The Biggest Accounting Mistake Entrepreneurs Make

Mike MichalowiczAuthor of The Toilet Paper Entrepreneur, Toilet Paper Entrepreneur Recent posts

June 10, 2011

When it comes to being an entrepreneur, it’s probably reasonable to say that you have a talent or passion for something and that you have taken that and turned into a business. But it’s also safe to say that you, like most small business owners, aren’t exactly savvy when it comes to the principles of accounting. This, believe it or not, could lead to making some major entrepreneurial mistakes.

Correct records

When it comes to accounting, there is one major mistake that most small businesses owners seem to make: applying sales transactions as revenue before it actually is.

Let me explain.

Let’s say you make a sale for $1,000 and the company sends you the check all at once. Great! But let’s go a step further to say that the amount was for work that will take place over the next 10 months during 10 consultative meetings, which actually would come to $100 of revenue per month. Do you log the whole $1,000 as immediate revenue even though you haven’t actually delivered the goods or services yet?

If you said yes, then you are guilty of committing the biggest accounting mistake.

When to apply

It’s important to remember that you should never apply a sale or check as income or revenue until you have actually delivered the goods. Once you deliver the goods or service, then it is revenue. If you apply it before that point, it will make your revenue reports incorrect, and you may end up making business decisions (such as growing your business) that your company isn’t ready for.

If you make a sale that will span over 10 months and you receive a check for it all once, you should apply the revenue in your accounting accordingly. If you bill the client today for $1,000 (and they don’t pay all at once), you will do 1/10th of the work each month. In this scenario, you would book the revenue in your accounting as $100 of income each month for 10 months. If the check comes early, during that period or even late, that is a cash issue (balance sheet and cash flow), but it does not affect the income statement.

As a general rule, you recognize income when you earn it.

Keeping it straight

Here’s the dealio, if you are handling your day-to-day accounting practices on your own (as most small businesses are), then it’s imperative that you take the time to get it right. If you don’t, it will lead to problems in misreporting the amount of revenue you are actually making, and when you make it—and that is bad for business management.

The key to this tip is that it is for the income statement management, not for the balance sheet or cash flow. Therefore, the collections don’t come into play. It may seem a little confusing at this point, but as an entrepreneur, it is important to work at getting it right—reach out to your accountant if you must.

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US-Chinese Anti-Submarine Cat and Mouse Game in South China Sea

By Hans M. Kristensen [updated 1:50 P.M., 3/10/09]

A Chinese trawler tries to snag a towed array cable from the USNS Impeccable(T-AGOS-23) 700 miles
south of China’s Hainan submarine base. A People’s Liberation Army Navy (PLAN) frigate and six civilian vessels based in Yulin interfered with two U.S. oceanographic research ships over several days in international waters south of Hainan Island, site of a Chinese fleet buildup.chinese-submarine 

The incident that unfolded in the South China Sea Sunday, where the U.S. Navy says five Chinese ships harassed the U.S. submarine surveillance vessel USNS Impeccable, appears to be part of a wider and dangerous cat and mouse game between U.S. and Chinese submarines and their hunters.

News media reports cite Pentagon reports of half a dozen other incidents just within the past week in which U.S. surveillance vessels were “subjected to aggressive behavior, including dozens of fly-bys by Chinese Y-12 maritime surveillance aircraft.”

The latest incident allegedly occurred in international waters only 75 miles south of a budding naval base near Yulin on Hainan Island from where China has started operating new nuclear attack and ballistic missile submarines. The U.S. Navy on its part is busy collecting data on the submarines and seafloor to improve its ability to detect the submarines in peacetime and more efficiently hunt them in case of war. 

The USNS Impeccable was designed specifically as a platform for the SURTASS towed array and its Low Frequency Array upgrade.

