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Editorials
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Some past articles of interest:
There are two articles of interest for the April edition of the Western Mass Chapter #19 APICS Onward!:
Succeed During These Turbulent Times - Manage for Cash Part 2 - by Lisa Anderson
The Demise of Newspapers: Valuable Lessons - by Ira Smolowitz, Ph.D.
Succeed During These Turbulent Times – Manage for Cash Part 2
By Lisa Anderson
In today’s economic and business environment, cash is king. The critical importance of cash in businesses continues to rise. One just has to read the news to see cash highlighted on a daily basis in relation to several high profile companies – GM, Chrysler, MGM Mirage, GE Capital, etc.
In businesses, there are a three ways to affect cash – earnings from operations, working capital (inventory, receivables), and the sale of assets. Last month, we addressed inventory – how else to manage cash?
First, take a step back and think about the big picture – how can you reduce your breakeven point for cash? Re-evaluate your core decisions to ensure they still make sense. Discontinue a marginal-profit product line. Stop selling to a customer which ties up more than its fair share of cash for extended periods of time. Re-evaluate markets and distribution channels. Re-evaluate your plant and distribution network. The key with each of these is to make sure not to panic; instead, prioritize based on your company strategy and critical success factors – what impact does each of these have on your strategy and critical success factors?
Second, evaluate each of the ways to affect cash. When reviewing earnings from operations, do not focus solely on what you’ve likely been focused on the last several years, growth and margin. Instead, re-evaluate with an eye to cash. When reviewing your customer base, which customers tie up significant amounts of cash? For what periods of time? Is there a way to change the amount of cash tied up with customers? For example, I’ve partnered with customers to develop win-win programs such as vendor managed inventory and transportation partnership programs that increased cash while reducing costs and improving customer service. Also related to generating earnings from operations, the traditional but often overlooked “increase revenue, reduce costs” achieves the goal. Note that I did not say solely to reduce costs – in my experience, many times, when the organization is already focused on continuous improvement/ lean thinking, costs are already low (and/or continually improved); therefore, the largest impact can be found by re-focusing priorities and concentrating on increasing revenues. At times, it even makes sense to do the unthinkable and raise prices. Just remember to consider customer value in decision-making.
Next, when reviewing projects, instead of focusing solely on return on investment, it is also critical to consider the cash which will be consumed and the timing of the return on investment vs. cash projection needs. For example, even if a project has a good payback in regular times, it might not make sense to move forward in the current economic timeframe if it will require significant cash outlay upfront.
However, it is critical not to panic, and it’s certainly not the time to stop investing. In a similar vein, according to a McGraw Hill research study about the 1981-82 recession, those companies that invested in advertising during the recession performed over 14 times better than those that cut advertising.
Third, remember your customers and suppliers. Do you know their financial conditions and cash positions? Especially in today’s integrated supply chain, these considerations can have a profound effect on your business. Think about them proactively.
Fourth, during times of economic uncertainty, monitoring cash metrics on a frequent basis is critical. (And, as an aside, why stop even when it turns around?) Your quick ratio is critical, as it measures short term liquidity, and cash projections are cornerstone. Since cash metrics will rise in importance during this timeframe, why not take it a step further and provide training and education to your workforce on cash flow/ metrics? When people understand what is important, how they can contribute to the goal, and how it is measured, amazing results follow.
Lisa’s Tips: Take advantage of the opportunity – retain & find talent
Recently, I’ve seen an opportunity jump out at me, and I thought, “Bummer, I committed to writing about managing cash part two”, so instead I decided to highlight this opportunity in this section. Why is it an opportunity to retain and find top talent today/ now?
1. Take advantage of your competition’s losses – given recent layoffs and unemployment statistics, there is some exceptional talent and underappreciated employees available in today’s work environment.
2. Don’t survive; thrive – why focus all your energy on surviving? Instead, invest in your #1 resource – people. The right people will figure out how to leap over survival and instead develop a way to thrive.
3. Think ROI (return on investment) – the best people will return a significant ROI. Why worry about $50,000 or $100,000 in salary when you can retain or find talent which implements $1,000,000 in cost savings (with a large percentage immediate / quick payback)?
