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Monday, May 23, 2011

Greek Tragedies

A recurrent irony in Greek mythology is in how trying to avoid their fates brings people to embark on a series of actions that actually cause the events they are trying to avoid. Does it happen in business?

Companies see negative signs (read less revenue), and immediately work out a plan to reduce some form of overhead or raise pricing to compensate for the loss. As a sink or swim action, I can’t argue with this, but in many cases a company is perfectly solvent and able to withstand lower profits, just not willing to accept lower profits or flat growth.

In answering to a board, stockholders or parent company, there may be no tolerance for such results, even though they are still not in negative territory.

What often happens then is a series of measures that ultimately reduce the quality, value, or service provided by the company. What then? Not hard to figure out is it? A downward spiral due to loss of reputation, value and performance (see General Motors late 20th century). Now the company actually got what was feared, though it did answer the short term directives or implied demands of the controlling forces. With people who are compensated and evaluated for a company’s value at particular times (or for a snapshot) they are likely to do whatever is necessary to provide the highest compensation for themselves at that time regardless of the long term consequences.

The answer is to have the real confidence to weather the storm and be ready to take advantage of circumstances when they become more favorable without trying to force the issue. Being realistic allows a company to avoid being in a position where reducing customer satisfaction or offering lower quality will hurt their reputation too much to come out of the bad times intact. Then they have to start over and there are numerous examples of companies that could not.

So just as the Greek Tragedies warn, trying too hard to avoid certain fates only brings one closer to what one was trying to avoid. Being realistic in a market, either up or down is a key to continuity.

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