Tilt: A book review by Bob Morris

First Friday Book Synopsis

Bob''s blog entries De Beers Ford Motor Company Harvard Business Review Press How and why downstream [comma] customer-led activities and preferences will dominate the competitive landscape in the future Infosys Niraj Dawar the locus of activities that add value (those the customer is willing to pay for) the locus of competitive advantage the primary fixed costs in the business Tilt: Shifting Your Strategy from Products to Customers Toyota Motor Company Walmart

A New Look At Budget Setting

Women on Business

Corporate budgeting used to be simple: review fixed costs once a year, control variable expenses as much as possible, calculate the ROI on capital expenditures and relax until the end of the fiscal year. The goal was clear and easily quantified (though not so easily achieved): maximize profit. Smart organizations are adding three elements to

Winning Now, Winning Later: Playing the Infinite Game

Leading Blog

Grow while keeping fixed costs constant. This means eradicating the quick fixes that “keep people stubbornly focused on today at tomorrow’s expense.”. W HEN David Cote became CEO of Honeywell in February of 2002, the company was a train wreck. He inherited unhealthy accounting practices, unresolved environmental liabilities, and a board and staff that were denying reality. Cote shares in Winning Now, Winning Later , a practical example of playing the infinite game.

Contribution Margin: What It Is, How to Calculate It, and Why You Need It

Harvard Business

Many leaders look at profit margin, which measures the total amount by which revenue from sales exceeds costs. Knight warns that it’s “a term that can be interpreted and used in many ways,” but the standard definition is this: When you make a product or deliver a service and deduct the variable cost of delivering that product, the leftover revenue is the contribution margin. You might think of this as the portion of sales that helps to offset fixed costs.

5 Effective Strategies for General Contractors to Cut Costs

Strategy Driven

Contractors need to devise ways to cut costs in order to remain profitable. With increased competition, the need to cut costs has become important now more than ever. Eliminating people is not the right way to cut costs. Instead, you should look for other ways to cut costs and boost profitability. Cost Audit. The first step in cutting costs should begin with a complete audit of the existing expenses. Actual material costs.

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The Strategy Driven Guide to Financial Investments

Strategy Driven

From rising living costs to increased healthcare requirements, going into the future without planning on how you are going to afford it is a mistake. Your rent and other fixed costs are unavoidable, so cut them out from what you receive in income and work on minimizing your costs so you can comfortably live with your exact monthly budget and not your monthly income. The best way to reduce costs is to minimize your life.

During this Crisis, Don’t Expect Business as Usual from the Family Enterprise

Strategy Driven

This is a time to share the challenges regarding fixed costs, debt, obligations and the cost of doing business. In the last half-century, the pace of change and the many innovations that have reorganized our behavior in no way compare with the unanticipated situation we now face from the coronavirus pandemic. We simply have no precedent for how to plan for what may come next, or for managing the pace of the upheaval.

4 tips for starting a business in a poor economy

Strategy Driven

Lowering costs is one of these and whilst negotiating with suppliers , understand that you probably hold the upper hand. The same rules apply to employees, as both of these elements are fixed costs that are going to heap pressure onto your business. At one point in our life, we’ve probably all been there. The economy is like a rollercoaster , and from time to time you do reach new lows. Quite often, these lows give some people a new lease of life.

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The Challenges GM Is Facing, and the Reasoning Behind Its Plant Closures

Harvard Business

Capital-intensive factories have a high-fixed-cost, low-variable-cost operating model. If you greatly reduce the production volume, the cars that do come out have to absorb more of the fixed costs, and that eventually sends the product into a profitability death spiral. Alistair Berg/Getty Images.

A Quick Guide to Breakeven Analysis

Harvard Business Review

It’s a simple calculation to determine how many units must be sold at a given price to cover one’s fixed costs. Assume she must incur a fixed cost of $25,500 to produce and sell a kite. These costs might cover the software needed to design the kite and be sure it is sufficiently aerodynamic, the fee paid to a graphic designer to design the look and feel of the kite, and the development of promotional materials used to advertise the kite.

The New Psychology of Business Models

Ask Atma

As this float collapses, what used to take longer to figure out, costing a great deal, can now be determined faster and much cheaper. 4) Costs – what is your cost per sale/customer? Pro-rated fixed costs. Variable costs. What are your economies of scale (how much less will produce more of your product cost). Management 3.0 – a psychological shift. You have a great business idea but you are not sure how to develop it.

