What is Rebranding?

Rebranding is one of those terms that has cropped up in the last decade or so. Branding means to link a name, trademark or service mark with a product or service. However, rebranding can mean both to assign new name, etc. to a product or service and it can mean to reposition an existing brand. That is, rebranding can mean to make the brand mean something else. Consider that brands have multidimensional properties, such as brand attitude (i.e., consumer's perspective) and brand personality (i.e., manufacturer's perspective); in which case, to rebrand we would start by defining the manufacturer's perspective and try to shape the consumer's perspective toward that end. I realize that this is slightly different than what you'll read in Wikipedia, but I apologize for not updating that page yet...

Accounting Assumptions, Principles, and Constraints: A Short Review

Now, let’s backtrack a little to a short review of accounting theory to consider a few concepts useful to the process of extracting meaning from financial statements. All the accounting rules behind Generally Accepted Accounting Principles (GAAP) may seem overly complicated but they can be understood mostly as a complex give and take between the following accounting assumptions, principles, and constraints (Keiso, Weygandt, & Warfield, 2002). By the way, these concepts underpinning how financial statements are constructed really help unite the themes of most MBA-level financial accounting courses.

Accounting Assumptions

Economic Entity – the financial statements assume that we are dealing with a single organization, but this gets tricky when we want to slice and dice the financial statements to understand what is happening with a particular product or division within the organization.

Going Concern or Continuing Operations – we assume that the economic entity has a meaningful past and future for purposes of recording costs of assets and inventory, and decision making based on those costs in the present.

Monetary Unit – we keep score with money and we typically ignore inflation and deflation of currencies; the value and unit of currency is assumed to be stable, unless we are transacting with international divisions that use other currencies besides the U.S. Dollar.

Accounting Periods –we assume that it makes sense to have monthly, quarterly, and annual accounting periods where we stop to assemble financial statements. Fiscal years sometimes don’t align with calendar years.

Accounting Principles

Historical Costs – assets (and liabilities) are typically reported at the historical cost and then adjusted with fair market value when the needs of reporting require it. However, the cost of an asset 10 years ago does not reflect what it is worth to another buyer or the cost of replacement.

Revenue Recognition – we record revenues when they are realized (i.e., we become aware) and earned (i.e., we do or ship something). This is one of challenges that accrual-based accounting is trying to solve. Just because we received cash from a sales order doesn’t mean that we did everything we had to do to earn the revenue or ship the product. Also, we may have sold something but not received cash.

Matching Expenses to Revenues – we match expenses to the revenues, so recorded profit in the income statement is based on the best fit of revenues and expenses. This is another feature of accrual-based accounting; expenses are aligned with associated revenues in the same or future accounting period. For example, most fixed expenses for buildings and equipment must be depreciated to align the expense with the revenue that was earned.

Full Disclosure – in general, accountants record and report every bit of information in the numbers and footnotes of financial statements that fairly represent the activities of the business entity in that accounting period. That is fine and dandy but for decision-making we want to leave out or add things that are relevant to the decision we are making.

Accounting Constraints

Cost and Benefit Paradox – there is a very real cost to recording and reporting accounting information. Hence, some potentially important events relevant to a business may not be disclosed because it was too expensive or cumbersome to gather the data. We must read between the lines of financial statements and add information to which we have access in order to make the best decisions.

Materiality – small financial events are not as important large financial events to the typical, reasonable reader of financial statements. That makes sense but our decision making process may be different from the typical user of financial statements as understood by the accounting folks; some small financial event may not be disclosed even though it is very relevant to our decision.

Industry Practice – one size does not fit all when reporting financial activities. Some industries have peculiar products/services or have special ways of distributing the products/services to customers, so we cannot understand an Internet retailer the same way we would analyze and automobile manufacturer.

Conservatism – to avoid investor misinterpretation of assets and income, accountants choose accounting methods that do not overstate what the business owns or the profits achieved. Again, this is an important consideration for financial reporting, but we need to modify the notion somewhat to make decisions about the business between accounting periods.

Important! As an MBA-level manager, it will be your responsibility to challenge the assumptions behind accounting principles and constraints, when interpreting financial statements to make decisions. It is incumbent upon MBAs to logically and judiciously tweak available financial information to make sound financial or investment decisions that put our organizations ahead of the competition.

Reference

Keiso, D, Weygandt, J, & Warfield, T. (2002). Intermediate Accounting, 11th Ed. New York, New York: John Wiley & Sons.

