The high-tech industry didn’t get to become the economic leader it is today by oozing fear. Its pioneers took huge risks. They seized fleeting opportunities and put all they had on the line. The ones we celebrate today had huge visions and outsized dreams. They locked parents out of the family garage to start businesses, dropped out of college, mortgaged homes, left secure and lucrative jobs, worked nights and days, dared others to follow their paths, lost it all and wagered everything all over again. Their unbending will, passion and conviction built Silicon Valley.
What we have today is an industry running desperately from its own shadow. The industry continues to make strides but it is also locked into a new race, one where the trophy belongs to the most savage cost-cutters and executives who look brilliant harvesting the proceeds of IP and patents developed while they were still in diapers. The wait for the economy to “fully recover” has become the norm although many industry managers would tell you they are only being cautious and prudent in conserving shareholder value.
That’s a strategy for looking good and brilliant over the short term. The exceptional high-tech executives would do something different, like those who founded this industry. They would invest in innovation. Invest in processes. Invest in equipment. Invest in R&D. Invest in capital equipment. Invest in mergers & acquisitions. Invest in sales and marketing. But above all, they would invest in people and invest with a long-term view.
The industry can afford it. I’ve checked the numbers; the coffers are full; cash-flow is healthy; debts are low; borrowing costs are cheap and; corporate bonds are attractive. The stock buyback programs many high-tech firms tout nowadays are overrated; they won’t yield sales growth. Only investments can. Right now, the high-tech industry and the electronics segment isn’t investing as much as it needs for future growth and market expansion.
Instead, a cautionary environment prevails as executives focus on short-term returns, cost-controls and employee attrition. Executives complain about market uncertainties but I often wonder whether we are talking about the same markets. Many high-tech stocks are trading close to or at their highest levels in years, tracking the Nasdaq Market Exchange and the Dow Jones Industrial Average, both of which have set new highs in recent months.
In order to assure future growth we need to set the PC replacement cycle on fire again. Buy new fab equipment, add engineers and technicians. Call off the firing squad; bring in the hiring squad. Get online job boards humming again and tell Wall Street analysts to take off their blinders. Short-term gains and risk avoidance may be fine for a while but it won’t win market share or create a new revenue stream.
There are examples here for the industry to follow. Apple Inc. under late chairman and CEO Steve Jobs took a calculated but still enormous risk in shifting into the consumer electronics market when he introduced the iPod, the digital music player that became the reference product for the entire industry. When Apple followed this with the iPhone and the iPad, the company became synonymous with innovation. Today, because of the roaring success of these products few people recall how risky these products were for Apple. The company made a big investment gamble that paid off.
A more recent example is the acquisition of Molex Inc. by Koch Industries Inc. The $7.2 billion deal closed earlier this week and many analysts are still amazed that Charles Koch, chairman of Koch Industries, signed off on the 45 percent premium his company paid for the 75 years old connector manufacturer. No mysteries here. Molex is worth more than what Koch paid for the company. (See: Molex Will Change Under Koch But How Much?).
Charles Koch is nobody’s fool. He knew the enterprise value of the company and believed that under Koch Industries, Molex would surge to a higher height. Koch Industries saw an opportunity and seized it. Fortunately, it had the resources and the will to make the investment without asking banks to finance the deal. Your company, like Koch Industries and many in the high-tech industry, may similarly be sitting on a pile of cash. What will you do with it?
Let me suggest the following: Invest in training. Invest in trainers. Invest in tools. Dump old workstations and PCs, phones and the likes. Update enterprise software and machinery, roll out tablets and other handheld computerized equipment for industrial use and transition employees to applications that will yield hefty returns in improved productivity.
Add to the employee pool. Stop piling more work on tired and overworked employees; stretched too thin, they make mistakes that cost enterprises a bundle in lost productivity. Quit focusing on why costs must be kept down. Emphasize positive, growth messages. Rivals will know you are committed to growth and understand their market share isn’t save. A growing company has higher costs, offset by higher revenue.
Pay employees better: they’d probably use the extra money to buy your products (memo to Apple: China is a big market but it can be even bigger if the workers who assemble the iPhone can actually afford it on one month’s salary.)
End the incessant reorganization, restructuring, job cuts, payroll freezes and other actions steeped deep in the philosophy of defeat and negativity. Talks of job cuts are not only infuriating coming from companies that are posting solid sales and profit growths. They are also disappointing and dispiriting for your existing employees.
Take chances and big risks. Like I said, you can afford it. I’ve seen the numbers.
DISCLAIMER: Bolaji Ojo is editor-in-chief and publisher of Electronics Purchasing Strategies. The views expressed in this blog are those of the author alone who promises to base his sometimes biased, possibly ignorant, occasionally irrelevant but absolutely stimulating thoughts on the subjective interpretation of verifiable facts alone. Any comments should be sent to the author at email@example.com.