer innovation. You can see how innovation was strojng in the 30's, great in the 40's and then gradually slowed down to nothing. (in terms of new chemical formulas). I think this is just a result of the inherent chemistry of polymers. Maybe we will have another big hit in the next 30 years, but no way a return to the pace of dicovery in the 1940's. So does it make sense to invest money into polymers the way we did in the 1940's? No. Its a maturing industry. Doesn't mean no R/D. Means less. And means different focus.

TCO · May 31, 2002, 01:17

Og,

Regarding divestitures, I generally prefer straight stock splits. These are beneficial for tax reasons and don't give the management a bunch of cahs to misuse.

Stock buybacks are not such a bad thing. Would you rather have them declare a special dividend and return the money directly to shareholders? A buy back is a better way in terms of the taxes of the shareholders. Sure you may buy stock when it is overpriced, but you may also do it when the stock is underpriced. Probably better to do it gradually over a year (declare to the market that you will repurchase over time.) If your stock is at a fair price, this will just be a value neatral transfer of cash back to the shareholders.

You still seem a little impresice about your views wrt R/D spending. If we accept your view that it is too little (I don't necesarily) is that because shareholders are "mean" but smart or because they are "stupid".

Oh and there is plenty of academic research showing that markets will put a decent value on research. See Tom Copeland's book Valuation. they found that more often than not announcements of R/D increases met with rising stock prices. Of course its not a universal thing. The market has to beleive that you are spending that money wisely.

TCO · May 31, 2002, 01:34

Oh one more thing:

I was at an ACS conference and heard a speaker complaining about the greedy shareholders not spending enough on R/D. I almost tossed my cookies. Give me a break, lady! You gotta show the business case for why R/D will generate more dineros. Not whine about the shareholders.

Reminds me of what one of the founders of ONR said about scientists: "They're as bad as the farmers, when they come grubbing for money..."

TCO · May 31, 2002, 01:35

Quote:

Originally posted by xRamsesx

Vel and GP talking like old friends??

Methinks it's prolly the lack of sleep affecting my perceptive abilities ...

Since I see some of you are well versed on business practices, I have a question about the game dev/publishing industry? A few months ago I was researching the rates paid by publishing companies and apparently it ranged from 10% for new dev. teams to 30% for the established ones. I understand (more or less) why payout rates are so low for new dev. teams due to the high risk the publishing company is taking, but for established companies that are almost guaranteed to produce a hit, why the low 30% (at least i think 30 is pretty low). Does advertising, tech support, packaging & distribution really cost that much? My question might seem naive, but I've thought about it time and time again and can't seem to justify why established dev. companies accept such low rates. Or is it because the industry is still more or less in its infancy so things haven't quite settled in favor of the dev. shops yet?

Any of you business gurus have an answer for me?

I'm not acquanted with the details of that industry. And I don't know what exactly that percentage you quote refers to (royalty rate?). But I'll give you some hyptheses.

1. supply and demand. There are a ton of people developing games. More than the ultimate end market can consume. This naturally depresses the price for selling a game's intellectual property to a publisher...and even keeps the price of finsihed games lower for consumers.

2. Cost. Advertising, marketing, etc. cost big bucks. no 2 ways about it. there are real costs in the distribution channel. Maybe that will change with self-publishing and the internet...but it's probably about 5 years away.

3. Collusion. (lack of competition among publishers.) This was Og's rationale. I don't buy it. There are a lot of publishers out there. And design houses shop projects around.

4. Risk. A new title (even from an established stable) still has significant risk. (Imagine Dinos). Only sequals are low risk. And they're not perfect either. Look at CTP2.

5. Advances. this is sorta tied in with 4. On many projects the publisher gives the developer an advance. The developer gets to keept that advance even if the game tanks (usually). So since the publisher is covereing the downside for the desing firm, he deserves more of the upside.

Ogie Oglethorpe · May 31, 2002, 06:31

GP,

Can't answer right now. I'll be on the road today. But I'll hopefully respond to this shortly. I find the discourse stimulating not?

Og

TCO · May 31, 2002, 13:45

Og, thanks.

