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

Isn't a “disbenefit” really just a cost? « Crossderry Blog

Crossderry Blog

Recent Posts Sputnik and Delayed Gratification Grace under pressure Being accountable as a customer SAP SME Portfolio Précis Podcast Link — Enterprise IT: Inside an SAP customer Recent Comments Tweets that mention … on Grace under pressure Paul Ritchie on About Paul on About Bob Tarne on Waterfall, Agile, now … Bloggers Bug –… on Being responsible for our own… Google Page Rank Isn’t a “disbenefit&# really just a cost?

Cost 100

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

Harvard Business Review

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.

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 Customers Who Are Happy to Pay More for Less

Harvard Business Review

drink costs only $1 more than the “small” 30 oz. Yet, in her new book Soda Politics , Marion Nestle showed that the deal is less generous than it seems when you realize that the larger drink only costs $0.21 Size is perhaps the most neglected marketing tool.

Price 15

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.

When Cost-Plus Pricing Is a Good Idea

Harvard Business Review

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.

How Companies Can Use Investors to Their Advantage

Harvard Business Review

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.

ROIC 10

The U.S. Media’s Problems Are Much Bigger than Fake News and Filter Bubbles

Harvard Business Review

The media’s bias toward big events stems from three features of its economics: Fixed costs. The cost of covering a golf tournament doesn’t depend on whether Tiger Woods plays. Fixed costs have always been central to the economics of media. A combination of fixed costs, an advertising-reliant model, and spillovers produced a staggering difference in earned media coverage during the primaries: $2 billion for Trump and $300 million for Sanders.

The Real Reason Superstar Firms Are Pulling Ahead

Harvard Business Review

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.

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.

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. Conglomerates, at least in the United States, have a checkered history.

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.

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

Harvard Business Review

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.

Why Mergers Like the At&T-Time Warner Deal Should Go Through

Harvard Business Review

Video programming, after all, is produced at high fixed costs, with increasingly small marginal costs to duplicate and distribute widely. Britta Knappmann/EyeEm/Getty Images. Recent leaked reports suggest trouble for the proposed merger of AT&T and Time Warner, an $85 billion deal first announced over a year ago.

The More Climate Skeptics There Are, the Fewer Climate Entrepreneurs

Harvard Business Review

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.

Does Your Startup Have a Spending Strategy?

Harvard Business Review

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.

Hedge 11

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.

Ad Blocking’s Unintended Consequences

Harvard Business Review

Placing ads next to content helps websites recover the sizeable fixed costs of creating content. But ad blockers cut off this revenue stream and make it difficult to offset even the running cost of storing and delivering content to visitors.

Of Course Disney Should Use Surge Pricing at Its Theme Parks

Harvard Business Review

Since theme parks are high fixed cost/low variable cost entities, revenue from discount-enticed new customers is virtually all profit… free money. The Walt Disney Company is reportedly considering implementing surge pricing at its various theme parks.

What the Nonprofit Sector Needs to Reach Its Full Potential

Harvard Business Review

Imagine eliminating all of the redundancies in fixed costs. The nonprofit sector has limbs.

NGO 15

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.

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.

Who Wins in the Gig Economy, and Who Loses

Harvard Business Review

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 Happens When All Employees Work When They Feel Like It

Harvard Business Review

Eden McCallum, thus, manages to keep its overhead and other fixed costs at a minimum. Do you work for a firm where managers think employees really have to work (what is called) “full time”? That forty hours per week (or whatever is considered “full time” in your profession) is really a necessity? Perhaps you are one of those people with that conviction yourself — that in your job it is really not possible to work “part time.”

Why Tesco’s Strengths Are No Longer Good Enough

Harvard Business Review

The “ accelerated recognition of commercial income and delayed accrual of costs” undoubtedly flatters short-term results, but it soon catches up with you, as four suspended senior executives have found out. Troubles at Tesco, the UK’s leading retailer, are mounting.

How Drucker Thought About Complexity

Harvard Business Review

Almost 80 years ago, Ronald Coase won the Nobel Prize in Economics for an essay that suggested that we do this for the sake of scalable efficiency — it costs less to coordinate activity within a firm than across independent entities.

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

Harvard Business Review

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.

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.

How Uber Explains Our Economic Moment

Harvard Business Review

So to cover his monthly fixed costs of student loan payments (on more than $100k in debt), rent, and health care he was driving for Uber. I couldn’t agree more; they’re absolutely necessary to fix what ails us. Every once in a while you have one of those “microcosm experiences” that perfectly encapsulates the trends shaping our world. My most recent one came last week during an Uber ride.

Aligning Your Organization with an Agile Workforce

Harvard Business Review

This arrangement is often complicated by inconsistent decision criteria: purchasing wants the lowest price and a fixed cost, whereas the business or operation wants the best resource, a good cultural fit, and enough flexibility in the contract to allow for changes in scope or strategy.

Will Personalized Medicine Mean Higher Costs for Consumers?

Harvard Business Review

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.

China’s Slowdown: The First Stage of the Bullwhip Effect

Harvard Business Review

Consequently, although companies should cut costs now, they should be on the lookout for the quick rebound that is likely to follow. During an economic crisis, the exaggerated decline in orders can be especially damaging to upstream suppliers that have high fixed costs tied to production assets.

Deliver Big Impact on a Small Budget

Harvard Business Review

We didn't want to burden the organization with fixed costs. Almost everything had to be free, and the few things we paid for had to be scalable so that the unit costs would eventually approach zero.

How the U.S. Can Reduce Waste in Health Care Spending by $1 Trillion

Harvard Business Review

All will claim to reduce costs and improve quality. But, as Michael Porter and Robert Kaplan of Harvard Business School have argued , we need to examine costs at a more granular level at which clinical outcomes are matched with the business and administrative processes.

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.

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.

The Get-Big-Quick Fallacy

Harvard Business Review

If you are inside a big company, profit-draining ventures are typically early sacrifices in corporate cost-cutting exercises. How will you generate enough transactions to cover the fixed costs involved in running your business?

How to Know If a Spin-Off Will Succeed

Harvard Business Review

In parallel, it reduced its fixed costs by restructuring its industrial footprint and overhead structure; increasing sales, marketing, and R&D expenditures in targeted areas; and dramatically reducing working capital.