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Written by Peter Bigelow   
Thursday, 01 March 2012 18:28



Why the secret to success is unglamorous and hard to do.

If in real estate the adage is “location, location, location!” then in technology and manufacturing the mantra must be “focus, focus, focus!”

I spent my early career with a company whose high-visibility CEO often spoke of how companies reorganize every few years, shifting from a structure of divisions to one organized around functions. He felt that neither was necessarily better, but the only way to change an organization was to jump from one structure to the other – cleaning house along the way and making way for the youngest and brightest to move forward. It struck me that this type of management was akin to bumper cars, with the result being a beaten up staff reverberating between organizational structures that did not necessarily work – all just to placate top management’s lust for image.

Not long ago, the management rage was expanding into non-related (but allegedly profitable) growth areas. Its heyday was in the late 1960s and early 1970s, when some conglomerates had widely diverse product offerings all under one roof. Allegedly the business synergy was enhanced profits and balancing cyclicality, so cash would flow more evenly. But juggling such differing businesses made the operating units, functions, divisions – or whatever they were called at the time – less profitable, escalating the cyclicality of each and draining cash flow more severely.

In our industry, we have seen the ebb and flow of organizational brilliance played out by once highly vertically integrated companies (read: OEMs), which in the pursuit of higher margins and free cash flow segmented and divested divisions by product or manufacturing function into “best of breed” businesses (read: PCB fabrication, EMS, design, etc.). This did not necessarily increase margin or profitability for any of the participants, of course, but it did successfully drain cash from many of the offenders, which has led some to embrace a move back to the vertically integrated structure, often referred to as “ODM.”

Has anything really changed? It is tough to consistently maintain or increase margins and profitability. Yet, as difficult as it has been, we all seem to find ways to spend considerable time and resources seeking the proverbial silver bullet; the wand that, when waved over our business, will “automagically” make it stand out as a winner. If only it were that simple.

As I look back at the truly successful companies – businesses that seem to thrive (or at least, do more than survive) year in and out, most often they have a well-thought-out, tight focus that may slowly evolve but remains true to its core. Those companies also are highly focused in how they implement, and operate to excel in their focused area with a vengeance.

Many of those companies learned the hard way – by almost losing it all. Even today some iconic brands, such as GM and Ford, by necessity have had to refocus on the core of what they do. The same holds true in circuit board manufacturing. Many would-be diversified high-flyers a decade or so back are no longer among us, while some of the smaller niche players – those who stayed true to their base and maintained focus despite the trend of the moment – have emerged as leading companies.

But are they profitable? Are they still subject to industry cyclicality? Do they generate or consume more or less cash? The answer is simple: yes and no!
By maintaining a laser focus on your core competency, customers and your value-add proposition, you tend to outperform the industry as measured by margin and profitability. That’s not a silver bullet, nor an all protecting “get out of jail” card to prevent losses or margin erosion. But it puts you in the best position to manage resources to support your (focused) agenda. Ditto for cyclicality. All businesses are cyclical to a degree, and I could argue that companies supporting other businesses have no less and probably much more reason to be cyclical in nature. When R&D slows or production ramps past capacity, business will slow. The highly focused, however, have a far better probability of quickly recovering and moving forward.

Cash flow is a product of all of the above – and is the key reason to stay focused. It is hard to financially support prudent capital investment, maintain multiple underutilized facilities, or purchase necessary inventory, to say nothing of concurrently doing all at the same time without seeing the coffers quickly empty of cash. Perhaps there’s a rich uncle, banker or investor who can lend a few dollars. Often, that rich “friend” will end up in control and will force you to lose focus on what is most important: your business, customers, employees, expertise and technology.

If the results support being so focused, then why or how do we find it so easy to get distracted? Many reasons, but simply put, focusing is unglamorous and a lot of hard work. It’s more fun to talk the talk of Wall Street: cutting edge, state-of-the-art. No one wants to hear about something as unglamorous as drawing a straight line and then just following it. It is hard work. It takes tough-mindedness at all levels to stay focused, resist temptation, hone core skills, and then do it again. But staying focused, doing the basics, and resisting the temptation to find a shortcut has paid off time and again for generations of businesses.

So, enjoy looking at what distracts others as you address your employees, customers and suppliers; remind them all of what is important, and close the conversation with the mantra of those three simple words: “focus, focus, focus!”

Peter Bigelow is president and CEO of IMI (imipcb.com); This e-mail address is being protected from spambots. You need JavaScript enabled to view it . His column appears monthly.

Last Updated on Friday, 02 March 2012 13:42
 

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