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IBM Chief: All CEOs Reluctant To Invest In R&D
theodp writes "In his Centennial Conversation at the Computer History Museum, IBM CEO Sam Palmisano emphasized the importance of investing in R&D, even in a down economy. 'Shareholder expectations for higher returns don't diminish when the economy stutters,' said Sam. 'And yet, Tom Watson Sr. actually increased research investment during the Great Depression.' Palmisano added, 'I will tell you that my own instinctive reflex isn't to continue investing $6 billion a year during the worst economic downturn since the Great Depression. In that regard, I'm like all CEOs.'"
If R&D is cut, where do the new products come from to provide new revenue to pull the company through? Cutting off your nose to spite your face seems to be instinctive. Prudent investment will help them, not scatter-gun spending.
The problem with R&D is that many company executives that make these investment decisions typically have trouble seeing the chain of innovation that heavy R&D investment brings to the table. Most companies right now (or at least a majority, in any case) expect instant-gratification on every damn investment, forcing every R&D department to constantly justify its existence through operational and productive changes, which almost always involve cutting costs somewhere.. and that's just not the way the fucking world works. If you want to rake in revenue, you're going to have to invest in R&D, and people may eventually figure that out.. hopefully.
vos nescitis quicquam, nec cogitatis quia expedit nobis ut unus moriatur homo pro populo et non tota gens pereat.
I was surprised to see a story from theodp without a ton of links and screechy hyperbole, but then I looked at the original submission. Kudos to Soulskill for doing some editing.
the social security system was one of the most massive IT projects ever undertaken in history, when it came about in 1930s. IBM made massive amounts of money off of that project.
the German Census of 1936 was a massive operation and brought huge profits to IBM, as well as Hitler's grand plans for a massively centralized healthcare system which required vast amounts of data processing.
then there was the Soviet Union, which ran a planned economy - meaning that massive amounts of data had to be sifted in a centralized fashion. IBM was there too.
then there was Japan....
so its kind of easy for IBM to spend on R&D in the 1930s, considering that every government on the planet was pouring money into it's coffers.
Not only is the modern corporation and its CEO unwilling to pay for R&D, they are unwilling to pay for the Technical Debt of their existing systems.
Software developers who work in production support know they will only be able to fix individual defects that have been targeted by the business customers. So, any production system becomes a series of code compromises. Developers fix individual issues and never do a broad refactoring of the code base. So, when a developer comes to a page, sees it's a collection of compromise/hacks, there is no stomach from the business to taking the time to refactor the page. So, instead, the developer holds his nose and adds another hack. Horrible.
So, developers do the refactoring on the sly. If they are really honorable, they come in on their own time and implement architectural improvements on their own dime.
No one in business understands it idea of Technical Debt and the value in future bugs prevented of paying that debt off.
Those modern corporations may end up burying themselves alive, and they probably won't see it until they're gasping for air.
And, those developers that never refactor, should be shot. I totally agree with you on almost all points, and especially so on Technical Debt.
vos nescitis quicquam, nec cogitatis quia expedit nobis ut unus moriatur homo pro populo et non tota gens pereat.
...that cannot think beyond the next quarter's profits. And hasn't that worked out well for the economy? We used to be a country of inventors and innovators. Now we're a country of servants and finance dickheads who neither invent or implement new technology. We went from a country of Hewletts and Packards to a country run by the likes of Carly Fiona.
Please do not read this sig. Thank you.
Quite the opposite. I'm willing to bet R&D would create a booming economy.
Of course there can't be any math to support this, it's subjective to the technology developed. But I think it would be easy to agree that if you make the "next big thing" that you will earn a lot of money.
How much you value the present is known as time preference. The more you value the present the more you will spend now and the less money available for lending. This causes higher natural interest rates which makes businesses invest less in the future capital equipment or R&D. This makes sense. If people are worried about eating next year it is worth more to plant more aces of crops than use that money to buy new equipment.
The more forward looking you are the more you save. This makes more funds available for lending and a lower interest rate. This gives businesses the clue that it's time to invest in capital equipment and R&D. Again this makes sense. If you are confident about the present and you are looking forward your present needs are met and you can start building capacity.
Unfortunately the natural interest rate has been hijacked by the federal reserve. This means businesses have no idea what people are thinking. The fed pushes rates low and this gives a false signal people have a low time preference. They go off and invest in capital equipment when they should be worried about current consumable production. This is why the business cycle happens.
I love Jesus, except for his foreign policy.
I think the Harvard Business school mentality is the most short sighted though process around and I think will be the cause of the fall of western civilization.
The focus is on short term profit with no long term thought for long term health -- it is the bonus system based on short term gains which generally are at the cost of long term health of the company.
Executives slash & hack at R&D for short term gain & bonuses. IBM is alive today because of the R&D done in the 80's & 90's and they cashed in on intellectual property.
I have worked at too many high tech companies and seen this MBA infection -- it has destroyed every company I have ever worked for despite the talent working for them.
Wake up to the real problem.
Gee, the quote in the summary makes it look like he's not in favor of R&D, but right after that he says "But I also know that if you fall behind, it becomes very difficult to catch up."
He also talks about the evolution of R&D "a deep commitment to both R and D means that it's not only important to innovate it's equally important to innovate how you innovate. "
In the end of course, like any long term investment, it take guts to spend on R&D when the returns are far from certain.
Technical debut is a term that accurately describes the sum tradeoffs of the decisions made for each release. The granularity or technicality of the debt metric may vary by management tier but it's real. Refactorings or subsystem re-designs create credit that lets future releases go out the door more smoothly. Rushed changes use up some, or more than all, of that credit putting future releases at risk. Business wants the changes. IT management doesn't want to be unresponsive. You get tradeoffs. People who say they never make those tradeoffs are either kidding themselves or they've never worked in a "go to production" IT shop.
I will agree that many times what I called "Techical Debt" is just bad coding that was there when you got there.
But another kind is caused by changing requirements. You design a system to meet the needs of the requirements when it is first written. But, as we know, over time the uses for a system can change. A system that was initially intended to support 100 users can grow to support 10,000 users. When that happens, your original design may not be up to the challenge and a redesign becomes necessary. You can retort that you should have built your 100-user system to support 10,000 users but that sort of overbuilding is another kind of mistake.
In other cases, an old system could have been built with EJBs for the solitary purpose of gaining the transaction support. After that system has been in place for a few years, it may make sense to rebuild it using a technology that emerged later such as Spring or Hibernate. In that case, the old system is technically fine (as much as an EJB can be) but a lighter weight and smarter technology such as Spring is a better idea. In that example, I would consider the original system to be a "technical debt" only in light of a newly emerged technology.
Take another example: a system that was originally built using simple declarative or programmatic transactions. Then, as the needs of the system change, it becomes necessary to support higher speed transactions. In that rare circumstance, the strategy of using rigid ACID transactions may change and the architect may realize that a high-performance design needs to be implemented.
Paradoxically, a high-performance design might remove the direct implementation of rigid ACID and instead use something called a "Compensation system". That's the way super-high-performance systems are built. They don't try to implement a two-phase commit and instead build a "Compensation system" that tracks the updates that have been performed and--if some issue arises--undoes those updates in reverse order. That keeps the intent of ACID without actually using official transactions.
That is an example of a technical debt. The original system may have had no problems but outside events called for a major redesign. To my original point, no CEO would pay for that massive change. This is an example of the sort of "Technical Debt" that does not mask any incompetence--just changing use cases.
Corporations are lousy organizations for anything long term or big. 1st, they really do not have the resources. 2nd, they warp everything for profit. With the current legal climate, there's not much point in private research, as they'd try to lock up everything and then some with patents, copyrights, and so on.
Not saying the profit motive is bad, but for some things it is not the best guide. Why did we go to the Moon? Not for profit! Why was the Titanic operated so recklessly? A huge engineering project such as the Panama Canal couldn't be built by a single corporation. That was done by the US government. The transcontinental railroad was built by 2 private companies, but only with a great deal of help from the government in the form of land grants, military protection from Native Americans, and Civil War training and experience in running large organizations and operations. Some of the leaders of the UP considered cheating. They looked into whether it would be worth purposely making the route longer, much longer than necessary, in order to grab more land. Such thinking is all too typical, and the UP is hardly the only corporation to consider such schemes. Hoover Dam was another effort that could not have been done solely with private resources. The people had to negotiate all the details of water rights, power generation, and land use before turning over the work itself to private industry. The Channel Tunnel, the Erie Canal, the Transatlantic cable, and the Internet were similar. Most large civil engineering projects are government organized.
