November 17, 1997

Company on the Skids

If you're so rich, why ain't you smart.

Just as surely as there are symptoms of a specific disease, when a company is headed on a downward course, the signs are unmistakable. The main symptom, or cause, is that the management of the company starts doing foolish things.

UPS is on a downward plunge, going from one of the best managed companies to one of the worst, almost overnight. The first thing that management decided to do that was just plain stupid was to fight the union at a time when the labor market was such that any of their employees could get another job without half trying. They ended up settling the strike for what they might have settled for without a strike. They also ended up with a legacy of employee bitterness. This in a company that had had as high an employee loyalty as it was possible to get. They also lost business; some permanently.

I have seen two unmistakable symptoms that UPS is in trouble. First was when commercials for UPS appeared on TV in one of the most expensive time slots that there is; on Sixty Minutes. In airing expensive commercials, the company is trying to sell its product to the wrong people. Much of their business is with large mail order companies. Do you think that a mail order company executive is going to be influenced by a TV commercial? I doubt it. I suspect that the commercial cost them almost as much as their settlement with their employees.

The second symptom was when I ordered some stuff from Harbor Freight, a tool company with an immense mail order business. They told me that my order would be shipped via the US Post Office unless I requested UPS. Furthermore, if I wanted UPS, it would cost me extra. UPS used to be their first choice.

So UPS is going downhill. There are a number of companies that are probably working hard to get their business. We will have to wait and see who will get it. There is always the possibility that the company management will wake up and smell the smoke. That doesn't usually happen. What does happen in a company with stockholders is that the board fires the chief executive officer(CEO) and replaces him; sometimes with a better one and sometimes with a worse one. I watched Eastern Airlines go from a first rate airline, with customer and employee loyalty, to nothing in just a few years. All of this was due to a single chief executive who was hungry for personal power and who probably surrounded himself with people who wouldn't dare to tell him that his fly was unzipped.

It doesn't take a business analyst to see when a company is in trouble. It is not likely that United Airlines is going to have a strike like UPS because their employees own the company. It is easy to see that it is becoming a bureaucracy. It seems to be moving toward matching AEROFLOT, the Russian government-owned airline. I could tell that on just one trip on the airline. As soon as its business travelers prefer a different airline, it has had it. An airline makes its money on the business passengers and breaks even on senior fares or other cheap fares.

A company is only as good as the people in it. For it to be successful, and remain successful, it has to be better than its competition. How this happens can be very complex. Still, you don't have to be an expert to know that a mistake by top management has a much greater effect than one by the person who cleans the toilets. My impression is that companies with first-rate management usually have first-rate employees who have the interests of the company and its clients in mind all the time.

How do I have the affrontery to pass judgment on a private enterprise, without ever having been part of it? I think that it was Mark Twain who said something to the effect that you don't have to be able to lay an egg in order to recognize a bad one. And I have been a customer for a long time.

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