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.

Contamination of Resources

Nations have paid relatively little attention to the contamination and destruction of the world’s natural resources. Entire forests have been destroyed by people wanting to get firewood or to clear land and by contaminated air and water. Pollution control of air and water was considered a luxury that governments, anxious to attract new industry and to keep the industry they had, could ill-afford to impose. Developing countries assert, “They can’t afford pollution control like Japan or the United States—that’s cultural imperialism.” They unfortunately do not realize that the price for such negligence is too high.

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.

Consumer Sovereignty

Mainstream economics uses some simple starting points; it believes that they are the best possible. First is that agents have more wants than they can attain, so that they feel scarcity; in fact, for practical purposes, wants are assumed to be endless. Second, third and fourth are that agents are self-interested, rational, and the best judges of their own well-being. These four assumptions are indeed usually good starting points, rather than starting by assuming that agents are completely fulfilled, altruistic, irrational, and not well-placed to evaluate their own situation. They are not equally good as finishing points. Sometimes good arguments exist for not accepting them.

An assumption that agents are the best judges of their own well being is less questionable for businesspeople and corporations, given the resources they have for analysis. Debate focuses more on consumers. The phrase consumer sovereignty is sometimes read descriptively, to mean that consumers are sovereign, in that procedures are induced via profit-seeking and competition  to provide what consumers want. Sometimes it is read normatively, to mean that consumers should be sovereign, their wishes should prevail concerning what is good for them. The normative claim can rest on three different bases: that consumers do make good choices; that the alternative stance is worse – to use someone else’s judgments and estimates of what is good for a person and how good it is; or quite differently, that people have the right to make their own choices and mistakes.

Consumers will not make good choices automatically and unconditionally. Our wants are not simple; for example, some are wants to not to have other wants (such as the desire to smoke or a compulsion to gamble). Establishing a mature balance between wants involves skills. Choice is also unlikely to bring satisfaction if taken on the basis of weak information. Markets often do not provide consumers with full and reliable information, for it is hard to exclude people from information and therefore to ensure payment for it, so its market supply is weakened. Instead, in a commerce-dominated society, one of the main types of information that adults get will be images that say the good life is obtained through high consumption of commodities; there is too little counteracting public information.

The issue of consumer sovereignty goes beyond whether choices are good for the chooser. Other people are affected. Some wants may thus be unacceptable, notably wants that bring harm to others, including even wants to harm others. Mainstream economists have unfortunately often taken a don’t-want-to-know approach to ethics in which they confuse acceptance of all wants with a value-neutral stance.

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.

Process Engineering

Although continuous improvement methods are positive starts in many of our organizations, they generally focus on incremental change. Such action—a constant and permanent search to make things better—is intuitively appealing. Many organizations, however, operate in an environment of rapid and dynamic change. As the elements around them change so quickly, a continuous improvement process may keep them behind the times.

The problem with a focus on continuous improvements is that it may provide a false sense of security. It may make organizational members feel as if they are actively doing something positive, which is somewhat true. Unfortunately, ongoing incremental change may prevent a company from facing up to the possibility that what the organization may really need radical or quantum change, referred to as work process engineering. Continuous change may also make employees feel as if they are taking progressive action while, at the same time, avoiding having to implement quantum changes that will threaten certain aspects of organizational life. The incremental approach of continuous improvement, then, may be today’s version of rearranging the deck chairs on the Titanic. It is imperative in today’s business environment that all organizational members consider the challenge that work process engineering may have for their organizational processes. This is because work process engineering can lead to “major gains in cost, service, or time,” as well as an organization in preparing to meet the challenges technology changes foster.

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 Selling Process

It is difficult to manage something without a solid understanding of what it is you’re trying to manage. Unfortunately many people have a number of misconceptions about the selling process, the activities carried out by salespeople, and the personal characteristics necessary for a successful performance. To complicate matters even more, various selling roles can involve very different tasks and require different skills and abilities from the people who do them. The role of sales force should evolve from simple order taking to building long term customer relationships with retailers, for instance, the firm’s salespeople need to develop superior interpersonal skills, the ability to work effectively as members of cross-functional teams, greater knowledge of each market and competitive situation, and the technical and marketing skills necessary to collect and interpret large amounts of sales and cost data related to the product categories in each store they call upon.

Selling process begins with an examination of how organizational buyers make purchase decisions and how salespeople can facilitate and influence those decisions. It covers a variety of activities, tasks, and decisions involved in different types of selling situations.

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.

 

Power

Power is what everyone wants and no one seems to have enough of. The desire for power is inherent in our very nature and fundamental to our survival.

Nowhere is the pursuit of power more evident than in today’s workplace. Managers are constantly striving to increase their arsenal of power, which is how it should be. Some may use power for selfish gain; others may use it to benefit the company. Regardless of how managers use power, the fact remains that without it they are incapable of achieving anything of significance for themselves, other people, the company, or society at large.

Power operates under the same principle as love: the more one gives to others, the more one receives in return. Unfortunately, many managers assume that there is a limited supply of power.

Most people contribute only a small fraction of their full capabilities, simply because they don’t feel a sense of personal power. They are bound by a bureaucratic management system that does little to encourage initiative and high performance. Almost all the power within the organization rests with those at the very top. Powerless in their ability to achieve results, most people eventually lose interest and settle for mediocrity.

The secret of achieving success as a manager and as a company lies in learning how to release the hidden potential of people. It lies in helping workers on all levels, from floor sweeper to executive, experience a sense of their own power. There are no success limits for the managers who master this art. Likewise, the company that rewards managers for successfully employing this art dramatically increases its ability to achieve its objectives.

