Philip Fisher. Human factor

Philip Fisher. Human factor

Warren Buffett calls Philip Fisher "giant" of investing. "From him - Buffett says - I learned the value of" auditory approach: go and talk to competitors, suppliers and customers to figure out how to really work this or that industry or company. " Instead of analyzing the balance sheets of living in San Francisco, Fisher prefers to study people and organizations - this is his innovative contribution to the analysis of securities. "The focus I give management, even thoughwe still think that this attention is not enough. This is the most important component." He is looking for leaders and innovators, welcomes dissent and promoting innovation. He despises the managerial approach, which carried out massive layoffs of people in order to reduce costs.

Fisher, whose father was a doctor in person to give him education, went to college at the age of 18 years, then within a year he studied at the "Faculty of Business at Stanford University. There he learned how to talk to the management teams of companies, accompanying professor earns consultant. His first job after university - as an analyst in the securities of a bank in San Francisco. He then moved to the firm that worked on the "stock market crash of 1929 but let his career derailed. It was for the better, because in 1931 he founded his own firm, "Fischer End Ko", having on its side of the two huge advantages: the majority of professional managers Depression era were not too busy and willingly want to talk to them about their businesses, and most of the potential customers were highly dissatisfied with their current advisors. At age 89 he still managed the money of a small group of clients.

One of his winning strategies learned from the Depression - the attention to long term. "Companies in which I invest, have enough momentum to keep the movement within three to five years" - he says. In fact, he holds the stock for decades, for example, he held a "Food Machinery Corporation" (Food Mashinery Corporation), one of his first acquisitions in 1931, before the 60s, when he finally sold the shares. Other papers, which he keeps for decades, including "Texas Instruments" (Texas Instruments) and "Motorola" (Motorola). In principle, however, if the stock after three years does not meet his expectations, he is selling. Fischer uses the "Motorola" as an example in "The Human Factor" (The People Factor), which discusses the importance of the company's management in making investment decisions.

In short, the first measurement of conservative investment is unrealized managerial competence in key areas - manufacturing, marketing, research and financial management tools. This is the first dimension describes the company, what it is today, which is essentially the result of past activities. The second dimension due to the fact that given these results and, more importantly, will continue to give them in the future. Force, which leads to these results, creating one company in the industry, is an outstanding object of investment, and another average, mediocre, or worse - the people.

Edward H. Heller, a venture capitalist and a pioneer, whose comments he made during his business life, it affected some of the ideas in this book, used the term "living spirit" to describe the type of individual to whom it was prepared to provide substantial financial support . He said that behind every successful corporation is unusual is such a strong entrepreneurial-minded individual, possessing an internal drive, original ideas and the ability to make a company truly worthy of investment.

In regard to very small companies have turned to a much larger and very successful (and this is his area of ??greatest interest, in which he achieved the most exciting advances), Ed Heller, was undoubtedly right. But to the extent that these smaller companies are becoming larger and more suitable for a conservative investment approach may be eclipsed Ed Heller, another looks brilliant businessman, who expressed serious doubts about the wisdom of investing in a company whose president was his close personal friend. Bom the reason for the lack of enthusiasm for this man: "My friend is one of the most brilliant people I ever knew. It must always be right. In a small company, it can be wonderful. But as you grow, your People also need to be able sometimes to prove their case. "

That is the main feature of the second measurement truly conservative investment: CEO of the corporation, committed to a long-term growth, which has surrounded himself with and has delegated considerable authority to an extremely competent team in charge of various departments and functions of the company. These people should be engaged not in an endless internal struggle for power, and work together to achieve clearly defined corporate goals. One of these goals, it is imperative that the investment was really successful, is that senior management has found time for identifying and training qualified and active junior managers. They need to replace top management whenever replacement is necessary. In turn, at each successive level of command down should be given careful attention to people at this level do the same with respect to employees at a level below them.