4. Retain talent – don’t become so focused on those involved with layoffs or quietly celebrating that you can avoid layoffs that you forget to retain your most valuable resource – your people. I bet each of us knows of someone or has someone working for us who reliably delivers results, yet since their manager is completely swamped and diverted to day-to-day firefighting, they are ignored. Change this today. Or, if you are one of those employees or a peer of one of those employees, help each other – celebrate successes, brainstorm how to contribute to the goal, provide suggestions, consider the positive, etc.
5. Don’t get too complex – if you are one of the few hiring, do not become overly complex and rigid in requirements. Of course, there is nothing more critical than finding the best person to fit the role; however, eliminating a significant portion of potential candidates for arbitrary reasons (narrow search criteria) defeats your purpose. None of the top 3 people I’ve worked with during my career would qualify for many of the positions advertised today due to different reasons – when the top 3 people cannot fit typical criteria, something is wrong!
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Published by LMA Consulting Group, Inc, 2058 N Mills Ave, PMB 532, Claremont, CA 91711; 909/630-3943; fax 909/625-5603
© 2008 Lisa Anderson. All rights reserved.
The Demise of Newspapers: Valuable Lessons
By Ira Smolowitz, Ph.D.
 I have always enjoyed reading newspapers and concurrently drinking a cup of coffee. Articles in print have been incorporated in my class lectures, speeches before professional groups and in subsequent articles that I have authored. Unfortunately, my love of print journalism has placed me in a declining group of people.
Consider the following:
The people of Denver woke up on Saturday for the first time in a one newspaper town. After 150 years, The Rocky Mountain News – The Rocky, as it was called – was closed for good by its owner, the E.W. Scripps Company…
“I don’t know anyone my age who has time in the morning to read a newspaper,” said Chris Olivier, 37, a retail manager who said he gets his daily news from dozens of Web sites and a few niche publications circulating in specific Denver neighborhoods. “It’s sad to see such a huge part of our state’s history lost, but the market is moving, the newspapers haven’t moved with it. They don’t get the Web.” …
A small group of Rocky reporters who huddled one last time in the Denver Newspaper Agency’s building on Friday
wondered about the absence of reporting, too, as their readers fled to the Web.
“They want the amount of print you would find on a cereal box, which is what you get online,” said Mike Pearson, 49, a features writer and editor for The Rocky for 21 years.
“They want headlines only and graphs that summarize everything without going into a lot of analysis. And they feel entitled to even the most complex and sophisticated news coverage for free.” 1
…The Miami Herald and the San Diego Union-Tribune are reportedly on the selling block, while lawmakers in Connecticut are trying to keep two newspapers there afloat. Even the New York Times Company has slashed its dividend and announced that it would borrow against its headquarters to avoid cash-flow problems.
There’s no mystery as to the source of all the trouble: advertising revenue has dried up. In the third quarter alone, it dropped eighteen percent, or almost two billion dollars, from last year. For most of the past decade, newspaper companies had profit margins that were the envy of other industries. This year, they have been happy just to stay in the black. Many traditional advertisers, like big department stores, are struggling, and the bursting of the housing bubble has devastated real-estate advertising. Even online ads, which were supposed to rescue the business, have declined lately, and they are, in any case, nowhere near as lucrative as their print counterparts, Papers’ attempts to deal with the new environment by cutting costs haven’t helped: trimming staff and reducing coverage makes newspapers less appealing to readers and advertisers. It may be no coincidence that papers that have avoided the steepest cutbacks, like the Wall Street Journal and USA Today, have done a better job of holding onto readers. 2
The Internet has now overtaken all media except television as a source of news, according to a study by the Pew Research Centre in the United States.
The study found that 40 percent of people got most of their news from the internet, up from just 24 percent in September 2007. More people say they rely on the internet than on newspapers.
Television is still the main source for national and international news, but the number is falling and for young people the Internet rivals television as a news source. 3
It is, in my opinion, abundantly clear that newspapers have to adapt a new business model if they are to survive. However, some experts are not concerned about the demise of print journalism. Consider the following:
“It’s fair to say that newspapers will disappear and I don’t think we should shed that big a tear for them,” says Wharton marketing professor Peter Fader, co-director of the Wharton Interactive Media Initiative. And unlike the traumas of automobiles or real estate, the change is fundamental, not cyclical. A down economy may have sped it along, but the business model itself would have been troubled anyway. “My kids can’t imagine why anyone would read the newspaper,” Fader notes.