Intellectual Property is a monopolistic, selfish, and defective concept. It is "tyranny over the mind of man"
Competent? All we know about you is that you are either unable to log in or unable to sign up for an account and that you jump to very quick conclusions on the competency of others based upon insufficient evidence.
Remember Atari was encouraged to invest in new hardware to make better games, but the CEO basically went along the lines of,"We have a monopoly, so we'd just be competing with ourselves if we made new hardware." Of course this isn't entirely true, better games mean there are more demand for the games and greater sales. I say thank God for Nintendo, 1985-87 were some of my best years of my life. You saw the greatest advancements in gaming in terms of hardware and software in those two years, than we'll ever see up until we start fighting holographic enemies in a field.
God spoke to me
I agree (which means I shouldn't reply and instead should just mod your post up but I have something to say so here I am :).
I'll use an example (not necessarily the best example but a good enough one to certainly support your point): Apple.
Apple invests an enormous amount of resources into R&D and it is paying off (to say the least). The most important resource that they're clearly investing into R&D? Time. While they're certainly interested in making lots of money now, they've clearly made the investment into making lots and lots and lots of money over the long haul. Thus, they are developing products until they are just right. Rumour has it the iPad was shown to Steve Jobs back before the iPhone at which point he put the iPad on a shelf and said "we can make a phone out of this." My point? The iPad had been in development (in one stage or another) for many years before it was launched. Most other companies seem to give their designers and engineers a year, two max, before they expect to see a product on store shelves. Apple is taking several years to polish a product before showing it to the public.
So many companies want to do what Apple is doing but they seem to think that means "release products and make tons of money." No. What Apple is doing is making a solid commitment to R&D and releasing polished products that people want (among other things but the majority of those other things come after the R&D). Until other companies start to similarly invest time and effort into R&D, they will never be able to "do what Apple is doing."
As you said, if you want to rake in revenue, you have to invest in R&D. That simple.
When there is an economic downturn it is due to the fact your current process of getting money is no longer viable. In order to change to a viable process of getting money you must start by looking for a new process. In the world of technology this requires researching technology.
Having to work for a living is the root of all evil.
Refactoring is fraught because to do it, you have to know what you are refactoring for. To make that judgement requires and engineer to think above his/her pay grade, and predict the future. Now, good engineers can do that, but there's no guarantee that their judgement will be supported by the manager that pays the salary. The disincentives are high.
It's not really a rumour when Steve Jobs himself mentioned they designed the iPad before the iPhone on All Things D. ;-)
I agree with your point though and you saved me the time to write my own, also citing Apple as an example. It seems so simple AND they said they would be investing in R&D during the downturn. Now look at them, they are making a killing in profits IN A DOWNTURN! Imagine what it would be like if we weren't living in a recession?
Jonathanjk.com
to IBM in the era, including several in europe.
Watson destroyed them, partly through competition, but partly through IBM's endless schmoozing with high government officials, including Nazis.
it would be like saying that Microsoft invested in R&D during the Great Recession. Of course they did. They also bribed teachers to teach students their products, forced Andriod phone makers and linux vendors to pay them protection money, launched a patent war (through SCO) against Linux, schmoozed with high government officials, etc.
Innovation does not always lead to future profit. Sometimes you sink billions into a project only to find out that it can't possibly work. Taking chances like that requires disposable income, which is not available when times are bad. In a boom a company can easily afford to invest in long-term projects that provide no immediate benefits, but now when companies struggle to stay afloat amid all that debt they took on while betting on infinite growth, it would be totally insane to spend money on flakey things like research.
Insulting in addition to being unable to read to the end of a sentence as well? You do not appear to be doing your best tonight. I suggest you create an account and log in so that we can get some evidence to judge your competency or otherwise from a few posts for ourselves instead of just random insults from the anonymous ether.
Actually, American corporations are awash with cash. They could very well afford more R&D, and don't need the shareholders.
There is no risk of failure in many cases. Simply, the habit is to hire psychopath as CEOs, who are really good at squeezing the lemon. This works in times of boom, but when a crisis comes along, and some real insight is necessary, as well as long-term thinking, there is no one.
The culture of the deification of the CEO-psychopath is what is killing America.
and it is attempting to draw lessons from IBM's history.
i thought it would be appropriate to discuss historical fact. especially if those facts contradict the theory that has been presented. its called the scientific method.
my phrase 'every country on the planet' was an exaggeration. it is true. IBM only had offices in a few dozen countries, including the Netherlands, France, Switzerland, Sweden, Poland, Russia, Germany, Italy, Japan, Vietnam (a French colony), Belgium, Hungary, Austria, Czechkoslovakia, Romania, etc etc etc. They did not, for example, have an office in Mauritania or Mongolia, that I know of.
Managers aren't stupid; they don't "have trouble seeing the chain of innovation". By cutting R&D management can balance budgets, create short term profits, meet earnings projections, get huge bonuses, get promotions, and generally live the good life. It's the board and investors who are supposed to hold management to strategies of long term value, but they often don't have any long term commitment themselves.
tomorrow who's gonna fuss
Marketing.
May the Maths Be with you!
THIS!
This is what is happening. because you can get the best of your competitors by paying a china firm to go and steal the details and make you a product. They will even deliver you a "clean room reverse engineered" certificate. Because how can it be proven otherwise...
Here you go.
Do not look at laser with remaining good eye.
"Managers aren't stupid; "
You've never worked at Comcast or AT&T
Do not look at laser with remaining good eye.
It's the board and investors who are supposed to hold management to strategies of long term value, but they often don't have any long term commitment themselves.
In today's world of mega-corporations there's no personal involvement in the future of a company.
In the days of family owned businesses a long term vision was what guaranteed the retirement pensions of the investors. Today investments are managed by pension funds, none of which is committed to investing in one company alone.
Likewise, board members are director of several different companies, they are always ready to sacrifice one of them for short term profit.
I knew the chap who founded SPRU, looking into just such things back when it was largely being ignored. I also worked briefly with a colleague of his on technology bubbles and the positive transformative effects they can have in the long term, despite 'short-term' financial crises.
Firstly, they are of course of the opinion that R&D is vital. Indeed my limited understanding of their position is that almost all 'real' economic growth can be said to come from technological change. Everything else is either population growth or accumulating fixed assets like materials; the former dilutes per capita growth and is effectively a wash (distribution of wealth aside - yes that's a big issue too, but bear with me...), the latter only have value because of how they are used in technology (market value is of course determined by perception, and that's another reason it gets out of kilter from time to time).
More significantly, perhaps, is their way of looking at tech bubbles: they exist because of R&D, and all sorts of people get overexcited and there's a bubble followed by a collapse but, in the meantime, some entire infrastructure has been replaced. Rail bubble is a good example, the transition to mass production is another, various colonial bubbles etc. In these cases, the real economic growth (of the kind that benefits everyone, not just a financial elite) tends to occur only after the collapse.
I think we are in the middle of this collapse right now, and it may be protracted. Arguably the last similar collapse involved WWII before upward movement was restored. Anyway, the point is this fellow from IBM is absolutely correct, but if history is anything to go by there may well be a serious hiatus in R&D before the next wave of real growth starts, and him saying it ain't so might not do a hell of a lot...
(Just as an aside, a lot of R&D post Wall Street crash started as part of the military-industrial complex, effectively funded by governments as part of the war effort. There are many economists who suggest that, when private enterprise fails, governments have to step in and spend spend spend, but the reactionary governments such crises often engender have difficulty justifying this sort of expense without, say, a huge war. A more positive alternative might be putting large parts of the world economy onto a 'war footing' against climate change: printing money, creating jobs, building infrastructure and so on. Even if climate change isn't happening, this could be no more pointless than developing ways of actively destroying people and infrastructure...)
In the case of civil engineering, failure is not really an option, for one, and further modification of buildings is rare. But it is still the case that wrong urban planning incurs a debt : case in point, suburbia will take tens of years to resorb, until cities are densified again.
In the case of aerospace, you need only look at the space shuttle to see this effect in action. Design decisions had to be lived with for 30 years, because the shuttle was not treated as the prototype it was. It should have operated for 5 years, and given rise to a new design based on the lessons learnt.
Technical debt is not just incompetence: sometimes, there is no optimal solution, and you cannot know which tradeoff is the best. Then as you have a deadline, you get something out, and you hope that iterating to a better solution will not be too painful. Sometimes, I write code that is there purely because it might be needed later -- and this time ends up sometimes having been a waste, and sometimes a saviour. In general, it is not wasted, but I have the luxury to do such developments.
Pressed more for time, and if I depended on tighter schedules, many of those developments would have never existed. And I would be less efficient in the long run. Many managers do not understand this.
