Archive for the ‘Blocher Ch 19’ Category

Daniel Pink on Motivation

January 28th, 2011 Comments off

I recently read Daniel Pink’s book, A Whole New Mind, in which he contends that right-brain thinking and those capable of it will rule the world.  Tasks like typical accounting work are increasingly being outsourced or replaced entirely by computers.  I thoroughly enjoyed the book and have even contemplated taking a drawing class of all things to strengthen my right-brain skills.  It was with this mindset that I stumbled upon a TED talk by Pink where he discusses motivation and incentives.  These are areas where companies have failed miserably of late — many contend that the recent economic collapse was really a failure of incentives (read The Big Short for a good summary of these kinds of things or watch the 60 Minutes interview with the books’ author).  Pink reveals that typical carrot/stick rewards system work only in very narrow circumstances and are not applicable to knowledge workers.  In fact, performance drops when higher rewards are offered.

This is fact-based analysis but are businesses getting the message?  Some are…like Best Buy where ROWE (Results-Only Work Environment) has been embraced and the idea of measuring performance by the length of time someone has their butt in their chair is seen as laughable.  Or Google where 20% Time is a tactic to make engineers more engaged but also to allow creativity to flourish that will result in new products. But how many other firms have gone this route?  How many will fail because they don’t recognize the shortcomings (or don’t recognize them soon enough) of their own beliefs about management and incentives.

Lessons Learned in Manufacturing Applied to Healthcare

November 10th, 2010 Comments off

We spend time in class discussing lots of things in the setting of a manufacturing plant or business.  There is always an asterisk that the same principles can be applied elsewhere such as in service industries or not-for-profit entities.  Today I ran across a great piece that looks at how manufacturing knowledge has been applied to healthcare in Canada to cut down on wait times and to reduce costs. 

A key inspiration came from an unexpected place: the shop floor. Health-care practitioners are borrowing techniques from manufacturers by streamlining operations and spinning off bits of their businesses as separate, specialized units. Clinics dedicated to one medical procedure are slowly but steadily emerging in Canada with a “focused factory” approach that produces better care for less money.

Inherent in the philosophy being promoted is a sense that incentives drive performance, which is something else we will look at in a couple weeks.

Health-care experts say the waiting-time strategy would never have succeeded without incentives for doctors to perform more surgeries. But the fee structure has not kept pace with technological advances that have dramatically reduced cataract surgery time. At Kensington, it takes 20 minutes on average to do a cataract surgery; the same procedure took an hour in the 1980s.

Read more here:

Volkswagen to make U.S. push

October 5th, 2010 Comments off

The Wall Street Journal today has an excellent front-page article documenting some missteps made by Volkswagen in the United States market that has resulted in VW claiming a paltry 2.2% market share along with plans to turn that around in an effort to become the world’s largest automaker by the end of the decade. One of the ideas being implemented is designing, for the first time, a car to specifically meet American tastes rather than selling what works in Europe in North America in nearly identical form.  This is interesting to me because I’ve read elsewhere that Ford is taking the opposite approach trying to produce car models that are virtually identical no matter where in the world they are sold.  VW also risks, in the process, alienating the small but devoted following that it currently has.

“A lot of people worry that we are going to start making VWs for the masses,” says Mark Barnes, VW’s U.S. chief operating officer. “I like to say we’re going to bring the masses to VW.”

The retooled compact sedan marks the first time VW engineers have designed a model specifically for the U.S.

Next year, a new family-size sedan is scheduled to roll off the assembly lines at a newly built $1 billion plant in Chattanooga, Tenn. It is VW’s first U.S.-made car since the 1980s. On its heels comes a revamped New Beetle.

“I am fully aware that Volkswagen was too cautious for too long in North America,” Volkswagen Chief Executive Martin Winterkorn said at a test-driving event for the new Jetta in San Francisco this summer. His remark was a nod to the car maker’s decades-long penchant for deploying cars designed for European tastes across the Atlantic. That left its U.S. operations with models too small and expensive to go head-to-head with Asian and American rivals. Now, he vowed, “we have turned that upside down.”

Adding to the challenge is the constant change at the top in VW’s American operations:

Adding to the challenge is an unanticipated switch at the helm of VW’s U.S. operations.

In June, Stefan Jacoby, a blunt-spoken German who took to wearing cowboy boots to dealer meetings and car shows, left his post as U.S. chief to become Volvo Cars’ new chief executive. His departure came just a week after he presented the new Jetta at a splashy launch party in Manhattan’s Times Square featuring pop singer Katy Perry. VW bosses scrambled much of the summer to fill the void left by a key architect of its American comeback strategy.

Mr. Jacoby’s replacement, former General Motors executive Jonathan Browning, is new to the U.S. market, having spent most of his career at GM’s European operations and managing Jaguar under Ford Motor Co.