Business Model Generation : Blog | Executive Coaching | CO2 Partners

CO2

It is useful to distinction between three motivations for creating partnerships: Optimization and economy of scale, Reduction of risk and uncertainty, Acquisition of particular resources and activities) Cost Structure – The business model elements result in the cost structure. (It It is useful to to distinguish between two broad classes of business models Cost Structures: cost cost-driven and value-driven from the following categories Cost-driven, Value-driven.

A Quick Guide to Breakeven Analysis

Harvard Business Review

It’s a simple calculation to determine how many units must be sold at a given price to cover one’s fixed costs. Assume she must incur a fixed cost of $25,500 to produce and sell a kite. These costs might cover the software needed to design the kite and be sure it is sufficiently aerodynamic, the fee paid to a graphic designer to design the look and feel of the kite, and the development of promotional materials used to advertise the kite.

Does Your Startup Have a Spending Strategy?

Harvard Business

Colin was sure his revenues would exceed costs within a year, but the large clients he expected never materialized. So not only were the current fees too weak to support his fixed costs, but future clients were turned off by his apparently excessive tastes. To address those cost overruns, Colin subleased some space, cancelled a redundant and very expensive trading service, and let one person go. The costs soon proved much greater than expected.

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The More Climate Skeptics There Are, the Fewer Climate Entrepreneurs

Harvard Business

remains home to a considerable number of “climate skeptics,” who clearly impact the politics around the issue, as they are unlikely to support costly actions such as carbon taxes intended to mitigate the challenge of climate change. A drug company must incur a large fixed cost to do the basic research, so it has strong incentives to predict what the demand for the drug will be if its research succeeds.

Research: Cloud Computing Is Helping Smaller, Newer Firms Compete

Harvard Business

By cutting the fixed costs of computing — avoiding the need to hire IT staff, servers, and hardware — even the smallest firm can satisfy large and unexpected computing needs. We believe its ability to provide high-powered computing without the overhead costs associated with in-house software and hardware provision has driven this. Ansgar Schwarz/EyeEm/Getty Images.

The Real Reason Superstar Firms Are Pulling Ahead

Harvard Business

It could be because “software development typically requires large upfront fixed costs,” meaning that firms that are already pretty large are the ones who can afford to invest in it. If it’s expensive to adopt and get good at IT, it’s more economical for big companies like Wal-Mart that can spread those costs out over lots and lots of products sold.

How Companies Can Use Investors to Their Advantage

Harvard Business

For its part, Nikon focused on cost optimization opportunities and balance sheet management when communicating to value-oriented investors and on long-term structural changes when communicating to growth-oriented investors. Directly influenced by investor input, Nikon developed a restructuring plan that would carry a onetime cost of ¥48 billion ($460 million) but generate ¥20 billion ($190 million) in annual savings. Heini Wehrle/BIA/Minden Pictures/Getty Images.

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When Cost-Plus Pricing Is a Good Idea

Harvard Business

Cost-plus pricing is a lot like the romance novel genre, in that it’s widely ridiculed yet tremendously popular. Almost every manager I know will claim they hate pricing based only on costs. Yet cost-plus pricing remains the most widespread pricing method, used to price everything from a bottle of beer in a bar to multibillion-dollar infrastructure projects. The idea behind cost-plus pricing is straightforward. Cost-Plus Pricing Has Justifiable Drawbacks.

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A Detailed Look at E-Commerce Fulfillment

Strategy Driven

In house logistics are not only ineffective to do on large scale and over long distance but also cost a small fortune. Your startup business may not be ready for the ballooning costs of establishing a full scale ecommerce with deliveries. Not to mention it could cost you a fortune to replace damaged goods. We help you to transform what would otherwise be a fixed cost (warehousing) into a variable cost of doing business.

What Could Amazon’s Approach to Health Care Look Like?

Harvard Business

The introduction of Amazon Prime , which provides two-day delivery on many Amazon orders for a fixed annual fee, represented a huge shift in Amazon’s early business model. The absence of fixed costs for customers attracted small and innovative web developers. jamie jones/Getty Images. It is clear from some of its recent moves that Amazon sees the 18% of U.S. GDP dedicated to health care as fertile ground for expansion.

