Three Spectacular Examples of Corporate Ineptitude

By Jeff Macke Jun 25, 2009 11:00 am
Major pratfalls from Boeing, Apple, and Palm.
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Casey Stengel was the first manager of the New York Mets -- a team that began as a Robert Moses public-service effort and remains more or less the same thing today. Stengel’s prior managerial stint ended in 1960 when he managed the Yankees to the seventh game of the World Series before losing to the sign-stealing Pittsburgh Pirates. The Yankees weren’t the same for the next decade and a half.

And Stengel had it worse. Two years after taking the Yankees to game 7, he helmed the Mets to a record of 40 wins, 120 losses -- a 250 win percentage. For perspective, it’s axiomatic that a baseball team will win one-third of their games, lose one-third of them, and decide their fate in the middle third. Winning 108 games means a clean sweep in the swing games -- which is why you seldom see teams win 108 games.

Being the surly legend he was (and most likely wanting to distance his legacy as far from the Mets as possible), Stengel openly violated the cardinal rule of team sports: Don’t ridicule the talent or the potential of your own club to outsiders. He disrespected the team to reporters, guys at the bar, other teams, and the players themselves -- constantly. He wasn’t motivating the players; he was mocking them.

Stengel unknowingly created the title for Jimmy Breslin’s book about the first-year Mets, Can’t Anybody Play this Game? -- which must have really fired up the starting 9.

2009 is becoming a year of Stengel-esque ineptitude: No one on the boards or in the corner office can seem to play this “management” game. The rules haven’t really changed since the ‘20s: Appease the analysts, deliver on what you say, and make your earnings.

Earlier this week, Boeing (BA) pulled off the trifecta of ineptitude: It not only missed earnings, it also delayed the release of the 787 Dreamliner due to “additional stress at the point where the wings connect to the sides of the plane.” And this only a week before the Dreamliner's scheduled demo flight -- which is 2 years late already. A window allowing the 850 prospective purchasers of the 787 out of their deal may be the greatest material adverse change ever.

“The wings fall off, and the plane is years late. That closes our side of the case, Your Honor.”

The insanely bright Karen Finerman and I would argue about Boeing. She, being the analytic yang to my ever-offensive yin, would point out that Boeing makes more than 787s. My 2 responses: The Dreamliner is their showpiece product, and they’re failing to produce it in any reasonable way. And if Boeing makes so much other stuff, why can’t they put on a secure wing?

Karen is running numbers -- a measure of what stocks can be. These analytics are a great strategy, assuming management is at all capable (or at least rational). Missing delivery of the plane by years is one thing; being unable to duct-tape a Dreamliner together enough to make a token flight  is quite another.

My battle with Karen over Boeing isn’t entirely over -- but I like my side of the wager.
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(21)
2009-06-25 07:46:17
Apple and the iPhone - Do they still make computers?
I just don't get the Apple hype thing. Sure they make a cool smart gadget (to call it a phone is silly since it really doesn't function as one). But what about the computers? This is where I think they'll get hurt on the bottom line this year. Won't short it here but definitely will if it runs to stupid levels as it has in the not so distant past.

Nice to hear from you again.
2009-06-25 08:01:40
Should Have Bought the Pre
Jeff, you should have bought the Pre, even if you had to wait a few days. It's much better than the iPhone and Sprint's 3G network is much faster and more reliable than AT&T's.
2009-06-25 09:28:39
What's more, as long as Apple keeps the iPhone exclusively on the AT&T (T) network, the phone will be a spectacular toy, great for everything -- except making phone calls. Cellular phones are phones, first and foremost. When the devices can't satisfy that minimal standard, they become juke boxes, games, and commuting time-killers.

