Large corporations reach a stage in the business life cycle that forces them to scale back from relentless profit and market share growth (Montgomery and Porter, 122). This happens commonly if they need to approach the debt market afresh for an existing business with well-established brands. Objectives related to retention of key executive talent and of image begin to occupy management attention. Large corporations may also spend resources on social goals in response to community and regulatory pressures. Associations of key customer groups tend to use some of their goodwill, to persuade firms to invest in some of their local group activities. Large corporations may have to serve social goals out of compulsion, or as a part of building customer relationships. Sponsorship of events apparently unconnected with a company’s business, can serve as platforms for subtle promotion and advertising.
Small business must generally contend with more scarce resources, especially in terms of people and funds. The focus in such an enterprise is therefore more short-term in nature. Issues such as cash flow and stock outs are more common in small business, and they are more critical for survival than in large corporations that have access to multiple emergency resources. A small business has a relatively low profile by definition, user lesser public resources, and therefore does not face pressures as large clones to take on social goals. However such trends are not obligatory, and there are instances of small business serving social goals as well.
Non-financial rewards for sales personnel
The nature of professional relationships in an organizational hierarchy is a defining element of strategy (Montgomery and Porter, 333). Financial rewards for salespeople have limited effects for recipients and their controllers alike. Recognition of the invaluable role that salespeople have in the functioning of a firm lies at the heart of rewarding their performance in the most appropriate manner.
It is crucial for a company to provide a ringside seat for salespeople when constructing strategy. The notion that market, customer and competitive feedback matters to management, is most motivating for a sales force. People also find it easy to commit to business challenges that they have helped to fashion. Handing out token amounts of cash and material benefits, in return for robotic acceptance of top-down targets, will never be sustainable in terms of superior business performance.
Training is one of the most valuable rewards that salespeople can receive, though it means no extra cash in their pockets. New skills that will help them perform better are most valuable. Exposure to management disciplines with which they are not familiar, also serve to motivate salespeople. Such investments by management, helps salespeople broaden their perspectives.
Horizontal transfers to new functions and short-duration assignments of a special nature, impart a sense of pride and belonging in the minds of salespeople, and encourage them to try to develop the skills needed for positions in higher echelons of the company. Since salespeople have to take routine decisions on promotions, operating budgets and terms of trade, they find inputs in finance, costing and related fields most useful. A company should demonstrate that it treasures its best salespeople and cares for their careers in a holistic way.
The competitiveness of nations
Not all countries are away of their strengths (Montgomery and Porter, 135). They may lack professional approaches to negotiations with their neighbors and with counties further away. The most telling examples of cross-border cooperation are in the pacts that are based on close geographical groupings. Joint access to a common market tends to benefit all partners of a multi-lateral trade agreement. Global trade agreements have proved to be more intractable, largely because major differences in perspective.
Vested stakeholders have subtle but powerful effects on global trade. Cartels of countries with scarce materials or military strength hold sway over genuine considerations of countries that are less resourced. Nations without professional bureaucracies also tend to be at disadvantage when complex negotiations take place and when key documents are drafted.
Cultural styles have a major part to play in global trade pacts. Representatives of western countries tend to be more direct, whereas people of oriental backgrounds may prefer to negotiate more indirectly and in protracted manner. Countries without stable forms of government are the most difficult to predict: agreements with them have limited validity.
Economic and military power, domestic market size, and natural resources are the most important bargaining chips around which global trade agreements are built. Rural communities in the third world are often victims of neglect when trade agreements are prepared. This is because they are not able to present their points of view during key stages of negotiation. They also lack the expertise to promote their interests against other sections of their countries.
The entertainer and activist Bob Geldof leads a growing body of opinion that believes that coteries dominate global trade negotiations. The future could see more broad-based participation of citizens in key aspects of international trade policy.
Planning and control in a small business
Information technology has changed planning and control in all business, regardless of size (Montgomery and Porter, 77). There was a time when small business could focus only on emergent issues such as cash management. It could plan and controls for nothing more elaborate than basic inventory statements and the rudiments of purchasing systems. Digital technology has changed all this.
Every enterprise can use CRM to build better relations with customers, and to coordinate field force activities. There are service providers who offer templates without charge. However, supply chain systems such as SAP continue to be priced for large corporations only. Most companies can afford to have their own websites, though payment gateways continue to be expensive.