Actually, R&D is only about a third of Apple's expenses. And compared to their revenues, the sum gets even smaller. Don't fall for the narrative: check the 10-Q and 10-K for yourself.
Mart
"I know I will be modded down for this": where's the option '-1, Asking for it'?
Incorrect. China does very little if any R&D for Western Companies. Rather, the big western companies outsource R&D, and the associated risk to small Western companies. If a breakthrough is made, they will buy out said companies. The problem with this is of course that the R&D results can go to ANYONE who is willing to write a check, so it is actually very dangerous for said big companies. They won't always (and in fact very rarely are) the first ones to write a check. Usually it is smaller, hungrier companies that are willing to invest in a promising but incomplete proof of concept that get the license in these types of situations.
Basically, by eliminating their R&D departments, they have destroyed their competitive advantage that served them so well in the past. This is the result of the rise of the MBA, who on the whole are a pack of fools who don't know anything about real business, as opposed to the earlier industrialists who worked their way up from nothing by rising through the ranks and learned how to run a business on the side, while keeping the "business" stuff secondary to the engineering and science.
But there is little need to fear. This system won't last much longer.
Here is a little secret.
CEO's are not in it to bring profits for a company. That is not their job. Their job is to boast the share price at all costs. Its taught in finance 101 in any college.
Now imagine you are the CEO. You can invest in R&D and have your shareprice get cut down by almost half in this recession and risk your job for not using the money to hire more marketing and sales people, but if you stay on for 5+ years you will make tons of money and create long term value. Or you eliminate R&D and your company will die within 5 - 7 years right? As CEO you get a 20 million bonus for selling your prized assets that make you money for short term gain and your stock price goes up a good 35%. You do not think such CEOs who do this stay right? They jump ship within 2-3 years with a golden parachute. Even better with that track record you go on raiding the next company for even more money and become a guru and genius to stroke your ego. 90% of CEO's would pick this and let the next CEO take the fall when they go out of business or fade to the competion. Meantime you buy a yatch and retire or buy a bigger one as you ruin the next company, etc.
This is how the real world works.
If this needs to change we have to stop having Wall Street reward short term behavior and start punishing companies like HP who do retarded things for long term shareholder wealth. I do not know how and do not think it is our job to do this. Steve Jobs was fired from Apple initially because of R&D and a lack of results. Wall Street hated him for his long term ideas and R&D. They wanted the mac done cheap like a generic PC. HE came back and risked everything for the IPOD as most CEOs refused to work for Apple thinking they were dead.
http://saveie6.com/
Why the sarcasm? Just wrap some spiffy design around the old crap and sell it as new. Hey, it worked before!
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Marketing.
AKA "Buy! More! Shiny! Shit!"
Sorry, but no. You can manufacture in China, but doing R&D there will lead to a disaster.
In China, working to spec is the be-all-end-all way to do something. I had my share of work with Chinese companies, and they will do everything to your specification. Exactly. This. Way. Which is good if you have a finished product and just need it assembled a billion times. It gets completely out of hand the moment you try to let them decide anything. Because they will invariably choose the way that's cheapest to do. Don't be surprised if the task is "add another button" to find the button inside the device, unreachable, because it was simply easiest and cheapest to put it there.
In a nutshell, never ever let a Chinese company design anything. Invariably, you'll end up with a product you can't use.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
R&D is rarely a third of anyone's budget.
The problem is that those MBA CEOs have little attachment to the company. Their goal is to rip as much money out of it in as little time as possible, if that means bleeding the company dry, so be it. The "old school" tycoons who built the companies themselves wanted the companies to thrive and prosper, they were their baby, their legacy. They gave their life, blood and sweat for their company.
Not a single one of those wannabe CEOs today would shed as much as a tear over the company they're responsible for. And if the crisis told us anything, why worry? If everything fails and your gambling puts the company in jeopardy, the tax payer will cover for you!
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Only?
A third expenses for R&D alone sounds quite a lot, I doubt many companies spend that much on R&D alone.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Note everyone can be the next Microsoft.
Science advances one funeral at a time- Max Planck
What puzzles me to no end is that they didn't even lose their divine status when they had to grovel for MY (and your, don't feel left out) money to keep their company from failing because they themselves are utter failures as managers. I wouldn't trust the management of my spending money to those duds, let alone a company where thousands of people are working hard.
These people proved they cannot manage, they cannot run a company and they cannot handle money, yet they not only keep their job, no, we (as taxpayers) get to pick up the tab for them and those friggin' morons continue moving from one blunder to the next without remorse or regret.
Care to explain to anyone why these people are supposedly worth the money they rake in? I refuse to call it "earning", they most certainly didn't earn it. But I guess if I post what I think they'd earn instead, in this day and age this might be grounds for a lawsuit.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Compared to their overal revenue? Yes, only. Apple is good at keeping costs down, which is why R&D is a fairly big hit out of their expenses. However compared to their revenues, they invest very little.
It's a nice narrative, but the numbers don't hold up.
Mart
"I know I will be modded down for this": where's the option '-1, Asking for it'?
It's so amusing to me when people trump up the "outsourcing" solution. I have had to deal with many many overseas outsourcing companies, some with shoddy talent, but some with some extremely bright and talented individuals as well. Unfortunately, none of the endevours bore fruit. Why? Because no matter how hard you try, you face the tyranny of distance. Not just geographical location, differing timezones etc., but cultural distance. This is why numerous banks are bringing their overseas talent onshore, rather than outsourcing cheaper overseas. Oh yes, and before everyone gets all huffity and up in arms about bringing workers in to work cheaper etc, note that these guys aren't cheaper. In fact, they are more expensive than their local equivalents for the business due to visa's, relocation costs and finally in some cases, their negotiated wages. Remember those bright sparks I was mentioning before? Well, they're these guys, and hence why at the end of the day the outsourcing companies don't have many of the bright sparks left, because you get what you pay for, and some companies are willing to pay more than others.
It will be a simple matter of a few years until a substantial portion of work comes back onshore as more companies understand the distance issue (and of course, talent becoming more expensive overseas), but there will be fewer seniors available to train the juniors.
At the end of the day financially for the effort and risk expended, the intelligent manager knows it is better to land R&D talent onshore rather than funding a research lab overseas; Unless of course, it's simply a bottom line fudge to get the shareholders to agree that you've met your 2 year KPI, and burying a nice little landmine for the next sucker CTO to find and rebury when he steps on.
Science advances one funeral at a time- Max Planck
Business schools will teach you hundreds of ways to cut expenses since those are common across all industries. In contrast you'll get very few techniques on how to increase quality, create a new product, move upscale or increase return customers since those tend to be industry specific.
To give an actual example, consider the case of a corporation--which shall remain nameless--whose entire value proposition is top notch customer service. Its clients are wealthy people whose accounts range in the $100K to $10M a year. One of their brand new MBAs decided in his great wisdom that they could save a few million dollars a year by moving to a voice activated answering service instead of the personalized service their wealthy customers had come to expect.
Call center costs went down by 40%, and the MBA was promoted.
However I happen to know that a few large customers left due to displeasure with the new system. They never took the time to register the reason for walking away, so the original corporation has no way to link the "savings" from the MBA "efficiencies" to the losses in accounts. In their next quarterly report they simply explained away the customer losses as "due to competitive pressures" and life went on, with other MBAs following the example of their predecessor.
When this becomes sufficiently widespread they eventually open space for a competitor to move in their previous space. You can think of many examples of high end producers moving downwards through cost cutting (and ultimately into low margin markets) while opening space for the competition in their previous higher up space.
A consequence of this is that a corporation is quite willing to roll out a $10M dollar call center customer that will "save" a few million a year, but completely unwilling to hire a staff of 15 R&D people at a cost of $3M a year, but with potential returns of $10M a year, every time they chance onto a significant innovation.
This.
You are spot on right. Unfortunately there is no penalty to be paid for instant gratification. Hopefuly after this correction, investors will learn that 5-10% is an appropriate ROI. Currently the banks are facing an interesting problem. They had a group of essentially conmen, providing unsustainable 20-30% returns, a mad rush on profits and valuation of shares, rather than stable long term business. Now, when the reality cheque's bounced, the shareholders are unhappy with the 5-10% return, so the banks are cutting deep into their costs to try to maintain this ludicrous state. Something will give. It is a certainty. Unfortunately, we all know that it will be investment, because this is not instant gratificaiton. Unfortunately CEO's don't like, and certainly are not rewarded for saying no to shareholders. Unfortunately, it would take a far more intelligent person that I to come up with the solution. Let's hope that person steps forward sooner rather than later.
Science advances one funeral at a time- Max Planck
3% R&D is standard for an established business. Any more and the shareholders would have your head as CEO.