Six Disciplines Business Excellence Franchise

Looking for an interesting MBA-level professional services franchise or career opportunity? Have a look at Six Disciplines (http://www.sixdisciplines.com/). The Six Disciplines (TM) Methodology is based on practicing a series of repeatable cycles to promote executive, manager, and organizational learning. Step 1 requires the team to decide what is important. Step 2 involves setting goals that exercise leadership. Step 3 promotes alignment of internal groups and systems. Step 4 fosters working the plan. Step 5 encourages team members to innovate toward the purpose behind the goal. Step 6 uses what was learned as 360 degree feedback for improvement in the next cycle. I like this cookie cutter approach; the Six Discplines system could work for many medium-sized businesses that have lost the focus provided by an entrepreneurial presence. What I thought was nonsense was the notion of an annual performance appraisal in Step 6; personal feedback should be continuous, as team's change too fast and feedback more than a few weeks old is typically irrelevant to the person and the process.

Note: all copyrights and trademarks are owned by their respective holders.

Reference

Six Discplines (2007). http://www.sixdisciplines.com/

Necessity of Leadership Charisma

The human quality of charisma can be best characterized as human expressiveness (Kouzes & Posner, 1993). As Kouzes and Posner (1993) suggested, the term charisma has been used to describe so many different variations of qualities expressed by leaders that it has lost a great deal of its true meaning. The whole idea of the type of leadership quality that leaders need to be attractive to followers has become a bit of an overworked cliché.

What the Kouzes and Posner (1993) discovered in their research is that leaders need an attractive human expressiveness that involves sharing, touching appropriately, smiling and making body movements that gain the attention of those being led. As to whether leaders need charisma for leadership, it is difficult to imagine that a leader could communicate effectively with followers without some form of charisma. Another situational factor may be that groups that are formed in an unstructured fashion will simply look to another person in the group that communicates in a way that gains their confidence and inspires them to act in accordance to the direction set forth by the leader. This is to say, the leader with the most influential form of charisma as defined above will rise to be the leader. In a workplace setting, where groups are formed in a structured fashion, an appointed leader may be charged with leadership and not have the strongest expressiveness tendencies or charisma within the group.

With regard to whether managers who are judged less adept at human expressiveness can lead effectively, depends a large part on the situation, the task faced by the group and whether the group was formed in a structured or unstructured context. In sum, the level of charisma required to get the job done all depends on the situation, but in general, all leaders must possess the ability to express themselves in a way that resonates with and gains the confidence of those who would follow.


Reference

Kouzes, J.M., & Posner, B.Z. (1995). The leadership challenge (2nd ed.). San Francisco, CA: Jossey-Bass.

Jevons’ Utility Theory

Much of William Stanley Jevons’ (1835-1882) work in utility theory was his alone, especially the discovery of marginal utility (Ekelund & Hébert, 1990). Later he realized that others such as Dupuit and Cournot preceded him, to which he aptly gave credit. Nevertheless, Jevons’ work went beyond others in that he recast value theory in terms of utility maximization. Jevons was at heart a statistician and he expressed reservation that subjective analysis of an individual’s pleasure and pain (i.e., net utility) were at best only ordinal (not cardinal) estimates of the actual values around which valuation of goods in the entire economy revolved. Being the empirical statistician that he was, Jevons did not state that utility was directly measurable, but instead he defined the utility function as a relationship between the consumption behavior of an individual and the ethereal act of valuation.

Like Jeremy Bentham, he argued that positive utility was simply the net gain of pleasure over pain in the use of a commodity in four types of circumstances: (1) intensity; (2) duration; (3) certainty or uncertainty; (4) nearness or remoteness. Unlike Bentham, he distinguished between total utility and marginal utility, analysis of marginal utility and definition of the equimarginal principle. These were the hallmark of his study.

Jevons noted the difference between the additional utility provided by an additional unit of the commodity vs. the total utility of all the units of the commodity consumed to date. In summary, within a given time period the increase in utility offered by the addition of units of a commodity is not linear. In fact, it will decrease total utility if more units are added. For example, those first bites of a meal are of high utility and the last bites of the meal are comparatively the lowest in utility.

Further applications of Jevons’ utility theory can be seen in the Equimarginal Principle and Theory of Exchange. The Equimarginal principle illustrates how an individual maximizes behavior by allocating to uses in utility-equivalent portions. The Theory of Exchange shows how a trading body comprised of individuals maximizes utility by trading goods that have different marginal utilities.

I disagree with Ekelund and Hébert (1990) that the concept of a trading body always constitutes a “fallacy of composition” (p. 365) in aggregating the members’ individual utility functions because the participants in a trading body could be assumed to have implicitly charged the corporate body with the fiat to make utility maximizing decisions for all, at least for purposes of analysis of the trading body and not an ordinary group. Therefore, increasing the group’s utility (i.e., maximizing general welfare) could constitute a maximization of utility for most of the individuals, by definition.

(For purpose of analysis of a trading body, it seems wise to assume that if one has improved the utility of a group in the aggregate, that most of the members of the group are better off, because of the presumed choice to be part of the trading body. An example might be defending the country against a hegemonic enemy, whereas the country as a whole is better off, but the intensity of pain and pleasure among citizens may vary drastically. This is unlike the specific case of criticism of Jeremy Bentham’s conclusion on p. 131 of the Ekelund and Hébert (1990) where total welfare is calculated by summing the individual welfares. In sum, apportionment of utility seems wise where aggregation does not.)