Does this mean that the company meets the requirements of a true conservative investment of capital, personnel should only promote from within and not to hire people from outside, except at the lowest levels, or those who are just starting your career? A company growing at very high speeds, may have the need for additional people and simply do not have time to train their own staff for all vacancies. Moreover, even the best-managed company from time to time feels the need for an individual with highly specialized skills, so far from the traditional activities of the company that such a profession simply can not be found within it. An example is the expert with knowledge of specific areas of law, insurance, or a scientific discipline that are very far from the main economic activities of the company. In addition, performed from time to time by the hiring has another advantage: it can bring new perspective to the meetings the corporation, to inject fresh ideas that challenge the perception of the current direction as the best possible way.
As a rule, however, a company with real investment potential of people usually promotes from within. This is because all of the highest investment category (they do not necessarily have to be the largest and most well-known companies) have developed the policies and methods of its implementation, specific to their needs. If these special methods are of real value is always difficult and often impossible to retrain him long accustomed to people on other ways to achieve goals. The higher place in the organization is a newcomer, the more costly it may be his ideological reeducation. I can not give any statistics to prove this point, but I believe in the companies, managed well, a surprisingly large number of leaders made at the highest positions, leaving only after several years of work.

In one investor can be sure: if a large company seeking to enter by the new chief executive, is a damn sure sign that in its present leadership is something fundamentally wrong - no matter how good the surface features can be based on the most recent statements income. Quite possibly, the new president will do a great job and eventually will build around them a great management team that never again will need a new shock is an existing organization. Accordingly, over time, the shares of such company may be worthy of a wise investor. But such a recovery can be so time-consuming and dangerous process that, if an investor sees that such things happen to one of its assets, it should review all its investment activities in order to determine whether or not his past actions were based on a solid foundation.

There is a credible key, available to all investors to understand, is there a manual rule of one person or a smoothly operating team (this is key, however, does not shed light on how well the team can work). In the proxy statement published information on the annual salary of senior executives of all publicly owned companies. If wages are the number one man is much greater than that of the next two or three, it is an alarming sign. If the amount of compensation fall rather slowly, things are different.

For best results, the investor is not enough to management personnel worked together as a team and can fill the higher positions. The company must also present the maximum number of carriers of the "living spirit" referred to by Ed Heller - people who have the ingenuity and determination not to leave things only in their present may very satisfactory, state, and add them to substantial further improvements. Such people are hard to find. "Motorola" for some time engaged in activities (for her financial interests almost do not pay attention), indicating that this region can be achieved much more than is commonly believed possible.

In 1967, the management of "Motorola" realized that rapid growth expected in the coming years, will inevitably require the sustainable expansion of the upper layers of management. It was decided to prepare for future challenges. That same year, "Motorola" opened Institute of Leadership (Executive Institute) in Oracal, ea. Arizona. The Institute organized so that in the atmosphere, remote from the daily routine of offices and manufacturing plants, two things happen: staff, "Motorola" with the obvious makings of unusual trained on matters beyond the scope of their duties in order to acquire the skills needed to engage more important positions, senior management could provide substantial additional evidence of the readiness of people to career advancement.

During the Institute of Leadership skeptics among company executives doubted that this project is worth the money at him. Their skepticism was based largely on the view that the entire organization, "Motorola" can be found at least a hundred people with talent enough to, in terms of company cost them to provide such specialized training. Events have proved that the skeptics were amazingly wrong. The Institute teaches five or six classes a year, fourteen people in each class. By mid 1974 approximately 400 employees, "Motorola" have passed through this school. Moreover, a substantial number, including some of the current vice-presidents, were recognized as having the ability to much more than what they were doing at the time when they take to school. Moreover, the participants of this program believe in terms of the results of more recent classes turned out to be even more favorable than earlier. Now it is evident that as the growth of total employment in the "Motorola" continues to grow among its employees can find a sufficiently promising people to constantly maintain this activity. All this demonstrates to an investor's perspective, that if you use enough inventive approaches, even companies with growth rates well above the average can grow "the required number of exceptional people within themselves, to maintain a competitive edge without having to go to a high risk of tension and setbacks, so often occur when a rapidly growing company is forced to invite experts from the attraction rather than a very small portion of their unrealized talents.