Science advances one funeral at a time- Max Planck
If R&D is cut, where do the new products come from to provide new revenue to pull the company through?
Marketing.
Senior management.
After all, the really big bonuses always go to the top executives, because leadership is the biggest and best profit center!
Those who can make you believe absurdities can make you commit atrocities. - Voltaire
A very important fight/evolution in society is the evolution of democracy in the corporations. Not just worker representation (it is a good idea to have worker representative on the board, if only to provide dissenting voices when decisions are taken) but real shareholder representation. If I own stock in a company, the CEO is basically my employee. If he is incompetent, I should be able to fire him. The shareholder assembly should work like a parliament, responsible for setting the objectives and the regulations internal to the corporation, and the board is really the executive power.
Notably, the salary scale should be voted on. The CEO would then stop stealing shareholder money (because their outrageous salaries are stealing -- they sure did not add that much value), and long-term strategy would be encouraged. Most shareholders are in for the long haul, and they expect dividends more than stock-price upticks. If they don't it's their own damn fault.
And as this structure would never arise while the CEOs are in charge, it should be mandated by the government: the government allows the corporation to exist, and grants it certain rights. Thus it is reasonable that it decides how it should be run. Not the decisions, but who has the power. And the power should go to the owners.
CEOs have no idea what's going on with their companies and they're just in it for the money. Who would have thought.
If the only way you can accept an assertion is by faith, then you are conceding that it can't be taken on its own merits
Very sad and very true. The problem seems to stem from the fact that investors have no real incentive to see companies succeed in the long-term. They're all myopically focused on stock price when they should be focused on dividends. The fact that a lot of companies don't even pay dividends exacerbates this problem.
Oh yeah, because marketing works so well
"which almost always involve cutting costs somewhere.. and that's just not the way the fucking world works."
The real issue is that capitalisms desire for profit and the natural physical logistics of solving problems are at odds. If you've lived long enough you'll see this time and time again in business. We can see this especially in the videogame industry as computational power increased team sizes ballooned as the cost of developing art assets and game engines kept going up while market size for various genre's stayed roughly the same outside the mainstream first person shooter genre. The same thing happens to R&D in other industries. The game industry relies on tools which which in turn relies on R&D of many different areas.
The truth is most companies want to wait for someone else to absorb the risk and then profit off someone elses sunk cost, that's how it ususally works in the private sector. Very rarely do big innovations come from private for profit R&D beyond the low hanging fruit.
An incompetent manager will allow the incompetent developer to get away with crap like that. Then, later on, the incompetent developer and the incompetent manager will cry about "technical debt" and other bullshit like that, instead of owning up to their incompetence.
To me, "technical debt" is a way that developers can tactfully point out to management the incompetent practices that allow poorly factored code to remain in a codebase.
You misspelled Apple.
Sure, you might have also meant to address a bunch of other brands too.
But I'm sure you were actually referring to the company which presents such features as the color of the plastic that device is made of, locking devices to certain service providers through hardware modifications of SIM cards, enabling copy/paste years after it has become an obligatory option in the competing devices and dropping multitasking as "innovation".
Mit der Dummheit kämpfen Götter selbst vergebens
R&D Expenditures for Tech Companies. As a percentage of revenue, Microsoft is highest (14.6%), followed by Cisco (14%) and Google (12%). Apple is down at the bottom with 2.3%.
That is the accountants view.
In Business School they are taught intangible assets are just cause and effect relationships that can bring in more value indirectly. An accountant can only provide tangible assets in its books. Tangible means physical.
Now guess how Wall Street determines the value of a company? If you said its accounting books you got a winner. Wall Street classifies it as a loss as no assets can be balanced agaisnt the expense unfortuantely. It is agaisnt accounting principles to do so. Not even land value is in the books believe it or not.
So the CEO is under pressure to make its accounting books look good and all intangible assets or now liabilities to shun and to cut. This is how to raise your share price and by yourself a nice new comfy mansion if you are the CEO
http://saveie6.com/
Didn't Apple invest heavily in R&D during the last recession? I'd say it went pretty well for them.
How many companies which perform research and development obtained money directly from government bailouts? I mean, General Motors definitely did, and there was definitely groveling involved; and a number of financial service firms got money and related benefits from the government, though with less groveling. But what IBM / HP / technology company / manufacturers got these bailouts?
I despise it when emotional invective such as your post takes the place of rational skepticism of corporate governance. Please. If you're going to criticize those greedy, amoral SOBs, have something better than this drivel to bring to the table. (Ooh look at me. I refuse to call it "earning". Oooh, it's probably grounds for a laawsuit if I said how lame they are. Somebody call the waahmbulance for this doofus.)
The World Wide Web is dying. Soon, we shall have only the Internet.
Not surprising given that a bunch of wild eyed Bolsheviks are running the country. It won't last forever.
an ill wind that blows no good
It might be best to confirm there is consensus on the requirements before working on a fix.
Not to mention the investors do not care if there is a recession and will always want their return. Since all the assets are gone there is nothing to generate money in the hard times and like my example above the CEO is in it for himself and the ones who made the bad decisions are gone in a carribean island somewhere or at the helm of another company.
I have an idea? You do not see the bond market acting this way. Perhaps if investors were forced to sell back their stocks are a time period for each share like bond expired. If they want to keep playing they could repurchase them. This will encourage them to be stable as the price then will be determined on worth when it matures.
I think that and banning pre and after market trading as well as flash trading would fix the situation. Glass-Seagull did wonders and it is a shame it is gone. It is a gambling hall game with micro second bets today. Please tell me how a company can gain its value or lose it in a micro second? It is gambling and this needs to end. I think we can do a lot but politically, it will all be impossible. Too many far right wing politicians funded by the banks will fillabuster even a debate on this topic and preserve the status quo.
http://saveie6.com/
(Ooh look at me. I refuse to call it "earning". Oooh, it's probably grounds for a laawsuit if I said how lame they are. Somebody call the waahmbulance for this doofus.)
Agreed.
Some managers, directors, VPs and even chief-level executives might be nothing more than empty chairs, but there is a good number of them who are responsible by making strategic decisions and taking the time to understand all the working pieces of the company. And if inspiration strikes them best on the golf course (just as inspiration strikes me best on my coffee break or run), then so be it.
This is absolutely false. Intangibles certainly do appear on a companies books.
This is just an opportunity to start you own business.
A few problems with this:
I think that those numbers are all the playthings of accountants, and are likely not reflective of anything.
1) Since neither Microsoft nor Google have large hardware divisions (at least not in those numbers), they are not compareable to Apple. Once hardware goes to manufacturing nothing in that line can be counted as R&D. Cisco does have a large hardware division, so I don't know about that number. None of the costs of hardware production for sale can be counted as R&D.
2) None of those companies have the large retail presence that Apple does. None of that can ever be called R&D.
3) Apple tends to make a product then iterate on its products. Only new product development counts twords R&D expenditures. So it may well be that none of the MacOS X development costs since 10.0.0 have counted as R&D expenditures. Note that it might be that Apple accounts for things this way, and other companies account for new product models (something Apple glosses over most of the time) as new products, and thus count the development costs as R&D.
Technical debt is not just incompetence: sometimes, there is no optimal solution, and you cannot know which tradeoff is the best. Then as you have a deadline, you get something out, and you hope that iterating to a better solution will not be too painful. Sometimes, I write code that is there purely because it might be needed later -- and this time ends up sometimes having been a waste, and sometimes a saviour. In general, it is not wasted, but I have the luxury to do such developments.
I often see technical debt emerge when the world around an application changes. This can put even the perfectly architected system out of position. You could argue that a competent engineer would have implemented a design flexible enough to adapt to change, but accounting for all possible long-run outcomes would be very expensive if not impossible. In civil engineering, this results in things like traffic jam.
Why would a CEO care about providing new revenue? That's beyond the horizon of the couple of years he will "lead" the company.In that time, he can gut the business, funneling the cash to the "investors", and leave on his golden parachute, leaving a rotting corpse behind. We should put some of the local lamp posts to good use, pour encourager les autres.
Ubi solitudinem faciunt, pacem appellant.
This, however, is a notion that came up in the 80s. Not surprisingly, synchronous to St. Reagan's, peace be upon him, Voodoo economics...
Ubi solitudinem faciunt, pacem appellant.
It's really the shareholders that add pressure for profitability, but the trend towards increased profitability in the recent decades is create a short term "gain" when they cut R&D. One problem is that they're cutting future viability when they can't make products over the future. I don't think companies should be catering to such demands because they're most likely made by people that don't bother to hold shares for any substantial period of time.