An Impeccable “Civilian Crew”

The U.S. Navy’s description of the incident states that “a civilian crew mans the ship, which operates under the auspices of the Military Sealift Command.” Yet as one of five ocean surveillance ships, the USNS Impeccable (T-AGOS 23) has the important military mission of using its array of both passive and active low frequency sonar arrays to detect and track submarines. The USNS Impeccable works directly with the Navy’s fleets, and in 2007 operated with the three-carrier strike battle group in Valiant Shield 07 exercise in the Western Pacific.

USNS Impeccable is equipped with the Surveillance Towed Array Sensor System (SURTASS), a passive linear underwater surveillance array attached to a tow cable. SURTASS was developed as a floating submarine detection system for deep waters, and the Navy wants to add an active Low Frequency Array (LFA) to improve long-range detection of submarines in shallow waters.

Indeed,according to the U.S. Navy, the USNS Impeccable is “designed specifically as a platform for the SURTASS towed array and its LFA adjunct.”

New Chinese Nuclear Submarines at Yulin Naval Base

Among Chinese submarines the USNS Impeccable was monitoring is probably the Shang-class (Type-093) nuclear-powered attack submarine, a new class China is building to replace the old Han-class, and which has recently been seen at the Yulin base.

A commercial satellite image taken September 15, 2008, shows two Shang-class submarines present at the base, the first time – to my knowledge – that two Shang-class SSNs have been seen at the base at the same time.

An earlier image from February 2008 showed a Jin-class (Type-094) ballistic missile submarine at the Hainan base for the first time. The Jin-class is not visible on the later image. China has been reducing its submarine fleet by replacing old boats with fewer modern ones. The submarines normally stay close to shore, but in 2008 sailed on 12 longer patrols – twice as many as in 2007.

Time For an Incident Agreement

The incident begs the question who or at what level in the Chinese government the harassment in international waters was ordered. The incident will make life harder for those in the Obama administration who want to ease the military pressure on U.S.-Chinese relations, and easier for hardliners to argue their case.

For both countries the Sunday incident and the many other incidents that have occurred recently are reminders that the time is long overdue for an agreement to regulate military operations. Following a break in response to U.S. military sales to Taiwan, U.S.-Chinese mid-level military-to-military talks were scheduled to resume last month, and the Commander of U.S. Pacific Command, Admiral Timothy Keating, said “nascent initiatives” were underway to draw up some “rules of the road” to address some of these issues.

Absent a substantial agreement, building on the 1998 US-Chinese Military Maritime Safety Agreement (which already includes discussions on “interpretation of the Rules of the Nautical Road and avoidance of accidents-at-sea”) and the 1972 US-Russian Incidents at Sea Agreement, incidents like the USNS Impeccable incident will continue as a serious irritant and source of mistrust between China and the United States, a situation neither country nor other nations in the region can afford.

Additional resources:
US-Chinese Military Maritime Safety Agreement (1998) | US-Russian Incidents at Sea Agreement (1972) | Secrecy News Blog: U.S., China, and Incidents at Sea

Posted in Asia-Pacific Military Issues, Energy and Resources, International Relations | Leave a comment

Flying Blind? Search Marketing Metrics

Gord Hotchkiss
Expert Author
Published: 2004-06-02

At the beginning of the Balanced Scorecard, a book on the new generation of performance metrics, authors Dr. Robert Kaplan and Dr. David Norton present an analogy to drive home their case. They ask you to imagine entering an airline jet cockpit, and in front of the pilot, you see just one gauge.

You ask the pilot, “What’s that gauge measure?”
“Altitude”, you’re told.
“What about the other gauges?”
“We won’t be using them this flight. I’m just focusing on altitude.”
“How about air speed?”
“No, that’s the gauge I was using last flight. I wanted to try something different this one.”
“Not this time”
“Fuel gauge?”

The idea is, of course, that you need a balanced set of measures to accurately monitor business performance. The analogy got me to thinking about the metrics we typically see companies enter their search marketing campaigns with. And I couldn’t help thinking, “At least the airline pilot got one of the metrics right!”

