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Do the High-Paid Managers in Your Organization Add Value?

The first six Jumping off the Bandwagon monthly columns have been dedicated to addressing the proper academic preparation of our high-tech electronic product assembly workforce.

As the gap between industry need and academic preparation has continued to widen, a consequence has been the adverse effect this disconnect has had on the ability of a company to compete in the global manufacturing marketplace.

All competitive roads in any capitalist free market business ultimately lead to a cost versus contribution analysis—or said another way: a value assessment. The next series of columns in this space will explore another important cost driver—one that, like academic preparation, in many circles is at best awkward and uncomfortable, and at worst is dangerous to talk about.

What is the cost of management and leadership? And, what does a company get for that money?

These are questions that have been rarely discussed in an analytic way. They have been considered a given component of the administrative cost a company needs to absorb—the assumption always being it is a cost needed for the company to fit into a traditional hierarchal organizational structure.

Here are some of the additional questions and topics that will be addressed in this and subsequent columns in this series: 

1. Is there a difference between management and leadership?
2. If so, what are the corresponding attributes of both?
3. What metrics can be used to evaluate the effectiveness of each attribute?
4. What role does a leader play in today’s high tech electronic product assembly industry?
5. Who can be a leader? Must he or she be a manager?
6. What is the management and leadership cost for a high tech electronic product assembly company?  
7. Are there alternate organizational models that achieve management and leadership objectives at a lower cost?

This column will set the scene and take a first cut across these issues. Subsequent columns will drill down and discuss the details of each. As I am fond of saying: el diablo está en los detalles. (“The devil is in the details.”)

First, let’s clear the decks and make sure we have a common grasp of some very basic tenets of economics, and an understanding of the organizational business structure that companies in our industry have worked out of for decades.

Private Ownership vs. Government Ownership 

A free-market system based on private ownership continues to be the source of incredible wealth generation, middle-class growth, and the rise in the standard of living of the masses. At the same time, left unchecked, wealth can lead to significant inequities in individual incomes. Even Karl Marx recognized capitalism as a wealth-generating machine and thought it necessary to prime his communist pump—a required step in his application of Friedrich Hegel’s dialectical materialism.

Hegel developed his theory of dialectical materialism (thesis, antithesis and synthesis). Marx applied it to economic class struggle. Marx saw private property as the source of economic class creation and conflict. Capitalism accelerated the creation of wealth by a small group of bourgeois shop or business owners who exploited the large working class (proletariat) for their own selfish benefit. This would evolve into communism—the synthesis. The communist government would abolish private property and divide it among the people^[1]. Once up and running the government would take over the means of production and distribute its output based on need. From each according to his ability, to each according to his need^[2]. In the final phase, the government would not be needed and social ownership and management of the means of production would be done by a cooperative (common ownership). So, the thesis (bourgeois) creates the antithesis (proletariat) and a clash between to two causes the synthesis (communism).

In 1932, Joseph Stalin went one step further. He saw the rich land-owning farmers (Kulaks) in Ukraine as a threat. They had been seeking independence from the influence of Russia, and now, since the 1917 Bolshevik revolution, the Soviet Union. Stalin seized their land and food. From that point, the farms were managed by government collectives. Notice he skipped a step—the government was still there—necessary to shepherd and manage the process. Seven million Ukrainians died through government purges and starvation.

Capitalism makes the wealth “pie” bigger, regardless of the size of the slices.

Government collectivism, whether socialism or communism, is concerned in different degrees with the size of the pieces of the wealth “pie.” In the spirit of social justice, the government feels it is their responsibility to conduct the social engineering necessary to control the slice size.

It is cliché, but history has borne out the truth at its core: that pure capitalism makes everyone unequally rich, and pure socialism makes everyone equally poor.

The Public and Private Sectors 

There are two general umbrellas that companies reside under in a capitalist economic system: A company is said to be in either the public or private sector. Companies in both sectors require money, or capital, to start-up, operate and grow. The difference between the two is simply how that money is acquired.

A private sector company initially issues stock to the company’s owners when the corporation is formed. The share of equity an owner is allocated is typically based on their contribution, both monetarily and intellectually, to the company’s start-up and operation. If 100 shares are issued and an owner is given 40 shares, she owns 40% of the company.

One important point of clarification: A private sector company can have its stock (or ownership) either privately held or publically traded. When a private sector, privately-held company is said to “go public,” through an initial public offering (IPO), it’s still a private sector company. However, it is now permitted to raise funds from the general public. The private owners are effectively selling partial ownership in the company to the general public by the issuance of stock. The stock an investor buys provides them with an ownership or equity position in the company. As the company operates, the value of the initial stock offering price increases and decreases depending on the perceived value of the company. The stock shares are traded on a stock exchange.

In a public sector company, the government supplies the money, typically from tax revenue.

To read this entire article, which appeared in the October 2016 issue of SMT Magazine, click here.