Costs: Short Run and Long Run


In the short run costs are fixed; in the long run they become variable. This is the fundamental difference between long run and short run. The distinction is a matter of degree. The longer the run contemplated, the greater the range of costs regarded as variable rather than fixed.

Consider a manufacturing firm. Toward the variable cost end are the expenses of inputs like electric power, supplies of material, and ordinary labor services; toward the fixed end are costs associated of supplies or breakdown of machinery calls for a very short, say an hour’s, reduction of output. Some electric power would be saved in the slowdown, and there would be reduced usage of materials, but little else could or would be changed. If output were to be cut back over a period as long as a day, some labor might also be laid off. Over a period like a month a large function of the labor force might be furloughed (their wages would become a variable cost), and perhaps some leased equipment like trucks would be dispensed with. Finally, for a permanent reduction in output the firm will sell off machinery and scale down its real-estate commitments.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Peak Versus Off Peak Operation


An important practical problem in many industries is how to deal with sharp variations between peak and off-peak demands. Telephones are more heavily used during business hours than during evenings or weekends; local transit demands are greatest in the morning and afternoon commuting hours; in the arid areas water is more intensely demanded in summer than in winter months; restaurants are busiest at regular mealtimes, and so on. For a firm facing both peak and off-peak demands for its product, the optimization problem is how to divide its efforts between the two.

Assume for simplicity that the peak and off-peak periods are equal duration. Under pure competition the firm would be a price-taker in both the peak and off-peak markets. In the peak market it would face a higher price and in the off-peak market a lower price—but, in either market, the price will be independent of the firm’s own level of output. An example might be a city served by a number of competing taxicab suppliers, daytime hours being the peak demand period and evening hours the off-peak demand period. The quoted taxicab fares do not usually vary with time of day. However, the effective price of taxicab service does vary. In peak periods taxi earn a higher effective price, since there is less “dead time” waiting for a customer. And similarly, the customers have to pay a higher effective price in peak periods, since on average they have to wait longer for taxi to become available.

In analyzing the peak/off-peak situation, it is essential to distinguish between “common costs” and “saparable costs.” Common costs are those that apply to both peak and off-peak service. On the case of taxicabs they would include the costs of providing the casbs themselves, of running the central dispatching system,, and so on. Saparable costs are those incurred in serving each specific market. For taxicabs they might include gasoline and drivers’ wages. The distinction between common and saparable costs is quite apart from the distinction between fixed and variable costs. Common costs can be fixed or variable, and the same holds for saparable costs.

The following additional assumptions are employed: 1) There are no common fixed costs at all; the marginal common costs (MCC) is a constant magnitude. 2) The separable costs include both fixed and variable elements, but the cost function is the same in either market. However the firm may want to operate at different points along the cost curves in serving the two markets. A taxicab firm, for example, may chose to put a larger number of cabs on the road during peak period.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Nontalent vs. Weakness


As you might expect, great managers take a welcomingly pragmatic view of our innate imperfection. They begin with an important distinction between weaknesses and nontalents. A nontalent is a mental wasteland. It is a behavior that always seems to be a struggle. It is a thrill that is never felt. It is an insight recurrently missed. In isolation, nontalents are harmless. You might have a nontalent for remembering names, being empathetic, or thinking strategically. Who cares? You have many more nontalents than you do talents, but most of them are irrelevant. You should ignore them.

 However, a nontalent can mutate into a weakness. A nontalent becomes a weakness when you find yourself in a role where success depends on your excelling in an area that is a nontalent. If you are a  server in a restaurant, your nontalent for remembering names becomes a weakness because regulars want you to recognize them. If you are a salesperson, your nontalent for empathey becomes a weakness because your prospects need to feel understood. If you are an executive, your nontalent for strategic thinking becomes a weakness because your company needs to know what traps or opportunities lie hidden over the horizon. You would be wise not to ignore your weaknesses.

 Great managers don’t. as soon as they realize that a weakness is causing the poor performance, they switch their approach. They know that there are only three possible routes to helping the person succeed. Devise a support system. Find a complementary partner. Or find an alternative role.  Great managers quickly bear down, weigh these options, and choose the best route.

 My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Innovation Defined


Innovation is the use of new knowledge to offer a new product or service that customers want. It is invention together with commercialization. It is a new way of doing things (termed invention by some) that is commercialized. The process of innovation cannot be separated from a firm’s strategic and competitive context. The new knowledge can be technological or market related. Technological knowledge is knowledge of components, linkages between components, methods, processes, and techniques that go into a product or service. Market knowledge is knowledge of distribution channels, product applications, and customer expectations, preferences, needs, and wants. The product or service is new in that its cost is lower, its attributes are improved, it now has new attributes, it never had before, or it never existed in that market before. Often the new product or service itself is called an innovation, reflecting the fact that it is the creation of new technological or market knowledge.

Innovation has also been defined as the adoption of ideas that are new to the organization. Generating good ideas or adopting a new one, in and of itself, is only a start. To be an innovation, an idea must be converted into a product or service that customers want. Coming up with the idea or prototype—invention—is one thing. Championing it, shepherding it, and nurturing it into a product or service that customers want is another. Innovation entails both invention and commercialization.

A distinction has also been made between technical and administrative innovation. Technical innovation is about improved products, services, or processes or completely new ones. This contrasts with administrative innovation, which pertains to organizational structure and administrative processes and may or may not affect technical innovation. Technical innovation may or may not require administrative innovation. A technical innovation can be a product or a process.

Product innovations are new products or services introduced to meet an external and market need whereas process innovations are new elements introduced into an organization’s production or service operations—input materials, task specifications, work and information flow mechanisms, and equipment used to produce a product or render a service.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact www.asifjmir.com, Line of Sight

From Performance to Ability


A bonus is the appropriate reward for a job well done. Advancement to a new job is not. In the aftermath of reengineering, the distinction between advancement and performance is firmly drawn. Advancement to another job within the organization is a function of ability, not performance. It is a change, not a reward.

 

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact www.asifjmir.com, Line of Sight

The kitsch of Duplication


To understand duplication, you need to grasp the process itself and ther context it happens within. Duplication is as simple. Duplication consists of copying or replicating the successful actions of another person. It is an age-old principle that finds a unique expression. Ten workers harvesting a field accomplish more than a single farmer. They can work faster and cover more ground. Likewise, ten achievers working together grow faster and expand across more territory than a single entrepreneur. By building an organization that duplicates your actions you magnify your own effectiveness exponentially.

Common sense tells us that that the smartest way to build a business . . . . . .

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact Asif J. Mir.

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