If you want to achieve ultimate power for yourself you must get out of your own way. Instead of focusing your energies on the acquisition of power for yourself, focus them on how you can empower the people who work for you. If you are successful in giving your people power, they will surely lift you on their shoulders to heights of power and success you never dreamed possible.

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.

Primitive Organizations

Primitive organizations exhibit all the classic features of any start-up. Energy and anticipation are usually high and the right startup can almost run on pure adrenalin.

Primitive organizations naturally perform the things that other types of organizations have to work hard to achieve. Formal structure and communication is not yet necessary, as enthusiasm and team spirit can carry the organization along.

In the early stages most primitive organizations manage to operate under one working culture and build effective internal and external relationships. This state of affairs can’t last, however, as primitive organizations are naturally transient. When the initial honeymoon period passes, the culture of the organization will change of its own accord.

All that is up for debate is how much it will change, how fast it will change and whether that change will be managed or if nature will be allowed to take its own course.

As is the case with all organizations, primitive organizations face the choice of managing their culture from the word go, or leaving it to chance. Unfortunately too many organizations rely on the natural spirit associated with being a primitive startup and de-prioritize cultural investment, choosing to concentrate on what they see as operational necessities.

To a point this is understandable, but this attitude reflects some common misconceptions.

• An organization’s honeymoon period or primitive stage can be incredibly short, which catches a lot of organizations out – and once the damage is done, it’s done. Remedial work is always harder and significantly more draining and time-consuming than positive effort.
• Proactive cultural and relationship management right from the start can be achieved at minimal cost in terms of time and money, and will deliver benefit for years to come. It is worth remembering that managing a working culture does not mean over-engineering it: in fact, it should mean quite the opposite. Good practice from day one is what creates long-term amazing relationships and long-term success.

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.

Focusing on Customers

Without customers you have no sales, no income, no profit, no business—and soon no organization. Unfortunately, when you meet other managers they often seem to forget this, and talk about profits, productivity, return on investment, data ratios and personnel problems. Sometimes customers are clearly an irritant, getting in the way of smooth operations, asking awkward questions and making unreasonable demands.

The purpose of your organization is to supply a product that satisfies customer demand. This should be the focus of the whole organization. To sustain competitive advantage requires a total commitment to your customer. If it is good for your customers, do it! The dollars will follow.

This consideration on customers involves:

• Finding out exactly what customers want;
• Designing products to meet these demands;
• Doing research and development so that your product range responds to changing demands;
• Aiming for complete customer satisfaction;
• Getting a reputation for outstanding quality and value;
• Doing after-sales checks to make sure that customers remain satisfied;
• Looking outwards so that you are always in touch with customers, potential customers, competitors, alternative products, etc.
• Allowing customers easy access to your organization and making them welcome;
• Discussing customer service widely, so that everyone knows your aims, and shares thoughts on customer satisfaction.

Some say that you should go further than merely satisfying customers, and should exceed their expectations – delighting or crossing them. Whatever you call it, you depend on satisfied customers coming back with repeat business. It typically costs five times as much to attract a new customer as it does to retain an existing one – and someone who gets good service will recommend you to four or five other people, while someone who gets poor service will warn a dozen potential customers to go somewhere else.

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.

Stumbling on Leadership

Using today’s methods of managing the technical development process, the most important decision top management makes on a new product is the selection of the group leader. The second most important decision is to stay out of the way and let the leader lead.

But who is a leader? Or, better, who will develop into a leader? The person has a non-authoritative position; that is, a leader has no line authority over such co-workers as peers, peers’ subordinates, temporary employees, vendors (subcontractors, suppliers), customers, and bosses. The leader leads in a milieu that can change from supportive to hostile overnight, with parameters that are almost completely unknown (e.g., competitive reactions), and with a new and even more inexperienced team of people.

Yet that person can overcome virtually every obstacle. That person alone can enthuse and motivate a group of people to do what seems impossible. Fortunately there is lots of this leadership around, managers with successful track records in this work and many managers who are as yet undiscovered. Unfortunately, it is almost impossible to pick out the undiscovered.

Compounding all of this is the conviction of some firms that a new products project actually needs two leaders, a creative, inspiring type for early on, and a tough disciplinarian for the later stages. Very rarely do we find people who can do both.

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.

Decisions: Considering Alternatives

An ideal alternative perfectly fulfills every condition set for it without adding new difficulties. Unfortunately, ideal alternatives are rare. We must, therefore, evaluate each available alternative by measuring it against all of our objectives. It is the relative quality of that fit that concerns us.

If we must choose among several alternatives, we will have to decide which one will best fulfill our objectives with the smallest acceptable risk. In other words, we try to make a balanced choice. An alternative that best accomplishes the objectives but carries severe risks is not, after all, the best choice. Another alternative, perhaps less exciting but safer, may be the best balanced choice.

If there is only one alternative, we must decide whether it is good enough to accept. In this case our evaluation will focus on its relative worth compared with a perfect but unobtainable alternative.

If we must choose between a current and a proposed course of action, then we consider both to be alternatives. We evaluate their performance against our objectives just as we would if both had been proposed. Whatever is currently being done is, after all, an alternative; the choice is whether to continue that way or find another, better way.

If, in the absence of any alternative, we must create something new, we can usually build an alternative from available components. We then choose the best and most feasable combinations, treat each as a separate alternative, and evaluate all of them against an ideal model of an alternative.

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