Each has its own personality - a combination of traits that distinguishes him or her from any other individual, the same way each company has its own ways of doing the work - some of which are formalized in the well and clearly stated policy, others not - at least, procedures are slightly different from other corporations. The more successful the corporation, the more likely it is unique to a particular part of its policy. This is especially true for companies successful over a long period of time. In contrast, individuals whose fundamental character traits vary with the achievement of maturity only slightly, the orders of the companies are influenced not only by external events, but the reaction to these developments, a number of different parties, which over time follow each other at higher levels within the organization.

But no matter how varied policies of different companies must always be present three elements to the company's stock could be considered a worthwhile acquisition from the standpoint of a conservative long-term investment.

1. The company should recognize that the world in which it operates, constantly changing with increasing speed. All thinking and planning within the corporation should be set up to challenge what is being done now - and the challenge is not from time to time and again and again. Each common method should be reviewed and revised to ensure so far as it allows a person's ability to make a mistake, that the way - really the best way. Must accept some risk in introducing new techniques in order to meet changing conditions. No matter how friendly they may seem, the old procedure can not support because they have worked well in the past and hallowed tradition, the company zadubevshaya in their actions and constantly challenging herself not, is itself only one way - the way down. In contrast, some managers of large companies, deliberately structuring itself to be able to change, bring them to shareholders in a highly dramatic dividends. An example of this, "Dow Chemical Company" (Dow Chemical Company), having a record-breaking achievements in the past ten years, is often considered to be superior to achieve any other major chemical companies in the U.S. if not worldwide. Perhaps the most significant departure "Doe" of the old order was splitting its management into five separate departments on a geographic basis ("Dow USA," "Dow Europe", "Dow Canada," etc.). It was decided that the only way to local problems can be solved quickly, in accordance with local conditions and to eliminate bureaucratic inefficiencies, which is so often characteristic of large enterprises. The overall effect of this, the president said, "Dow Europe": "Achievements, challenges us today, are our sister companies [Doe] in the world. They are not our direct competitors demonstrate achievement, pushing us to be first," From the standpoint of investor, perhaps the most important feature of this change is not that it is done at all, and that it is done when the "Doe" had a total sales volume is much smaller than that of many other multinational companies that have successfully worked in the traditional way. In other words, change and improvement were the result of innovative thinking, aiming to make a workable system even better, and not the result of a forced response to the crisis.

This is just one of many ways that this innovative company broke with the past in order to achieve its remarkable record of competitiveness. Another direction was unprecedented for an industrial company from scratch project to create a successful, fully located in its own bank in Switzerland to assist in the financing needs of its customers in the export market. And in this case, the management of "Doe" is not fainted break with past procedures, which gave rise to some risk in the initial stages, but increased the company's inner strength.

There are many other examples from the history of this company. However, we limit ourselves to one another to show the extraordinary diversity of areas that may include such actions. Much earlier than most other companies, "Doe" is not only recognized the need to spend substantial sums to avoid environmental pollution, but came to the conclusion that in order to achieve noticeable results should be something more than nothing but exhortations by senior management. Necessary to secure the continued cooperation of middle managers. It was decided that the surest way of achieving this - the use of profit motivation of those whom it most directly affected. They offered to find profitable methods of transformation of pollutants in selling products. The rest became a history of business use for these projects, the full power of top management, the factory H qualified chemical engineers, "Doe" have learned to produce first-class goods, eliminating the risk of pollution, had won praise from many environmental groups, tend to have strong business position antagonistic in their points of view. Perhaps more importantly, that they avoided the hostility of most communities in whose territories are located their plants. Onidobilis this very small overall dollar costs, and in some cases even been able to obtain operating profit.

2. Always there should be a conscious and continuous activity, based on facts, not propaganda, aimed to employees at every level - from the most recently hired employees of industrial or office to the highest levels of leadership - felt that work well in their company.

