Business, Politics

Lessons from a Masters In Business Administration: Negotiations 101, Leverage and Debt Theory

Leave a comment

Negotiations 101: the fundamentals begin with discussing ethics followed by the basic analytical tools of negotiations. The negotiator often tries to misled his opponent but the risk of unethical negotiations is a bad reputation. Bluffing is fine in negotiations. The sophistication of the parties is also relevant. Selling a complicated derivative to an economic illiterate and then blaming that person for not understanding the contracts hurts you in court proceeding.

There are three schools of negotiators: (1) the poker player who regards it all as a game; (2) the idealist who insists on doing the right thing every time; and (3) the pragmatist, who knows that what goes around comes around. BATNA is the ‘best alternative to a negotiated agreement’. BATNA prevents you from making a bad deal by asking what the alternatives might be; in other words you have a walk away strategy. ZOPA is the zone of possible agreement which means the general area/scope of agreement possible. When you go into a negotiation, you should determine the other person’s position a priori. The gifted negotiator adopts a three-dimensional perspective, working both at the table and away from it. If negotiations stall, the negotiator should go to the balcony to gain perspective and reframe the issues, moving from defensive positioning to shared interests.

Leverage and Debt Theory: hedge funds and private equity are awash with money. So much so that investment banking is considered a second tier move. Surely running a company is more important than banking services? Private equity brings managers, and owners closer together. In Private Equity and Hedge Funds, the money comes courtesy of debt. Debt is actually not a bad thing, because it allows you to leverage, structure your financial deal etc. Things become more possible using this method. Debt focuses the mind, forcing people to concentrate on THE ONLY THING THAT MATTERS: the cash flowing out of the business. Debt for lack of a better word, is good. Debt works. If a company is struggling to be valuable, then you would simply load up the balance sheet with debt. More to come.

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]
Business

Lee Iacocca: Meet Customer Requirements, Don’t Compromise

1 Comment

For years, Chrysler had been building lousy cars, according to Iacocca, but it is in a company’s interest to catch problems at the factory, it would cost about $20 on hour to fix versus $30 when under warrantee. The designer has to 1) ensure the part is low weight since heaviness affects mileage, 2) ensure the part is low in cost, 3) and ensure that it is easy to manufacture: when an assembly line only does two pieces versus three it is better. Understanding what customers want is difficult because you don’t want to compromise on other things that were lost in innovations. Air conditioning is the classic Iacocca example, when you pay $700 more for air conditioning, you want your money’s worth. The problem is air conditioning has to work fast because most rides end within 30 minutes but at the same time you don’t want the car to be loud and noisy so that they customer can’t hear his radio. It’s a tough job but this matters to customers.

This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.
Business, Politics

Lessons from a Masters In Business Administration: Walmart / Proctor and Gamble’s Competitive Advantage

Leave a comment


Walmart’s Success: The goal of sustainable competitive advantage is to develop and integrate a consistent set of mutually reinforcing activities. You want to build up a business that cannot fail over time because of the momentum moving in support of it. Walmart is not successful because of its low costs and low prices.

Walmart is difficult to replicated because it has:

  1. a frugal corporate culture;
  2. low store construction costs in rural and suburban locations;
  3. limited advertising;
  4. stellar logistics operation;
  5. no unions;
  6. a stranglehold on suppliers ie working capital;
  7. top-notch technology/inventory tracking.

Procter and Gamble’s Competitive Advantage: P&G sells a lot of toothpaste, they are a better toothpaste company because they have larger toothpaste factories that produce more of the stuff, and are more efficiently. It then sets a lower price, without reducing its profit margin, and they sell even more toothpaste going forward. The more Lancaster bombers that were produced in Winnipeg, Canada, the faster the planes came off the production line, and the better they were: it’s called a learning curve. Good businesses develop a learning curve that is advantageous.

Apple’s Competitive Advantage: the more people bought iPads the more people want them. Music companies made their entire catalogue available on iTunes at the price that Steve Jobs wanted. Consumers bought iTunes music, making the iPad even more precious. When rival device makers entered this market, they aren’t just competing with the iPad itself but an entire ecosystem of that Apple created.

Interactions with Rivals: if I do this, what will my competitors do? You can use Game Theory in this case to understand the financial consequences of a decision for two parties. If Jimmy opens a shop beside Sally what should she do? What are the costs of closing or competing? Mapping out these options and applying values to their consequences helps decision makers make choices.

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]

Business, Politics

Lessons from a Masters In Business Administration: Dispersed Manufacturing/Li and Fung

Leave a comment

Issues of Scope: What can our business do? What can it own? Where can it operate? General Electric’s approach is to say that its separate businesses should be ranked one or two in whatever sector they operate. If that business isn’t near the top, then GE sells it because they don’t want to be associated with mediocrity. McDonald’s decided long ago to get involved in franchising, rather than owning millions of parcels of real estate. Sound contracts and long-term relationships can be far less hassle than ownership. The ownership and value tests are more relevant in a globalized world…Could an American company with global ambitions adapt to new countries and cultures and run businesses better than local firms?  Did global growth allow you to reduce your costs? What are the realities of doing business abroad?

Dispersed Manufacturing/Li and Fung: Li and Fung was founded in Canton in 1906 to help American and English merchants to access Chinese factories. It now manages the supply chain for many of the world’s largest retailers and manufacturers. Li and Fung built their business by expanding to Singapore, Korea, Taiwan. If you wanted to make shirts in Asia, Li and Fung would find the cotton businesses, and then move the unfinished product cheaper than if you picked a single factory. This is called dispersed manufacturing, and they don’t own any of these factories. There is a fragmented global supply chain, and the tiniest step requires specialization. Li and Fung helps customers through the maze.

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]

This publication is dedicated to finance, politics and history