Tag Archives: Constraint

Which Is More Important – Long or Short Term? Five Points

Situation: A CEO is concerned about long term trends versus short term volatility. While the business has done well over time, short term volatility has made it difficult to project both personnel needs and cost. As the company expands geographically these issues are becoming more critical. Which is more important – long or short term?

Advice from the CEOs:

  • Does the company find that capabilities are not fully understood until they get into development? In this case, is the problem with variables of schedule, budget or capability more important?
    • Going forward, evaluate each of these variables to determine which is having the greatest effect, positive and negative, on project performance and profitability.
    • If the problem is time constraints in the project planning phase, assure that sufficient time for project iterations is allowed in both the schedule and budget. It may be that the clients are not sure of what they want until they see a model, and that several iterations are required to assure that clients’ needs are satisfied. Plan and bid for this.
  • If fixed costs impact margins during dips between active projects, assure that enough fixed cost coverage is built into project bids to cover dips.
  • For geographically remote offices is the company’s issue a question of volume or resource cost or is it a pricing issue?
    • If it’s a pricing issue to stay market competitive focus initial activity where this issue is minimized. As market presence expands, add additional capabilities in phases according to the ability to cover costs profitably.
    • If it’s a resource cost issue use the same solution, adding resources according ability to cover costs profitably.
  • Build the company’s sales and marketing structure in phases while expanding into new markets. If sales compensation is base plus commission, vary commissions paid according to resource rates negotiated. This will tie sales incentives to negotiated resource rates and will help to assure that costs are covered.
  • Dealing with short term issues effectively will improve long term planning and profitability.

Where Should a Company Focus – People or Cash? Four Thoughts

Situation: A small company sells consumables as its primary source of revenue and profit, and produces equipment associated with these consumables. Their challenge is that designing and producing equipment is beyond their financial capacity. They have a small, loyal staff engaged in equipment production. This is a critical trade-off that must be resolved. Where should the company focus – people or cash?

Advice from the CEOs:

  • This product/profit combination is common. HP sells printers and ink, as well as other products, but ink cartridges have long been their primary source of corporate profit. The question is how to produce the associated equipment at the lowest cost?
  • Given the shortage of financial resources, why not asks a company with expertise in equipment to build the equipment on a contract basis?
    • Offer the outsource company the designs and expertise to support the project. That company may even hire your employees who have developed expertise in this area.
    • In return for providing design and guidance, ask the contract company for a percentage of the revenue or profit on equipment that they sell. This relieves you of the payroll and cash obligations for the equipment, and provides you with a modest income stream from equipment sales.
  • There is an obvious question of how the small company retains its intellectual property position. Is it possible to look at critical sub-assemblies and retain the expertise within the smaller company to complete and install some of these?
    • If so, this will boost annual revenue. The contract partner completes all but the most critical pieces, and the small company finishes the product with its technology.
  • The small company, through its sales and marketing efforts, should maintain control of leads and sales of both equipment and consumables.