Some U.S. dealers complain that the revolving door of U.S. chiefs—Mr. Jacoby was the third to go in five years—reflects a culture at VW’s headquarters in Wolfsburg, Germany, that views the U.S. as a career way station, or worse, graveyard.

Assuming that the leadership and design challenges can be met, there is still the issue of getting Americans to notice.  Marketing has been ramped up to target certain demographics such as Hispanics and families, but the results thus far appear to be mixed.  Before reading this article, I didn’t even know that Volkswagen offered a minivan even though my family purchased a Toyota Sienna less than a year ago. In an interesting partnership with Chrysler, VW rabadges the American van as it’s own with some minor tweaks but production had to be halted due to low sales.

After dropping plans for a modern version of its Microbus for fear it would be too niche and costly, it signed a deal with Chrysler to modify and rebrand the U.S. car maker’s Town & Country minivan under the VW Routan name. VW tightened the minivan’s suspension, gave it a sleeker front end and kept it in the same price range as the Chrysler. With an ad blitz featuring Brooke Shields, it aimed to capture 5%, or 45,000, of the 700,000 annual minivan market.

But the Routan’s launch coincided with the auto industry’s nose dive in late 2008. So many of them sat unsold on VW dealer lots last year that the auto maker asked Chrysler, which builds them at its Windsor, Ontario, plant, to temporarily halt production. While much of the rest of the minivan market has rebounded, Routan sales have slipped 0.8% to 12,539 vans so far this year, one-seventh of the number of Town & Country sales in the same period.

VW officials argue that the Routan has enabled them to sell to a key new customer segment. The company still expects the Routan’s market share to grow as more consumers become aware of it as a minivan option.

But Casey Gunther, VW’s top-selling U.S. dealer, says the Routan isn’t what people expect from VW.

“It’s like someone trying to sell you a piece of chicken and claiming it was a steak,” Mr. Gunther says.

VW, he argues, could achieve its 800,000 sales target, “but we need to elevate the brand with products that play up our heritage,” such as the Microbus concept or VW’s sporty Scirocco, which it sells only in Europe. “There are so many people out there who love the lifestyle VW represents,” Mr. Gunther says. “I’m worried we’ve turned into a follower and not the leader.”

There are countless other great examples in this article that address things we discuss in class like strategy, international competition, product design, and more.  It is not a short piece, but is well worth the read when you have 10-15 minutes.  Seeing where things are at in 2, 5, or 10 years will be even more interesting.

Volkswagen Aims At Fast Lane in U.S.. Vanessa Fuhrmans. Wall Street Journal. (Eastern edition). New York, N.Y.: Oct 5, 2010. pg. A.1

How Tim Hortons will take over the world

September 24th, 2010 Comments off

This is a great article that highlights a lot of the topics we cover in class.  It is quite long, but worth your time if you have 15-20 minutes to read and think about a variety of things including:

  • The strategic decision made by Tim Hortons to take control of coffee roasting by moving that operation in-house.  Like we discussed in the early chapter of the Blocher textbook, sometimes controlling quality (probably the biggest factor for this company), delivery schedules, etc. necessitates a move in-house even when it may cost more.

If you were a Tim Hortons devotee back then, you might have noticed that the coffee in, say, Halifax didn’t taste quite the same as it did in the chain’s spiritual home base of Hamilton. That’s because the chain bought its coffee from third-party roasters. Then-CEO Paul House decided the company needed to take control of the consistency of its brew, and to that end built a lab at the firm’s Oakville HQ.

  • The tweaks necessary when a successful company moves to new markets.  In Canada, Tim Hortons is the king of the market.  The article references, though, difference between Western Canada and Eastern Canada and then spends a lot of time looking at ways that they are trying to crack the American market as they expand into new areas in the East & Midwest.

In 2008, Tim Hortons undertook what David Clanachan, Tim Hortons’ jovial head of U.S. and international operations, calls “a deep dive,” surveying tens of thousands of people about what would get them through the door of a Tim Hortons. The company built a full-sized model store in a warehouse in Oakville, spending months testing and refining the concept before rolling it up, so to speak, to the gates of Troy.

The result is a cross between the likes of Starbucks and the Tim’s Canadians know. “Not that I’m gonna hang around, write poetry and sing songs,” says Clanachan, “but I am gonna feel comfortable.”

  • The focus on quality as a competitive advantage as highlighted by the frequent “cupping” sessions that even involve some senior executives.  The management team realizes that without quality, Tim Hortons has no competitive advantage:

Consistency is key—both Schroeder and West never tire of that axiom. Achieving it is tricky, since coffee from a particular mountainside will not taste the same from season to season. Flavours change depending on the weather: too much rain or too little, more sun or less. The mercurial nature of the bean means that Tim’s coffee team is constantly revising the secret blend to maintain its trademark flavour.

