Wednesday, 26 October 2011

Night of the Long Knives

After 12 years at the top, Terry Sweeney, CEO of RM the educational specialists, has stepped down. In other news, so too has Bobby Watkins, MD at Acer UK.

RM has suffered badly at the hands of Government cuts in Educational Projects, specifically about new school builds and regeneration. But it's more than that. RM is a company that has bet all its chips on Education and it has failed to create a viable business outside the UK in order to take advantage of the 'hot spots' of spend in Education in other parts of the world. It has also not been able to really capitalise on some of its Intellectual Property like learning software and create partnerships with OEMs to expand its footprint profitably. It certainly failed to see the win by the Coalition at the last Election and the period of austerity that would inevitably follow.

For that, Terry Sweeney, has agreed to fall on his sword and make way for Rob Sirs to step up. Sirs has a much more progressive view of international markets and software - this could be the making of RM. But the next few years will be very hard as he has to place the long term bets against a falling market in which they will cut one in five existing jobs. RM are well spread in terms of products - some would say far too wide. They need to narrow down their portfolio, look at getting international and exploit the profitable technology they own.

Would you buy their shares? Anyone 100% focused on Education is always in a cliquey, niche market that is fickle depending not just on economies but on Politics. I wouldn't.

Acer were the derring-do company of the noughties. They made decent products and sold them indirectly so always keeping slim workforces in-country. Any European subsidiary of a Taiwanese company run by Italians might be a curious mix but success has been plentiful. It rose to be the No. 1 shipping brand in Europe, ahead of the mighty Dell and HP.

Until the last 12 months, that is. Europe got itself into a real tizz. Against a rapidly falling market, the European subsidiary - possibly mainly the UK - ran heavy on stock and somehow didn't account for a large amount of it that no one had noticed clogging the warehouse. Large write offs were taken ($150 million) in the middle of the maelstrom market where Acer has suffered far worse than others. In one distributor, monthly sales have collapsed to close to zero on Acer.

It was perhaps inevitable then that someone would cop the blame and it seems Bobby Watkins, head of the UK subsidiary, has done so.

It really is the sign of the times when two such leading lights in their respective market places could go so horribly wrong and then lose their chiefs. What is happening in the IT market seems to attack much more swiftly. Overnight, Amazon announced a 73% drop in its profits as it blamed investment in the new Kindle product for poor performance even when it seemed to exceed sales expectations.

But Amazon is well spread in a growing market - its sales rose 44%. Slim margins are its issue and this may cause them problems down the line as you only need to get one of your metrics wrong to wipe out most, if not all, of your profits very quickly.

So if we can learn anything from these announcements it's: 1) Education is a great market in good times - in bad you need to be well spread to avoid over exposure to the biggest influencer, Politics. 2) Reading the changing PC client market is not easy as the market dynamics shift very rapidly - being solely a PC vendor right now is not a good place to be. 3) In a business with very slim margins, placing massive bets on one product can wipe you out completely - particularly when the one product can be emulated by most other smartphone or tablet devices. After all, there are only so many electrical gadgets we can all buy - consolidation is not a bad thing.

The final lesson is one I have learnt the hard way - it is easy to be a great manager when the markets are good. It is not so easy to be great when the graphs point the wrong way. 

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