The "religion" of profit maximization and cost minimization has a price - it's NOT GLOBALLY OPTIMAL OVER TIME for the survival of the organization (profits, anti-fragility, etc.) nor for the larger system of a national or global economy.
Mathematically, flat, non-cycle economic systems are IMPOSSIBLE. You can never achieve it WITHOUT introducing systemic instability because you are eliminating ALL the information REQUIRED to maintain feedback control and you are removing agility of the system. Once the error signal goes to zero, the system is 100% out of control! It's open loop. Then any "environmental" change can tip the entire system over where that could be a competitor, other nation or "act of God" disruption.
And this is what happens when you profit maximize/cost minimize to its ultimate limit. And on the way to that extreme, you are increasingly make the system more brittle and the probabilities of failure increase.
Re having all people being "productive", the reality of things like Price's Law also make reliability worse as an organization (corporation, government, etc.) grows.
Price's Law says that the number of people who actually do most of the work is proportional to the square root of the organization size. In the case of supply chains, most of the people who are "assuring system reliability" actually aren't and generally are incapable of doing so anyway. It's a reality due to network effects (adverse ones but the same dynamic as the good ones - you can't control or differentiate the two).
Note you can take it to the other extreme: not worrying about profits is just as bad if not worse. Socialism/Collectivism doesn't work either for similar reasons actually.
Something has changed in the last 10 years - the last five in particular. I obtained my frequent flyer number from them in 1985 and have flown them hundreds, if not thousands of time so yeah, I have a LOT of experience to draw from.
A great overview of how they have optimized to the extreme to their detriment is by Juan Browne: https://www.youtube.com/watch?v=kO39nIcuPhQ
If HK were still alive I sincerely doubt they would be operating the way they are today :(
Luckily I'm getting ready to move back to the west coast and shouldn't have to fly regularly again - thank god!
He stepped down just a few years before his death, in 2019.
A colorful character and legendary driver of the culture at Southwest.
Finance never did produce, it's whole purpose is to extract.
Run a gasoline engine to lean and it will start to heat and stutter...
As for the growth, in a peaceful society you can grow as much as the amount of people you supply, so without war there will probably no other way than saying goodbye to growth.
When things have been built to last, there is a lot of "fat" that can be cut - for a while.
The numbers will always look better - until they don't.
When the music stops, the "lean" "financial engineers" will be long gone, and those still there will have not the slightest clue how to re-start a culture of serious product/service development or robust operations, and the corp falls into a death spiral.
If you are a trader, you DGAF.
If you are an investor, watch for numbers improving without product and operations improving, and new markets being opened.
I’ve only seen this in wealth generation instruments. Outside of those, I haven’t seen much of the “culture“ you’re referring to. In that framing, I think it makes sense and is anything but absurd.
The company is dual purpose at this point: part original mission (airline) part communal investment. Being a great airline that is comfortable with its current market definition isn’t sufficient for its second purpose. The commune’s investment expects growth in the abstract sense. They aren’t interested in Airlines, they’re interested in purchasing a piece of future growth.
Your Vanguard mutual fund’s performance depends on exponential growth - healthy retirement strategies live primarily off of growth, not principal, during the retirement phase. Maintaining value (~+2% on paper growth) doesn’t earn your company a place in society’s communal pool of assets.
Aye, I think that’s the point I’m making. Earning reports are for public companies. The company is part of society’s communal wealth if it’s publishing a quarterly earning report. Check out the companies not posting quarterly earning reports - because they aren’t publicly traded - and not building towards a public offering; I don’t think you’d find this same “culture.”
In your scenarios, the public communally purchased shares of future growth, priced in against the stated goals - and the public’s confidence the company would reach those goals.
What other outcome would you expect? If you think this is the market being irrational, you -personally- can buy at the “failure” price. If you’re right, you’ll do well over a long time horizon.
There's a decent summary of the book (and the general problem) in the 2012 Time article "Driven off the Road by MBAs"[2] as well.
[1] - https://www.amazon.com/Car-Guys-vs-Bean-Counters-ebook/dp/B0...
[2] - http://content.time.com/time/magazine/article/0,9171,2081930...
Nothing wrong with making an effort to lean out an organization, which is simply meant to make it more efficient and more competitive. It's not specifically just cutting staff, it's a lot of things. The trick is to not confuse leaning out with cannibalization. Like Musk says, if you aren't having to add stuff back in, then you aren't deleting enough.
The airline industry is under insane pressure given the environment, and this stuff is bound to happen. Safety may even be unintentionally sacrificed. This space is far from thermodynamically sound right now. If somebody has an easy answer for it, that would be some fat consulting stacks for the BTC fund.
I'll counter your generalization with my own: F250's are hammered with middle-management baggage. MM makes shitty decisions, and still causes tons of wait states. Having consulted for five F500's now, my observation so far is that the 250-500 range are much more incentivized to do what it takes to become more competitive. OTOH, the F20's I've consulted for severely need some waves of boomer (my gen) retirements.
BTW, the general reason M&A activity increases is because the associated market space has contraction pressure on it. What else are you supposed to do? The beginning of the end for markets, governments, empires. That's just the way us humans do things.
These trite rules get repeated so often they become like The Mandalorian "This is the way".
I think every industry is full of this kind of nonsense. Some closer to home examples : everything needs to be in the cloud; immutability is good; use 3rd party SaaS services for everything; code comments are bad; ...
OTOH didn't Facebook just demonstrate why building everything in-house is dangerous?
You have to accept some risk, and it's often hard to compare risks on the business side vs risks on the technical side.
You are lowering you cost but by doing so, you are increasing your risk.
Furthermore, by using external saas, some business will have a tendency to get rid of some IT people to "really" save on cost which means you'll lose manpower for when something happens.
Software development has changed in the last decade and now everybody knows that they have to take failure into account when building software. Chaos Monkey opened the eyes of a lot of It people.
There should be some "MBA" level chaos monkey solution.
The COO may have been there 30 years, and may lack an MBA, but increasingly it is this type of CxO that has been reyling upon MBAs and other consultants (operations research) to restructure the organization into an optimized-but-fragile state.
It is the rare old-hand that can standup to younguns talking tech and math, subjects he does not feel comfortable with.
money, responsibility, prestige
> that reward a certain style of business
profitable, growing, innovative
In the past this wasn't as big as an issue because the risk was spread out amongst a multitude of small to medium size corporations. But again, over the last few decades corporations have become mega-conglomerates through buyouts and mergers/etc... Too big to fail. All the eggs in fewer baskets. Again, in an attempt to keep growing, because in our current economic system and the culture promoted in it (partially by MBA's) is the idea that if your company isn't growing it's dying. And even if it's growing, if it's not growing by a large enough amount it is failing...
So you could have a 1,000 person corporations stabley making 100 million in revenue. Providing good benefits and salaries to all. But if its not growing, then it is viewed as failing ... It's truly an absurd mindset and culture.