Business Plan Development: Know your Finances

Strategy Driven

Have columns for unit sales, unit costs, pricing, one that multiplies units times price to calculate sales, and one for sales costs. This allows you to demonstrate gross margin: sales revenue less sales costs. Differentiate between fixed costs, such as rent and payroll, and variable costs, such as advertising and delivery. Remember: Sales – cost of sales = gross margin. A great business plan is the foundation of every great business.

Health Systems Need to Completely Reassess How They Manage Costs

Harvard Business

This was because their expenses grew faster than their revenues, despite cost-cutting initiatives. Cost reduction requires an honest and thorough reassessment of everything the health system does and ultimately, a change in the organization’s operating culture. Barnacle removal is a key element of serious cost control. This has been an area of explosive cost growth in the past 15 years as the number of physicians employed by hospitals has nearly doubled.

Who Wins in the Gig Economy, and Who Loses

Harvard Business

A full-time job provided the steady income needed to support our traditional version of the American Dream: the highly leveraged, high-fixed-cost house; the cars; the latest consumer goods. The winners and losers in the U.S. economy have traditionally been easy to identify. If you had a full-time job, you won.

What BMW’s Corporate VC Offers That Regular Investors Can’t

Harvard Business

Third, corporate VCs and accelerators are costly and complex to operate, turning them into a slow and expensive innovation tool. And the fixed cost from “touchpoint-to-pilot” are immense. For example, in the case of a $100 million CVC fund, which can close five to 10 investments a year, these costs typically range from $1 to $2 million per startup — not including the administrative and variable costs of the pilot itself.

What the Nonprofit Sector Needs to Reach Its Full Potential

Harvard Business

Imagine eliminating all of the redundancies in fixed costs. The nonprofit sector has limbs. It has fingers that reach into the most neglected corners of society, forearms that lead large national chapter and affiliate organizations, legs made up of the nation’s foundations and massive individual donor base that fund it and help it to move. It has blood pumping through its veins – 10 million people doing its good works day in and day out.

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Will Personalized Medicine Mean Higher Costs for Consumers?

Harvard Business

A growing body of research says that insurers raise out-of-pocket costs in part to avoid sick enrollees. This problem is likely to get worse as personalized medicine becomes more common, more patients get to choose between competing private health plans, and employers shrink the coverage they offer employees in order to reduce their labor costs. Policy Pricing Costs Healthcare Digital Articlelaura schneider for hbr.

We Can’t Study Short-Termism Without the Right Metrics

Harvard Business

However, firms can efficiently increase margin growth without much revenue growth by managing to squeeze out their fixed costs to service the same level of output. Repaying such profits to shareholders through share repurchases is better than misinvesting that cash to diversify into unrelated businesses in which management has no expertise or overinvesting in projects that may not return cost of capital.

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An HBR Refresher on Breakeven Quantity

Harvard Business Review

Marketers often have to make the call on whether a certain marketing investment is worth the cost. “Breakeven quantity is the number of incremental units that the firm needs to sell to cover the cost of a marketing program or other type of investment,” says Avery. If the company doesn’t sell the equivalent of the BEQ as a result of the investment, then it’s losing money and it won’t recoup its costs. First, look at fixed costs.

Bringing the Power of Platforms to Health Care

Harvard Business

Exploring cutting edge ways to lower costs and improve quality. In healthcare, the need for administrative automation is viscerally felt – and the potential for alleviating burden and draining cost from the system is significant. On any given day in America, 40% of hospital beds lie empty, their enormous fixed costs weighing heavily on the system. is at a critical juncture, with an urgent need to bend the cost curve – slowing the rate of cost increases.

The Customers Who Are Happy to Pay More for Less

Harvard Business Review

This makes financial sense in industries with high fixed costs and low variable costs: larger sizes enable the company to charge higher prices that, even if they are just slightly larger, absorb a higher portion of fixed costs, while reducing packaging cost per volume and attracting value-minded consumers. drink costs only $1 more than the “small” 30 oz. Size is perhaps the most neglected marketing tool.

Joint Ventures Reduce the Risk of Major Capital Investments

Harvard Business

For instance, the cost of building and equipping a leading-edge semiconductor fab has climbed to $7 billion, as the technology required to make more advanced chips is getting more complex. The cost of building an oil rig has increased steadily, to more than $600 million, due to raw materials and labor cost increases, growing technical challenges, steeper regulatory requirements, and speculative building.