I'm actually getting a little tired of explaining this stuff. If you want to make it more interesting for me, vector the conversation into something where you can share insights on more of a micro level from personal observation. Global comments like "companies don't spend enough on R/D"..or "shareholders are shortsighted" don't jazz me.*

*Unless you have some quantitative analysis the way I-banks, consulting firms and finance professors do...

moomin · May 31, 2002, 13:56

Quote:

Originally posted by GP
4. Risk. A new title (even from an established stable) still has significant risk. (Imagine Dinos). Only sequals are low risk. And they're not perfect either. Look at CTP2.

Hmm. Perhaps we should say that only sequels to successful originals should be considered safe? And CTP wasn't really a cash mill.

Ogie Oglethorpe · May 31, 2002, 23:14

Quote:

Originally posted by GP
Og, thanks.

I'm actually getting a little tired of explaining this stuff. If you want to make it more interesting for me, vector the conversation into something where you can share insights on more of a micro level from personal observation. Global comments like "companies don't spend enough on R/D"..or "shareholders are shortsighted" don't jazz me.*

*Unless you have some quantitative analysis the way I-banks, consulting firms and finance professors do...

Sorry you find it boring. Here I'll give it abit of jazz for you. Homework is read the below article in this months FastCompany. It describes the same sets of issues and distrust folks in general have with the market based system, exec compensation/incentives, lack of long term focus etc.

You may not agree with the authors but they express my same sentiments and seem to indicate this is becoming a nation if not world wide impression of market driven economics.

FastCompany June 2002, Memo to CEO's 5 Half Truths of Business

P.S. I Kinna find it interesting I just ran across this article this evening and thought it very topical.

TCO · June 1, 2002, 00:27

Didn't mean to squash you. Was just being honest. maybe equivalent to your frustration ijn dealing with somebody who doesn;t understand bench chemistry. (If that's what you do for the big D...)

You can still reply to my comments. Just realize my knowledge is based on a bit more econ, finance and business training/experience than reading articles...

TCO · June 1, 2002, 01:20

Og, I looked at that article. Fast Company was a silly magazine during the boom. They're a pathetic one, now. What they really should do is write an article on how much money is wasted by silly people who read the sort of tripe that they write or that CNBC spews (instead of just looking at a basic econ/finance book and THINKING).

The article did not impress me...

moomin · June 1, 2002, 05:54

Totally agree with GP on this on - a lukewarm re-hash of they usual anti-globalization matras by a bunch of academics looking for publication and perhaps angling for lecture tours 'bout today's hottest issues.

While there are certainly problems that need to be addressed - the proper balance of corporate profits going into incentive programmes for exec vs. the yield to shrareholders, for instance, that has nothing to do with the kind of nebulous buzz BS being demonstrated here.

Geez, I almost managed an OT rant. I'm bowing out right here, gentlemen.

Ogie Oglethorpe · June 1, 2002, 13:38

GP,

Not a prob bud. I'm far from squashed and matter of fact not even ruffled. I firmly believe that anyone who espouse profits only metrics to reward mangers/execs as well as value companies are way off the mark. You feel otherwise.

By the by, your read on me is off the mark as well. Am not nor ever was in the employ of Big D. I used them as an example because of my familiarity in many different markets/businesses with them as a competitor, supplier, customer and due to their name recognition. I also chose them because they are now going through what most companies went through earlier inthe 80's and 90's (its just they were so big and ponderous it took awhile for them to get into this situation)

I don't know your background or expertise other than what you say but if I was going to hazard a guess I'ld say you do a fair bit of market research and prolly do some finanical planning/advisory stuff for folks. That puts you in the position of being a person that likes to see hard and fast numbers. I can tell you firsthand from the other side of the equation (the managers position) it don't always work that way. Fuzzies have to enter into the equation. Nonquantifiables like morale, like customer satisfaction, like supplier partnering, like what you expect the competition to do etc. all need to be factored in.

This more than any reason is why I have big problems when profit only metrics are used and used to incent execs and managers. It much more than that. The end result is that shareholders should be rewarded by greater value but ......yadyada yada, you've heard all this and choose to think it BS.

By the by I've heard all the flipside arguements and you really haven't brought much that hasn't been beaten to death as well, so perhaps we should leave it for now.

