"The Wall Street Journal reported this week that supply-chain woes have mounted world-wide for all sorts of businesses, thanks to the pandemic and other disruptions. The world is learning that a just-in-time inventory system and a short-term focus on maximizing return on investment is no match for a restive Mother Nature.
No stockpiles of essential medicines or personal protective equipment for medical staff made the early stages of the pandemic deadlier and more disruptive than it otherwise might have been.
The situation also wreaked financial havoc on hospitals, which further affected patient care. Suddenly, elective surgeries like hip replacements were too risky to perform for many hospitals, and a key profit center was lost. Medical equipment with seven-figure price tags was mothballed for want of items like masks, gloves and gowns.
Public-health disruptions aren't the only sort that businesses have to worry about. Severe winter weather in Texas last month froze generators' water-intake facilities and knocked out power for days, snarling local economic activity in the process. Utilities were caught off guard by the weather, even though such extremes aren't entirely new. In a business world where maximizing return on investment has long been the highest priority, corporate America has a way of costing itself big by not adequately preparing for trouble.
So why do similar mistakes keep playing out? In the case of Texas, strategist Michele Wucker points out that the massive financial losses are distributed among homeowners, renters and businesses that need a reliable grid to function. Those entities didn't have a say in whether equipment should be winterized. "Businesses are basically being subsidized for taking unwise risk when the consequences of bad decisions fall mainly on customers and taxpayers," said Ms. Wucker, author of the new book "You Are What You Risk: The New Art and Science of Navigating an Uncertain World." The end result is that the benefits of risk-taking are privatized, while the consequences of bad decisions can be socialized. The short-termism that Wall Street often demands of CEOs doesn't help.
The implications are worrying: Bad incentives are much more difficult to fix than they are to identify.
Anticipating what's coming next has always been a good way for companies to turn a profit. But in less turbulent times, executives have often been rewarded for pinching pennies instead. Over the past year it's become clear that pinching too hard can cost them, and their customers, dollars.
1. EXCHANGE --- On Business: Losing Dollars By Pinching Pennies --- Corporate America keeps costing itself big by not preparing for trouble
Grant, Charley. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]20 Mar 2021: B.2.
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