I completely agree, this thing is a great toy, but a terrible phone. Does anyone know when AT&T's control of Iphone exclusivity expires? I'd love to combine this Iphone with my old Verizon service.
2009-06-25 11:13:31
Macke, finally giving us some wisdom!
Where have you been? I missed the refreshing brutal honesty in the midst of rainbows, teacups, and unicorns everyone else is shouting at the top of their lungs.
2009-06-25 11:31:15
Winging it
Jeff, Boeing certainly has made mistakes along the way, but the technological challenge of building a new airplaine out of materials never used before with partners new to the process deserves more than one-liners. And doing it in an economic climate like the present adds additional challenges. And marketing a product and building one are usually done by different groups of people. The bottom line is that we all would like the wings to stay on the airplane we are riding in. No matter how long it takes the get the process right. And yes, I worked there once.
That said, I am a fan of your column. Welcome back.
2009-06-25 11:45:24
Your questions to Richard Lindner were dead on appropriate. He just wasn't prepared for the Tom Seaver fastball headed his way. AT&T's network is only slightly above Sprint's which is like saying the LIE is slightly faster than the Grand Central. Apparently you can put billions into a network and have nothing to show for it, just as you can put 1.5 billion into a new stadium for wider hallways and empty seats. I love Apple as a company, management aside. But until the iPhone is available for Verizon, I'm not touching it. Welcome back, and keep up the great writing!
2009-06-25 11:47:49
On Shorting Boeing
Boeing's biz model simply isn't geared for tough times. Their 40-year-old model is to loan money to huge airline customers who themselves cannot afford to buy their product outright. Production proceeds daily towards deliveries years in advance, with those same customers able to cancel (or disappear into bankruptcy) at any time. Their chief competitor is Airbus, the ultimate nightmare: a deep-pockets subsidized agency of several Euro governments, free of any immediate accountability for profit or loss.
That biz model is also not geared for a market in which something like a third of all the aircraft flying two years ago are now sitting, parked and for sale at rock bottom recession prices, available on short notice--and unwanted even so. So, Boeing is the new car dealer surrounded by used lots of late model luxury vehicles offered at 30% of the price of the new model (which won't be available until 2015.
Some business model. Some future. There are sound arguments for a bailout of Boeing on a national-security basis, and others, but by the time that's the discussion the common will be trading on the pink sheets.
Jeff, I'm with you on this wager.
2009-06-25 11:52:24
Flat? No Position?????
Welcome back, hope San Antonio was all you dreamt of. LOL - Great read. Mindnumbing insight.

But no trade? I regard you as one,if not the, most straight shooting traders on the planet - just like Toddo - but it's what you don't say that sometimes gets me to thinking.

Thus: The market must be in no mans land, you seem to have a fairly flat book??????????
2009-06-25 12:03:23
the Game
Ah, sweet mystery of life. Some straight-shooting is mighty refreshing. Good to see "The Macke Touch" back in top form.

"Call me a cynic (I call myself one, though I'm generally not), but I think the Board of Directors announced the news about Jobs last Saturday (Saturday?) because they knew they'd be able to announce 1,000,000-plus iPhone sales on Monday morning. What didn't seem to occur to them is the fact that the timing of the releases wouldn't slip past the media or the public."

Dynamo Hum! "the Macke bites... the Macke chews it"

Seems they're playing the same Game, with similar results, as Our Beloved Leader. Sure, sober and watchful (if not cynical) people noticed the timing, but if their share price is any indication they received at most a wrist slap. Today back above last Friday, and the slope of the rise since mid-May the same as the slope throughout April.

Inept? Deceitful? Sure and sure, and like ever-reelected politicians, still rewarded.


2009-06-25 13:31:44
Speaking of Spectacular Examples of Ineptitude
Speaking of spectacular examples of ineptitude, you got the title of Jimmy Breslin's book wrong; it's "Can't Anybody Here Play This Game?", not "Can't Anybody Play this Game?", which would have suggested a far more widespread problem.

Disclaimer: I'm an ex-Palm employee, with a bit of Palm stock left.
2009-06-25 14:37:22
I love my iPhone as much as I hate AT&T's network. I have a running joke with my friends that AT&T has a 10 minute time limit on all calls! After that...well you know.
2009-06-25 15:40:39
the trade is
to stand clear? I got it, I think - three clear examples of management I shouldn't trust to plan my grocery list. But two are well up and trending, only poor Boeing out in the woodshed. Is AAPL a scalded chimp or a redheaded cousin? Is any day the market is open still a good day to sell airplanes, those who make them and those who fly them?
2009-06-25 17:43:47
USA, Too Much B.S. Over Action?
Jeff,

Regarding, "âmanagementâ game. The rules haven't really changed since the â20s: Appease the analysts, deliver on what you say, and make your earnings. "

I would say they have changed. It has been more about telling people what they want to hear, and playing tricks, than about real results(Citigroup, etc?). That is why we are in the situation we are in.
B.S. over action. Political correctness, over getting the job done.