Completely agreed. The fascinating fact - in a morbid, sick way - is that the teabaggers, reps and libertards still happily fellate those guys on every occasion, when instead they should be strung up at the next streetlight, just for the message.
Ubi solitudinem faciunt, pacem appellant.
Apple is a terrible example of a company doing well due to R&D. Apple sells 70% on marketing and 30% on product. The fact that they made a tablet, just like lots of other companies have done, and Jobs said, "Lets make a small one like the Palm" followed by a realization years later that people might actually want a the large version, doesn't mean Apple is investing heavily in R&D. Apple doesn't wait until a product is "just right". The iPad isn't an example of Apple "taking several years to polish a product". The fact that you think that shows just how much of Apples success is in quality marketing.
I'm wondering if you're German - it's a little known fact in the US (ok, a lot of things about Europe are little known facts in the US) that many German companies are required to have workers' representatives on the board of directors.
However, I would very strongly object to shareholders getting real and direct rights to decide on the direction of the company. Why? Because shareholders measure the success of the company in exactly one metric: how much money it is making them, either through rising stock price or through increasing dividends. Considering the amount of research done into how people plan for the future, and how they deal with future pay-offs, I can guarantee you that your proposed system would be even worse than what is currently in place. Instead of merely demanding immediate pay-offs, shareholders could implement immediate payoffs.
I do agree though that the insanity of regarding corporations as people has to stop. It is the biggest perversion of the American government system that has ever happened.
Those who can, do. Those who can't, sue.
Of course not. Everyone knows you don't do R&D, you buy R&D.
Even better, you steal R&D, then you wrap your products in the most intrusive DRM you can find to thwart those thieving pirates.
Somewhere back in the '80s, corporations changed from entities whose goal is making successful products and services to produce long-term growth and profits for shareholders into the social parasites that they are today.
You are welcome on my lawn.
I am not German, but I did know about the German rule... But I do think shareholders, as the owner of the corporation should in fact be responsible for deciding on the payoffs. The reason for that is that with ownership should come responsibility. Those companies with forward-looking investors will thrives, and the vultures will quickly get off the market. I also expect that if a strategy is well explained at the shareholder meeting, there should be no problem to get is approved.
Playing the market for stock prices is madness. A company is there to make a profit, hopefully in the long term. Thus, you should invest to get dividends, not stock value growth. A system where the stock brokers are not necessary is a better system.
Oh, the requirement are easy: you should be able to commute quickly and cheaply to work. Services should be near. When peak oil strikes, you will understand why suburbia was not just a bad idea, but in fact a horrible idea.
There is no value in outsourcing work as far as the customer is concerned.
Outsourcing is motivated by CEO stock share value, nothing else.
Does outsourcing build a better product? No, it does not.
Does outsourcing provide better customer service? No, it does not.
Does outsourcing simply reduce manufacturing to where you can find slave labour, ala FOXCONN? Yes, yes it does.
What does outsourcing eventually lead to, which nobody talks about?
Jobs outsourced domestically, eventually leads to a domestic market which cannot buy the goods you make, ala the United States which had a very strong consumer market.
After NAFTA and outsourcing, it is just a strong consumer FOOD STAMP market.
-Hackus
Got Geometrodynamics? Awe, too hard to figure out? Too bad.
On what planet does Apple gloss over new product models. Here on Earth, they throw major events for every single model upgrade.
That is a good point. Given that Corporations are already 70% our government, and we are moving to a government that is 100% corporate controlled, it would make sense to start treating the corporations as such, and hold them to the standards of a government.
I think the difference is between a founding CEO and one that was given the reigns. The former is like a biological parent while the latter is like a step parent. While there are step parents that will take on the responsibility as if it were there own, there are plenty of others that won't because they don't see the benefit of a ling term relationship.
Jumpstart the tartan drive.
Sounds like more of the contracts they sign need to have strings attached to them, to protect against neglect by CEO.
As a business owner I am handing leadership to someone I want to have a vested interest in making a success of the company. If i sign a contract that makes it tempting forth CEO to simply sink the ship and walk off with the money, then as owner I am a fool. The problem is that in many publically traded companies, this is what seems to happen.
Jumpstart the tartan drive.
Here is a little secret.
CEO's are not in it to bring profits for a company. That is not their job. Their job is to boast the share price at all costs. Its taught in finance 101 in any college.
Apparently Finance 101 professors are idiots.
The CEO's job is to manage the company. Managing anything, including a company, means weighing several factors when making a decision. These factors include but are not limited to, effects on share price, profits, public opinion, world at large, the longevity of the company, the employees, and the industry as a whole.
It's like telling a doctor they aren't there to set bones, but to stop bleeding. Many patients will be saved if you stop bleeding. Others will need bones set. Others need antibiotics, nutrition advice, advanced therapy, other medicine, psychoanalysis, etc. If someone hired you as a doctor and told you what treatments to use on your patients, sight unseen of the problem, you'd have to be an absolutely terrible doctor to offer band-aids to cancer patients.
A CEO that isn't managing the company, and is instead following orders to boost the stock value, is a shitty CEO in the eyes of everyone except stockholders. I don't know why you're defending that. And you are defending it, when you say "That's how the world works"; in other words, the existence of a structural problem forgives their own mistakes. Unfortunately, they do not live in an abstract world described by a few words; every day they walk into the company building and see the faces of the people they could be putting out of work, and day by day they watch their own hands slowly choking the life out of their charge. They have innumerable opportunities to stand up, and many of them don't.
It's not the way of the world. We're each responsible for our own fuckups.
I agree (which means I shouldn't reply and instead should just mod your post up but I have something to say so here I am :).
You don't understand the moderation system, huh?
The utter lack of business acumen in this community is delicious. Absolutely delicious.
You all "know" how everything should work, get out there and do it! Whining on the Internet has accomplished exactly nothing, ever.
I know, I know, it's too hard to actually achieve, and it's a risk to try, and you're not comfortable with risk. Other people should be doing that for you while you armchair quarterback the operation, because hey, they have money and you deserve to say what they do with it.
In a word: ridiculous.
Investors GOT a long term interest. Speculators do not. Wall street has NOTHING to do with investment anymore, when you hear indexes fall and rise it is speculation that is driving it.
Investment: I give you 1000 dollars to build your business and you pay me a percentage of the profit.
Speculation: I buy 1000 dollars of stocks hoping they will go up, then sell them when I think they reached a peak and repeat with OTHER stock.
That is why the market must continue to grow and grow and grow for speculators. An investor who gets 1000 dollars back each year for his 1000 dollar investment would be through the roof. A speculator would be highly upset because after the first year, the stock wouldn't be going up, the dividend would be insanely high but the stock price itself could well remain stable.
That is why during the bubble stock prices for internet companies with no business model went up. NOT because regular business was a bad investment anymore BUT because there was nothing to speculate on. Wall street NEEDS instability (constant growth is a form of instability) to allow speculation to happen.
Learn the difference between investors and speculators. It is vital if you want to understand economics.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
I'm not sure what you are trying to say with that link.
Plainly Apple has out-innovated all of the companies higher on it in the list (with I would say the exception of IBM). So does it matter if R&D spending is a lower percentage when they seem to be doing quite a lot more with less?
I think the reason for the disparity is that Apple is doing more focuses research, IBM is all over the place ad Microsoft too. So I don't think Apple's supposedly lower R&D spending will hurt them much in the long run, especially when they seem to be so much better at D than anyone (even IBM).
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Why did we go to the Moon? Not for profit!
SpaceX is going into space, including soon manned missions, for profit.
It's not unthinkable that someone will desire to go to Mars for profit in the not terribly distant future. The problem in the past has been capital outlay to get into space, but as that lowers people will go there.
Vast public expenditures can do things like erect pyramids or send people to the moon. But it does nothing that cannot also be done by a for-profit industry can given some time.
I think the best thing the public sphere can do is to give incentives to private industry to go in a direction (like the X-prize for space) and then watch private industry do what it does best. But R&D by government itself is usually not a good idea without a very specific need.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
See this. Other companies do concepts that get a lot of press and go nowhere; Apple keeps quiet until they have actual products to announce.
Circumcision is child abuse.
An insider has said Apple has a 15-20 year product roadmap.
Unfortunately there is no penalty to be paid for instant gratification. Hopefuly after this correction, investors will learn that 5-10% is an appropriate ROI.
Why would the investors care? They are as transient as the current CEO and will move on to the next company after the coal has turned to a clinker.
The Apple Newton / MessagePad 110 from 1994
Vintage computer adverts: http://www.vintageadbrowser.com/computers-and-software-ads
So how do you dispute what the person you were replying to was saying?
