You’ve hit on a big reason - short term gains. The partners at Accenture, Infosys and the rest circle the execs at old industry companies. The companies start performing worse, though nothing some accounting gimmicks can’t cover. Then they have a very bad quarter, enough that it will ruin their fiscal year. Fingers start pointing, and talk turns to “belt tightening” and “turning fixed costs to variable.” All of a sudden the proposals from Big Consulting that provide savings bankable this fiscal year sound very good.
It doesn’t take long for the cracks to show:
- Not enough program/project management.
- An intuition that service dropped but no good metrics.
- Retrain the outsourcers after the first team quit.
- Inability to size new projects.
- Shadow IT departments form in the business units.
- The outsourcers don’t care about things like vendor consolidation or holding other vendors feet to the fire.
All of this might still be worth it if it’s done strategically to improve a chronically underperforming IT department. It’s rarely effective when rushed to cover up poor performance of the core business.
Sort of. They can use the debt to grow, in which case they’re betting that they will get more profit than the principal plus interest payments. (Beating a 4% return on the loan, not the whole company)
They could also use it to change the capital structure buying back shares. This simultaneously increases risk and share price, unless the reissue more shares.
In both cases, if they can’t pay the interest payments, the company gets handed over to the creditors. Not an issue for Google, but a lot of startups struggle with venture debt.
The question is are we more like farm workers who will be unemployed because of the farm or accountants who become much more valuable and high paid because of the spreadsheet?
And I am grateful for not working on a farm, it’s hard work!
It’s not necessarily the sale. Some private equity companies move from “Let’s invest like we’re shooting for the moon” to “Let’s invest like we want to improve margins and flip this on 3-5 years”
It’s not inherently wrong but it is a different model, and sometimes companies suffer as a result.
Interesting. My observation on IBM is their entire business model is:
1 - Audit your customers
2 - Buy back shares
3 - Force early retirements
It was easy to see why Watson failed in that environment. The revenue was “We’ll let you out of the $6mm audit bill if you buy $2mm of Watson”. Companies would agree, install better asset management, and never put Watson into production.
I couldn’t imagine Quantum Comouting surviving there. Spinning it off the best play.
I used it most key to learn about history. There isn’t much damage if it got 1600s or 1700s detail wrong. My high school teachers got much of it wrong too.
Very interesting that he seems to be in the camp of “It’s ok if the machines prove it as long as we can understand and formally verify it after.”