If it’s Not Measured, It’s Not Managed

After working with search marketing for 8 years, I’m amazed at the number of otherwise intelligent marketers who enter their search campaigns without a clue of how to measure the success of the campaign. The entire motivation for looking at search optimization is because the CEO had a hissy fit because they didn’t rank for a broad industry term that was, at best, only marginally relevant to their actual product and service offerings. They’re pretty sure they want better rankings, but they really haven’t given much thought as to why.

You do search marketing for a reason, and unless your company is run by a Fascist egomaniac, the reason shouldn’t be so your CEO can search for his dog’s name and see your company’s site rank number one. Those reasons should come down to bottom line goals that align with both your corporate and marketing strategy. Is it lead gathering, on line sales, brand building, relationship building, extending marketing share in new areas or positioning your product against the competition? All are valid objectives, and all can be aided greatly by a well thought out search marketing strategy. But, until you know the reasons, you’re flying blind.

Also, I’ve been in the boardrooms of more than one Fortune 500 company and asked to see the research done on their customers feelings about the website and how they interact with it. Please, if you ever get a chance, do this. At first, you’re greeted by blank stares. Then the sidewise glances start between the IT department and the marketing people. “I thought you were going to do that!” Finally, you get the answer you knew was coming. “Uhmm…we’ve been meaning to do that. But we haven’t really got any research of that kind”.

The IT department probably has technical stats on user sessions, pages visited, length of session and enough assorted statistics to choke a CTO, but no one has thought to ask a customer how they feel about the site.

And, we’ve found, if they haven’t done this research on their own site, it’s a lead pipe cinch that they have no idea how their customers interact with search engines.

Decide What to Measure

Search marketing metrics have improved over the past 2 years. Back then, the only metric was ranking. The problem with this is that rankings didn’t really mean anything by themselves. A high ranking was useless unless it drove traffic. And, in turn, that traffic was useless unless it translated into something that added to the bottom line of your business. That bottom line impact could be long term, as in the building of brand equity, or short term, as in an online purchase or the capture of a potential sales lead. Because search marketing was primarily used by direct marketers, it was generally the second of these that was chosen as a performance metric.

That brings us to today, as increasingly the focus turns to ROI, as measured through conversion rates. This measurement is primarily done on the sponsored side of search. Tools that allow you to accurately measure ROI on organic search campaigns are still rare and usually involve gathering data from different sources, analyzing it and, in many cases, throwing in some scientific guess work.

While the move to ROI measurement is an improvement over just measuring rankings, it’s a bit like the pilot using the altitude gauge and ignoring the other instrumentation in the cockpit. The problem is, as you move beyond conversion tracking, accurate measurement of other factors becomes more difficult.

Conversions are Good, But They’re Not Everything

A conversion is generally defined as a visitor taking an action that allows the website owner to establish a relationship with them. It could mean capturing contact information, having them complete an online form, or actually make a purchase. Conversions are defined on a case by case basis.

Most of the better search engine marketing companies now offer some type of conversion tracking on sponsored search campaigns, and a few (like Enquiro) also offer it on organic search optimization campaigns. It allows the client to see how specific keywords and engines perform by monitoring if traffic being driven from these sources takes the actions defined as a conversion.

The problem comes when the conversion happens off line. Often, consumers use the web and search engines to conduct purchase research, creating a short list of the best products or models and shopping for the best prices. In most cases, this can be done without ever taking an action that could be defined as a conversion. The researcher may gather up their information, then take it and visit a local outlet to actually make the purchase. In this case, conversion tracking would have never recorded the visit as a successful one.

The Brand Value of the Online Experience

Another limitation with conversion tracking is that it can’t capture the building of brand awareness online. And increasingly, websites are being recognized as an important channel to enhance to overall brand experience of a company.

I was recently meeting with a prospective client and he mentioned that his company (a multinational business to business service provider) didn’t really monitor online metrics because “we’re not Amazon”. His reasoning what that because they didn’t really sell items online, there wasn’t anything to measure. He also mentioned that search marketing wasn’t a high priority because of this lack of revenue generation from their site.

