Somehow I manage
Chapter 02
Working in a corporate company is very decent way to earn and live. In fact, there are not many better opportunities out there which present themselves to regular people, are challenging, noble, satisfying and rewarding. But what is one supposed to do as an executive?
Working in a corporate company is very decent way to earn and live. In fact, there are not many better opportunities out there which present themselves to regular people, are challenging, noble, satisfying and rewarding. But what is one supposed to do as an executive?
Most corporate finance books will tell you that the job is to create value for their shareholders. More the value created, the better it is perceived by the markets and easier to get more money to grow. Shareholders is clarified as "entities who have [part] ownership of the firm". Basically, anyone who is sane enough to give them his money. Value might lead us into philosophical discussions but here it simply means the return on investment.
I think this is a stupid, stupid definition. It excludes the consumers of the business completely from itself. Consumers are one of the biggest money providers to any firm. If they don't buy your product(s), there is not much to discuss. Investors and consumers - you need to keep them both happy.
But are their requirements the same? One side wants better returns, the other wants better products/services. This leads me to one of the most common scenarios I encounter everyday is that of "cost vs benefit". To give a better product, you need to increase the cost. If you increase the cost, margins deteriorate. To maintain the margins, the cost increase needs to be passed on to the consumers. Then the sales drop because you are out-priced by competitors.
A large number of people think this is a strategic problem and requires detailed analysis and presentations. Sure, presentations help the management understand the problem, and with different scenarios too. But these decisions should not be made on the basis of numbers. Rather a more qualitative assessment will help solve this.
Ever heard of the Vision and Mission of statement your company? Yep the same one which you searched on the website while applying for the job. Mostly it is hidden somewhere in the "About Us" section and often with heavy vocab that it becomes incomprehensible. Don't let that bewilder you; it is the most important stuff ever to be recorded by the company.
If you break it down and speak with people inside the company (you'll need to do that because the statements might be lofty but the application might not be there), these statements show how far does the management see in the future? The next board meeting? 2 years? 10 years? Or is the companies aim to create value of the shareholders? Which shareholder? Consumers or/and investors?
Sure, not every decision needs to be made by this approach. Executives have short term deliverables, which need to be delivered at times and their choices might be justified. But if one really wishes to have the famous "going concern" perspective, the choice of keeping investors or consumers happy isn't contradictory and is not at all optional. It is more often than not, the same.
But are their requirements the same? One side wants better returns, the other wants better products/services. This leads me to one of the most common scenarios I encounter everyday is that of "cost vs benefit". To give a better product, you need to increase the cost. If you increase the cost, margins deteriorate. To maintain the margins, the cost increase needs to be passed on to the consumers. Then the sales drop because you are out-priced by competitors.
A large number of people think this is a strategic problem and requires detailed analysis and presentations. Sure, presentations help the management understand the problem, and with different scenarios too. But these decisions should not be made on the basis of numbers. Rather a more qualitative assessment will help solve this.
Ever heard of the Vision and Mission of statement your company? Yep the same one which you searched on the website while applying for the job. Mostly it is hidden somewhere in the "About Us" section and often with heavy vocab that it becomes incomprehensible. Don't let that bewilder you; it is the most important stuff ever to be recorded by the company.
If you break it down and speak with people inside the company (you'll need to do that because the statements might be lofty but the application might not be there), these statements show how far does the management see in the future? The next board meeting? 2 years? 10 years? Or is the companies aim to create value of the shareholders? Which shareholder? Consumers or/and investors?
Sure, not every decision needs to be made by this approach. Executives have short term deliverables, which need to be delivered at times and their choices might be justified. But if one really wishes to have the famous "going concern" perspective, the choice of keeping investors or consumers happy isn't contradictory and is not at all optional. It is more often than not, the same.
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