Re: Is the Writing on the Wall for Ada?

[Marin David Condic <nobody@noplace.com>]

Robert I. Eachus wrote:
> Marin David Condic wrote:
>  > And you have to optimize "profit" - not  "technical superiority". 
> That's something
>  > that most engineers have a hard time grasping.
> 
> No!  And that is an even harder lesson.  What you want to do is to 
> maximize the long-term survival of the company.  That is the hard lesson 
> for non-engineering types to learn.
> 
And how is that not "Maximizing Profit"? :-) Would you rather earn one 
dollar a day for a thousand years or ten dolars a day for a week? Long 
term survival of a company *is* maximizing profits - and without some 
focus on the bottom line, investors withdrawal their money from the 
enterprise and... No long term survival. A corporation exists for only 
one reason - to make money. The instant it stops doing that, the 
employees all lose their jobs, the investors lose their retirement funds 
and the managers are all out hoping some other company won't look 
unfavorably on their track record. If you don't keep your eye on *that* 
particular mission, all the good engineering and better mousetraps and 
R&D in the world won't do the company any good.


> 
> In corporate terms, you need to do R&D so you have products to sell when 
> the demand for current products dries up.  And a company can stay in 

Not necessarily. There are lots of companies that turn a nice profit 
over long periods of time and do not invest in R&D. The pizzaria down on 
the corner has been making the same pizza for the last fifteen years 
that I know of and they've been doing just fine.

Mind you, I'm not against R&D. Just that it is a typical engineer's 
focus to think that without it a company is going to hell in a handcart. 
I fall prey to this focus myself sometimes. (I am, after all, an 
engineer.) Its just that I've seen engineers complain about a lack of 
funding for R&D when a company might actually be in the middle of an 
economic crisis and fighting for its very survival. Sometimes you have 
to focus on all those alligators chomping at your butt rather than on 
draining the swamp. ;-)



> business for twenty years or more with a 'book' loss as long as the cash 
> flow is positive.  (For example, if you depreciate the factory but 
> maintain it, at the end of the ammortization period you will still own 
> the factory, and it will still be useful, even if depreciated to zero on 
> the books.  The land you don't depreciate, but at the end of the 
> amortization period, the land plus building may be worth much more than 
> the book value.  Some REITs (real-estate investment trusts) are 
> structured this way.  They allow you to take a loss every year you own 
> them, then sell and take the capital gain. ;-)
> 
Yes, I understand how you can have a paper loss and still be on the right
course. Here we're simply looking at a company that has positive cash flow
and is focused in on its long term strategy rather than worrying about 
optimizing next quarter's reports. That's a good thing to do so long as 
your investors understand what the strategy is and agree with it. But if 
that cash flow goes negative for too long, you don't have a business. 
What you have is a hobby. Few investors will stick around and keep 
pitching bails of money at you so you can play with a hobby.

I recall going through a business course that dealt specifically with 
the jet engine industry and after all the lectures we got on the 
importance to survival of the business of bringing down the 
manufacturing costs over time, we still had engineers who didn't get it. 
A jet engine program might go on for thirty or more years. (Is that 
sufficiently long term focus? ;-) Over that time, you probably are going 
to lose money on the engine for the first ten years or more. The sooner 
you can "learn down" the cost of making those engines, the sooner it 
starts generating profit. When we got to running the business 
simulations, we still had engineers who kept trying to throw massive 
amounts of their budget into R&D well before they had made the last 
engine program pay for itself and had the whole business in a shambles 
within five years.

Of course, one can always argue that it was the "business" guys who 
created the model, so naturally they can make it fit their view of 
reality. But it seemed intuitively obvious to *this* engineer that given 
limited resources and a limited market, you can't R&D every cool jet 
engine product you can imagine - sooner or later you have to make and 
sell the ones you already R&D'd and if you make too many products that 
fit the same market, you're just canibalizing your own business.

Its all a delicate ballancing act. Maybe someone will one day come up 
with a good multi-variable control system that will totally eliminate 
the need for human judgement in matters of running a business, but I 
won't hold my breath. ;-)

MDC

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Marin David Condic
I work for: http://www.belcan.com/
My project is: http://www.jast.mil/

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