Channel Evaluation


Channel evaluation is a multidimensional construct and includes both performance measures of the channel and measures of contribution to consumers by th channel. These measures of channel performance have been grouped under three main dimensions also known as 3Es, i.e., Effectiveness, Efficiency, and Equity. Effectiveness is further subdivided into delivery and stimulation.

  • Delivery is defined as a short term measure of how well the channel meets the demand for service outputs placed on it by the consumption sector.
  • Stimulation is defined as a long term, goal oriented measure of how well the channel member stimulate latent demand to reach optimum levels of demand.

Efficiency is further subdivided into productivity and profitability:

  • Productivity is defined as the efficiency with which output is generated from resources and inputs used. In essence, productivity is a measure of physical efficiency.
  • Profitability is a general measure of financial efficiency of channel member, in terms of return on investment, liquidity, leverage, growth patterns in sales and profits, growth potential in sales and profits, market share, average inventory maintained, etc.

Equity is the extent to which marketing channels serve problem-ridden markets and market segments, such a disadvantaged or geographically isolated consumers.

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

Operating Leverage


It is a financial thought quite similar to break-even analysis. Both fixed and variable costs are used in the production and marketing of products. The higher the operating leverage, the faster the speed of increase of total profits after the sales crosses the break-even volume. Likewise, those firms with high operational leverage will suffer losses at a faster rate after the sales volume drops under the break-even point.

Organizations with high operating leverage gain more from sales from organizations that have low operating leverage. Organizations with high operating leverage are more responsive to drop in sales volume, losses will occur at a faster speed.

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.

Business Financial Strategy


Financial strategy examines the financial implications of corporate and business-level strategic options and identifies the best financial course of action. It can also provide competitive advantage through a lower cost of funds and a flexible ability to raise capital to support a business strategy. Financial strategy usually attempts to maximize the financial value of the firm.

The trade-off between advancing the desired debt-to-equity ratio and relying on internal long-term financing via cash flow is a key issue in financial strategy. Many small and medium-sized companies try to avoid all external sources of funds in order to avoid outside entanglements and to keep control of the company within the family. Many believe that only by financing through long-term debt can a corporation use financial leverage to boost earnings per share, thus raising stock price and the overall value of the company. Higher debt levels not only deter takeover by other firms (by making the company less attractive), but also leads to improved productivity and improved cash flows by forcing management to focus on core businesses.

A very popular financial strategy is the leveraged buy out—a company is acquired in a transaction financed largely by debt—usually obtained from a third party, such as an insurance company or an investment banker. Ultimately the debt is paid with money generated from the acquired company’s operations or by sales of its assets. The acquired company, in effect, pays for its own acquisition. Management of the leveraged buy out is then under tremendous pressure to keep the highly leveraged company profitable. Unfortunately the huge amount of debt on the acquired company’s books may actually cause its eventual decline by focusing management’s attention on short-term matters.

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.

Mergers and Acquisitions


Regardless of what form a business takes—be it a sole proprietorship, partnership, or a corporation—the chances are reasonably good that its form will evolve over time. Companies of all sizes and types achieve a variety of objectives by merging, dividing, and restructuring. The terms most often used to describe all of this activity are mergers, acquisitions, and leveraged buyouts. The difference between a merger and an acquisition is fairly technical, having to do with how the financial transaction is structured. Basically, in a merger, two or more companies combine to create a new company by pooling their interests. In an acquisition, one company buys another company (or parts of another company) and emerges as the controlling corporation. The flip side of an acquisition is a divestiture, in which one company sells a portion of its business to another company. In leveraged buyouts one or more individuals purchase the company (or a division of the company) with borrowed funds, using the assets of the company they’re buying to secure (or guarantee repayment of) the loan. The loans are then repaid out of the company’s earnings, through the sale of assets, or with stock. Leveraged buyouts do not always work.