If outsourcing does not produce a better product or improve customer service, then companies that gamble everything on outsourcing are vulnerable. They can be challenged by better products and they can be challenged by superior customer service, and at the end of the day they can still be challenged on price.
Jobs outsourced domestically, eventually leads to a domestic market which cannot buy the goods you make, ala the United States
"A la the United States"? You specifically brought up the example of Apple. Is it now your contention that Apple is one of the top two largest companies in the world because nobody in the United States can afford Apple's products? And that this is because of outsourcing? You confuse me.
Breakfast served all day!
Here is a little secret.
CEO's are not in it to bring profits for a company. That is not their job. Their job is to boast the share price at all costs. Its taught in finance 101 in any college.
Not, it isn't. Finance courses do not teach corporate governance or management in any case. They'll probably teach you about things like CAPM and basic option valuation. They may also teach you that the fundamental value of a company's shares is the expected net present value of all future dividends, which would imply that the way to increase the share price is to increase future profits, with the relative importance of profits soon vs profits later depending on the risk-adjusted interest rate. They probably won't teach you about irrational behaviour in markets or systematic financial asset pricing errors, however.
In other parts of related degrees they're likely to teach you about agency problems, including the coordination problems among disparate shareholding bodies.
Now imagine you are the CEO. You can invest in R&D and have your shareprice get cut down by almost half in this recession and risk your job for not using the money to hire more marketing and sales people, but if you stay on for 5+ years you will make tons of money and create long term value. Or you eliminate R&D and your company will die within 5 - 7 years right? As CEO you get a 20 million bonus for selling your prized assets that make you money for short term gain and your stock price goes up a good 35%. You do not think such CEOs who do this stay right? They jump ship within 2-3 years with a golden parachute. Even better with that track record you go on raiding the next company for even more money and become a guru and genius to stroke your ego. 90% of CEO's would pick this and let the next CEO take the fall when they go out of business or fade to the competion. Meantime you buy a yatch and retire or buy a bigger one as you ruin the next company, etc.
Average tenure for CEOs is something like 7 years, so CEOs jumping ship after 2-3 years can't be all that common. Also, the CEO market isn't a big one and eventually it'll catch up with you, although you're hardly likely to be a pauper by then. CEOs certainly do make decisions to the detriment of their investors for their own reasons, but they aren't always designed to make the short term share price go up. Acquisitions are bad decisions more often than they're good ones and investors regularly drop their valuations of companies dramatically when they happen (like HP) but CEOs seem to love them - presumably for reasons ego and empire building.
If this needs to change we have to stop having Wall Street reward short term behavior and start punishing companies like HP who do retarded things for long term shareholder wealth. I do not know how and do not think it is our job to do this
I think only a few large investors are genuinely in a position to do much here - people like Warren Buffet, activist shareholders like Carl Icahn, private equity investors who can buy whole companies (but many have just added lots of debt and done little of benefit), or maybe University endowment funds. People with long time horizons and/or investing their own money. Fund managers who get their money from myriad individuals tend to find their investors withdrawing money from their funds if they don't perform consistently well over short periods, and in any case fund managers are normally assessed relative to other fund managers. Besides, there isn't anyone who has perfect incentives to invest your money properly but you. If you want the problem solved you can't do it just by making it someone else's.
When your point and conclusion rests on rumors, legends, and "it seems" or "I believe" rather than actual facts.... it makes your conclusion valueless.
But you'll get +5 anyhow, because your conclusion coincides with one of Slashdot's most treasured bits of dogma.
Actually, it's standard operating procedure in big business. Most large corporations will have the 5-10 largest/best law firms on retainer throughout the world so as to eliminate the ability of litigants to utilize those firms in their lawsuits. Google, Facebook, Apple, Microsoft, along with any other large multinational corporation have strategic plans in place to mitigate the caliber of talent that can be brought against them in these lawsuits. This does not make them immune, but merely hedges their bet and pushes the odds in their favor.
Such is the world we live in.
"Shareholder expectations for higher returns don't diminish when the economy stutters"
As opposed to the rest of us who merely work for a living, and whose expectations have been diminishing over the last decade.
If your children ever found out how lame you are, they'd murder you in your sleep
This is exactly the problem why invest in risky r&d that could take computing and other technologies to new heights, when lawyers and advertising is a fool proof method for profit, and you can take any one else’s hard earned r&d at fire sale prices.
Rocket Surgeon.
Don't forget: why do R&D when you can just constantly buy out (or undercut) smaller businesses?
One of my uncles has gone through 5 workplaces in the last decade. Essentially, he gets hired somewhere that's a small firm, and some larger entity either shows up to buy the company out (takes the patents and then shuts down development within a year) or does much what GPP suggested, rips off the design, undercuts the pricing, and then buries the company lawyers in paperwork when they try to assert their patents.
IBM, Microsoft, Apple... they don't do shit for R&D anymore, they just rip off other people's ideas and ruin the smaller businesses.
I'd have something different to bring to the table, but my lawyer said it's still illegal to use firearms on them.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Despite the many forests of IBM patent applications, they don't actually seem to invent much useful stuff.
Are all CEOs are reluctant to do R&D? Ask Steve Jobs.
Microsoft's large R&D comes out of Microsoft Research, which does make a lot of theoretical research in CompSci and related areas (just look up the publication count on Google Scholar). That is genuine R&D. How much of that makes it to shipping products is another matter (the answer is: some, but less than many would have liked).
Erh... most teabaggers, reps and liberals (at least in the key positions of the relevant parties and movements) have a very big interest in keeping the tax money rolling that way.
They might be the next who need it.
I've had my share of liberals lately. "Keep out of my business" is something they say to government as long as the profits roll, but when it would be time to crumble, crash and burn for being the gambling fools they are, suddenly they are quite happy to take government money to bail them out.
In a nutshell, what they want is to privatize profits and socialize losses. And looking around, I have to say they have every reason to believe that it works.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
But... but that patent surely didn't have "with a computer" in its text, did it?
"With a computer" makes everything patent-worthy these days, even the most harebrained, obvious idea that has been done since the dawn of time (just not "with a computer"). Didn't you get the memo?
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Then one has to wonder how does Apple manage to keep its costs so low that that little R&D spending shows up as 33% of the budget.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
The problem is, there is just nobody who has an interest in the long term survivability of a company. The CEO wants his fat bonus check and he can easily land another job somewhere else if he managed to appease the investors. Who in turn also want quick money because for them it's just as easy to withdraw the money and pump it somewhere else when the company fails.
The only people who're interested in the well being of a company are its workers, who fear the loss of their job, knowing that it isn't easy to find another one quickly. Sadly, they have no say in how it is run.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
I think it's useful to look back at TFA. The point he was making was that R and D are 2 different things. To be fair, Microsoft is one of the few companies that actually invest in research (R), but in every software company that I'm aware of the D (development) dramatically dwarfs the R. One of the things most frustrating about software patents is that they are usually the result of refinement (if that!) of existing techniques where no real novel thought has gone into it. One could look at a company like MS and say that their high R&D costs are a result of inefficiencies in their development efforts as much as they are the result of trying to do something new (and I say that with the full realisation that MS is better than almost any software company with regard to research). Likewise, while Google also does a lot of research (comparatively), I get the impression that their R&D numbers are high mostly because they pay a lot for their developers. It doesn't necessarily follow that basic research will be done.
Are you kidding me apple is what this whole story is about. Even if they did spend years comming up with rectangle with rounded corners and lets put shortcuts on the front page, that is hardly research and development. R&D would be if they had actully invented capacitive touch not just bought a whole lot of units. R&D would be if they had actully come up with arm architecture not just paid samsung to use it for them. R&D would be if they had invented gorilla glass or ssd. R&D would be if they had actully made a new antena that didn't drop phone calls, R&D isn't looking up the best produt for then job plugging it in, then trying to sue any competitors that use the same materials. If you can name any product that was actully researched (originally not just make somthing bigger) then developed by apple i'm all ears but i havn't seen anything ever that isn't a copy of some one elses work.
Rocket Surgeon.
I beg to differ. Apple does quite a lot of research - some of it software research (Operating system design, Objective-C, OpenCL, Grand Central Dispatch, etc), some of it materials research (as they have used in forming cases for various devices they produce), and of course now they are heavily into chip manufacture or just plain improving manufacturing processes in general.
IBM I would agree does quite a lot more wide ranging research which is why I originally excluded them, they are heads and shoulders above anyone else on that list as far as research goes. Microsoft though - they have hired a ton of researchers but are the things being researched actually that much different than what Apple is researching? I've seen no evidence of that, and in fact I would say Apple is doing more simply because they make a lot more hardware than Microsoft does. To me Microsoft seems to go in circles a lot more when it comes to research, and have a TON of research that never makes it to production or makes it to production in a way that really doesn't do anything for anyone (photosynth is a cool tech demo but not very widely used or marketable).