Ego world, which requires that every week, most of us are smacked companies a significant number of hours, doing what others demand of us to get paid despite the fact that we might prefer to spend those hours on their own entertainment or recreation. Most recognize the need for this, if leadership can instill faith - not just among a few senior employees, but also among employees in general, that it does everything that can reasonably be expected to create a good working environment and promote the interests of employees - the company as a reward gets better performance and lower costs, greatly exceeding the costs of such policies.

The first step in this policy - to ensure (and not in words, but practical matters) to each employee treated with reasonable respect and attention. A year ago (or so) I read in the press that one union representative said, though one of the largest companies in the country has forced its workers to the production line have lunch with dirty hands from grease, because, given the number of accessible toilets in the majority was not enough umpsya time before eating. Shares of the company did not present me any investment interest for very different reasons. So I have no idea whether this attack is based on facts or made in the heat of emotional battles in the negotiations for higher wages. However, if this is true, then the mere fact that, in my opinion, would make the shares of the company ineligible for purchase by investors cautious.

In addition to a respectful and decent treatment of employees, there are many different ways to acquire a genuine loyalty of employees. Significant role played by pension schemes and profit sharing. The same can be said about the free communication with employees at all levels. With regard to issues of common interest, the opportunity for everyone to not only know exactly what is being done, but why, often eliminates the friction that can arise otherwise. Even more important is the actual knowledge of what people think on different levels of the company, especially when it comes to a conflict point of view. The feeling in the company that people everywhere can express their dissatisfaction with senior management without fear of reprisals, it may be beneficial, but such open-door policy is not always easy to maintain because of the time that is spent on wasted kritikanov and other eccentrics. When there are conflicts, decisions on them should be taken quickly. It is a long simmering conflict is usually the most costly.

A striking example of the benefits that can be achieved by creating a unity of purpose with employees - the "human performance" to "Texas Instruments' history of the program - an excellent example of how brilliant leadership persists in conduct and improve this policy, even when the new influence from outside forces to a redirection of the policy, from the beginning of the senior management of the company adhered to a deep belief that all will benefit, if you create a system in which all employees participate in management decisions aimed at improving productivity. Moreover, a system in which to reflect the interests of employees, all parties must truly (really) to benefit from the results of their contributions in the 50's semiconductor manufacturing was largely hand-built, which gave employees many opportunities to make a brilliant individual proposals to improve productivity. Meetings and even formal training. Manufacturing workers have shown how they could, individually or as groups, to find ways to improve manufacturing processes. At the same time, through programs of profit sharing, bonuses and rewards participants benefited both materially and morally, feeling like participants in the events. Then they started to mechanize these previously manual operations. As this trend for some features of individual contributions have been somewhat diminished, since the process began to control the machine.

Some artists in the organization began to feel that their participation in the management of the lower level is no more room. Senior management took a completely opposite point of view: the participation of people should play a greater role than ever before. Now, however, it should be a group or team effort in which the workers as a group to assess what can be done, and set their own performance goals. The workers felt that they (1) to really participate in decision making, rather than just doing what they are told, and (2) receive compensation, both tangible and in the form of honors and recognition. Therefore, the results were surprising. Time after time, teams of workers established goals for themselves, significantly above all, what could dream guide. From time to time when it seemed that the goals not feasible or when the competition between the teams took the form of competition, the workers voluntarily offered and maintained incredible thing (that time): reduced smoking breaks and lunch breaks to catch cope with work. Peer pressure on the team for being late or lazy workers, threatening the goals set for themselves a team, is superior to any disciplinary action that could be exerted from above by the usual methods of management. These results apply not only to American workers, from birth accustomed to political democracy. They are equally effective and mutually beneficial to all people regardless of their color and origin from countries with very different economic systems. Although the plan initially improve productivity introduced in the United States are the same astounding results demonstrated not only in factories, "Texas Instruments" in the advanced industrial countries such as France and Japan, but the local Asian officials in Singapore and Curacao, where the workers are basically the yellow race. In all countries, the moral effect was striking: the team working not only directly accountable to the leadership of the highest level, they know that their reports will take into account, and their achievements recognized and affirmed.

