Tuesday, June 19, 2012

The price you pay for risky decisions


As I read Seven Ways to Fail Big, particularly 2 second siren: Faulty Financial Engineering, and the temptations and risks of aggressive financial practices, I was reminded about my experience in the private sector, working for an education and training company in the Washington, D.C. area.  A few years after the company went public, stock prices were stagnant and the company was struggling to meet investor expectations.  During one of our leadership meetings, a decision was made to invoice the full amount of one of our products (10 training voucher packs) sold to the federal government when the contract was signed instead of billing for individual vouchers as they were redeemed for training sessions.  This practice became the normal practice until the next audit cycle.  Needless to say the government found us out of compliance and threatened to sue.  

After I left the company for Pittsburgh pastures I continued to follow the organization and discovered that they settled their infraction by paying 4 million to GSA.  The organization took a big risk for a short-term gain in order to please stockholders, but not necessarily good business practice.  They paid the price for it. As a follow up: The day I left the organization (2008) the stock price was $17.10.  Today, $4.10  

I also found this article in today’s New York Times:  Electronics Retailers Scramble to Adapt to Changing Market (http://www.nytimes.com/2012/06/19/business/electronics-stores-struggle-to-adapt-to-changing-market.html?_r=1&nl=todaysheadlines&emc=edit_th_20120619).  

 It is very close to another pitfall in strategic planning and practice, Stubbornly Staying the Course.  The article highlights how Best Buy and other electronic retail stores are finally shifting their strategies to survive in this modern age of customers shopping for electronic products through other means than visiting brick and mortar stores.  

As the team continues to look at our group project, there have been several discussions about the dangers of being a trendy clothing line manufacturer in a very small niche market.  We believe there is a danger to succumb to one of these pitfalls, particularly, pseudo adjacencies or the above mentioned staying the course.  These two are the most significant pitfalls that our organization could fall prey to.          

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