Management Jargon Demysitified

If you cannot explain it to your 6 year old daughter,you have probably not understood it yourself ~ Albert Einstein

Ram charan,who has been named as “The most influential consultant alive” by Fortune magazine believes that the basics of doing business are not complicated at all and are just common sense. He says :

Business acumen is not an arcane or complicated skill.Every successful business person has business acumen,including unschooled vendors who sell their wares in third world open air markets.

If you think about those business fundamentals in their simplest terms,the way a street vendor selling fuit and vegetables might think about them,I believe that the concepts are easy enough for anyone interested in business to understand.

He adds :

Revenue is the amount of money that comes into a company from the sale of its products or services.For a street vendor it is the money he collects for selling his fruits and vegetables.

Profit is the money left after deducting the cost of those goods.

Profit margin, is the money you get to keep as a percentage of total revenues.                          mumbai-street-vendor2

Sales – $150

Cost  – $135

Profit – $15

Margin – 10 % ( $150-$135 = $15 , $15/$150 = 10 %)

Any business is started with an intention to make money which can be expressed as the Profit Margin Target.

The street vendor makes many decisions during the day to achieve his profit margin goal,beginning early in the morning when he decides how much fruit to buy and what to pay for it.This is his sourcing strategy.

Should he buy one variety or several ?This is the “Product Mix”.

He sets up his cart and decides how to price the fruit as it will affect his margin.This is his Pricing Strategy.

I will chip in:

The way he arranges them on the cart is his Visual Merchandising Planogram.

Back to Shri Ram Charan

During the day he takes some tough trade off decisions about what price cuts he should make to unload his inventory so he ends the day with enough cash to buy merchandise tomorrow.These are Mark downs.

He learns to make these decisions through trial and error therefore the clearer his view of his customers,the better his decisions will be.We call it Consumer behaviour.

Just as street vendors need cash,so do companies.A dwindling flow of cash from operations can get them into trouble even if the financial statements show a handsome profit.

The next fundamental that concerns your business is Velocity,what some people call asset turns.

Assets often include buildings,equipment,computers,receivables and inventory.

Velocity is how much annual revenue the company generates for each $ it has invested in assets.

Annual sales  – $ 1 billion ,Assets – $ 100 milion,  Therefore Velocity – 10

For a retailer If :

Revenue $700 million, Average Inventory – $100 million, Velocity is – 7

Velocity 7 is quite good in retailing.

Margin and velocity can be combined into one measure that most investors use to assess a business,its called Return on Investment(ROI).

ROI – Margin X Velocity.

Retailing ( we are talking about a street vendor selling F & V) is a low margin,high velocity business.a retailer may have a 3 % margin but a velocity of 7 will yield a respectable return of 21 %.If you put the same money in bank the max that you can get is 9 %.

That’s why you are doing the business.

Lets look at growth.A growth that sacrifices margin for revenue is not desirable.A real growth is the one in which the revenue as well as the margins grow.

Finally we will talk about the most important entity – the customers.A growing market share shows that customers are choosing your product over your competitors in increasing numbers every day.

So if you are growing your share of the market, in a market, that is by itself growing then it is a great position to be in.If cellphone market is growing by 30 % and your share has doubled from 10 % to 20 % from last year it is exciting and you are doing something right for your customers.

But if your market share is growing in a market that is on a free fall For example CD’s then it simply means that your competition has moved to greener pastures and you are left to tow away the burden.

Bear in mind that business acumen is not a matter of being able to calculate numbers to the 9th decimal place but about being customer centric, focussed and intelligent.

End quote.

Further I want you to consider this :

Trial and error are called insights from Consumer behaviour in a board meeting and mapping the pschycographic mindscape of purchase decisions executed in a competitive environment by measuring the dynamics of inter relationship between product and price by consultants from Bogus Consulting Group.

All three basically mean that you have messed up with your customers last year and are going to grapple with it in the coming year too.meeting-mock

PBA -Paralysis by analysis is a favorite game played by bored corporate citizens.If you have 2 two rupee coins and you keep counting them till the clock strikes 6 PM and  they will still add up to 4 rupees only.You can  make them 5 rupees by doing something about it – I will suggest that you go to the nearest signal and beg for it if there is no other strategic or tactical move that you can plan within the limited time constraints.

