Author: shyam

How The Mighty Fall: And Why Some Companies Never Give In (Amazon,) contrasts companies that survive challenges to their business models with companies that failed to respond. (Excerpts.)

Thoughts

Reading Christensen, one can be lead to believe that a company that doesn’t earmark a large R&D budget is doomed to failure. “Disrupt thyself or have it done onto you.” However, Collins presents a long list of well known companies with huge R&D budgets that did not survive. The key take-away for me was:
“Innovation can fuel growth, but frenetic innovation — growth that erodes consistent tactical excellence — can just as easily send a company cascading through the stages of decline… Catastrophic decline can be brought about by driven, intense, hard-working, and creative people.”

It fits into the ROC world-view of the previous book (Outsiders) where CEOs donned the role of hard-headed investors, leading to an ever-growing cash pile. Cash on hand gives you options while dealing with disruptive innovations. The response to disruption need not always be a panicked acquisition or “ignore it and hope that it goes away.” There are other ways in which an incumbent can strike back, existing regulatory frameworks can be used to put up a long and expensive fight and can be a significant source of their competitive advantage. As long as you have cash, you can survive.

At the same time, where Outsiders’ CEOs were brutal in cutting out businesses that they thought were ‘dogs’, Collins takes a mellower approach: “A core business that meets a fundamental human need — and one at which you’ve become best in the world — rarely becomes obsolete.” But it does: the newspaper business in the US is a recent example (buggy whips, chimney cleaning…) Knowing when to cut your losses is a big part of running a successful business.

The book provides a useful template to identify companies in decline and it is worthwhile reading it for that alone. However, I disagree with its principal worldview that the primary/core business is always worth saving. Sometimes it is not.

The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success (Amazon,) tells the story of quantitative CEOs and the effect they hand on their companies and their industries. (Excerpts)

Thoughts

I have always maintained that the only thing that matters is Return on Capital (ROC.) However, most people are focused on ‘busy work’ and playing ‘boss’ that they focus overly on growth, at the expense of returns. It is oftentimes better to be small and enjoy a high level of return on capital than grow and forgo margins.

The book is careful in portraying the CEO’s as ruthless psychopaths but in the words of Stiritz, “Leadership is analysis.” Indeed.

The Only Game in Town (Amazon,) walks us through how Central Banks picked up the slack when elected governments dropped the ball after the global financial crisis. Excerpts are here.

Thoughts

Central Banks acted as drug dealers when both banks and governments binged on credit. Greenspan and his Fed were so Randian that they turned a blind eye toward the principal-agent and moral-hazard problems that their endless bailouts and light-tough regulation was stoking. When the system imploded, their actions prevented a much-need rewrite of the status quo. We now have a world economy that is even more deeply hooked on easy credit, thanks to Central Bank interventions. Central Banks continue to enable governments to sweep deep-rooted problems under the rug. They do not deserve credit for “saving” the global economy that they collectively pushed over the cliff.

“I tried to drown my sorrows, but the bastards learned how to swim…” ~ Frida