What does this mean for investors, explained the company president, Mark Shepherd, Jr.. When he spoke before the shareholders at the annual meeting in 1974. He said that the index of human performance is determined by dividing the sum of the invoices for products shipped in the total amount of wages. Since semiconductors - the main production company - in today's inflationary world, one of the very few products that consistently declining in value per unit, and salary increases for the company's plants og rate 7 percent per year in the United States to 20 percent in Italy and Japan, it is logical expect that, despite improvements in productivity, the index will decrease. However, he always rose 2.25 percent ar in 1969 to 2.5 percent by the end of 1973. Moreover, in view of certain plans additional improvements and increasing the size of distributed profits with reference to such improvements, it was announced that the company's goal - bringing the index down to 3.1 percent in 1980 - but it is a goal, if achieved, will make the company extremely profitable place to work. For many years, "Texas Instruments" are often announced some very ambitious and long-term goals to date, rather consistently fulfilling them.

From an investment point of view, there are some very important similarities in all three examples of programs oriented to the human factor, chosen to illustrate some aspects of the second dimension of conservative investing. There can be mentioned to give a general description of the Institute "Motorola" for the selection and training of talented people to meet the growing needs of the company. No less easy to tell, as the "Doe" found a means of encouraging people to work together to solve environmental problems and turn them into sources of profit for the company, or give a few facts about the remarkable program of human performance in "Texas Instruments". However, if another company decided to start a similar program from scratch, problems that may arise in this case, would have been infinitely more complex than a simple belief the board of directors approve the necessary appropriations. Such programs are easy to formulate, but their performance - an entirely different matter. Mistakes can be very costly. It is easy to imagine what might happen if the institute for advanced studies, such as the fact that there is a "Motorola" would be selected for promotion, the "wrong" people. As a result, the best junior leaders will leave in disgust from the company. Similarly, suppose some company tried to follow (in general) plan, "human performance", but she was unable to create an atmosphere in which workers would feel truly involved, or did not properly pay their workers compensation, which resulted in to their subsequent disappointment. Improper use of such a program can literally destroy a company. Meanwhile, companies that use inexpensive, oriented to human error management techniques, as a rule, are more and more ways to extract benefit from them. For these companies, these policies and practices - the special way of approach to the problems and their solutions - in a sense, the subject property. For this reason, they are very important for long-term investors.

3. Management must be prepared to submit to the discipline required for reliable growth.

As already mentioned, in our rapidly changing world, companies can not remain immobile. They should either improve or deteriorate, climb or descend. The true purpose of investing in growth not only profit but also to avoid losses. There are very few companies whose management does not represent that they are the companies growth. However, the administration, claiming that it focuses on growth, not necessarily in fact focused on growth. Many companies seem to have an overwhelming desire to show at the end of each reporting period, the largest possible profit - to include every possible penny in financial results. The company, a real-oriented growth, to do this will never be her focus should be on obtaining sufficient current revenues to finance the cost of plant expansion. After adjustment is made to acquire the necessary additional financial strength, the company worthy of long-term investment, give priority to reducing the maximum immediate profit when there is a genuine, worthwhile opportunities to develop new products or processes, or to start new production specialization, or for any one hundred and one other everyday operations by which a dollar spent today can mean many dollars earned in the future. Such operations could range from hiring and training new staff needed when the business grows, to opt out of receiving the maximum possible profit from a customer order for his continued loyalty by offering him something he badly needs it. For the conservative investor verification of all these operations indicates whether the leadership is engaged in building up long-term profits or just pretending. No matter how well known the company if it is only lip service has a policy of declaring a commitment to discipline, it is unlikely to be successful placement of investment capital. Not good and the company pytayuschayusya follow this discipline, but are not able to achieve its performance, for example, a company with high costs for research, but does not control its operations. Therefore, it can extract from the strategy adopted only a small benefit.