Groupon Doomed by Too Much of a Good Thing

Harvard Business Review

ACSOI essentially measures Groupon's profits before subtracting its subscriber-acquisition costs and stock option-based compensation. Secondly, expecting a business to be profitable quickly forces it to keep its fixed costs low. Because a business's cost structure determines which customers it finds profitable, keeping these fixed costs low preserves strategic options for the company when it is choosing which customers to target. "Alright, you caught us.

Why HR Really Does Add Value

Harvard Business Review

Within the first year of our effort net sales increased 27 percent while fixed costs were reduced by 40 percent. Not all fixed cost reductions were people. In light of today's economic volatility and uncertainty every aspect of business is being re-examined for its value in creating and sustaining profitable growth. I've worked in human resources for over 25 years, the past six with Newell Rubbermaid, and this is not a new endeavor for me.

Five Rules for Innovating in a Shaky Economy

Harvard Business Review

However many big projects become inflexible, travelling on rails to a fixed destination. Management has made promises to senior executives about what a project will achieve, and fixed costs have built up because they looked prudent in comparison to planned revenues. Some new products under this umbrella, like the Mr. Clean Magic Eraser, were breakthrough hits, but they probably cost a good deal to develop.

How to Prepare Your Supply Chain for the Unthinkable

Harvard Business Review

The other is the persistent feeling that supply chains represent a cost. Most companies focus on minimizing costs rather than maximizing flexibility, which would entail making large investments in supply chains. What would happen to their costs if the renminbi's value rises overnight from RMB 6.5 Companies keep costs down by building supply chains that generate economies of scale. It discovered that although costs did fall, the delivered price to customers rose.

Telecom's Competitive Solution: Outsourcing?

Harvard Business Review

Skype , for example, competes with fixed-line carriers by offering free mobile Skype calls. Bharti's innovative business model converted fixed costs in capital expenditure to a variable cost based on usage of capacity. Through the outsourcing arrangements, Bharti dramatically lowered its costs while ensuring high quality for customers, since vendors had world-class competencies in their domains.

3D Printing Will Revive Conglomerates

Harvard Business Review

That gave it a steadier cash flow to cover the costs of its large fixed cost investments, but did not eliminate the unused capacity of plants dedicated to one kind of product. These regional production centers would reduce transportation costs and currency risks, while developing closer ties to their customers. Conglomerates, at least in the United States, have a checkered history.

How Industry Giants Can Create Corporate Breakthroughs

Harvard Business Review

For example, a decade ago, it''s unlikely that small-business owners would have told you that they needed a flexible way to host data and applications, one that preferably turned the fixed cost of computer hardware into a variable cost of renting capacity. That''s not as exotic a bet as you''d imagine when you consider that just about every business owner is always looking for increased flexibility and opportunities to make fixed costs variable.

Solving the $100,000 Cancer Drug Problem

Harvard Business Review

for instance, even insured patients pay an average of 20% of drug prices out-of-pocket, meaning these drugs can cost a patient $20,000 a year. The key components that lead to a solution are as follows: Understand the dynamics of a high fixed cost/low variable cost industry. While pharma companies spend billions on research, the actual cost of manufacturing a treatment (such as a pill) is minimal. This cost structure enables pricing flexibility.

Five Ways to Retain Employees Forever

Harvard Business Review

By making the fixed cost of payroll inherently more variable under differing business conditions, you can make your company more resilient and agile, while also treating your employees exceptionally well. In a recent blog post , we cited some alarming numbers: 40% of workers are planning to look for a new job within the next six months, and 69% say they're already passively looking. As employers, those figures are frightening.

Solving the Internet's Congestion Problem

Harvard Business Review

However, the model separates subscriber revenue from the cost of the network. Congestion, rather than raw usage, is the key driver of this phenomenon; given that the Internet Service Provider network is largely a fixed-cost asset. Like any fixed-cost asset, such as the Interstate highway system in the U.S., It is congestion, like rush hour on the roads, that drives the necessary upgrades and cost of the network.

Is Rooftop Solar Finally Good Enough to Disrupt the Grid?

Harvard Business Review

The costly and complex operations of transporting energy have made utilities natural monopolies, while regulatory barriers and the high fixed costs of building and maintaining regional electrical grid infrastructure have also kept much competition at bay. But recent technological advances and new business models are now allowing nimble players to compete and provide consumers with cost-saving alternatives.