Mergers and acquisitions represent relatively radical ways in which companies are combined. On a more modest scale, businesses often join forces in alliances to accomplish specific purpose. In a joint venture, two or more companies combine forces to work on a project. The joint venture may be dissolved fairly quickly if the project is limited in scope, or it may endure for many years.

A consortium is similar to a joint venture, but it involves the combined efforts of several companies. Cooperatives also serve as a vehicle for joint activities. In a cooperative, a group of people or small companies with common goals work collectively to obtain greater bargaining power and to benefit from economies of scale. Like large companies, these cooperatives can buy and sell things in quantity; but instead of distributing a share of the profits to stockholders, cooperatives divide all profits among their members.

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.

Business Visionaries


The days of doing business as we have been doing in the past are gone. We can no longer afford to continue using traditional approaches in managing our companies. Executives or organizations that insist on clinging to outmoded ways of thinking will find themselves standing on the sidelines as new traditions are being established by forward thinking business visionaries. The business leaders of the future are awakening, sensitive to the personal responsibility the public now demands from the business community.

All of us share certain values and beliefs. We value the human spirit and believe that modern society must change in a deep and fundamental way the way it thinks, if we are to have a sustainable future. We also believe that the most effective leverage in achieving such a global transformation is through the business community.

It is doubtful that the business community would take this leadership role out of altruism. However, we believe that if business leaders recognize a need to operate responsibly, and feel that their personal values are in accord with organizational values, they will begin doing business in a new way—establishing new traditions in business communities around the world.

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.

Threat of Entry


New entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources. Companies diversifying through acquisition into the industry from other markets often leverage their resources to cause a shake-up.

The seriousness of the threat of entry depends on the barriers present and on the reaction from existing competitors that the entrant can expect. If barriers to entry are high and a newcomer can expect sharp retaliation from the entrenched competitors, he or she obviously will not pose a serious threat of entering.

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

Firm Value and National Wealth


The wealth creation process of a nation cannot be seen separately from that taking place at the industry level. Hence, unless a nation is able to unleash the value creating potential of each organization, its over-all progress in this context will be significantly hampered. Incidentally for each firm to maximize its wealth creation potential, the need for private ownership of capital and well defined property rights in all sectors of an economy cannot be over-emphasized. Private sector business organizations will ensure that their managers are held accountable for the way they use the company assets, and the outcome thereof. When the firm level ownership is diffused (as in the cases of public or joint sector companies) and the majority ownership is predominantly with distant and impersonal state, there is no incentive for intra and inter-organizational cooperation for mutual benefit including wealth creation.

Since the wealth creation process of a nation is synonymous with that of its organizations, macro policies of governments of nation states must facilitate evolution and development of organizations that are focused, market driven, efficiency and change seeking, nimble-footed, and also capable of building and leveraging capabilities, all required to create wealth not only for their shareholders, but also for other stakeholders, including the government. For such value creation to take root within an organization, the external context must be right—market economy, healthy competition, transparent regulations, strong institutional frameworks in all public policy areas, clear intellectual and other property rights, freedom to access information and high ethical standards. If a nation is state is not able to put in place the required public policies in these areas and also no effort is made to simultaneously enhance managerial capabilities to create value, its wealth creation effort will always remain sub-optimal.

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

Leveraging better Payment Terms


Negotiating better payment terms is always easier if a company has some bargaining chips. The party with the most to lose or the most to gain is always on the defensive; therefore, the secret to successful negotiating is to develop leverage that forces the other party into one or the other of these positions. Other than not meeting payroll, only two conditions might create circumstances more detrimental to a company on the brink of failure than to a creator: (1) being evicted from the building that houses the business, and (2) not receiving critical materials and services to keep the business going.

 

Not much can be done about either situation. A business must be housed, and it must have materials and services to make and sell products. That’s why landlords and critical suppliers top the payment priority list. Some leverage can be achieved, however. Most lessors would rather work out an extended payment arrangement than go to the expense and aggravation of a formal eviction. As long as the renter’s market holds, deferring rent payments for at least several months should be a real possibility. That’s not a permanent solution, but it does provide some breathing space.