Og

TCO · June 1, 2002, 15:06

Quote:

Originally posted by Ogie Oglethorpe
GP,

Not a prob bud. I'm far from squashed and matter of fact not even ruffled. I firmly believe that anyone who espouse profits only metrics to reward mangers/execs as well as value companies are way off the mark. You feel otherwise.

I don't just look at profits, I look at the rest of the balance sheet/income statement as well. [/cute]. To be serious, I also look at items like growth possibiliites. (do they have good R/D...defined as MORE than just are they spending money on it.) Also will look at things like how good is the management. How responsive is management to stockholder concerns. (Do they run the company as the stockholders representative or do they think it is their little fiefdom). Does the company have liability issues (wether justified or not, is not my concern. All i care is if they will have judgements against them.) Does the company have labor problems (airlines, auto companies). Is the company not laying off people when they need to or conversely laying off too readily. (Both can hurt you.)

Quote:

By the by, your read on me is off the mark as well. Am not nor ever was in the employ of Big D. I used them as an example because of my familiarity in many different markets/businesses with them as a competitor, supplier, customer and due to their name recognition.

Just reacting to the location field. But there are a bunch of evil chem and pharma and agchem companies up there.

Quote:

I also chose them because they are now going through what most companies went through earlier inthe 80's and 90's (its just they were so big and ponderous it took awhile for them to get into this situation)

Agreed. As well, I think it is instructive to look at the failure of their life science strategy and to THINK about why it appealed to management...as well as why it didn't work in execution.

Quote:

I don't know your background or expertise other than what you say but if I was going to hazard a guess I'ld say you do a fair bit of market research and prolly do some finanical planning/advisory stuff for folks.

Science/engineering/line management followed by an MBA and management consulting.

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That puts you in the position of being a person that likes to see hard and fast numbers. I can tell you firsthand from the other side of the equation (the managers position) it don't always work that way. Fuzzies have to enter into the equation. Nonquantifiables like morale, like customer satisfaction, like supplier partnering, like what you expect the competition to do etc. all need to be factored in.

No disagreement. And the interesting thing with the fuzzies is to try to decide how they fit in and what direction they push the solution. FASCINATING. Not an excuse to stop thinking though. Or to hide behind fuzzyness.

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This more than any reason is why I have big problems when profit only metrics are used and used to incent execs and managers. It much more than that. The end result is that shareholders should be rewarded by greater value but ......yadyada yada, you've heard all this and choose to think it BS.

Don't anticipate my remarks. I've never advocated profit only metrics for manager compensation. For one thing, profits are only a measure of time now performance. They don't assess growth issues. I have no problem with having other performance metrics to assess managers other than the bottom line. And I agree that there are other metrics which will eventually affect the bottom line. I do disagree with incentives for behavior that is not eventually connected to the bottom line. For instance, lets say we have one company (say a software developer) where worker job satisfaction has a strong link to company performance (financially). And you have another company (chemical plant) where worker satisfaction has a weak link to company performance. In that case, I would be more interested in incenting the first manager to improve marale than the second manager. That's what I mean about THINKING through the fuzzies.

Also the incentives for a middle manager have to be more related to his work center than the incentives for a CEO. The middle manager should have more fuzzy metrics in his incentives than the CEO. (Since the middle manager can not directly control profits as well as the CEO.) The CEO should have a significant (more than 1/2 for most companies) of his incentives be stock based. This gives him more of a long term outlook than making his compensation based on profits alone. (You do understand that 90% of the value of a stock is based on earnings after the current year, right?)

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By the by I've heard all the flipside arguements and you really haven't brought much that hasn't been beaten to death as well, so perhaps we should leave it for now.

Fine by me. Espcially if you are going to cite things like the FC article. (If you want a counter citation, I suggest Valuation by Tom Copeland and Principles of Corporate Finance by Brealey and Myers.) They will show you both my mindset (which I know you don't like...no problem there) as well as a higher standard of thinking than stuff like that FC article or stuff in fluffy, trendy business books. I doubt that I can convert you immediately to the dark side. But I can show you a higher standard of thinking. That should do for now. Sorry, no "links". Better to expend some skull sweat and read a real book.