OPINION: Failure to focus of their core operations is costing some big corporate names money and reputational standing.
OPINION: Most people who work for big companies are not foolish, but the same cannot be said of some recent decisions by the organisations that employ them.
Global oil company BP has been humbled by a head office view that the energy world is rapidly going green, a mistake that has slashed profits, made the business a takeover target, and led to the mothballing of a $1 billion energy hub at Kwinana.
De Beers, once the king of diamonds, initially dismissed suggestions that laboratory-grown gems were a threat but eventually joined the lab-grown game (in a truly bizarre example of corporate cannibalism that has slashed the value of the business and hampered attempts to sell it).
Fattened by an unstoppable flow of employee contributions, big superannuation funds are headed for tougher regulation, as poor management is exposed in a re-run of the crisis that engulfed Australia’s banks a decade ago.
Industry fund Cbus is the focus of concern about the quality of superannuation industry management, with an investigation by the powerful Australian Prudential Regulation Authority now under way.
What worries APRA is that money belonging to fund members is not being properly managed, including contributions being made to unions such as the CFMEU, and that death and disability payments to members have been unfairly delayed.
Perhaps most surprising is that, while people outside Cbus and other industry funds could see the issues behind the headlines, the organisation did not appreciate their significance.
The superannuation issue is shaping as repeat of how banks misread the public mood over excessive fees before being hauled in front of an inquiry, and how the once mighty AMP insurance company failed to grasp the implications of claiming fees from the estates of deceased members.
BP is a prime example of a company that lost its way, leading to a clash between its root business (producing and distributing oil and gas products) and the promise of new energy such as wind, solar and hydrogen, which has so far proved a profitless pursuit.
The crisis at BP has been played out on the stock market, where the company’s shares plunged by 25 per cent last year (even as every other oil major was rising).
This sparked the interest of hedge fund and takeover specialist Elliott Management, which started buying BP shares, lifting the price and leading to calls for a management overhaul.
“A victim of wishful thinking on fossil fuels” is how one critic described BP’s identity crisis, which has led to the canning of the Kwinana plan, catching the Western Australian government offside despite the company’s crisis being played out in plain view.
De Beers is a business with hallmarks similar to BP and a deeply held belief among senior managers that, because the company is more than 100 years old, it has all the answers (including that consumers would never embrace lab-grown diamonds).
So confident was De Beers it could retain control of the diamond industry that it even started making its own lab-grown gems, seemingly without realising consumers are price driven and when two identical products are on offer, price wins every time.
That astonishing blunder by De Beers has led to repeated write-downs in the value of the company and a struggle to sell the business for anything like it was worth a few years ago.
It’s early days in another crisis being played out locally; namely Australia’s attempt to be a global leader in new energy and critical minerals, including an often-repeated claim that the country will become ‘a new energy superpower’.
That might happen, but like the awful discovery made by De Beers about being undercut by more efficient competitors producing the same product, Australia’s new energy credentials risk being toasted by other countries doing it cheaper.
Small bundle, no joy
ANOTHER example of poor management decision making is the belief among financial and professional service organisations they can successfully operate as a one-stop shop, bundling different services into a neat package with large fees attached.
Banks discovered to their expense that mixing services rarely works after they tried to sell insurance policies to customers alongside a savings account; until they discovered the two products were toxic when mixed.
Accounting firms are now discovering they can’t sell legal services alongside audit and bookkeeping advice, with EY’s current restructuring of its law practice leading to heavy job losses.
The unfortunate part of what’s happening at EY is that it was predictable that a clash of functions would develop, and the one-stop shop theory would be consigned to the rubbish bin of experience (until someone else tries again to bundle services that don’t mix).