I was a little taken aback, so I probed a little deeper. I asked if they had given any value to the brand awareness they were building when visitors came to their site for information (of which there were thousands of pages, few of which could be found with a search engine). I asked if they had done any research on the types of users their site attracts, their reaction to the site, the frequency of repeat visits, and whether introduction to the firm through the website later translated into new clients. The answer was a long and continuous string of no’s, and it was becoming clear; this company had no intention of beginning to monitor these metrics.

I hope this company is the exception, and that other marketing departments are beginning to recognize the importance of the online brand experience. Increasingly, more and more of a companies interaction with its clients is happening online, and the quality of that experience is vital to building a strong relationship with that customer.

Align Your Metrics with your Goals

To measure the effectiveness of any online campaign, you should come up with a set of metrics that give you a complete performance picture. The nature of your metrics will depend on what your corporate and online marketing strategic objectives are. What are your unique competitive advantages and how does your online presence contribute to them? What are the metrics that your customers measure you by? You have to ask yourself these questions before you can begin defining online metrics.

(Note: You might want to start with reevaluating how you use metrics throughout your organization before beginning this process. Sometimes, lack of metrics in marketing can be symptomatic of inadequate measurement of other areas of the business. If this is the path you want to go down, check out and invest in the book by Robert Kaplan and David Norton)

Return on Investment:

If you’re an e-commerce site, the primary metric will likely be return on your advertising investment derived through online sales. Other metrics could include monitoring the frequency and nature of repeat visits and sales, average sale amounts, profits on sales (are you driving sales on higher margin items?), customer satisfaction levels, percentage of converted visits vs. non converted visits or percentage of sales in specific categories

Brand Awareness:

In this case, you will have to be a little more creative in defining your metrics. It will probably have to involve some type of user survey to determine brand awareness at various stages in the online relationship. A survey will also be able to determine awareness of products and services.

Building Relationship

As with brand awareness, measuring the development of stronger relationships with customers is more difficult to do. Again, you will probably have to use other research methods to get the full picture. You will also want to measure the duration of visits, frequency of repeat visits, sections of the site visited, and actions taken while on the site.

Measuring: The Bottom Line

The role of metrics in online marketing is quite new, and when it comes to search marketing, effective measurement is in its infancy.

Deciding on the right metrics is not an easy task to take on. It requires a fundamental understanding of your own goals and strategies, your customer’s needs and behavior and the values and advantages that sets you apart from the competition. But if you’re making a significant investment in your website and marketing that website, without metrics not only are you flying blind, you’re also throwing money out the window.

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Understanding the roots of the 1970’s Terrorism

Living with Terrorism: Tactics of Avoidance

Original article written by Bruce Eures

Published for academia 1983, Louisiana Technical University

[Just after the Marine Barracks bombing in Lebanon]

A definition of terrorism in political terms could be: The use of force or violence in order to target a person or property for gain towards a political goal. To be effective, target must have the potential to affect change. Insight on how to avoid being a target could lessen or eliminate the impact of terrorism as a tool for political gain. Since minimizing terrorism is a large subject, just the basic questions will be touched upon.

Questions like: what makes someone or something to target for terrorism? What basic attitudes of the terrorist should one know? How can someone prepare for the terrorist? Simple questions with no simple answers.

What makes someone a possible target of terrorism? The same question could be posed of heart attacks. What makes someone a possible heart attack victim? Same techniques of threat analysis can be used for both1. Studies of terrorist campaigns reveal identifiable patterns. These patterns but certain groups of people at higher risk than others. Terrorism has been and will continue to be a tactic against the weak. The terrorist can’t afford to fail. He sees himself as a representative of a constituency and must maintain a positive image. Failure would mean a loss of credibility. A potential target usually poses a risk. The terrorist will have to assess his chances of success against the chances of failure. So then, he will look for what defensive measures exist. This can be called risk assessment.2 if the terrorist determines that the security is relatively high abort the attempt to bring harm and destruction to target. However, if security is skin deep, terrorist success in such an environment that the government has labeled as secure can be more devastating than if no such assurances exist. Simply stated, deterrence is the best prevention of terrorism.

