Now or Never

Paul and Jeff’s endless (and entertaining) arguments reflect the conflict between the marketing team and the accountants.  Marketing team deals with spending income to advertise the company, while accountants focus on reducing cost to maximize profits. Accountants often find it easy to calculate marketing expense but trouble to calculate the effectiveness these promotions.

Bell spent over $200 million to sponsor the Winter Olympic in Vancouver. That sum, I would image, definitely receives a lot of attention from Bell’s accountants. As discussed in class, Bell’s marketing may generate any short term results. From COMM 486, I learned that marketing is all about increasing brand awareness, and building relationship between the consumers and the brand. However, to put a quantitative number of these results can be very complex and can also take a very long time. Bell wanted to gain 1% of market share as a result of sponsoring. Sure,  the marketing team might point at the increased market share percentile a couple of years from now and say “hey, our sponsorship worked!” Well, the problem (as you can see) is how much of the rising market share can actually be attributable to the Winter Olympics sponsorship. Could a lack of competition or better products led to the increase in market share?

It’s easily to see how frustrating the marketing team of a firm can get in producing results. It’s even more mindboggling for accountants to find evidences of these outcomes on the financial statements. So, the war goes on…

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Now a days, corporations are so focused on profit-making, to most of them sustainability is the last thing on their minds. Although businesses often ignore the sustainability side, adapting a sustainable value proposition brings many advantages to the business.

According to the stereotypical views, businesses sit in the opposite end from environment on a spectrum. When speaking about business, people often think about the trucks transporting supplies, factories manufacturing different products, and the CO2 that they inevitably produce. These images can trigger distaste in people, as they start to view the company as irresponsible for the well-being of the entire planet. Therefore, by adapting a value proposition of being sustainable, the business creates a social dimension. For example, one of the most important value proposition of BodyShop is to “Protect Our Planet” through the use of renewable resources, and sustainable materials. The business realizes its social responsibility and knows that there is more to business than just money.

According to the Carbon Foot Print test, I produce 3.387 tonnes of CO2 per year. I was intrigued by the mass amount that I myself is can generate. Then later, I found out that this was actual quite a low amount compared to most people. I guess I should be happy that I could be considered a environmental-friendly person, but I should be worried that most people out there are producing way more than I am.

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Social enterprises are “organizations which harness the power of the marketplace to solve critical social or environmental problems.” They are driven by the triple bottom line: “people, planet, and profit.” These companies employ for-profit methods to fulfill non-profit goals. I see this as a perfect combination.

The impacts of social enterprises around the world are tremendous. Muhammad Yunus, the founder of the microcredit and also a social entrepreneur, exemplifies the results of social enterprises. The concept of microcredit is simple, yet revolutionary. Microcredit is a small loan (contrary to the kind of loans COMM 293 teaches us) given often to impoverished people to encourage independence, and self-employment. Eventually, the issuing of these loans can stimulate the country’s GDP.

Impacts of social enterprises can be recognized on an individual basis, as individual could receive benefits directly, and also on a national basis, where enough individuals benefit as a result. In addition, social enterprises also act as positive role models in the business industry. As people are often driven strictly by profits now a days, it’s good to just pause for a second for our work and think about what we each can do for the society.

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I came across a piece of news regarding the possible raise of interest rate by the Federal Reserve from: http://www.businessweek.com/news/2010-02-10/bernanke-says-fed-may-opt-to-raise-discount-rate-before-long-.html.

I thought of the implications such action will have on the US economy:

Pros:

Now, at low discount rate, banks borrow lots of money, which are loaned to clients, who invested in real estate and stocks, causing an upward surge of stock in March of 2009, indicating an over-heated stock market.

By raising the discount rate, Central bank tightens the cash flow of US. This decreases the supply of cash, and increases the value of the US dollar, preventing inflation in the economy.  This will also restrict banks from borrowing from central, restricting the clients to borrow from banks. Thus, less cash will be flowing in the real estate and stock markets.

Cons:

An increase of value of the US dollar would mean that other countries will have to pay a higher price for US goods, reducing willingness to buy US exports.

By mentioning the notion of “increasing discount rates” causes fear in the stock market, reducing the investment in the stocks. From what we learned in COMM 486G and from my previous post, this makes sense as stocks predict future based on information and news.

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Accounting assess the past, while stocks predict the future. The stock marketing acts as a crystal ball of the corresponding firm’s distant future, and they often often portray an accurate picture of the company due the self-prophecy effect.