Microsoft may be doing more research but nothing seems to come of it, either in products or even influencing other research the way IBM does.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Jobs outsourced domestically, eventually leads to a domestic market which cannot buy the goods you make, ala the United States which had a very strong consumer market.
Which proves, again, the short view taken for profits, over the long view of producing a product. Eventually, these companies will die, with very wealthy C?O's, and new ones will be created.
The root problem, from my view, is that companies are run to make a profit, not make a product which then makes a profit for the company.
"What luck for the rulers that men do not think." - Adolph Hitler
Well, you get what you pay for.
As always, all IMO. Insert "I think" everywhere grammatically possible.
I don't care about that and have hardly ever heard the term which makes your strawman very amusing - what I care about is somebody such as you calling another an "incompetent fool" on the basis of no evidence and then building an elaborate strawman of any bystanders that make a noise to burn. Maybe you are competant, I cannot tell one way or another, but I can tell that you are a childish hypocrite that should know better than to behave this way.
To be honest a question on my exam for finance was "What is the goal of the company". If you answered to make money it was wrong. The whole course dealt with how to manipulate the stock price. That is the goal of business today and of course using debt to accomplish this.
I know this irritates you, but this is seriously taught in business school and these students will take these lessons to work. Oh, and small business yes it was about making money and we covered that for 2 weeks.
A CEO's job is to boost the stock price and he is an evil bastard if he focuses on the company. We even went over game theory which states that a managers job is not to be be fired, not serve the shareholders. Wall Street makes sure they have CEOs who focus on them and not the company nor their jobs. It is not like the bleeding vs the bones because in the Reagan years the courts ruled Wall Street owns the companies. So they rule.
I hate to say it but if you are public it is illegal to not think of htem first and immoral. THey are the true bosses and the CEO is paid to give them results to gamble on. If you think that is disgusting please stay private. I wish I was being a smartass or sarcastic but it is the sad truth and why R&D and IT are treated like crap. My former professor was a VP of finance for 2 fortune 500 companies and drives a corvette.
http://saveie6.com/
I just remember from my professor who was a former CFO of 2 fortunate 500 companies and owns a corvette. In the exam he asked what the goal of a company is. If you answered to make money you were wrong. Seriously first day in class, he taught that it was to raise the share price and that it was our goal too as employees if we ever worked for a fortune 1,000 company.
In other courses we were taught good CEOs stay but Wall Street does not like them.
But this is what the new 20 something MBA students have learned, and are eager to get out and start slashing costs like IT and R&D. They learn it from that philosphy and yes it really is taught at universities.
http://saveie6.com/
How?
I was taught no in school. Sure a brand name can bring something in marketing, but IT is always an expense. If it can't be proved the SEC can go up your ass as it sounds like a great way to hide profits. If you can't prove it do not ledger it.
http://saveie6.com/
Maybe they should revers the trend of CEO's also being board chairmen. Have a strong separate chair that can champion long term profitability as a legitimate representative of shareholder interest.
Why the sarcasm? Just wrap some spiffy design around the old crap and sell it as new. Hey, it worked before!
The problem with that is where do you put your waste when Joe Public in the first world wants his new sparkly PC, tablet, phone, etc and does not want his old but still functioning device that he is replacing. Well Big Business has the answer. Send all those devices functioning or not to third world countries where they are effectively turned to landfill with only a tiny percentage actually being of some use, but hay it's out of sight and we give those poor people technology for virtually nothing.
The problem is some of those third world countries are now preparing cases that will cost said multinational companies billions. It is only a matter of time and that time is actually shorter than some might think.
There ain't no such thing as proprietary standards only proprietary formats. Standards are by definition open.
I wondered the same thing. Their expenses are awfully low.
On the other hand, Apple are masters at marketing high-margin luxury goods, so that might explain their high overall margin.
Mart
"I know I will be modded down for this": where's the option '-1, Asking for it'?
I bet Apple's success really annoys the hell out of you. All those mindless sheeple buying shiny glossy worthless gadgets because of Apple's "marketing" and "Reality Distortion Field", right?
You couldn't get any more ignorant. Apple succeeds because they understand technology and human beings. I think you'd be surprised how little they spend on marketing -- certainly nowhere near the 70% you claim. Apple's products are superior over the competition, so they sell themselves. There's no secret to this, it's just good old-fashioned hard work and vision, something that most companies lack.
Geeks who hate Apple should at least try to understand what drives its success, rather than ascribe it all down to "marketing" and the general public being mindless zombies. They could learn a thing or two about real strategy and innovation. Apple will eventually go down in history as the most influential and successful computing company in history, eclipsing even Microsoft.
Doesn't surprise me at all. It's pretty obvious where the future of computing will be, but most people (and most IT companies) fail to grasp it. The upcoming Second Great Depression will see most incompetent IT giants wiped out. Clean sweep.
That might have been true at one point, but ever since the Republicans declared open war on capitalism by denying shareholders rights at every turn, the CEO essentially works only to enrich himself. This means basically turning the company into their own personal piggy bank, liquidating whatever they can and absorbing all the cash that comes from that. R&D certainly is not a part of that process.
I have never seen such an anti-capitalist major political party in the US. Republicans hate capitalism, pure and simple. See, in a capitalist society the people who own the CAPITAL reap the profits, but to the Republicans, that was an anathema, because anyone can buy stocks. Only a select few can become CEO, so they decided to scrap capitalism in favor of corporatism. And look at what lovely results we have. Fuck the Republican party, THEY are the ones that truly hate America.
Monstar L
>Apparently Finance 101 professors are idiots.
Actually, it's judges. What the professors are teaching is true -what you are saying is perfectly sensible... and false.
Thanks to a standing court decision decades ago which determined that a CEO must AT ALL TIMES put shareholder value ABOVE ALL OTHER CONSIDERATIONS. These include ethical ones, environmental ones, and indeed long term profitability and growth.
Unfortunately for sensibility - the law actually DEMANDS that CEO's act stupidly.
Unicode killed the ASCII-art *
THIS. Exactly this is why 2 months after going public Branson bought back every Virgin share and took the company private again.
Unicode killed the ASCII-art *
>Average tenure for CEOs is something like 7 years, so CEOs jumping ship after 2-3 years can't be all that common
Your own statement disproves itself. If the average is 7 that means about 50$ of them last less than that, and basic statistics declare there will be a normal distribution with the majority of them about halfway towards the 7 year point (e.g. 2 to 4 years) just like the 50% who last longer will be anywhere from 10 to 14 years.
I guess nobody ever told you what the word average actually means ?
I'd better go call 911 because if your math teacher read that comment she's trying to commit suicide right now.
Unicode killed the ASCII-art *
Apple's products are not superior, they are flashier. Everything in the UI slides around nicely, but in terms of features there are better options. Things that "just work" only tend to do so if you subscribe to the Apple Way(TM). The hardware is shiny and sleek but fails on usability (iPhone 4 antenna issues, the iPad 1's curved back that makes it unusable when laid flat etc.)
People buy an Apple product for the same reason they buy a fast car. They probably won't get to work any quicker in the morning but they think they look cool driving it.
const int one = 65536; (Silvermoon, Texture.cs)
SJW, n: "Someone I don't like, and by the way I'm a fuckwit" - AC
Whereas in the finance lectures I went to one of the first things they said was that CFOs know very little about finance :) Not the sort of thing a university would/should be teaching in a proper academic course, anyway. But that course was part of my undergraduate degree, not an MBA, and having not experienced one I'm not sure whether or not an MBA counts as a proper education in such things.
However, it's still true that in the sort of model a basic finance or economics class would use - one with efficient markets bringing share prices towards expected net present values of future dividends - there's not a lot of difference between 'making money' (in a specific well defined sense) and 'raising the share price'. But even then there would still be perfectly legitimate (=in the interests of shareholders) ways to increase the share price without increasing profits. Producing the same profits with lower risk, for example. Or producing the same profits with the same overall risk but with less correlation with the rest of the market. If you studied CAPM (which at a basic level you should if the course was any good) then these things ought to have been either taught or somewhat obvious.
That's why all successful companies both invest in R&D and marketing during the worst economic times. Historically, those that don't, either go out of business or are simply non-competitive during the good economic times. Historically, companies who fail to invest in R&D (new product development, depending on company) and marketing during economic down turns are also signaling of either a dire economic situation or extremely poor management. In either case, if they can't or won't invest, neither should you.
