The rush to buy digital cameras is blamed by Kodak for the closure of its Victorian photographic equipment business with the loss of 650 jobs. Many observers agree with that view. They see Kodak as a victim of technology change and mutter "what a pity". More astute critics see something far simpler – plus an awfully important lesson for every business in Australia.
That lesson is that managing change is a challenge, but actually producing a product the customer wants is a lot more important.
Kodak, in case nobody noticed, is much more than a simpler producer of old-fashioned film for cameras. It too is a player in the digital camera game. The problem is that whenever Briefcase has spoken with its mates in the photographic game they have spoken glowingly of digital brands such as Canon, Nikon, Olympus, Fuji and Pentax. Rarely do they recommend Kodak.
For anyone who shot their first backyard family photo with a Box Brownie or a Kodak Instamatic (wow, does that date Briefcase, or what?) the decline of the Kodak name from the list of recommended cameras is a shock. Professionals say Kodak digital products are getting better, but a lot of damage was done with the first batch of cameras.
In fact, Kodak is not an orphan when it comes to suffering at the hands of consumers. In the same week that it was retrenching workers in Victoria three other big names in the business world were facing similar problems.
Mitsubishi said it wanted to shut its Adelaide car production line for a week because of a stock build-up. Alitalia said it wanted to sack 2,500 staff because of tough trading conditions in the aviation industry and Volkswagen warned that 30,000 jobs were on the line because sales had slowed.
While two of those case studies are in Australia, and two in Europe, all four share the common problem of management either not moving fast enough to catch the changing habits of buyers, or management not recognising that its products are not competitive or, put more crudely, simply not good enough.
Briefcase, which has at different times been a consumer of each of the four brand names in question, reckons that the common themes are quality and a failure to keep up with competitors.
True believers in Mitsubishi cars will disagree with that sweeping statement, but the evidence seems to be in the parking lot outside the Mitsubishi assembly line – it is full of unsold cars, and the reason they are unsold is that customers quite clearly prefer Toyota Camrys, Holden Commodores and Ford Falcons.
The power of the customer can also be seen in the problems of Alitalia, a government-run airline which has for years provided a B-class service around Europe and has suddenly woken to the fact that even most Italians prefer other carriers.
Volkswagen’s problems are a variation on those at Mitsubishi. Its cars are reasonably popular but as a business it is suffering from the high cost of manufacturing in Germany and the challenge of handling rapid change in consumer buying habits. There is also a problem of poor profitability revealed in a Goldman Sachs study of the vehicle industry.
Briefcase will not bore readers with the detail of the complex Goldman study which was reported earlier this month in London’s Economist magazine but, the essential argument was that some of the best known names in the car business are "destroying" value, rather than creating it for shareholders.
Porsche, BMW, Mercedes, Nissan, Honda and Toyota were listed as value creators. VW, Mitsubishi, Ford, General Motors and Fiat were among the destroyers.
Of the top 17 car makers around the world, only half were earning more than the cost of their capital and the prime reason for there being so many destroyers was "excess capacity in mature markets".
Far be it for Briefcase to dispute what the clever (and highly paid) chaps at Goldman Sachs have to say but there seems to be a more obvious reason for the problems of half the world’s car makers, a reason which ropes in other troubled businesses such as Kodak and Alitalia – they are simply not producing products that the customer wants.
Everyone competes in a crowded marketplace but only some of us produce products that sell.
That is the number one lesson of business.
The second lesson is that only good managers can handle change successfully.
And the third lesson is to remember that it takes years to build a reputation, and months to destroy it – that’s the real power of the era of change in which we live.
SPEAKING of management bloopers, here’s a sobering case study for investors who rely on their stockbrokers for accurate advice, only to find that the herd mentality driving the modern market can sometimes get it horribly wrong.
In early September a poll of New York analysts (the highest paid in the world) predicted that Alcoa would earn US52 cents a share in the September quarter.
On September 11, Alcoa was forced to issue a statement saying earnings would be somewhere between US30 cents and US35 cents – a whopping gap of more than 50 per cent on the market consensus and a difference made all the more remarkable because every factor that will hurt Alcoa’s earnings was well-flagged to the analysts.
Those factors included higher energy prices (even Blind Freddie’s dog knew about that), a fire at a smelter, a strike, restructuring costs and cyclones in the Caribbean.
None of these factors should have surprised the market and if all the analysts hadn’t been looking at each other, and not daring to differ from the herd view of Alcoa, there would not have been a sudden 7 per cent drop in the company’s share price.
What you see in the Alcoa example in the US, you see every day in Australia where inexperienced analysts simply produce reports that concur with the consensus because nobody dares to be different, or critical, or brave – or actually do what they’re paid to do, which is to give good, independent advice.
"Something unpleasant is coming when men are anxious to tell the truth." Benjamin Disraeli.
