Everything has a sell-by date. Everything. Significant value has so often been destroyed by decision-makers in business not being prepared to dump legacy assets and move on to the new worlds they find themselves in. Sometimes it’s just not keeping up, but it can be a fundamental, strategic mistake that destroys the company.
If you correctly depreciate your assets by the time they become redundant, their carrying value in your books will be zero. After that — though accountants struggle to deal with this — their value can turn negative. Even when old assets (and people) are still producing income, their contribution to the firm can be negative when measured in terms of opportunity cost.
Business history is littered with failed corporations (and the boards that preside over their future) that refused to acknowledge that “their way”, the way things are done around here, however tried and tested, is no longer “the way”.
IBM watched for too long as microchips changed the size-power dynamic. Kodak simply refused to accept that the move away from celluloid to digital was inevitable. There are a litany of such stories, usually presided over by individuals who had themselves passed their sell-by dates.
I’ve written at length about the need for the old to step aside for the new (not necessarily to leave the room, but to hand over the controls, under their guidance). This flaw in human nature spans practically all fields of human endeavour, from business to sport, politics and leadership generally. The extent of its dire consequences is directly proportional to the power of the incumbents and their desire to maintain it.
The reward of change is worth it. The present value of future earnings will outweigh the “upfront” loss of moving on. If it doesn’t, and you’ve done your sums dispassionately, then maybe it is not quite yet time to make the change – but it is usually time before you’d like it to be.
Stock is a simple, classic example. Take the knock on redundant old stock and move the cash into the new, fast-moving, higher margin lines, and you’ll soon enough recoup the write-offs and beyond.
Our country needs, desperately, urgently and radically, to move from our present lingering and appeasing to a new future. Maybe we could call that the rainbow nation?
Sticking to business for now, perhaps the most glaring example of a need to change is Eskom. Of course there has to be a controlled shutdown of what we’ve got (just to keep the lights on, sometimes), but if we keep investing in the restoration and maintenance of coal-powered power stations we will fail, no matter how successful we are at doing that. We are fighting like hell to achieve a failed outcome. In its current configuration Eskom needs to be written off (or gently laid to rest, if you prefer).
We won’t need to use tax revenues to build alternative forms of energy supply, as we never did when we originally built Eskom to become the most efficient producer of electricity in the world. True story. Capital, international and local, will come pouring into news forms of energy — solar, wind, hydro, biomass, nuclear, whatever — you know, future forms of new, politically correct energy.
We can then export our coal to those countries still so far behind the curve that they think it’s the future. Maybe we can still sell electricity to neighbouring states, as long as they take over the burden of maintenance. Let’s run the numbers.
Every cent spent on coal-fired power stations (other than to manage their orderly shutdown) is a cent wasted, or worse still, a cent invested into an obviously unpopular future. Don’t do it.
Work out the transition programme, the switchover (like analogue to digital), put a team in charge of the past, draw a line in the sand, and start building an efficient energy input cost to ensure a competitive economic future.
• Barnes, a former SA Post Office CEO, has had more than 30 years of experience in various capacities in the financial sector.
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