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.

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.

Audience-Centered Approach to Communication

Beside other things, effective organizational communication is audience-centered approach. Keep your audience in mind at all time during the process of communication. Empathizing with, being sensitive to, and generally considering your audience’s feelings is the best approach for effective communication. The audience-centered approach is more than an approach to business communication; it’s actually the modern approach to business in general, behind such concepts as total quality management and total customer satisfaction.

 Because you care about your audience, you take every step possible to get your message across in a way that is meaningful to your audience. You might actually create lively individual portraits of readers and listeners to predict how they will react. You might simply try to put yourself in your audience’s position. You might try adhering strictly to guidelines about courtesy, or you might be able to gather information about the needs and wants of your audience. Whatever your tactic, the point is to write and speak from your audience’s point of view.

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Retail Trends & Strategies

• Better market positioning: This involves more careful identification of market segments and providing service superior to that of competition.
• Market intensification: This involves clustering more stores in the same metropolitan area and contiguous markets.
• Secondary markets: Expansion will be increasingly focused on secondary markets  of under 100,000 population because there may be less competition from larger retailers, and costs, such as wages, may be lower.
• Differences in store size: Retailers will have a more flexible portfolio of different sized stores depending on the size of the community and existing retail competition. More use of second-hand space will occur because this can result in savings of 30 percent or more in rent.
• Productivity increases: The application of central checkout, self-selection, and low gross margins to areas of trade where these techniques have not been used before will occur. Look now at toy supermarkets, home-decorating centers, and self-service shoe stores.
• Fewer product options: Product lines will increasingly be consolidated, and new product development will be cut back.
• Service growth: Services retailing will continue to grow as a percentage of total retail sales. Services already represent about 50 percent of the gross national product.
• More mergers: Increasingly, smaller and weaker firms will be absorbed as more retail outlets struggle to survive.

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.

The Three Types of Strategies

There are three main types of strategies:

1. The corporate level strategy identifies the portfolio of businesses that in total will comprise the corporation and the ways in which these businesses will relate;
2. The competitive strategy identifies how to build and strengthen the business’s long-term competitive position in the marketplace; and
3. The functional strategies identify the basic courses of action that each department will pursue to contribute to the attainment of its goals.

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 Differentiation

A common response during slow demand is to discount the price of the service. This strategy relies on basic economics of supply and demand. To be effective, however, a price differentiation strategy depends on solid understanding of customer price sensitivity and demand curves.

Heave use of price differentiation to smooth demand can be a risky strategy. Over –reliance on price can result in price wars in any industry where eventually all competitors suffer. Price wars are well known in the airline industry, where total industry profits suffered as a result of airlines simultaneously trying to attract customers through price discounting.

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.

Quality or Excellence?

The question is what is the organization trying to accomplish? Is it striving for quality, or excellence or both? Quality and excellence are two different terms. Quality is an absolute state—in the control of total quality management, quality is conformance to requirements, doing things according to standards. Excellence is a relative term, to put it simply, it is being better than others. It requires comparison. So it can be said that quality is built in, while excellence is designed. If the goal is quality, it means individuals will be assessed on whether they meet the established standards. It is assumed that they possess the minimum competencies. If the goal is to achieve excellence, individuals will be assessed on their competence levels based on a continuous evaluation scale. Hence when evaluating for excellence, it would be necessary to compare the relative competence between two employees in addition to measuring their competence against the standards scale.

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.

Pro Forma Income Statement

Because marketing managers are accountable for the profit impact of their actions, they must translate their strategies and tactics into pro forma, or projected, income statements. A pro forma income statement displays projected revenues, budgeted expenses, and estimated net profit for an organization, product, or service during a specific planning period, usually a year. Pro forma income statements include a sales forecast and a listing of variable and fixed costs that can be programmed or committed.

Pro forma income statements can be prepared in different ways and reflect varying levels of specificity. They have a typical layout consisting of six major categories or line items:

1. Sales—forecasted unit volume times unit selling price
2. Cost of goods sold—costs incurred in buying or producing products and services. Generally speaking, these costs are constant per unit within certain volume ranges and vary with total unit volume.
3. Gross margin (sometimes called gross profit)—represents the remainder after cost of goods sold has been subtracted from sales.
4. Marketing expenses—generally programmed expenses budgeted to produce sales. Advertising expenses are typically fixed. Sales expenses can be fixed, such as a salesperson’s salary, or variable, such as sales commissions. Freight or delivery expenses are typically constant per unit and vary with total unit volume.
5. General and administrative expenses—generally, committed fixed costs for the planning period, which cannot be avoided if the organization is to operate. These costs are frequently called overhead.
6. Net income before (income) taxes (often called net profit before taxes—the remainder after all costs have been subtracted from sales.

A pro forma income statement reflects a marketing manager’s expectations (sales) given criterion inputs (costs). This means that a manager must think specifically about customer response to strategies and tactics and focus attention on the organization’s financial objectives of profitability and growth when preparing a pro forma income statement.

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.

Organization Health

Implicit is a concept towards organizations that needs to be made explicit; namely, that we are viewing organizations as dynamic cooperative systems. Their survival involves change and adaption, as well as, economic performance and the distribution of  incentives to members.

The presentation is organized to help the exercise understand the dimensions of his job in contributing to organizational survival. We hold that the manager should have awareness of how organizations in general function, as well as, an understanding of the character of his specific organization. The organization is thus seen as a system with needs for its own security, stability, and continuity. Managers perform the functions of organizing, directing, and controlling within the system.

The criteria for judging managers (i.e., organizational health or effectiveness) are not measures such as performance, morale, lack of conflict, or profit per se. These are important but insufficient criteria. Rather, we have to evaluate managers in terms of the total dynamic system represented by the organization. In this framework, it is more important to judge managerial effectiveness upon the basis of how the organization handles its problems (i.e., adapts and changes to pressures), rather than whether or not it has problems.

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.

Carryover

Carryover refers to a situation where the effects obtained in one phase appear to carry over into the next phase. The term carryover is generally used in the context of  removal designs. Thus, if you attempted to remove a successful intervention to recreate a sound baseline to determine whether your intervention was actually affecting the problem, and the problem remained unchanged despite the removal, carryover effects would pertain. Carryover effects might also be produced by totally extraneous outside influences having some impact on the target problem.

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.