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A good friend of mine named Harry just resigned from a technology company that manufactures and maintains storage devices and services. His story may be telling of a wider condition. I will let you decide.

He was one of two out of nine salesmen in his region that made quota last year. Quotas according to him are, "Revenue projections made by a disengaged management from the top down instead of from bottom up profiles from engaged salespeople. Management establishes them to satisfy growth benchmarks, themselves designed to satisfy the stock price. They are devoid of reality, but become sacrosanct and are forced on salespeople regardless of conditions."

And according to him, conditions are bleak as storage prices are "falling through the floor". His customer base is cyclical: once a client buys product, they are usually satisfied for at least two years until their next upgrade cycle. Apparently, there is little salespeople or the company in general can do to affect revenues outside of general economic conditions because the competition is so fierce.

Last quarter the region produced $26 million in revenues. Out of this, $9 million was an elephant order and will not be recurring. An engaged management, or perhaps one with reasonable business acumen, might lower "quotas" for the following quarter to a level that reflected reality. The quota for this quarter is $33 million.

My friend knew trouble was ahead. He brought his boss on several sales calls to illustrate the situation: none of his accounts had significant plans to upgrade. Surely this information would be passed on up so that management could more effectively deal with conditions.

But just last week Harry's boss asked my friend how he was doing against his quota, implying that he was unaware of any problems. Harry was incredulous, expecting something perhaps pro-active.

Sure enough two days ago when they sat down to finalize the numbers, Harry's confirmation that he would not reach his quota was met with nothing but hand wringing from his boss. The boss responded by putting his head in his hands and massaging his forehead.

This management technique called 'bury your head in the sand' is not taught at the older traditional business schools that are concerned with things like the integration of production, finance, and marketing, but is part of the newer crony philosophy of "get your stock price up and cash in on management options".

When management and shareholder ideology become too closely aligned, trouble can occur. Management is charged with doing what is best for the company in the long run, which may be in the near term painful for all, but ultimately will serve the shareholders and the company well.

Often it is necessary for a company, just like for the economy as a whole, to take their medicine before it is too late.
No positions in stocks mentioned.

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