How organization can be stiffled by their mindset about people

After working some more and see more workings of other organization, i’m impressed by the extent of the role of people in the organization.

Saying “organization is all about the people in it” make sense, since organization is nothing but a group of people working toward a (supposedly) common goal or purpose.

But to see that all competitive advantage is created or destroyed by people in an organization is…scary, a company could build a dominant business for decades, and then they have the wrong mindset about people and everything could go bust or slowly dies.

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Cutting prices by 20% and yet maintain your margin

imagesNews source at:

http://finance.yahoo.com/career-work/article/108119/the-accidental-hero.html?mod=career-selfemployment

Business finance flow in a very simple manner, it starts from the top (gross revenue) to bottom (profit).

Now between that two point, there’s cost, cutting numbers from the revenue until they reach profit.

Equation wise, R – C = P (totally simplified)

So, one would suspect that a significant in reduction in revenue would cause similar reduction in profit.

[0.8 R – C] would be far less than [R-C]

Well, that’s not the case with Subway, in a business move bound to spawn pricing case studies, Subway cut prices for some of their 30 cm (1 foot) sandwiches from 6 dollar to 5 dollar.

Again, you cut your price by 20%, all things being equal, revenue drop by 20%, and since you’re selling the same stuff, cost stays at past level, and there goes your profit.

In turns out that all thing are not equal, it turns out that human psychology plays a huge role in pricing (surprise surprise). Customers LOVE the 5 dollar price, 5 dollar is a round number, not cheap, but round. 5 dollar allows you to stuck out one 5 dollar bill, instead of 2 bill (one 5 dollar and one 1 dollar).

Revenue soars and yet margin stays…

Now, the effect of the 5 dollar is great, and is heavily explored on the article above. The 5 dollar explain why revenue soars.

But it didn’t explain why margin stays, because you’re bound to have margin pressure due to cost.

Now, my guess margin stays because 3 things:

1. Subway’s sandwiches has been grossly overpriced all along, so even when they cut prices by 20%, they have a ton of cushion on their margin

2. Subway has a lot of idle capacity in its stores (labor and machine), whether these capacity is running at 10% or 100%, they cost about the same. So, the increase volume allows Subway to optimize resource capacity at its stores. The additional cost is minimal, and margin stays

3. Significant increase in unit volume allows them to reduce cost of goods from their supplier and lower the per unit cost from fixed cost items (this one is very theoriticall)

Interesting right? A key lesson here, is that maybe this strategy can be applied to industries where they have capacity lying around, and costing them the same whether being used at 10% or 100%. This opens room to increase volume (by cutting prices), optimizing the idle capacity, and thus in the end, maintain margin but with higher

US$ 47.5 billion software development

yahoo-microsoft-snubExcerpt

Microsoft almost bought Yahoo for US$ 47.5 billion, yet they could just spend US$ 10 billion for building a Yahoo rival. It seem the decision maker is more interested in producing mega-mergers than actual value calculation and creation.

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3 Type of Activities Companies Engage in – an Analysis of Michael Porter’s “What is Strategy”

Disclaimer:

I write this because I believe Porter’s work, “What is Strategy”, shows continuing relevance to the philosophy of strategy and I like to share his thinking to as much people as possible. You can find the article here: http://www.google.co.id/search?q=hbr%3A+what+is+strategy+&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a In order to achieve thoroughness on analyzing Michael Porter’s work, this post heavily quotes his work, thus, this blog place no claim on originating such materials and reserves all credit for such material to Michael Porter and any rightful contributor to the material. This post on its own will never be used for commercial purposes (e.g. advertising site, making copies and sell them on or offline), but I refuse any damages or claim on sharing of benefit if an indirect benefit is bestowed due in some part to this blog (like a future employer using this post as part of their consideration to hire me) or if another party had commercially used this post without my deliberate written knowledge and consent. I think it’s somewhat obvious but I learn from American legal proceedings that you have to spell the obvious to make sure that it’s obvious. This blog however, also has some analysis about his work, this analysis is made by me, and just like any other writer, I like to retain the rights to my work (these analysis). You may not copy, store, or use this blog without referring to the suggested article search site (i.e. http://www.google.co.id/search?q=hbr%3A+what+is+strategy+&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a) and this site (i.e. https://sendy82.wordpress.com/2009/07/03/a-summary-of-michael-porter-what-is-strategy/). You must refer to these 2 internet addresses when you copy or use this post. You may not copy, store, or use this blog for commercial purposes in any form on or offline. And I will never ever give any verbal or written consent to use this blog for even the slightest commercial purposes (aggregator sites beware). When information presented in this post is derived from Michael Porter’s work, the information is true as much as that work claims that the information is true. Brand names or trademarks mentioned are owned by their respective owners.

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Strategy is about deliberate selection of intertwined activities to address a specific position.

Deliberate selection means both to consciously choose the activities we want to engage in and the activities we don’t want to engage in.

Intertwined means that the activities are such that they require trade offs (you select one among several incompatible activities) and that among themselves, the activities are reinforcing each other.

I. Operational Effectiveness is Not Strategy

Positioning should have been at the heart of strategy.

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“Jadi sementara ini saya pake kompetitor anda dulu yah”, “iya pak betul”

cabletv1973True story

Me: Halo, “F*rst M*d**?”

Call center: “Yes”

Me: “i’ve been trying to subscribe to your service, but my house is not in your coverage area”

CC: “Have you check”

Me: “Yes i did”

CC: “Have you registered in our website?”

Me: “Yes i did, 2 times, 3 months ago and just now, i haven’t been contacted at all”

CC: “Just wait pak, if you have registered, our sales officer would contact you”

Me: “so in the mean time, i should subscribe with your competitor?”

CC: “yes pak”

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Hedge your cashflow with a side business – part 1 – What do we need to start one

By Sendy – 21 October 2008

So, you have a job, that gives you a income stream, and regardless of your satisfaction with the amount of the income (most probably you’re not satisfied), it’s important to recognize a more damning fact, that it’s just one source of income.

Now, this represents a risk, if you only have this one source of income, and that source income goes down the drain, you’re entire source of income also goes down the drain. Leaving you with no option but to tap into your savings to maintain your lifestyle while you look for a new job. Baadddddd. This is a double whammy, not only your income move from positive to nil, your asset also move from dismal to even less.


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