I see this sentiment parroted on Slahsdot all the time without any evidence to back it up. Do you have any evidence? Are you a university professor or recent graduate? I'm almost done with my masters in business (yay, everyone on /. loves MBA's!), and I've never heard the role of a corporate officer described this way in a classroom. Sure, we talk about examples of idiots who nose dive companies into orphanages and bail out with their golden parachutes, but they are used as examples of what NOT to do.
That said, one of a CEO's many responsibilities is to increase value to the stakeholders. This is not the same as increasing share price. Funding R&D certainly increases stakeholder value.
No one cares what your captcha was
Houston TX, USA
Glad to hear another fellow MBA on Slashdot. I'm finished with mine in December. Nowhere in any of my classes have they said "boosting the share price at all costs" was the goal of a CEO. Even if that were the case, share price is a function of expected future returns... what do you think will happen to those future returns when R&D gets cut? Mostly what we are taught about the role of a CEO is that they are central to creating and executing the business strategy that takes the needs of the shareholders, the customers, and the employees (the key stakeholders) into account.
Yea, remember the hostile takeovers?
I know the history, and it is FAR from that simple.
The problem is that of course it does nothing about all the legacy MBAs who were already taught the horrible stuff.
A very important fight/evolution in society is the evolution of democracy in the corporations. Not just worker representation (it is a good idea to have worker representative on the board, if only to provide dissenting voices when decisions are taken) but real shareholder representation. If I own stock in a company, the CEO is basically my employee. If he is incompetent, I should be able to fire him. The shareholder assembly should work like a parliament, responsible for setting the objectives and the regulations internal to the corporation, and the board is really the executive power.
I disagree. Instead, the fact that the majority of corporations are to considerable degree authoritarian, indicates to me that democracy doesn't have that much of a place in business. Remember the obvious fact about business: if you don't like how a business is run, you can leave. And there's the other obvious fact about business: if democracy is really a better way to run a business, then the non-democracies wouldn't be able to compete.
I think it would be a bad idea to homogenize how businesses operate (especially with very poorly thought out ideas like the one you mention).
And as this structure would never arise while the CEOs are in charge, it should be mandated by the government: the government allows the corporation to exist, and grants it certain rights.
Statements like this highlight why I have libertarian leanings. You can't get the businesses to do something so colossally stupid, so you'll use government to force them. That incidentally is a remarkably paradoxical impulse for someone who purports to further the interests of democracy.
Also the government which has the power to decide how a business is run has the power to do all sorts of unsavory or stupid things. It can extort companies (corruption is a natural associate of government by fiat). It can require insipid rules in the boardroom (eg, prayer in the boardroom) or arbitrarily change definitions in self-serving ways (such as you do when you misuse the term "owner" to include employees and other groups who aren't owners nor should be).
I'd rather keep this power out of the hands of government and let businesses run themselves, you know, a democratic approach.
Steve Jobs was fired from Apple initially because of R&D and a lack of results. Wall Street hated him for his long term ideas and R&D. They wanted the mac done cheap like a generic PC. HE came back and risked everything for the IPOD as most CEOs refused to work for Apple thinking they were dead.
It's worth noting here that Apple is a much better company now because they fired Jobs the first time. Keep mind that Jobs and Apple wasn't doing well at the time. After Jobs got fired, he built two successful companies (Next and Pixar). So he had a lot more to offer when he was rehired than if he had stayed on.
It's also worth noting that Jobs wasn't a CEO at the time he was fired. Apple had two CEOs since 1978 neither who was Jobs. So it's very possible, that if he had stayed on, he would never rise to CEO and have faded to some bureaucrat behind the scenes.
Meanwhile Apple investors got to see that the traditional approach wasn't going to work for them. So now, not only do we have a more skilled and experienced CEO in charge, we have greater support and cooperation from the investors.
10 million people. 4 million of they may have been homosexuals, gypsies, mentally retarded, and other undesirables instead of Jews, but they were still people, and shouldn't be forgotten.
No modpoints today, but I'd have awarded you a "+1 insightful".
Too seldom do people pause and reflect on what the numbers they see actually mean, myself included.
In a society that believes in nothing, fear becomes the only agenda ~ Bill Durodié
Where did the PP state that apple gloss over new product models? I saw no such statement nor sentiment.
What I read between the lines was rather a compliment to Apple, namely that the PP speculated the reported R&D sum for Apple in the report might have been too low compared to the other company numbers. If improvement in OSX, IOS etc. are not counted towards the R&D budget for Apple, while the same kind of spending would be at another company (E.g. Windows 8 for Microsoft), then obviously the reported Apple figure would be too low.
However, speculations and specifics aside, the interesting message in the PP's comment, I think, was "Think about what the numbers mean and whether they are comparable or not to the other numbers in the set". Are apples being compares to other apples (no pun intended) or is the report showing a mixed fruit comparison?
In a society that believes in nothing, fear becomes the only agenda ~ Bill Durodié
It is very important to remember that in today's world of patent minefields, R&D is far more risky than simply spending money and discovering nothing. One could discover something, and find that it's already got lawyers swarming all over it.
These are my friends, See how they glisten. See this one shine, how he smiles in the light.
Care to elaborate? CEOs give Republicans tons of money and in return Republicans give them carte Blanche to rape the corporations they are in charge of. Pretty damn simple.
Monstar L
You misunderstand. Companies might well be still run as autocracies. But only as long as the shareholders are fine with that, and with the autocrat of their choosing, and at their price. There is currently a problem that despite owning stock in a company, you do not have powers proportional to your investment. This is clearly wrong.
The cause of that is that the CEO class is basically a parasitic organism which feeds of the corporations and the shareholders (and by extension society) without bringing any value commensurate to their salaries. The alternative would be to curtail salaries, but that would not only be socialism, it would be stupid. Ideally, what I describe could happen (and could fail, who knows), but cannot while the CEOs have a stranglehold on the companies.
You are not allowed to sell yourself into slavery, and you should not be allowed to give up your property rights.
Companies might well be still run as autocracies. But only as long as the shareholders are fine with that
There are some cases as I understand it where businesses have not been run as the shareholders wish (here, I mean the people who actually own part of the business not anyone else, including employees). But those cases are infrequent.
There is currently a problem that despite owning stock in a company, you do not have powers proportional to your investment. This is clearly wrong.
Mathmatically, measures of voting power rarely are proportional to the weight of the vote. This is a natural problem with voting and there's nothing "clear" about what to do about it. Ultimately, if you own a small voting share of a corporation, then you do not have voting power unless things are precariously balanced so that your share occasionally throws votes.
Another factor is that people sometimes think they have a voting share when they do not. For example, if a fund owns shares in the corporation, then they vote not the participants in the fund. Similarly, there are securities that look like typical stock shares, but have no voting power.
The cause of that is that the CEO class is basically a parasitic organism which feeds of the corporations and the shareholders (and by extension society) without bringing any value commensurate to their salaries.
Then why is the CEO allowed to be a CEO? I can't force a company to hire me as CEO. It happens at the behest of the share holders.
You are not allowed to sell yourself into slavery, and you should not be allowed to give up your property rights.
I think you just don't understand the property rights of owning shares in corporations. Limited risk also means limited ownership.
tl;dr version: APPLE RULES! MICROSOFT AND GOOGLE DROOL! (And just to prove my point, I'll make stuff up and plead special exceptions, and handwave vigorously.)
Fanboys of Apple should do the same.
I think that along with the education mentioned above, you should get some reading comprehension - because nowhere did the OP claim the spent 70% on marketing.
I have to admit, aside from the powerful perception issue, how does share price after the initial issuance of shares really affect a company? It's not like they're actually losing money as far as I can tell.
Opera, Proxomitron-Grypen,GPG 0x0A1C6EE3
Here, take a look: Microsoft 2011Q4 Earnings
You'll see both "Intangibles" and "Goodwill" listed on the balance sheet.
other companies account for new product models (something Apple glosses over most of the time) as new products
A CEO that isn't managing the company, and is instead following orders to boost the stock value, is a shitty CEO in the eyes of everyone except stockholders. I don't know why you're defending that. And you are defending it, when you say "That's how the world works"
As CEO you are the highest manager, you don't answer to any of the lower managers (you can choose to take their advice, you are in no way obliged to), nor do you answer to anyone else in the company. Which leaves the the board of directors (if present, otherwise the shareholders themselves), which represents the shareholders. So as far as the people who the shitty CEO answer to care, the shitty CEO is worth his weight in gold.
Look at the structure of any company that has a structure with a CEO position and you will find that unless such a sentiment is shared by the shareholders as well then the conclusion of the GP is the most likely outcome.
If they want to make bad decisions that will only harm them and the company, let them be. They will catch on soon enough that without new products and innovations in their field, they won't sell shit.