Tuesday, 16 September 2014

Billy's Thirty-second Law: Somebody always gets screwed

“Nothing is fair in this world. You might as well get that straight right now”
― Sue Monk Kidd, The Secret Life of Bees

I have long held a theory in business that somebody usually gets screwed.  What is ironic is that this is often consistent with an organization’s values.  Since we spend a great deal of time in planning sessions on Mission, Vision and Values; I thought it interesting that values are rarely fair.  Values, when they are truly lived out by the company, are generally ‘biased’ in a particular direction of another.  Typically, these directions are the customer, employees and shareholders or owners.  These are often values that work against one another – as customer needs, employee needs and shareholder needs pull the company in different directions.

Fairness, and often unfairness, often results from the organization’s values with respect to each of these stakeholder groups.  In British Columbia, where I live, liquor is sold through the Liquor Control Board.  This is a government organization that holds a monopoly on liquor distribution and a near monopoly on the retail distribution aspect of the business.  The LDB does very well.  Not only is there a 10% liquor tax, but the LDB in fiscal 2013, LDB made of 30% profit on sales.  Not bad for retail these days.  The employees at the LDB have a wage of $21/hour plus government benefits.  Guess who is getting screwed?  Well, when you consider alcohol prices in the US and the UK then you guessed it…the customer is paying way too much.  Somebody gets screwed!
Now consider Wal-Mart.  Let’s accept the fact that it is a competitive world, and set aside the impact that Wal-Mart has on the retail landscape, and just think for a moment about Employees, Customers and Shareholders.  Wal-Mart is, in revenue, the largest company in the world.  They have low prices so the customer is well taken care of.  The shareholder’s do ‘OK’ but the stock has underperformed, when compared to the Dow Jones Industrial Average, and the dividend yield is only 2.5%.  But it is the employees, and the suppliers, who really get screwed.  Wal-Mart is not a great paying organization.  Its average full time employee in the US earns $12.83/ hour, according to the Huffington Post (October 23 2013).  Part time workers earn less.
It is interesting the Costco, a direct competitor, pays well $21/ hour, prices well, but is criticized for its lower profits.  The return on sales… merely 1.9%, Wal-Mart's most recent year was 5.64%,  and the dividend yield is only 1.123%.  This time, the shareholder / owner gets screwed. 
Values:  Values define what a business will and will not do.  Values provide boundaries and direction for the planning process.   Values are not good or bad, until some kind of judgment is placed on them.  Consider the following scenario – which illustrates different business values.
A business has just received a report from a consultant advising them that the company could raise their prices 1% without any effect on their unit sales volume.  That one- percent would drop right to their bottom line!  Three executives of the company were discussing what strategy they should employ in order to move forward. 
The first executive said, “We can’t raise our prices – that just wouldn’t be fair to our customers.  We are only where we are because of our loyal customer base.
The second executive said, “I think that we should raise the price and pass that revenue directly to our employees.  One percent of sales would represent a 10% wage increase!   Our employees made us what we are today and they deserve this.
The third executive said, “I think that we should increase the price and then declare a dividend to the shareholders.  They took the risk to invest in the company and they are the ones who should finally benefit from their faith in this company!
Nobody is wrong…they merely have a different take on company values.

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