Welcome to issue 2 of TECHMANAGE.COM, our not-quite-monthly e-mail newsletter addressing issues relating to the intelligent management of technology.
"The best laid plans..." in this case "...have gone astray" as we heeded our philosophy: clients come first. I think we've gotten our act together now, and hopefully you'll be receiving this newsletter on a monthly schedule.
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In a month or so (that's what we said in January too!), you'll be able to visit the archive section for these newsletters at our Web site so you can easily follow any links we've incorporated.
Yes, yes, I know. In cybertime, 1993 is ancient history. But in management time, consider Peter Drucker's staying power.
In my humble opinion, this book is much like a voice crying in the wilderness. All the talk and attention is on activity based costing (ABC). All fine and good, but what if your COSTS are BASED on the wrong ACTIVITIES? It's certainly not difficult to understand why the concept hasn't caught on. In this age of silver bullet fixes, one-minute solutions, and leadership by walking around, I can see why simple ABCs are much more compelling.
Strategic Cost Management -- Definitely not your typical bed-time novel. This book is best read with pen/pencil and calculator.
An example: Chapter 12, entitled "Using and Abusing the ABC Concept - A Case Study." The case is a Siemens AG plant, Electric Motor Works (EMW) in Germany, using information taken from two published case studies of the plant. What the authors conclude is that a conventional product costing system (i.e. ABC) yields useful management information when a product line is relatively simple, i.e. when most products use the same mix of factory resources. However, when the product line becomes differentiated by complexity, reliance on ABC will often mis-cue managers by masking the true margins of different products. Cross-subsidization of apparently-profitable
The authors contrast traditional cost management vs. strategic cost management practices. One particularly rousing observation is the logical outcome from the commonly-accepted use of overhead variance to evaluate performance. What typically happens when management focuses attention (particularly compensation attention) on overhead costs? Production volume goes up to reduce per-unit overhead costs, i.e. make the numbers.
What about quality level...or market demand? Nope. Not important. Just make the numbers.
What eventually happens to the organization? Major re-work costs, increased scrap volume and cost of disposal, bloated inventories, lost investment opportunities, adoption of the wrong technologies...
If strategic issues don't enter into the cost equation and your boss hits the roof about the unfavorable "numbers," it's probably time to start some serious networking outside your organization. If you are the boss, study this book.
I caught grief from some of you for my brevity on this topic last time, so I'll expand somewhat here.
It's so easy to become seduced by the many new and wonderful technological bells and whistles available now and under development. Whatever you do with your Web site, ask yourself: is this helping to realize my/our strategic objectives?
We outlined some non-obvious (qualitative) strategic objectives in the last issue. This time we'll be covering a couple of "strategically correct" large corporate sites that popped up while working the Web (just as much fun as surfing, only better ... for our bottom line). These companies are among the "best of the best" (with the resources to aquire such), but their lessons can be applied at just about any level. In the spirit of fairness, we'll cover smaller firms next time.
BAYER AG: Major German chemical company http://www.bayer.com/bayer/english/0000home.htm
This is a site that knows what it's doing. No gratuitous use of gee whiz technology, yet visually pleasing and easily navigated and, most importantly, gets their message across. You can't buy anything at this site (not even an aspirin tablet), but it's no doubt fulfilling Bayer's strategic objectives. From a romp through their Web site, here's what I would guess some of their objectives are:
Bottom line? Raise confidence of corporate purchasing departments, stimulate consumer demand for certain of their products. Oh, yes. They have a twin site that speaks German.
Ernst and Young: Big 6 Accounting/Consulting Firm http://www.ey.com
Thought this was an appropriate category, given the tax season is upon us. Lots of tax tips (e.g. "50 easily overlooked deductions"), white papers on various industries, even a bookstore.
This site is less "clean" than Bayer's, but visually stimulating. Updated daily with tax and management "tips of the day," there's lots of activity going on. Some examples:
E&Y's apparent strategy from the above sampling: positioning. Showcasing their expertise in specific industries, relationships with top, "with-it" publications, and "not just for big business anymore" target market.
Their crowning glory, in my humble opinion, is Ernie, their on-line consulting service. This is a new business model. It takes advantage of the Web's unique technology to slash the cost of delivering consulting services (albeit limited to a question and answer format) and expanding the market for such services tremendously. They've got a 40+ brochure on Ernie (Adobe readable) and a FAQ page that asks really hard-hitting questions, such as (and I'm paraphrasing here):
"Aren't you using this to try selling me more of your services?"
"Bet you feed me 'stock' answers from a huge database."
If you've been reading the Wall Street Journal lately, you'll smile knowingly at that last question. ;-)
Ernie's obvious strategy is to attract a new, untapped market segment (small and medium companies) without turning off their big-business tax, audit and consulting clients.
(In case you were wondering, the answer to the first question is "nope, this is a free-standing service." You'll have to check out the site for the answer to the second question).
This is a mesage to anyone struggling to keep up with information on their competition, or the latest developments in a given technology, or legislation, or specific industries, or... It's also a message to our colleagues, including fellow consultants, who need background information in a hurry on prospects or clients.
As the authors of Strategic Cost Management (reviewed above) so conclusively point out, an understanding of your cost structure is essential to gaining and sustaining a strategic advantage, whether in terms of product/service mix or "make or buy" decisions.
Unless information gathering is one of your core strengths, smart sourcing of business intelligence will be less expensive and less disruptive of your operations than doing it yourself. Let me give you a couple of examples.
Several trade commissioners ask us to gather information and prepare white papers on trends in technology or the potential impact of pending legislation on American markets for certain products. Yes, they all have access to the Internet; they all can check through directories and pick up the phone to call the appropriate government departments or lawmakers for their opinions; they can research and contact executives of American companies that might be good strategic partners for their own domestic organizations.
Why do they call on us? Fast turn-around, for one. In the Chicago area, we sometimes provide a turn-around of less than an hour, messengering original material downloaded from the Internet. For our European and Asian clients, we communicate mostly by e-mail, often appending scanned or text attachments that are waiting when they arrive the next day.
Of course not all of our work with global organizations requires rapid response. Sometimes it's the sheer volume of material available that is so daunting, even intimidating. Our long history of research enables us to separate the wheat from the chaff and then tie the wheat into user-friendly bundles that can be easily digested. Oops, got carried away. Sorry ;-)
Our manufacturing clients rely on us as an unbiased "second opinion" to keep them up-to-date on the latest thinking in all sorts of areas, from automation to "best practices" in facility management to family succession and other HR (human resource) issues. Since we don't get involved in the "hands-on" implementation in these areas, they trust us to provide reliable, third-party information.
Has this newsletter been helpful? We're experimenting and encourage you to contact us with your opinions and views. In future issues we'll be adding space for your comments and feedback -- maybe even a guest article or two. And when we really get our act together, we'll be adding these newsletters and other new, interactive features to our Web site.
Technology Management Associates, Inc.
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