Samsung is certainly having a bad quarter. First their halo product the Samsung Galaxy Note 7 starts blowing up or catching fire and they attempted the “let’s ignore it and maybe it will go away” strategy – which never works. Then their washing machines start blowing up and catching fire, and they try the “let’s ignore it and maybe it will go away” strategy – which still wasn’t working. And finally (you just know this won’t be the end of it) their replacement Samsung Galaxy Note 7s start having issues, one forces a plane down and they finally do the right thing and pull the phone from the market.
Samsung is one of the most powerful and successful companies in the world, so why does it suddenly look like the company is being run by idiots? Well because it kind of is, let me explain.
The Way It Was
If we were to go back a few decades you wouldn’t be all that surprised with what happened at Samsung. You see, back then, before we had tools like deep learning machines, analytics, and artificial intelligence systems managers made decisions largely based on cost containment. Actually that isn’t entirely true.
Up until about 15 years ago, when the ownership of companies switched from being regular folks and moved to hedge funds, there was a substantial focus on customer satisfaction and customer loyalty. While the tools were antiquated, consisting of physical surveys rolled up into spreadsheets and seldom timely, there was a huge effort by companies like Dell and Apple to focus on customers because managers of that time knew that if you screw your customers you’d kill your bottom line.
This focus on keeping customers happy drove everything from the creation of products to the way customers were treated. And the firms that didn’t get it right, for the most part, are no longer with us.
Hedge Funds and a Focus on Quarterly Financial Results Killed Customer Focus
But boards started being switched out from being run by practitioners – folks that had held executive jobs in and out of the industry – to financial types coming increasingly coming from Hedge Funds that increasingly controlled the firms. Companies began to think tactically not strategically, the bottom and top lines of the income statement eclipsed efforts to keep customers happy and suddenly even Apple seemed to lose its way. Products went from being magical to being adequate, from pushing the edge of technology to just keeping up, and from a strategy of creating advocates to a strategy of protecting margins.
This has made a lot of executives strategically stupid where they seem to think that if they ignore a problem rather than aggressively getting to the heart of it and eliminating it.
With Samsung you saw this in spades over the last few weeks in their horrid handling of the Galaxy Note 7 phone. Can you imagine what would have happened had a commercial pilot had one of these go up in the cockpit? It could have brought the plane down, and then think for a moment what the liability – let alone lost sales – would have been for Samsung with hundreds of dead on the plane or on the ground. No product is worth that kind of risk, even if the risk was a fraction of a percent we are likely talking an event that could wipe the company out. Yet the firm not only took the risk once, they took it twice, and seem to be only working aggressively now that the U.S. government appears to be on the cusp of massive fines.
Wrapping Up: So, Yep, Idiots
This myopic focus has basically turned most public companies’ management teams into idiots. Focused with laser-like precision at protecting quarterly results; making more and more massive strategic mistakes that increasingly could cause the firm to fail. What is particularly frightening is that with all of the focus on building ever more intelligent systems that could warn these managers that they are doing increasingly stupid things they aren’t implementing them, even though many tech firms actually build the damn things. Here you have in a nutshell why firms like Dell and EMC went private, it was to get the damned Hedge Funds off their boards so they could afford to focus on their long term survival, taking care of customers, and doing things that make sense. Many now argue that this Hedge Fund problem will self-correct in a whole different kind of apocalypse shortly but, until then this kind of idiocy is likely to continue to spread.
In the end, it well may be that Samsung is the Canary in a coal mine and until few of these firms fail showcasing how stupid managing quarterly financials over everything else is, I’d anticipate more firms increasingly being run by idiots. Sadly, this means if your cell phone starts getting really hot don’t use it on airplanes or leave it near anything flammable. And you might want to hold off on picking up any major appliances because the boom you hear may be your laundry room going up. Just saying...
Edited by Maurice Nagle
President and Principal Analyst, Enderle Group
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