Business Fundamentals vs. Management Quality
When you decide on the investment in a particular company you should make several considerations. One of them is the management quality of the company. However, it is not the most important factor that should drive your decision.
The question business fundamentals vs. management quality importance is a controversial one. Many claim that management quality is more important than the fundamentals of the business, whereas others completely disagree.
Generally, if you are facing the dilemma of choosing between companies that have equal business fundamentals, what you should focus on is their management teams. The one that is better managed is the company you should select since it has a higher potential for success.
However, it is hard to find companies that have absolutely identical business fundamentals. Additionally, the evaluation of the management teams is a subjective activity that varies from one investor to another. Another problem is connected with the high mobility of managers. This means that you are not insured that tomorrow the management of the company will not be changed, because good CEOs are easily attracted by better opportunities.
What differentiates companies is their fundamentals. The ones with winning economics are ahead of the pack and ready to conquer new peaks. Thanks to the competitive advantage they possess they manage to do almost everything better than their peers and as a result their position is hardly threatened.
The work of managers is greatly facilitated thanks to the successful fundamentals of the company. It is true that the management has contributed to the establishment of the winning position of the company, but once in place it is far easier.
Successful business fundamentals include the recruitment of quality managers throughout all of the levels of an organization. So, even if the CEO quits the company, s/he can be quickly replaced with another equally good manager.
A company that possesses relatively good management, but steady business fundamentals can still operate in a successful way. However, a company with bad business fundamentals will not be cured by even the best managers.
Finally, it is recommended that you select companies that have sound business fundamentals. If the company has both good management and fundamentals, then you have found a great investment opportunity.
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