Quote:
Originally Posted by Paul T
all companies exist to make money and maximize profits, but I think Jeff nailed it his posts. There has been a fundamental change in corporate mindset (across industries) in recent decades to maximize profit (and thus bonuses/pay packages) NOW! For the benefit of the CEO NOW! Long term strategic thinking with a focus on building the best possible product AND make a reasonable margin at the same time is all but gone. Today, any sacrifice that can be made to increase this years EPS will be greenlighted as CEO’s eye up their next vacation house. It’s not right, but it’s just the culture these days. Maximized shareholder value used to be done in concert with building a long and sustainable business model. Today, it’s all about how much $$ can we extract as soon as possible. Basically the private equity model has taken over public co’s in general….
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What's reasonable, and why isn't it a larger margin? Why would investors in publicly traded companies ever consider anything outside of ROI, and with how rapidly things can move in the modern, global economy, why would investors keep their cash idle in slow and dependable businesses when they could have it in something growing?
So I suppose when I say it's always been like this, what I'm saying is that the mindset of chasing profits has always been present, and while the focus has shifted to short term over long term, it's more-so that the definitions of short term and long term have changed tremendously and the speed of change has increased.
For example, I'm in the automotive world, and the expected timeline for new OEM facilities has dropped precipitously, from 3-4 years PO to SOP down to 12-15 months. It's absurd and costly but every manufacturer knows that if they don't do it somebody else will and their product will be late to market. I'd also point out that I could see plenty of short-term over long-term decisions in old factories (like sacrificing room for expansion that costs more when that expansion comes, or leaving equipment abandoned in place which restricts existing operations), so it's not exactly a new concept, just the timelines are different now than they used to be.