Another component is the terrorist ability to deal with the possible complications of existing security systems. This includes training, organization, and expertise of operation. During the 1970s, Palestinian training and its outgrowths provided what might be the glue holding together many of the eras terrorist elements. It is in these schools that they learned their basic skills such as security, philosophy, and clandestine tradecraft. Some notable groups that have studied under Palestinian training by the Irish Republican Army, the Baader-Meinhof Gang, Turkish and Iranian terrorists, members of the Dutch Red the Help (Rode Hulp), and the people still credit Republic of South Yemen.3

A typical recruit is 22 to 25 years old, college trained, middle class to upper class, and anarchist/Marxist ideology. Education can vary from non-technical degrees in humanities such as in the IRA, too technical engineers and nuclear scientist as with the Turkish and Iranian terrorists.4

The pattern is virtually the same for all groups, where common training and typical cross-section lends itself to a close binding. Shared experience implies similar techniques of terrorism or ‘modus operandi’. One group’s failure could mean another’s success. The bottom line is not to underestimate the terrorist capability when determining measures for adequate security. Back to the question of what makes someone or something possible target for terrorism? Lack of security for a potential target is one reason. Underestimating the terrorist is another. But security for whom? For what? The target still needs to be pinned down.

Security could be defined in technical terms as the protection of persons or interests against which a threat is posed by a clandestine group. Government, policy or law, a foreign power, and upper-class representing imperialism, colonialism, or Zionism, in the terrorist mind, is a target to put at risk. Public figures associate with such institutions or enterprises connect with these ideas are at risk. Individuals with highly technical skills, for instance the information posts are at risk. Security risk can also become diffuse by broadening the target. For example, innocent groups of people can be bombed in order for government to consider a change in a policy. Diffuse targets can exist not only as groups of indiscriminate people, but as important resources such as electricity, food and water, monetary systems and mineral resources can all become targets of terrorism.

Some major undertaking since 1968 have been over 300 hijackings, about 170 successful. More than 50 major political kidnappings have occurred. Robberies to fund activities, extortion and political blackmail our favorites and help to bring in much-needed funds to underwrite their operations.6
Basically, anything to make it impossible for the government to govern. According to a leading revolutionary in Brazil, Carlos Marigehela:

Make it unbearable for the ordinary people and hope that they will become embittered and exasperated with the government and will clamor for change.7

Palestinian terrorists conducted their first hijacking in 1968 when P.F.L.F. members boarded in LOL Boeing 707 at Rome airport and port of the land in Algiers.8

Successive attacks were made on a number of Israeli Airlines. Subsequently, they began pacing armed sky marshals aboard the flights. Stepped-up security proves its value in 1970 when Leyla Khaled and Patrick Arguello, members of the P.F.L.P tried to hijack an AL El airline out of Amsterdam. They were overpowered. Arguello, was killed Khaled was captured when her grenade failed to explode. Later, a series of hijackings attempted to win release of Leyla Khaled, who was being held in Earing, England. The TWA 707 and Swissair DC were forced out of Dawson field, and old RAF runway. A simultaneous hijacking also took place on a British VC-10, on the ground 40 miles north of Amman, Jordan forcing all of the passengers hostage for the release of Khaled.

In another incident, Palestinian terrorists sought recognition from King Hussein of Jordan. His attacks on the contested Palestinian strongholds in his country were either wiped out forced the guerrillas to withdraw into Syria or Lebanon. The Black September group, led by Yasser Arafat, massacred 11 Israeli athletes at the Munich Olympic Games.

