Saturday, April 18, 2009

Why did the economy collapse?

There are many schools of thought as to what happened and why

  • Banks Failures
  • Job loss
  • Lower consumerism 

Yet, I believe these to nothing to touch the root causes of the failure which I believe can be summed up simply 

  • Misunderstanding of the purpose of business 

Business exists to supply a need to their client or customer and as a result of doing this makes money. At some point the focus changed to profit and the customer service (human) part of the equation was removed and the focus went from the client to the company and then from the company to the executives. Executives forgot just because you make it does not mean people will buy it. They forgot that a product or service must solve a known need. They forgot that when you over stimulate consumption at some point the system will again seek equilibrium. 

Allow me to use a crude but effect example - as an adult with no spouse or children why do I need 2-3 automobiles as one adult its not like I can drive all three of then at one time. While gas use would remain the same all of the other related costs, maintenance, insurance, etc would all increase as a result.

Lets take the same thinking and flip it on its ear – say you are a C level employee (executive) and you lay off 10% of your workforce to hit some arbitrary goal instead of focusing on sustainable profitability. Prior to layoff company is in the red – now it is in the black. You get your bonus and next quarter have to bring those people back on staff - - did you earn that bonus? If you are not willing to pay the janitor a bonus and share in the success of the company do you in fact deserve one? Is there really any difference between a CEO and a janitor – are the not both employees (especially if CEO did not start company)?

So what is a CEO?

Think about this – he will say that in order to stay in business they have to help their customer – I thought that was apart of a viable business model?

What drives business?

The bottom line is this - that people do no do business with companies, businesses or instituations that are not predictible and that they cannot trust?

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