Product-line Costs

Costs in the managed category can be changed up or down by management decisions. As a general rule, they are far more variable than they should be as a business expands and more fixed than they should be during periods of contraction.

 Once there is agreement on these cost categories and definitions, the next step is getting help from the accounting department to determine how the costs incurred in each of these categories should be divided and assigned to specific product businesses. This is always easier said than done. Many accountants are reluctant to divide fixed costs into the categories or to shared costs to specific product areas. Because it is impossible to do this with the precision accounting professionals normally use to develop traditional financial statements, there is a natural aversion to shifting numbers in an imprecise manner. However, there is simply no way to develop net profit statements for each product-line business, or to see clearly how costs behave with volume changes unless the total lump of fixed costs is split into the “bedrock,” semi-fixed, and step categories and assigned to these business units. And  net profit picture for a product/market business can’t be developed unless shared costs, often representing a large percentage of total operating costs and often the root cost disadvantage problems, are broken down and assigned to various business units.

 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.

Personality Cults

In the absence of an agreed working culture the leaders of an organization will use their own personalities to dedicate the way relationships are handled in their own area of influence.

The relative power and influence of each member of the leadership team will determine the relative strength of their cultural influence. Whatever the relative balance, however, you can be absolutely certain that this will create confusion, waste and stress.

The result will be a cult personality with the more dominant leaders commanding more followers, resulting in a split working culture within the organization.

The effect of this can be seen in the way organizations respond differently to sales enquiries than to service enquiries.

How many times you  have been left to wonder alone in a shop because a sales assistant is suddenly needed elsewhere when they discover that you are only enquiring and not intending to buy then and there?

It is interesting to note that when individual people suffer from a split or multiple personality they are usually diagnosed as schizophrenic  and receive the benefit of medical help. When organizations suffer from a split or multiple culture, it is usually accepted as normal.

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.

Benchmarking

We cannot become what we want to be by remaining what we are. Shift from the original status is the key for success.

If a company is loosing the market (or) customers, the company has to realize that somebody is doing well ahead. So it is necessary to find out the ways to get their competitor’s level and have to beat them to retain the market and customers. An ideal tool to meet this level is benchmarking.

Benchmarking is a way to go backstage and watch another company’s performance from the wings where all the stage tricks and hurried re-alignments are visible. It is the practice of being humble enough to admit that someone else is better at something, and wise enough to learn to how to match and even surpass, them at it.

It is the process of identification, understanding and practicing the outstanding practices and processes from organizations anywhere in the world to help the organizations to improve its perfomance.

While benchmarking, it is not ethical to benchmark a product with another. This will give only the numerical values of weight, width, height, number of defects and number of rejections. But the objective is to benchmark a process with the best processes anywhere in the world having that best product as a target.

Benchmarking is not copying or imitating. This involves observing and learning from others. it is not a time-bound event. It is a continuous journey and an ongoing process without end, till the company is existing. The more we split the process into small segments the more will be the value added to each individual process. This is the key feature of benchmarking.

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, Lectures, Line of Sight

Intra-Company Pricing

In order to achieve the benefits of decentralization, many companies have split their operations into divisions that act as more or less autonomous “profit centers.” These profit centers typically are allowed, within certain limits, to make their own price and output decisions. Their executives, furthermore, are judged on the basis of the divisional profits achieved.

Suppose a commodity or service is to be exchanged between two profit centers of a single company. The firm may produce copper metal in one profit center and fabricate it into copper wire in a separate profit center. Or production may take place within one profit center and marketing of the company’s product within another. The question then arises of how to price the internal transaction of, for example, supplying copper metal to the coppoer wire division. The supplying division will of course be interested in having the intermediate product valued at a high price, the receiving division at a low price.

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