  • The breakeven-point ramifications of the “Always Fresh” program where the cost of individual products (the article mentions donuts) is higher on a per-unit basis, but the hope was that the benefits of not running out of goods and with not having to discard stale product would offset this.  It seems like that hasn’t happened, at least in the eyes of some franchisees.

For 37 years, standard Tim Hortons stores were equipped with in-store kitchens, where staff bakers produced batches of fresh, hot doughnuts twice a day. Shortly after Joyce sold his Tim Hortons stake in 2001, the company brokered a deal with Ireland’s IAWS Group to build the $75-million Maidstone facility. Then-CEO House promised franchisees that the conversion—which cost store owners between $35,000 and $50,000—would boost their bottom line. Instead of letting unsold doughnuts go stale during downtimes, operators would be able to zap new batches as needed, in a glorified microwave oven. Voilà—“fresh-baked” in two minutes. And though the cost of producing one doughnut would change from eight or nine cents to 12 cents, that increase would be offset by a reduction in operating costs—no highly paid bakers on the payroll, less discarded product.

  • The value-chain relationships between Tim Hortons and its franchisees.  There are pending lawsuits between the parties and it is interesting that two groups that are so dependent on each other find themselves locked in these kinds of battles.

Still, it’s clear some franchisees have become disillusioned with Always Fresh. Arch Jollymore, a former high-ranking executive at Tim Hortons (and Joyce’s cousin), is seeking certification of a class-action lawsuit against the company. At issue: the impact of the Always Fresh conversion on franchisee margins. Jollymore and his wife, Anne (who owns a store in Burlington in her own right), are alleging breach of contract, negligent misrepresentation, and breach of the duty of good faith and fair dealing. They are seeking damages of $1.95 billion.

  • The decision to centralize or decentralize decision-making.  Most franchise systems rely on strict centralization with standard signage, colors, marketing,etc.  Tim Hortons is selectively decentralizing certain things:

De Nardo leads a tour of Riese’s four other Tim Hortons counters at Penn Station, proudly pointing out the New York-only promotions—the only instance of non-standard advertising allowed in the chain. “It’s the New York mentality. We like to be a little on the edge.” Whenever he can, he steers clear of earnest in favour of funny. “Hell,” he says, “it’s doughnuts and coffee.” Hence Tea and Timbits (T&T—it’s dynamite!) and $5 dozens after 5. “And for New Yorkers, $5 is basically free.”

  • The impact of sourcing raw materials globally and the potential cost changes due to weather in parts of the world where coffee is grown:

“Central and South America are coming off the worst crop in 44 years,” West says as he slaps a sack of beans. And Colombia was deluged with rain for 16 months straight, diminishing crops. That has helped drive standard-grade coffee to a 12-year high of $1.75 (U.S.) per pound. The top-quality beans Tim Hortons buys—West says they compete with Starbucks for the finest Arabica beans on the market—are much pricier.

To read more (and please do!), visit this link: How Tim Hortons will take over the world – The Globe and Mail.

Starbucks at loggerheads with the taxman

August 9th, 2010 Comments off

Starbucks is getting some press today as a company that is having to justify transfer pricing.  As I’ve mentioned several times on this blog as well as in class, the tax authorities around the globe are increasingly starved for revenue and this type of thing, founded or not, is sure to continue.  There is just too much wiggle room for companies to use transfer pricing methods to escape taxes and in so many cases without an external market it can be impossible to defend a particular price regardless of how vaild/realistic it might be.

In a note to its annual British accounts for the year ending September 27, 2009, Starbucks said: “The company is in discussion with HM Revenue & Customs regarding its transfer pricing policy.”

Read more at:

Starbucks at loggerheads with the taxman – Accountancy Age.

What motivates? It isn’t always money…

July 26th, 2010 Comments off

Here is the YouTube video I mentioned in class last week that discussed motivational levers in companies.  Given that we’ll be talking about compensation in the next couple weeks, this provides a nice backdrop to those discussions.

CPAs Provide Expertise for Transfer Pricing Analyses

May 20th, 2010 Comments off

I’ve posted some things previously about the increasing scrutiny taxing authorities are placing on transfer pricing methods used by companies.  Given that countries worldwide are hungry for tax revenue, this is likely to remain a big area of concern for companies as they seek to minimize taxes while satisfying legal requirements in each jurisdiction where they have operations.

Transfer pricing, the process by which multinational companies set arm’s-length prices for cross-border transactions within a corporate group, is complex and consistently ranks as the No. 1 international tax issue facing multinational companies, according to Ernst & Young’s 2009 Global transfer pricing survey. To avoid penalties and potential interest, most tax authorities require taxpayers to prepare annual transfer pricing reports when they file tax returns.