Will leave you with a powerful thought by Ralph Waldon Emerson :

Common sense is genius in a work man’s clothing.

Does an MBA degree make sense ?

Consider the following facts :

1.The biggest and best business men do not have an MBA degree Rockfeller,,Sam Walton,Warren Buffet,Ingmar Kamprag(IKEA),Richard Branson and closer home Dhirubhai Ambani,GM Rao,Kishore Biyani …..the list is just endless.The point is that while you may find a lot of mediocre managers and small business men having a degree in Business Management most of the big guys would not have bothered to spend time on such a wasteful academic pursuit.

We did a small test in the office too while most could recollect names of business men who were not MBA’s we had to really struggle to get a few names of those who were.We were also not sure whether they really did an MBA or they got an honorary degree.These names came up during the discussion.

2.Take the recent example of Indian railways.I am sure that the analysts from fancy consulting firms would have filled reports after reports weeping about what is wrong with this century old largest employer in the world.They would have wasted hours of power points suggesting every damn trick in the book quoting from all possible gurus and case studies.But what was the result ? Zero as usual.

Enter Mr Lalu Prasad Yadav and the railways is turned around in 4 qtrs ( as the management guys would say).Nothing great just plain common sense and a will to act.Now the same institutes are falling over each other to learn management from the  Bihari whom they mocked at every opportunity.How rediculous ?They are not even ashamed of the fact that it is slap on their face.

3.Till last year the most coveted job on the campus were the i banks till the greedy pigs of wall street brought the whole world’s economy on the verge of collapse parking their bums on Ferrari’s in the process.What they could have figured out was that their own brethren will be out of jobs and it will make the investment(the word feels laughable)banks  extinct from campuses for a long time to come.

4.As per a survey conducted in the US quoted in one of the popular GMAT preparation guides 70 out of the 100 top MNC’s in the US do not have MBA’s as their CEO’s,only 10 of them from ivy league.Does it ring a bell?May be you are better qualified for the Chief executive’s position if you are immune to the MBA virus.

5.Obama’s Election campaign is being touted as the most successful marketing event in the history of mankind generating $650 million against a plan of $ 150 million.Not only the Americans but the entire world got swept by the sales pitch conjoured by the Lawyer turned politician.Once again the marketing Gurus are asking their pupils to learn from Mr. Obama – How to sell a dream ?

There are a hundred and one ways that I can demonstrate the futility of this uncalled for piece de education but the best quote I have is one Mr.Kishore Biyani.He says” Business is simple,people make it look complex to retain their jobs”.It pretty much sums up the mood of my argument.

Sam Walton ,the Sultan of common sense as people remember him was never convinced about having MBA’s work for Wal Mart.He believed that they cost much and do little.And therefore Wal Mart never really hired MBA’s untill his death in 1991.In fact almost all the top management till date comprises people who have learnt the business by doing it the Wal Mart way, as they proudly call it.

So What’s the Bottom line ? (sorry for the cliche but I can’t put the MBA in me to sleep)

Any education is as good as the one who receives it.It is true for the management degree too.There is no magic mantra that they can teach and the degree at best helps build an orientation towards thinking in terms of money. The hype is a big farce and nothing justifies the huge pay packets that the fresh MBA’s demand by creating an artificial supply situation.The best management institutes are more of marketing successes than creators of thought leaders who can change the course of history as positioned by themselves.You can wear the degree when you come out of college as a trophy you won in the kindergarten sack race but the ultimate test will be the market place.Very shortly you will realize that the organizations are interested in knowing what you can do and not what you have done?There is no difference between not being able to sell and having lower inventory turns – that by which you cal a rose would smell as sweet by any other.

The last word on rankings in business magazines.This was beautifully put forward by a manager in corporate HR in one of the training sessions I attended( this MBA thing never dies you see).He asked us to consider this –  people get interviewed by magazines,magazines rate institutes,people form opinions,magazines interview people and so the cycle goes on and on without anyone pausing to have a look at the actual value added by an institution to the society.

And why this post ? Well I am shaken up by the loot that some of the so called ‘world class’ institutes in India are indulging in by telling innocent young men and women that this ticket to heaven costs a fortune.Not true.The MBA too calls for the same cost benefit analysis that any business plan needs to consider.

Going by todays numbers the ROI on my degree would be 1000 % as I did my sarkari MBA from the University of Lucknow when life was simpler.

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