Financial Myths: Work Smarter Not Harder — Part II

Michael McTague |

us manufacturing, us automakers versus japan, gm versus toyota, best carmaker stock, work smarter work harder, financial mythsIn the last installment, we saw how the Work Smarter Not Harder approach appears to be backfiring for those who jumped on the Made in China bandwagon. Manufacturing is returning to the US through Reshoring. The Chinese manufacturing boom provides a single example and follows decades of efforts to make money by Working Smarter Not Harder.

Platform Manufacturing ranks among the largest efforts to employ the Work Smarter Not Harder concept. The general idea is that similar components and processes might be adapted to particular products or customers. General Motors (GM) stands as a major proponent. The auto giant may use similar engines in different models. In the US, GM adapted specific brands to a wider variety of markets. Cadillacs, for example, went from being huge to all sizes -- big, small, gas-guzzling, fuel efficient, luxury-laden or sparse. A Cadillac for any economic level! From a specific brand perspective, the idea appears very smart. However, the demanding US market saw through the ploy and the idea flopped. Cadillac lost its big, luxury image.  

Let’s take a peek into the future. Note that after GM’s bankruptcy, it famously dumped several long standing models including Pontiac and Oldsmobile. The brand overlap blurred the distinction buyers loved. But the US market now blends into GM’s much bolder international  outlook as is the case with its competitors. The Platform Manufacturing concept – even the brand blurring that did not score domestically -- might play well internationally.

Size Matters

The scaled down Cadillac may open the door in emerging markets. China, Russia and other upcoming economies find their middle classes leaping forward. More money and a greater appetite for luxury often mean that people hunger for American products. A person who can finally afford a car – not necessarily an expensive model – may be thinking of those beautiful American brands. But, price and fuel efficiency mean far more in such markets than they do in the US. The Lada owner with a 97.5 cubic inch engine may purchase a Cadillac ATS – a scaled down Platform Manufacturing product -- while imagining the Eldorado’s 500 cubic inch monster engine. As international buying power rises, size matters. It will be interesting to see what Volkswagen ($VLKAY), Renault (RNO) and Toyota (TM) do to derail GM.



Smart CEOs – Not So Fast

The Work Smarter Not Harder approach also plays itself out in top management. Companies prefer top managers especially CEOs who live by quick thinking and aggressive action. The preference does well as far as it goes. However, Work Smarter Not Harder carries a dark side – lusting after big deals and profit regardless of consequences. Think of MF Global under Corzine, grabbing at high yield Greek debt. Wall Street seems to think the treadmill is running rapidly in reverse and it must pounce on every golden opportunity to stay even. The evidence is that the pouncing too often violates the law.

Do we really need to reel off the offenders? In the last few years besides MF Global (MFGLQ), Galleon Group, Goldman Sachs (GS) , SAC Capital and others have been hammered by ethical charges, fines and “agreements” that forestall a long court battle. Credit Suisse (CS) , the latest entry, may wind up paying $2 billion concerning tax evading advice to clients. Their dispute with the US Justice Department is technically a separate matter with a separate and large price tag. The Work Smarter advocates are now linked to missing (make that stolen) client money, insider trading, phony mortgage securities, failure to disclose major features of investments, tax evasion advice, secret accounts and cultures that support wrongdoing. Not so Smart!

Does Smarter Always Mean Better?

The focus here is not on the validity of the claims but on the relationship between the Work Smarter Not Harder concept and some very troubling turns for major firms. The root of the problem is that if a competitor makes money on a particular venture – even if it bends the rules and skirts the law -- it is Dumb not to get in on the act. Or, in the language of the myth, one Works Smarter Not Harder by doing what everyone else makes money from.

So, in Part II of this myth, we find that on Wall Street, Working Smarter Not Harder seems to raise more problems than it solves. Ethical problems are not smart. But, the myth has made a comeback. GM may top its rivals by using the platform manufacturing approach. Note that the platform idea was not a major success strategically for the old (pre-IPO) GM, but may give it a shot in the arm as the auto market shifts to battlegrounds in China, Eastern Europe and other emerging markets. Also, the Platform concept allows GM to offer its long-established brands to the soaring middle classes in emerging markets. That does not mean they worked smarter, more that the market opened a door to a concept that flopped earlier.

In the next installment, we will take one more look at this intriguing myth: “Work Smarter Not Harder.”

 

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Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.

 
 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TM Toyota Motor Corporation 124.45 1.06 0.86 125,092 Trade
GS The Goldman Sachs Group Inc. 250.35 1.79 0.72 1,959,075 Trade
GM General Motors Company 42.02 0.00 0.00 13,658,737 Trade
HEXEY Hellenic Exchanges SA Holding Clearing Settlement 10.50 0.00 0.00 0

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