Basic computer literacy is adequate to use spreadsheets for adequate planning and control systems. Small entrepreneurs may need interim consultancy or coaching to use open sources for systems appropriate to their scales of business.
Qualitative aspects of strategy continue to require human skills, without which widely available software for planning and control cannot be used effectively. Internet telephony now offers video transfers free of charge, so every business can use video conferencing to stay in touch with distant sites and stay on top of business developments as they occur.
The Internet and free software now make it possible for the smallest enterprise to use the most sophisticated planning and control systems. Business literacy continues to be an excluding matter, because of which some small entrepreneurs may not use available tools, due to ignorance. This is the reason for spikes in the demand for coaching and consultancy for small business.
The make or buy decision
Manufacturing may be at the heart of competitive advantage (Montgomery and Porter, 89). It would be suicidal for companies that compete based on manufacturing excellence to outsource core production steps. There are many instances of suppliers becoming competitors through forward integration. Invaluable process expertise is irretrievably lost when manufacturers outsource proprietary operations and processes.
Tertiary activity, such as assembly and packaging, can be used where efficiencies in labor costs present territorial advantages. Management control of manufacturing sites in the third world, is always preferable to outsourcing critical jobs to third parties over whom companies have little if any control. Competitors to ferret out information of strategic importance, often use distant sites owned and controlled by third parties.
Outsourcing works well if a company wishes to take advantage of lax environmental and social laws in other countries. Pesticide manufacture, agricultural activity that needs child labor, ship breaking, and waste disposal are the best candidates for outsourcing. Processes that consume natural resources in copious amounts are also best transferred abroad to countries with lax and corrupt governments.
Enterprises that compete based on excellence in the service elements of the marketing mix, should not integrate backwards in to manufacture, and should focus scarce resources on their intangible assets of knowledge, process and goodwill. However, cash flows from such enterprises will always be vulnerable to erosion by new entrants with adequate funding and patience. No airline makes aircraft and most automobile brands involve no more than design and tertiary assembly. They have always been sectors for new competition.
Working capital and capital budgeting
There are few relationships and points of similarity between these two operations, though both often fall within the jurisdiction of the Finance function of a company. Working capital operates in the period of hours, days, and weeks. Capital budgeting is in the realm of years, or even decades for countries and for industries with long gestation periods.
Working capital is essentially a matter of logistics. Negotiations with suppliers and integration of scheduling processes with them, reliable networking with transporters, warehouse planning and coordination between producing and consuming centers, are the essential ‘engine room’ activities of working capital management. Negotiations with consortiums of financiers and exception reporting are the more visible elements of working capital management.
Capital budgeting is essentially a process that tries to discipline vision. Cash flow discounting, net present value, internal rates of return, pay-back and sensitivity profiles, are the common kinds of jargon that disguise ‘best estimates’ of individual business leaders. Much of capital budgeting can be merely window dressing of hopes for cynical investors. The volatile nature of contemporary global business can easily make nonsense of the basic assumptions on which sophisticated number crunching of capital budgeting is based.
Capital budgeting is valuable for industrial groups that operate in more than one sector, and in several regions of the world. The forecasting method helps to choose between investment alternatives. It can also serve as bases for management appraisal, though few incumbents last from conception to fruition of large capital projects. The qualitative aspects of capital budgeting, in which professionals express their opinions about the distant future, can often be the most valuable parts of a capital budgeting exercise.
Stick to knitting!
Core competence needs so many resources and attention that entrepreneurs would rarely have capacity to establish their own accounting systems (Montgomery and Porter, 277). An accountant, who decides to establish his or her own practice, is possibly the sole exception to the convention of using specialists for this activity.
Accounting has to serve regulatory and management needs. Entrepreneurs should establish management information systems tailored to their individual styles and preferences, but the statutory aspects do not lend themselves to creative and new approaches. An entrepreneur may suffer dangerous distraction in straying in to developing an accounting system afresh. There could also be wasteful duplication, as accounting personnel struggle to cope with more than one format and system of bookkeeping.
It takes both skill and experience to design an effective and adequate accounting system that consumes minimum time for maintenance. However, software programs can be gainfully used to make databases of all accounting transactions on a real-time basis. Unitary entries can then be viewed simultaneously from various points of view, without additional effort or loss of time. Adequate systems are widely available. Hence, most entrepreneurs can gain little by investing precious resources to ‘reinvent the wheel!’
