Summary:
- Most managers think it’s good to lower costs
- Most leaders focus heavily on earnings
- But focusing on costs and earnings leads to a dysmal spiral of decline
- Growth, rather than earings, distinguishes the higher value, and higher paying, companies
- Google is giving across the board pay raises and bonuses, because it has high growth
- Amazon, Facebook and Apple are hiring and paying more because they are growing
- Microsoft is cutting staff and costs, and its value is going nowhere as it focuses on earnings
- Growth is good, Greed (a focus on earnings) is the road to ruin
“Google to Give Staff 10% Raise” is the Wall Street Journal headline. All 23,000 employees (globally) will receive a 10% raise this year. At Mediapost.com in “Google Woos Troops with Cash and Raises” it is reported that additional to the 10% raise everyone will also receive at least a $1,000 cash bonus end of this year. According to CEO Eric Schmidt “We want to make sure that you feel rewarded for all your hard work.” For best performers, Google is making some pretty big (outrageous?) offers. In “Google Paying Big Bucks to Keep Talent” Mediapost reported a staff engineer was awarded $3.5 million in restricted stock to stay at the company.
Has your company announced anything similar? Hold on, didn’t you and your team work really hard? Don’t you deserve recognition for your efforts? And given your value to your employer, shouldn’t you receive something special to retain you, before you run to a higher paying job with better growth opportunities? Are we to believe all the good people, who deserve bonuses, are at Google? Or is something different going on besides just “hard work” leading to this generous cash dispersal to employees?
Google is growing like crazy. And that’s the difference. As Bruce Henderson, founder of the famous Boston Consulting Group once said, “growth hides a multitude of sins.” Growth surrounds the business with lush resources – it’s like being on the equator rather than the poles. When you grow, you can pay more to employees, and your suppliers. You can be Santa Clause, rather than the Grinch. Google is spending more money to keep, and hire, employees because other high growth companies, like Facebook, have been “stealing” them away. It’s a problem of riches in the battle to hire and keep people! Wouldn’t you like to particpate in this one?
Too many leaders confuse growth with greed (remember the famous Gorden Gekko speech from Wall Street about “Greed is Good”?) The outcome is a surplus of focus on “the bottom line” and that leads to cost cutting – which hurts growth. In the rush to show higher earnings, leaders forget earnings are the result of good management – and growth – and they begin looking for short-term ways to improve them. Greed, and the desire for more earnings now, causes them to forget that had they spent more time finding profitable growth markets yesterday the earnings today would be higher, and better. And they forget that without growth earnings are destined to decline!
Growth leads to a virtuous circle. More sales leads to more investment in new products and markets, leading to more sales, leading to more earnings, leading to more hiring, leading to higher pay, leading to better talent, leading to better ideas, leading to more new products taking you into more new markets…. a pretty fun place to work. Wheras greed leads to the whirlpool of despair. Cost cutting, product line rationalization, benefit reductions, lower (or no bonuses), headcount freezes, layoffs, no new hires, lower pay, more pressure on suppliers to cut their prices, no new product introductions, lost accounts, fewer salespeople, layoffs, outsourcing, facility closings ….. very much not a fun place to work. Where growth fuels a great company, focus on earnings inevitably kills the business.
We can see this difference when comparing performance of a few leading companies. Microsoft grew for many years. But now its strict focus on PC software has caused growth to lag. At Techflash.com (Puget Sound Business Journal product) “Hiring: Microsoft Stays Cautious as Google, Amazon Ramp Up” tells the story. Declining PC sales growth has led Microsoft to reduce its workforce by 2% globally the last year (~4,000). Google has expanded by 18% (+23,300 jobs). Since adding Kindle to its product line, and making other expansions, Amazon has added 44% to its workforce (~10,000 or 2.5 times the staff reduction at Microsoft). New products and new markets is helping Google, Facebook and Amazon grow – while focus on old markets has lowered growth at Microsoft.
Now Microsoft is attempting to save face by focusing on expense management, and earnings. Mr. Ballmer and his team hope Wall Street analysts will be happy with greed, by looking only at earnings, rather than growth. Microsoft’s CFO said “the best measure for our financial performance… comes down to EPS [earnings per share]… what we really need to do is drive earnings per share growth.” Microsoft missed the digital music wave, smartphone and tablet waves. It’s now struggling to rediscover growth, so it’s hoping to appeal to greed. Microsoft is taking the old approach of “if you can’t show you understand markets, products and growth then try to convince them you’re a good manager who can cut costs.” But how long can Microsoft manage its earnings when it’s not a significant player in the growth markets? Cost reduction is never the route to prosperity.
The last decade has seen the revenge of cost management. Coming out of the “go go” 1990s many leaders have proudly demonstrated their ability to avoid investment, cut costs, work employees harder, avoid increased pay, avoid new hires, send work to low-pay countries – and manage for the bottom line. Unfortunately, most publicly traded companies are worth less now than they were a decade ago. The DJIA and S&P 500 are worth less. The dollar has taken a shellacking. Fewer Americans are working and unemployment is higher. Tax receipts are down, and (as shown in the last election) Americans are pretty sick of a lousy economy. All this focus on earnings hasn’t done much for America’s workers, most American companies or the overall economy.
If you want to be “rewarded for all your hard work” through a big paycheck, a big raise, a big bonus – and you want employment that is filling and fun – then focus on growth. Help your company create new markets, with new products that people want. If you lead the marketplace with new applications and new solutions that fulfill unmet needs you’ll achieve good growth. Then realize earnings are a result of implementing that growth at effective prices. If you focus on the right thing – growth – then you’ll receive the results you want. Less focus on greed, with more on growth, and you might get rich.
