We won’t get fooled again

Tip your hat to the new management team, but sometimes a buyout is not what it seems.

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Tip your hat to the new management team, but sometimes a buyout is not what it seems.

Recently, some machine-vision companies have been subjected to buyouts by larger corporations. Although those who issue the press releases on behalf of these companies always like to put a brave face on the situation, the scenario is usually much the same: after being given a very large sum of money and a new position within the new company (that generally lasts a few years at best), the old president is replaced with a Harvard-educated business executive who is brought in to run the organization.

With the bottom line now placed at the top of the list, the first job of the new management is to reduce costs. Because the larger corporation recognized a good investment, this task is not difficult. First, clerical workers, accountants, and administration people are absorbed (read laid off) from the new operation. Just for good measure, the new president brings some “fresh blood” to the organization in the form of low-paid graduates who will have to work their way up from the bottom.

The bottom line

Suddenly, the mantra that product quality is of prime importance is replaced by one in which the bottom line is everything. In the new organization, it doesn’t seem to matter about product quality, positioning, or marketing. As long as older, established products keep selling, no new marketing or engineering plans will be required.

Until, of course, quotas are not met and more cutbacks have to be made. This time, it’s the turn of middle managers and those engineers deemed to be overpaid. By offering these people “relocation” plans to places that only hurricanes would find hospitable, the company can safely sideline government regulations. Of course, most of the staff to whom such plans are offered will decide to take their “golden parachute” and jump. This measure will save the company hundreds of thousands of dollars.

See the new products

With engineering now at a minimum, new sales staff must be brought in to sell the newly “redesigned” products. Often knowing nothing about technology or the company’s products, these inexperienced folks are willing to operate on a commission-only basis, further reducing the credibility of the company and its products.

But it doesn’t seem to matter to those in charge. As long as profits for the first quarter are up, and for the second quarter, and the quarter after that. Such management is a shining example of capitalism at its finest. With costs reduced and productivity increased, profit margins will skyrocket. And the new management will gain its place in the sun, appearing in famous American financial magazines and on financial television networks.

Because of all this positive press, the very large company will be very pleased. But because of all the cost-cutting measures, there will be no new products in the pipeline and the new division’s profits will start to tumble. Someone is accountable and heads will roll. And so, four or five years after being purchased by the very large corporation, the new president is given $20 million, a yacht, and a home in the South of France. And the company is again up for sale.

Meanwhile, the old management, watching from the sidelines, sees a great opportunity and purchases the company back from the very large corporation for a fraction of the price for which they originally sold it. Everyone gets rich except, of course, for the shareholders in the very large corporation and all those people who have been laid off. Of the Harvard-educated business type, now happily relocated in Cannes? That person is off to perform the same magic with a small company that has been recently acquired by a large French vendor.

Having experienced this several times, many of those in the machine-vision industry have decided to own or work for small, private companies. Although these companies may not have the sales and marketing clout of their larger public counterparts, innovative products can be developed far more rapidly without the worry of corporate politics.

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Andy Wilson
Editor
andyw@pennwell.com

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