Kidnapping of public figures for ransom or political propaganda is also common.9 in 1958, Castro supporters kidnapped racing car driver Juan Fangio. A Guatemalan terrorist nabbed West German diplomat in 1970. When the government refused to concede to their demands, the Count von Spreti was murdered. Funds through ransom money are usually where the big returns are found. Wadi Hadad, a South Yemen terrorist, forced Lufthansa airlines to pay $5 million into his P.F.L.P account. In the summer of 1977, the Japanese Red Army hijacked a JAL Airlines aircraft leaving Bombay. Diverting it to Algiers, they demanded the release of six terrorists and $6 million. These were to be some the last big money operations of 70’s.

Less publicized, but highly favored, our banks as targets of terrorism. The Algerian FLN, the IRA, Baader-Meinhof gang and others have been known to hold up a bank or two.10 Although bank robberies don’t produce a lot of money, is usually enough to keep a small time terrorist operations afloat. Six robberies claimed by groups in Tukwila, Washington produce only about $4000 each. Early raids by the Baader-Meinhof gang but in about 8000 deutsche marks, a few thousand dollars. But with practice, they pulled up six highest totaling hundred $185,000. This smalltime crime did the terrorist satisfaction striking out against the capitalist system.

These are but brief examples of the terrorist targets. The tactics of subversion and science of mass killing great progress with practice and technology. Handheld rockets for bringing down aircraft, chemicals for poisoning resources like food, water, air and the possibilities of nuclear terrorism. What next? An examination of the person who engages in terrorism isn’t where to extrapolate his behavior.

Terrorist motivation

To be a successful terrorist a university degree is the almost mandatory11

A brief analysis of the terrorist motivation will perceive the world through his eyes in an effort to out think him. The modern terrorist has the special motivation of fighting for a political cause. Without a political cause he would be nothing more than a common criminal seeking personal gain. They can be grouped, territorially, into three categories based on the amount of influence they wish to spread over a certain area.

The first group works towards world revolution. They try to impose their ideology on one and all, and those who get in the way are eliminated. The Symbionese Liberation Army could have been classified into this group until they reveal themselves as criminals hating the rich. 12   Certainly, more fall into the second group. Those who oppose their own government, and wish to implement their own extreme political philosophy in their native country. Examples of this include the Baader-Meinhof gang in West Germany, and the Red Brigade in Italy. The third category can be described as liberation movements. Certain countries or groups of people struggling to free themselves from the unwelcome in one unwanted governments. The terrorist site is usually weak, and the ruling cited is militarily strong, such as the lands Israel not part buys by military force. We are deeply entrenched with the Palestinians came either homeland. Another motivation for terrorist is a veteran of both groups over points of doctrine. These usually end up as coup d’états.

In 1952, Algeria was at war with the French. Frantz Fanon, a black doctor, gave a supporter of the Algerian national front. Though not a violent man, Frantz wrote, Violence alone, violence committed by the people and educated by its leaders, make it possible for the masses to understand social truths, in his book titled “The Wretched of the Earth”. The violent teachings of Fanon set the pattern of thought among leftward leaning intellectuals in the West.

While Fanon was the pioneer in the literature of subversion, the founder of modern terrorism was Carlos Marigehela. Running a revolutionary movement in Brazil, he practiced what he preached. His handbook of urban guerrilla warfare, in “For the Liberation of Brazil” became the operations manual for the modern terrorist group. After it’s publishing in Germany, a German terrorist said of it, “you find it quite concrete instructions: the urban guerrilla must be fit, must read this and that, and must do this and that”.13 Bank robbery and kidnapping were a few of the actions advocated by his writings. Interestingly, Marigehela’s theories were derived from Chairman Mao Tse-tung’s instructions to the Communist on how to take over China from the nationalists. 14 Others like Che Guevara, in Bolivia, who wrote “Guerrilla Warfare”, and Regis Debray, French intellectual and loss, who wrote “Strategy for Revolution” work to inspire followers who overtook the airport at Entebbe and the coup d’état in Chile respectively. These writings represent the basic motivations of modern terrorist, and fuel the fire of their hatred of capitalist society.