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1990). A history of economic theory and method (3rd ed.). New York: McGraw Hill.

Data Collection Examples and Strategies

New Housing Development. A personal interview may be the best way to adjust the stream of questions to probe about specific problems experienced by the residents of a new neighborhood. The fact that the respondents live in a new neighborhood may make telephone and mailing lists unavailable. The open-ended nature of a study about what they like and dislike about life in a small subdivision may require probing on the part of the interviewer. An advantage of a personal interview in this situation is that the respondents are physically close together and that the newness of the neighborhood may make the respondents more approachable.

College Students Voting for Student Government. The university environment would make it difficult to use telephone or mail surveys. Some students may not have a telephone number, and if they do, they may be difficult to reach or they may be from only one particular socio-economic class. A mail survey would probably take too long to reach the students and be responded to, especially with off campus students. A personal interview including a small set of screening questions such as age, gender, ethnic background, and income conducted in the student union building would probably yield results accurate enough to project a favored candidate for the presidency.

Human Resources Professionals in Grocery Distribution. A personal interview of this population would be extremely expensive. However, with only few major companies involved, it is desirable to contact almost all of the companies. A telephone interview is a reasonable compromise from contacting each one personally. A mail survey would probably result in very low response rate, and a higher response rate is needed because of the small population, so it is not recommended.

Attitudes toward Economic Outlook by Fortune 500 CFOs. This is a hard to reach, geographically spread out group of respondents. Personal interviews would be far too expensive. Mail surveys may not be returned in sufficient numbers. The closed-ended nature of the mail survey may limit the answers given. A telephone survey seems provide the best balance of expense, accessibility, and flexibility. Furthermore, a telephone interview would give the greater flexibility needed to probe and get predictions for the next year’s economic forecast. If the research budget is limited, then a mail survey would be the best choice.

Surveying Retail Pharmacies. This audience could be very numerous and spread out geographically. This topic would be of great interest to this audience, not always typical of mail surveys, so a high return rate would be possible. A mailing list for this audience could be easily secured. The expense of a personal interview would not be necessary, as the respondents are too many in number and too spread out geographically. Telephone interviews would yield good results, but the extra expense would not be justifiable.

Marx’s Law of Crises and Depressions

All five of Karl Marx’s Laws of Capitalist Motion supposedly lead to economic crises and permanent depression (Ekelund & Hébert, 1990):

• Law of Accumulation and the Falling Rate of Profit
• Law of Increasing Concentration and the Centralization of Industry
• Law of a Growing Industrial Reserve Army
• Law of Increasing Misery of the Proletariat
• Law of Crises and Depressions (p. 276-278)

Each of these laws simply highlights imperfections present in pure capitalism, if such a system actually exists. Together these laws do not constitute a valid alternative to capitalism, but taken individually they offer some valid criticism -- Marx did not leave implementation instructions though.

Marx’s law of Crises and Depressions is an extension of Marx’s increasing misery doctrine. According to Marx, a crisis would ensue and a depression would take hold because of the capitalists’ never ending propensity to accumulate -- that is, pure capitalism would be pursued, without modification, no matter what the outcome.

There are several questionable assumptions behind the notion of permanence of the Law of Crises and Depression (Ekelund & Hébert, 1990):

• Technological advances have stopped. Labor is a perfect substitute for machinery and vice versa. Does a computer replace a secretary or instead make he/she more productive?
• Machinery does not require a significant number of associated workers. Does a foundry completely eliminate the role of the blacksmith or simply change the job?
• Workers do not readily adapt to displacement by machinery from old specialized jobs and therefore develop new skills. Will new skills be in demand? Is the division of labor a curse or a blessing?
• Long cycles of low wages among a mass of workers will exist.
• The capitalist’s drive for accumulation will always be unbridled and always leads to overinvestment -- information about the general level of overinvestment in other businesses supposedly would not be available, and thereby no change in behavior of individual capitalists would occur.
• Capitalists are innately blind to the plight of the workers and that pure capitalism would always be pursued regardless of the human cost.
• Class divisions are discrete and unchanging. Clearly, a democratic form of government might alter the class rigidity and social immobility that Marx described.

Perhaps the major implication of Marx’s law of Crises and Depression is that the depression would be permanent. This would result in an expanding industrial reserve army and social revolution. In practice though there is a group of persons who are unemployed, but this pool of talent is added to and drawn from as jobs are created, worker skills change, and jobs are eliminated over time. Certainly, in the West, the industrialized nations of the Far East, and the former Soviet Bloc, the law of Crises and Depression has not held a grip on an economy for long periods as Marx suggested.

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1990). A history of economic theory and method (3rd ed.). New York: McGraw Hill.