 

It might be possible to leverage critical suppliers to gain better terms. The threat to go to a competitor usually brings even the most recalcitrant supplier to terms. In most cases, a supplier has more to lose (the overdue amounts plus legal costs to sue) or gain (future sales) than a debtor company does. At least making suppliers think that’s the case is good negotiating ploy.

 

Assuming that you have taken reasonable precautions to safeguard your personal assets, the worst thing that can happen is that you will be forced to liquidate the business. Granted, this can be a blow to any entrepreneur’s ego. It might also reduce personal income for a while, however, once the liquidation is over, you can always begin again. As long as creditors believe that they have the most to lose, you’re in driver’s seat. The ultimate creditors’ threat is to force the company into bankruptcy. By making it clear that this won’t hurt and that other plans for the future are in the works anyway, such leverage vanishes abruptly.

 

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

Antiquated Strategic Planning


At one time, the view from the top of most corporations was strongly influenced by their leaders planning doctrine. Executives were taught that the best way to plan for a complex company into discrete components, called strategic business units. For a time this practice provided a helpful way to unbundle the corporation and to select strategies most appropriate to each unit’s individual situation.

Companies were best thought of as a portfolio of individual businesses: some brand-new and unproven, some growing rapidly and consuming great amounts of cash, some growing rapidly and generating the cash needed by the up-and-comers, and some out and out losers.

Strategic planners eventually carried the idea one step further. They developed formulas that appeared to identify the contribution each business unit was making to the company’s overall stock price. Called value-based planning (as in shareholder value), its application, along with techniques such as junk-bond-driven leveraged buyouts, helped de-conglomerate many corporate dinosaurs in the financial go-go years.

These planning techniques are logical and quantifiable, descriptive as well as perspective. They provide a seemingly attractive way for the head of an enterprise to put arms around what might have become an increasingly diverse array of businesses. But thinking of a corporation as if it were similar to a portfolio of stocks or other investments can also be very limiting and one dimensional.

This kind of thinking tends to overemphasize the uniqueness of each business and often assumes that all the competition in which the corporation is engaged occurs when its business units do battle with their counterparts in other companies. It suggests that the role of top corporate management is either secondary or passive with regard to competition. It also implies that top management’s role is primarily that of a banker to the individual strategic business unit, concerned chiefly with financial resource allocation, and that it adds value mainly through “balancing the portfolio” by buying or selling the strategic business units that make up the company.

This approach encourages a “trader’s mentality” on the part of top management. Traders like to buy and sell, conglomerate and de-conglomerate. But they do not know how very much about how to grow the company from within.

Decentralization, sometimes extreme decentralization, is also encouraged, because each business is expected to stand on its own, containing most of the resources it needs for its operations. This simplifies the job of top management. It has only to focus on each strategic business unit’s bottom line and consider the details of its operations on an exception-only basis.

But this simplification comes to a great cost. Stressing stand-alone uniqueness and managing through the blinders of short-term earnings results in living, growing business entities treated almost as if they were fragments of the company’s stock certificate. The disease of the stock markets—perspective that seldom extends beyond next quarter’s financials—is passed along to the company.

There is another danger when strategic business unit framework dominates corporate decision-making. This is the tendency to grow redundant resources in the company as each strategic business unit, over time, builds up all the functions and staffing it feels it needs to operate as autonomously as possible. At times headquarters management tries to check the emergence of this costly duplication by mandating resource sharing across strategic business units, by using central service groups, or both. But these well-meaning attempts at cost containment send mixed signals to the strategic business units and they also can impose heavy coordination costs in terms of time and loss of flexibility.

Many intelligently managed companies led down the paths and took a seemingly attractive shortcut in their thinking. They confused a framework for planning with a basis for organizing power and resources. They used a perspective that directs to management’s attention to the financial scorekeeping aspects of the business at the cost of neglecting the underlying mechanisms that create value for their customers.

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