Cut Jobs some slack. He might be a S.O.B. (I don't know) but he gets the job done. And after the years of junk he has taken from other CEOs(there are some incredible stories of what happened at Apple), it's a wonder he is still alive.
[Steve, please relax a little, as there is nothing more important than your health]

So now we must have years of the market telling us that real results and growth are what matters. Too bad we didn't learn this lesson after the 30s, Japan in the 80s', etc.

Now, Jenny says let it go.
2009-06-25 18:55:14
Winging it
It isn't a question of the complexity of the task at hand; it's a matter of effectively setting expectations. Boeing's sin was, and remains, over-sharing their time frame and specs.

Every time they whiff, it becomes a matter of teaching investors to expecting failure. It's not the guys on the line or higher-ups killing BA's stock; it's the dudes in the corner office.
2009-06-25 19:15:42
the trade is
One of the things that hacked off CNBC about my TV "stylings" in refusing to pretend there was an enormous opportunity that day.

In terms of mind set, trading is fishing as opposed to say, jumping double decker buses in a Limey stadium.

I missed 171 pt Dow rally and I have a hard time caring. I believe the market to be moving in more or less random range which will likely resolve lower. Why am I more or less flat (over 75 pct, which is going to simply KILL me when I go to the Bahamas for a few days next week... "another $25 Heineken, Mr. Macke?" "No thank you, I'll stick to the $12 club soda with no ice").

But you gotta with the gal you came with, even if she's aging in 2x Dog Years.
2009-06-25 19:22:01
USA, Too Much B.S. Over Action?
I've met Jobs. SOB works. So does "tremendous executive". Make no mistake, Apple has changed their business model from above market priced, limited choices of excellence, working the lower end and sacrificing quality for costs.

That's not what made Apple. My work, but it's very different
2009-06-25 20:25:13
the trade is
that dog hunts, even if she dances 2x faster! Learned well the lessons you managed to get across despite the network: if you're in doubt, stand aside. Don't let a winning trade (or a losing one) become a losing investment. And...

Respect the Crayon!
2009-06-26 03:40:42
I miss both you and Ratigan from Fast Money
You always cracked me up even if I didn't agree with what you were saying. You've got the best metaphor bag of tricks I've seen in your biz.

However, you should watch your old show, Karen lit into Boeing for the exact same reasons on Tuesday.

Regarding the Pre, you should have waited for it. It's worth it. And regardless of Sprint's action, have a look at PALM's after hours action today. Mother of all short squeezes. hehe
2009-06-26 04:31:23
787
Great article Prof Macke, sounds like the 787 really is a dreamliner. Ahhh, it's a good govenrment project, buy it and fix it later.
2009-06-26 08:28:25
I miss both you and Ratigan from Fast Money
Yeah, I emailed her the piece because I mentioned her in it (and because she must be going through Lone Wolf withdrawl like Sid Vicious coming off heroin) and she told me she conceded on Boeing.

I didn't do anything to change the column, mostly because only real a*****les pick on someone like Karen. She's sharp as a tack and a genuinely sweet person, not to mention my friend.

As for watching my old show.... suffice it to say I find it generally painful. I seldom even watch the network anymore. Let's leave it at this, months after his departure, and days before his new MSNBC show debuts, audio tapes as this: http://gawker.com/5302434/the-rant-that-explains-why-dylan-ratigan-left-cnbc are still being leaked. I was two seats to the camera left of him at the time. I've heard him rant better but find it hard to fault his argument.

The network is a highly profitable corner of the corporation. They simply have a preference for folks who are always bullish; or at the very least don't attack the sponsors, regardless of how bad their management may be. And, as Jim Morrison sang, "No one here gets out alive" is the company motto.
2009-06-27 06:55:04
Speaking of Spectacular Examples of Ineptitude
The title itself was mangled from the original quote. What Stengel said was "tweaked" by Breslin. It's like when I say "Obama is wasting all our money and killing the country" and someone tweaks it into "Macke is a racist, right-wing nut-job".

The second wasn't at all what I said but the first would sell more tabloids.
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