Self-prophecy occurs when expectation regarding an event actually becomes true due to the situations created after the announcing of the expectations. If news regarding a stock suggests that it is bullish and will rise, then upon hearing the news, people try to take advantage of the current price by buying increasing amounts of the hot stock. As a result, the demand rises, pushing the price up like what is expected. When news predicts the plummet of a stock, people start to panic, and sell their shares. This drops the demand and adds to the supplies of the stocks, reducing its price accordingly to the laws of supply and demand, and thus, it fulfills the prediction once again.

Stocks, flowing with news, fulfills certain prophesies and predictions even if these were mere speculations and rumours. Therefore, what is predicted can certainly affect the future price of the stocks and in turn the firm, giving stocks to ability to foresee the future.

Source: http://ownthedollar.com/2009/12/beware-stock-market-selffulfilling-prophecy/

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Enron, one of the worlds’ top natural gas, communications companies, shocked the world in 2000 with its accounting scandal, leading to its own bankruptcy. Such incident exemplifies the consequences of accounting misconducts.

The man behind the misdemeanours, Jeffrey Skilling tried to hide Enron’s debts through false financial reports, by keep the revenue high and the liabilities low, the exact opposite of the conservative model we study in COMM 293 and 486G. During company sharehold trading, Skilling tempered around with the firm’s revenue recognition process. While firms like Goldman Sachs stick religiously to the conservative method by reporting the trading and brokage fee as their revenue, Enron counted the value of all its trade as revenue, an aggressive tactic, which is, as taught in our classrooms, “extreme risky “. SURPRISINGLY, as much as Enron tried to cover its debts, the liabilities eventually caught up, dropping the stock prices from $90/share to $1/share, a loss of $11 billion belonging to the shareholders.

From Enron’s case, sometime it seems tempting to adapt an aggressive style in recognize revenue; however the risky associated could outweigh the potential. Just look at Goldman, these guys might be conservative, but at least they are still around.

Here’s a helpful link: http://www.cbc.ca/news/background/enron/

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Friday, I went to the Enterprize Conference. What stood out to me was, Tom Willliams—the Founder and CEO of GiveMeaning. I found him very intriguing as he possessed traits that most entrepreneurs have, exact opposite of those we discussed in Thursday’s COMM 486G class. At age 14, he dropped out of high school for a job at Apple. Responsible and humble? I don’t think so. But he was definitely passionate about what he wanted to do.

Tom is different from average entrepreneurs because non-profit organization, GiveMeaning, that he founded does not make a single dime. What happened to entrepreneurs need the drive to make money? GiveMeaning’s sole objective is to ironically give out money instead of to generate money. It fundraises for numerous projects across the globe, from providing education for children to providing therapy for injury survivors.

By donating money, GiveMeaning will ensure that every penny will go towards the project the donor cares for. Tom is not motivated by profits; he is just plainly passionate about what he believes in. I believe being an entrepreneur is about manifesting your passion, and doing what you want to do, even if you are doing it for free.

Check out: GiveMeaning.com

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Having an efficient supply chain is the core to success for any business. However there are various challenges when it comes to management. For a business to turn raw material into finished goods, it needs to collaborate with other suppliers and intermediaries. Although intermediaries enable specialization of the production of a good, business need to keep the number of intermediaries as small as possible to generate efficiency in production and delivery to the consumers, such as the case with direct business models.

Providing choices to consumers is important as customers have different preferences. More variety results in more attraction for customers, and consequently more sells. However, variety comes with a high cost, including rental, inventory and insurance. With an increasing real estate price, a company must balance its inventory and rental cost.

For a company to be profitable, it needs to minimize its costs. The business should obtain a high inventory turnover by pushing out its products, minimizing products depreciation, and increasing cash flow. Another way to decrease cost is to reduce the distribution of profit to intermediate. This can be done by restricting the number of intermediates in the supply chain of a business.

Check out: http://en.wikipedia.org/wiki/Supply_chain

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I found an interesting article that deals with business ethics at: http://www.jeffreywigand.com/60minutes.php

The article resolves around Jeffrey Wigand, who was the former vice president of research and development at Brown & Williamson, largest cigarette company in US. At the company, Wigand was forced to develop ingredients that strengthened the addictiveness and the risk of disease of the cigarettes, which would increase the sales of cigarettes, a horrifying tactic in the pursuit of profit. The company willingly sacrificed the well being and the health of the entire nation for profits in business. Despite of the restrictions on his Confidentiality Agreement, he eventually disclosed the secrets of Brown & Williamson to public in 1996.

In a free market, business will try to maximize its profits. However, it should do under a social-consciousness. When a trade-off between society and profit making occurs, it is ethical for businesses to calculate its impact on the society before initiating any actions. Although, businesses through its profit maximization can stimulate the economy, increasing the well being of the society, companies should think twice when their business places the health of the entire nation at risk!

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