IBM email fiasco complicates sales deals, is worse than biz is letting on

What usually happens is that they make it a quarterly or annual target, so they do things that expensive in the long term to hit the target for the period.

For example, I can increase my profit for the quarter in an airline by deferring maintenance, so the plane flies more. But if the plane ends up being out of service for longer next year because of that decision, that is sub-optimal.

Another thing they can do is shift revenue around or offer large future discounts for upfront orders or shift project work depending on when end of year is. All things that are suboptimal, but work for the numbers.

As a non financial example, one company I worked for had quarterly goals around test coverage. But they didn't really budget time for it. It was just expected that it would somehow be done.

What happened was that worthless tests that called as much code as possible without testing anything were written to hit the coverage number. So even when time was available to write tests, the perception was that we already had test coverage so they never got fixed.

Suppose my cost of capital is 5%. My current business (selling widget A) is returning 20%. Great, my ROCE is 20%. Now let's say I can't expand my current product line any further. I can only sell so many widget A's.

But supposing I invent a new widget, widget B. Its return on capital is, say 10%. Should I manufacture widget B? The answer is: yes. My cost of capital is still 5%, but I'm earning a 10% return on it.

So the value of my business has increased. My overall ROCE will go down, though, because they'll now be a mix of sales at 20% ROCE and some at 10% ROCE. But even though my ROCE has decreased, it is still a good idea for me to produce widget B.

It may "look" bad to investors that my ROCE is going down, but I'm actually producing value for them. That's why I say that ROCE maximisation is sup-optimal. If I scrap widget B, them I'm actually doing investors a disservice.

I'm assuming "all things being equal", like risk profile.

In practise, they of course won't be. Companies could play a short-term game, like IBM seems to have done, by outsourcing to India, or whatnot. Sure, in the short term, ROCE has increased, but in the long term people will get cheesed off by their poor service.

It can work they other way, too. Take, for example, Kraft vs Nestle. Let's call it the "American" model vs the "European" model ;). Kraft took over UK chocolate manufacturer Cadbury's a few years ago now. They cut costs and produced something that consumers didn't like so much. In some ways I guess they had to, considering the amount of dough they blew on the acquisition.

Nestle, OTOH, tried to sell their stuff in Africa. That required a lot of money spread over a long period of time, because Africa has poor infrastructure. But what it meant was, when things got going, they were in a position to sell products to Africa when others weren't.

It's a long game vs a short game. Of course, just because it's a long game doesn't necessarily imply it's better.

But you can see that "hitting next quarter's targets" is apt to produce disappointing results over the longer term.

As regards FB buying Instagram, I have no sage advice. I could never see what the fuss was about with FB anyway, but they're making plenty of money, so I make plenty of mistakes.

Big companies often trot out phrases like "synergy" and "strategic acquisitions". They might work, they might not. Statistically speaking, odds are against acquisitions. Companies generally overpay for what they believe is exciting stuff, only to have the whole thing be a huge financial fiasco. Just ask Yahoo. They did alright with Alibaba, though. As another example, take Google's acquisition of YouTube. As far as I'm aware, they never made a profit out of it.

My tech director in games used to have a ~40mb static array at the top of main.cpp with a big comment along the lines of "DO NOT TOUCH". When we'd come up on a demo or critical milestone and just could not get everything to fit in the ~512mb of ram we needed because the art team put in too many textures or our new subsystem too much memory he'd go in and knock 5-10mb from it and "save the day".

The same tech director removed mip level zero to get back ~33% of our texture memory. About a week later he told the art team that we'd optimized the game and asked if they noticed any visual differences. The art team said they didn't, about 4 weeks later it got out what he actually did and they were livid.

That's why I say it doesn't necessarily relate to the situation at IBM. As I said, journalists like quoting people to push an agenda or lend legitimacy to a story even if they are not experts or on the complete periphery of the story.

It's nothing new though, and very tame as far as journalistic honesty goes -- it is not incorrect to say that there is some email problem at IBM, that IBM has been known to use Notes for email, and that there are not many Notes experts around.

> I'm not sure it's okay to publish a comment someone left on HN using their full name (the user account doesn't currently include a full name). I'd hope they at least contacted the user before including their comment (but I'm not holding my breath).

I'm not sure what you mean by okay, but journalists have been quoting people's public utterings and public writings for as long as there have been journalists. Including taking selective parts out of context to push their agenda. If it's a verbatim quote even out of context I consider that to be well clear of the bar for journalistic integrity.

And really, anything you say in public will be used against you. And it will be linked with your person if you don't cover your tracks carefully. We all know this. No journalist is going to contact us before taking something from a comment we write here!