The Concept of Service


If we open a new business, the key issue is how long we are planning. If all we want to do is make a quick buck and move on, there is absolutely no point spending a single penny we don’t absolutely need to. But that is not the route to creating an amazingly successful organization.

The only approach for an organization to take if it wants to become amazingly successful is to become highly effective and highly focused. And that doesn’t pay dividends overnight.

But no single working culture is right for every situation. Why should anyone spend money to create a future that they do not expect to be part of?

Why invest in intangible assets that are hard to value on the balance sheet such as staff, improving team moral, developing customer focus and lifting competence levels, if you expect to be moving on soon?

A working culture centered around the concept of service generally and customer service specifically is the most likely to deliver long-term amazing success.

An organization that wants to adopt a service-based working culture must however be ready for the long haul. It must have both the patience and the resources to get through the early stages in a market where market dominance and being the largest are critical whatever the future price?

Some organizations are better off starting with one working culture and then migrating to another when scale and success allow or demand it.

Planning to evolve or change our working culture is fine as an idea when those in charge are sufficiently switched on to the challenges of changing an organization’s culture: to act at the appropriate time and effectively instigate a culture shift in line with new market conditions.

Let’s not forget that the larger an organization is, the more careful it must be in choosing its working culture in the first instance. Larger organizations are always going to be harder to change; they are clumsy and less fleet of foot than their smaller counterparts. Larger organizations must change their working culture less often and less dramatically, so must put more time and effort into avoiding problems in the first place.

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, and my Lectures.

Price-earnings Ratio


Price-earnings ratios are published daily in newspapers for stock market-listed companies, along with the gross dividend yield, dividend cover and other information about the shares of each company. The method of calculation is what the name suggests:

Price-earnings ratio = stockmarket share price divided byEarnings per share

The stockmarket share price used is the one published in the financial newspapers at the close of business in the stock exchange for the previous evening.

As a generalization, when the price earnings ratio of a company is higher than the average for other companies in the same business sector, the stockmarket expects the company to achieve higher than average earnings per share in the foreseeable future to justify the above-average valuation of the shares.

In certain circumstances, the explanation may be quite different. For example, a takeover bid for the company may be widely expected, and the share price has already increased significantly in anticipation of the price to be offered by the bidder.

It must never be forgotten than the analysis of share prices, and especially the prediction of future changes, cannot be done simply by calculating the various ratios. If this was possible, making a fortune on the stockmarket would be easy. In practice, even the most experienced investment-fund managers would make costly errors of judgment from time to time.

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

Release of Free Cash Flow


The project entry typically has a finite life. Its dividend policy is usually specified contractually at the time any outside equity financing is arranged. Cash flow not needed to cover operating expenses, pay debt service, or make capital improvements—so-called free cash flow—must normally be distributed to the project’s equity investors. Thus, the equity investors, rather than professional managers, get to decide how the project’s free cash flow will be reinvested.

 When project is financed on a company’s general credit, the project’s assets become part of the company’s asset portfolio. Free cash flow from the project augments the company’s internal cash resources. This free cash flow is retained or distributed to the company’s shareholders at the discretion of the company’s board of directors.

 Project financing eliminates the element of discretion. Investors may prefer to have the project company distribute the free cash flow, allowing them to invest it as they choose. Reducing the risk that the free cash flow might be retained and invested without the project’s equity investors’ approval should reduce the cost of equity capital to the project.

 The sponsor is not necessarily placed at a disadvantage under this arrangement. If the sponsor is considering additional projects that it believes are profitable, it can negotiate funding for these projects with outside equity investors. If they agree to fund any of these additional investments within the project entity, the dividend requirement can be waived by mutual agreement and the funds invested accordingly.

 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

The Impeccable Venture Types


Two concepts that appear to have a major bearing on long-term prosperity of a business are the notion of ‘distinctive competence’ and ‘market share.’

 

A company with larger market share in its particular line of business gets more practice in performing that business than a company with a smaller market share and consequently should be able to develop through that practice a higher level of competence. At the same time, by having a larger market share a company enjoys economies of scale—quantity discounts on purchases, thinner spreading of advertising costs, and justification for greater investment in tooling and automation and for more research and development. Consequently, it has an advantage in lowering unit costs, which in turn can allow it to lower prices and thereby outsell the competition to gain still more market share, and so forth. There are research data that indicate both that more sharply defined competence, often as a result of narrower specialization, leads to greater growth, and that larger market share leads to higher profits.

 

In evaluating prospective venture ideas it therefore makes sense to as, “What will the company’s distinctive competence be?” in other words, what will it be able to do better than other companies can and why? It also makes sense to ask what share of market the company will have as compared to competitors. If it seems likely to have only a very small share of market and competitors enjoy larger shares, then it will need either some major performance improvement such as a significant special innovation or else a lot of financing to increase its share and be able to survive.

 

One ideal approach is to begin early in a new industry. When the industry is small, it should be possible for the new company to obtain a significant share without having to be large to do so. As the industry grows, the company can then grow with it, still maintaining its market share, with consequent high profits. This type of enterprise is ideal not only from the entrepreneur’s point of view, because the company prospers, but also from a funder’s point of view, because rapid growth of the company will create a profitable application for capital to expand the company’s capacity to handle increasing business. Thus to capture a major market share at the opening stage of a new industry is an ideal pattern for a growth-oriented venture.

 

A second ideal type of venture is one that captures a major share of an existing but more mature industry. The major share will generate high profits, but if the industry, because of its maturity, is not growing, then the company will not have to grow in order to maintain its market share. This will mean that it will not need external funder. From a funder’s point of view it is not particularly attractive. But from entrepreneur’s position it is, because the profits will not have to be plowed back but can rather be taken as salary, dividends, and other benefits. The trick, of course, is to capture a major share in an existing industry, and this can be done by choosing a very small industry to start in, by entering through purchase of a going concern that already has a respectable share, or by entering with a strong innovation or other competitive advantage.

 

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