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

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. Cost Audit. 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. The best way to reduce costs is to minimize your life.

How To Reduce Business Expenses

HR Digest

It is not wrong to have a team of financial experts but as a manager, you need to under the basic ways to reduce business cost. Cost control is an effective way of keeping your business in shape and that helps your business to strive in varied business environments and economic clause. From hiring and salary negotiation with employees to all business strategies, cost control is a paramount factor. The use of cloud computing can help to save hardware and operational cost.

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.

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.

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. Remember: Sales – cost of sales = gross margin.

Business Model Generation : Blog | Executive Coaching | CO2 Partners


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.

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

Harvard Business Review

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.

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.

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.

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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.

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.

Research: Cloud Computing Is Helping Smaller, Newer Firms Compete

Harvard Business Review

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. Ansgar Schwarz/EyeEm/Getty Images.

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.

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.

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.

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.

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.

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.

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.

Health Systems Need to Completely Reassess How They Manage Costs

Harvard Business Review

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.

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.

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.

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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.

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.

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.

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.

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.

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.

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.

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.

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 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.

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.

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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.”

You Bought It. Does That Make it Yours to Sell?

Harvard Business Review

for an energy bar at the airport, which would have cost about $2.00 My willingness to pay the higher price reflects both the convenience to me of getting the bar at the last minute, as well as the fact that the retailer's costs at the airport are likely higher. But since books have low marginal cost (printing and distribution) relative to fixed costs (research, writing, and editing), Wiley can profitably sell its textbooks there at lower prices. The U.S.

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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.

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.

Understanding Financial Leverage

Harvard Business Review

She had carefully prepared a business plan based on expected participants per class, price, available classes per week, and all her anticipated costs. Regardless, a financing component adds another fixed cost. "Leverage" is one of the more interesting and difficult concepts to fully grasp in all of finance, but it's important for anyone that borrows or plans to borrow money to understand. Much of the confusion stems from the contrasting meanings embedded in the same word.

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.