To be sure, newspapers have tried to adapt. They were late to the Internet, but have embraced the online environment
with multimedia content, blogs and headlines pumped to mobile phones. The New York Times this month swallowed a bitter pill, joining other newspapers in selling ads on its most sacred real estate – the front page – in an effort to squeeze more revenue from its traditional product. Says Fader, “I don’t think it’s the fault of the newspaper; it’s just technology moving on.” 4
In my opinion newspapers have to constantly meet an intrinsic mandate of providing their readership with timely, insightful coverage of international, national, local developments. This mandate will be compromised by thinking short term via staff reductions and associated reductions in operating costs.
In a cover story of Time Magazine, Walter Isaacson advocates charging for Web access…charging for content forces discipline on journalists: they must produce things that people actively value. I suspect we will find that this necessity is actually liberating. They need to be valued by readers serving them first and foremost rather than relying solely on advertising revenue will allow the media once again to set their compass true to what journalism should always be about. 5
I would argue that another factor has to be recognized if newspapers are to survive and even prosper. Consider the following:
USA Today, The Wall Street Journal, The Los Angeles Time, The Washington Post, The Chicago Tribune, The San Francisco Chronicle, The Baltimore Sun, The San Jose Mercury News and The Kansas City Star have something in common, aside from some of the biggest names in an endangered industry.
By the start of February, not one of them will have the same top editor it has when 2008 began. Most of them will have different publishers, too.
Go back just three years, and the list of newspapers that have changed editors includes The Daily News of New York, The Philadelphia Inquirer, The Miami Herald, The Star Tribune of Minneapolis, the Chicago Sun-Times, The Plain Dealer of Cleveland and The Sacramento Bee.
Each paper has its own story, and some would have changed leaders even in the most placid times. But upheaval in a business that is battling for survival has drastically shortened the shelf lives of editors and publishers at major papers, whether they leave voluntarily or are forced out. All have had to navigate waves of ownership changes, cutbacks, experimentation or all three.
Paul Steiger, who retired in 2007 as managing editor of The Wall Street Journal in my opinion offers an astute observation:
Even when changes are justified, rapid turnover takes a toll, Steiger said, because “keeping people focused has to be challenging when the troops don’t know whether you’re going to be there in six months.” 6
David Carr in his New York Times article indicates the merits of newspaper consolidation. He states: “Throw out the Newspaper Preservation Act. Regulatory reform will allow the industry to consolidate to an economically feasible model and preserve news gathering. Does Seattle need two newspapers? Did Denver? Sure, it’s preferable for all lines of reasons. But one is better than none:
…”Whatever the solution, the capacity to produce accountability reporting, investigative journalism and robust coverage of public officials is not sustainable under current revenue models. And that is not a business problem; it’s a civic one. 7
Print journalism, an established part of American culture for many decades, is undergoing a radical transformation. Given the changes in the demography and preferences of the customer base a new business model is mandatory.
No industry/company should assume constancy of its customer base or demand for its current product. To do so is to plant the seeds of a company’s demise.
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References
1. Tatum Christine “In Denver, Residents Lament The Closing of a Newspaper” The New York Times. March 2, 2009. p. B5.
2. Surowiecki, James “News You Can Lose” The New Yorker December 22, 2008 – downloaded from http://www.newyorker.com/talk/financial/2008/12/22/08 pp.1-2.
3. Simons, Margaret “The Internet Overtakes Newspapers as News Source – USA study The Content Makers, December 30, 2008 p.1.
4. “Urgent Deadline for Newspapers: Find a New Business Plan before you Vanish” Knowledge at Wharton, January 17, 2009. pp1-2 downloaded from http://knowledge.upenn.edu/article/cfm?article id=2130.
5. Isaacson, Walter “How To Save Your Newspaper” Time February 16, 2009 p.33.
6. Peńa – Perez Richard “At American Newspapers A Revolving Door At The Top” International Herald Tribune January 19, 2009 downloaded from http://www.iht.com p.1.
7. Carr, David “United, Newspapers May Stand” The New York Times March 9, 2009 p.B4.
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Dr. Ira Smolowitz is Professor of Finance at American International College, Springfield, MA.
The views and opinions expressed in
these articles do not necessarily reflect the views and
opinions of the Western MA Chapter #19 APICS, Inc. |
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