The Journal of Accountancy has a short piece online that looks at the different areas of expertise that are required when calculating and managing transfer pricing and tax obligations.

CPAs Provide Expertise for Transfer Pricing Analyses. Steve Snyder, CPA/CFF, CVA. Journal Of Accountancy (Online). May 2010

CPAs Provide Expertise for Transfer Pricing Analyses.

Sears Canada Cuts Payments to Suppliers Due to Strong Loonie –

May 19th, 2010 Comments off

In a skirmish that is sure to have lasting impressions, Sears Canada is pressuring suppliers to accept reduced payments for goods given the recent strengthening of the Canadian Dollars (aka “the Loonie”) vs. the Greenback.

Foreign currency exchange rate pieces I’ve posted before tended to focus at higher points in the value chain and generally looked at income reporting and comparison of performance across borders, but in this case Canadian consumers are pressuring retailers because they can cross the border and buy goods at much cheaper prices than they can get them for at home.  Sears Canada has, as a result, tried to pressure (perhaps not a strong enough word) its suppliers into accepting revised terms on otherwise valid contracts.

The Toronto-based retailer, which is publicly traded but majority owned by Sears Holdings Corp. of the U.S., has told many suppliers it is permanently reducing what it pays them by about 10%. It argues that since the stronger Canadian dollar means vendors pay less for a product, be it a grill or a shirt, Sears should pay less too. It also wants some “retroactive recovery” of what it has paid so far, according to an April letter viewed by The Wall Street Journal.

Sears Canada says it needs to lower its prices, as U.S. retailers are luring away shoppers whose Canadian dollars go further south of the border

Given that many of these suppliers also must deal with Sears in the United States it could be interesting to see how the companies reacts and how strong the “partnership” relationship is between members of the value chain.  Suppliers will be concerned about irritating Sears but they will also try not to cave because doing so could cost them in similar negotiations with other retailers.  Many are predicting that the Canadian Dollar will remain strong for some time so prices will have to come down in Canada to reflect this fact…but it will be interesting to see if this action is the catalyst for such change or if it will just take time.

Strong Loonie Sets Off a Retail Tiff. Phred Dvorak, Andy Georgiades. Wall Street Journal. (Eastern edition). New York, N.Y.: May 19, 2010. pg. B.1

Pound Falls Despite U.K. Cost-Cutting Plans –

May 18th, 2010 Comments off

One more post showing the volatility of the foreign currency exchange markets and the depressed state in Europe that may adversely impact those companies that report in Euros or Pounds even if the bulk of their profits are earned elsewhere.  This could potentially continue beyond the time when economies in the rest of the world have begun to recover making comparisons of profitability between companies difficult.

The U.K. pound will continue to face head winds “as the new government will have to present a credible budget in order to avoid its sovereign debt losing its triple-A status” granted by ratings agencies, BNP Paribas analysts said.

Meanwhile, the euro zone’s stressed sovereign debt continued to draw the focus of investors, with the euro failing to benefit from a report showing the euro-zone economy returned to growth in the first quarter.

Pound Falls  as Focus Shifts to U.K. Deficit. Bradley Davis. Wall Street Journal. (Eastern edition). New York, N.Y.: May 13, 2010. pg. C.2

Sony Rebounding But Concerned About Currency Exchange Rates

May 18th, 2010 Comments off

While researching the post I made earlier about Nintendo, I ran across a related Wall Street Journal article about Sony.  Sony has had a tough couple years like a lot of companies have but they are looking toward a brighter future as cost-cutting efforts begin to pay off and new products are introduced. The part of the article that really caught my eye, though, was a paragraph that looked at the exposure Sony has to the currency markets as a Japanese company selling goods worldwide (emphasis added):

Sony said the yen’s recent strength is also a concern. The company is projecting the U.S. dollar to trade at an average rate of 90 yen and the euro at 125 yen for the fiscal year. For every one yen that the euro falls, Sony’s annual operating income takes a 7 billion yen hit, while a one yen drop in the dollar will result in a 2 billion yen decrease in operating income. As of Thursday evening in Tokyo, the euro was trading around 117 yen and the dollar around 93 yen.

There are ways that Sony can hedge itself against large Euro/Yen and Dollar/Yen swings, but these hedging mechanisms are not perfect and given Sony’s size it may be difficult to adequately hedge such a large position (Sony would be dependent on other players taking the opposite side of those trades).

Corporate News: Sony Is Upbeat Despite Loss — Company Expects to Swing Back to Profit, but Currency Rates Are Problematic. Daisuke Wakabayashi. Wall Street Journal. (Eastern edition). New York, N.Y.: May 14, 2010. pg. B.2