It is important to understand the terrorist philosophy to understand his intentions to understand their intentions. Dealing with them on intelligent level may lead to satisfactory solutions other than violence, then it would no longer be terrorism, but rather politics. But until such compromises arise, the world must still deal with the violent terrorist. Once the cause is established, the terrorist must become active in the service. Even to the point of death. You must become a Fedayeen, a man of sacrifice. Being a terrorist is not a part-time endeavor.

Some terrorists get a, kamikaze fever and have intentions of dying inglorious death for the revolutionary cause. The typical red Japanese army terrorist has a nasty habit of exploding bombs aboard aircraft that they happen to be on at the time. Of course, not all terrorists are so fanatical. About 80% of all terrorist acts involved throwing bombs, launching rockets, setting booby-traps or igniting explosives by remote control or timing devices. These incidents cause fear and panic in the victims and innocent bystanders, while affording maximum protection for terrorists.15

The terrorist must also have the killer instinct. That is, to be devoid of human emotions, pity and remorse. Must be able to kill on signal, anytime, anyplace, anyone, in cold blood.

He must be also be fairly intelligent processes target, plan a strategy, and stay ahead of security forces, rival groups and hostile intelligence services. He must also have sophistication and poise, to travel first class, stay first-class hotels, and mix with international executives and government officials in not seem out of place. If you become suspicious, he is automatically suspect.

The terrorist must be well educated. He must possess a fair amount of general knowledge; speak English [an almost universal international language] and one other major language. Must be a good communicator to get his views across, and understand what others are saying on complex issues. Not all terrorists have such high standards, but the leaders, planners, couriers/liaison and officers, activists must if they expect to operate successfully. In short, there is no place for the mindless thug. There is of course a place in terrorism for the less educated, less urbane, but it is a minor one. Usually, [the terrorist] possesses a skill that is needed by the terrorist group. Safe cracking, explosives, and electronics are few examples of desirable skills. But give organization that recruits a number of undisciplined, and unruly members is soon decimated by security forces, eliminated by a rival groups, or disintegrated by internal rivalry. All terrorists share a common heritage:

They all come under the influence of those political thinkers who preach that violence is essential to make a world better place ‘for the masses’. The criminals and psychopaths use the philosophers to provide them with the glib rationalization for the actions, while the idealist are deluded by their gurus into thinking that violence is the only true road to salvation.16

The anti-colonialist wars ended in 1950s and 1960s, but the concept of Third World composed of the poor and miserable within the countries evolved. The writings of these philosophers acted like a magnets for young people in the Western world. They identified with the struggles of Third World people against poverty and the less fortunate in the country. Growing sentiment rose among young intellectuals that the rich countries should feel guilty about the past colonialist exploitation, and pay the massive aid programs. It was in this atmosphere of revulsion of luxuries brought about by capitalism, that the philosophers begin writing about the theories and practices of terrorism’s guerrilla warfare.17

Fidel Castro’s prime into but impressed everyone. It proved that a small band of guerrillas overthrew a dictatorial government. He became a hero in universities across Europe and the Americas. They devour the new literature of subversion. 18

Preparing for the Terrorist

A look at terrorist targeting, and motivation provides tips for deterrence and countermeasures. The first tip is to be knowledgeable about country’s political climate. That is, the issues that concern the population of that country. Second, is whether or not there is an active or passive opposition, a sample of their tactics and a success rate. Third, is an assessment of the local police action that can be reasonably expected against terrorist aggression in order to assess one’s own security needs. These are three important factors for deterrence because forewarned is for armed. An effective information system is invaluable for the individual or organization to the extent that repetition is deterable. The sources of information are important in the final analysis in preventing improper actions based on misinformation allowing viable assets become vulnerable. Information exchanges are on a need to know basis and should be arranged among those who have a common interest. Also, constant passage of information between public and private sectors, at the appropriate levels, with ensure that the best quality information is available. Information should be verified when possible and should be processed into a useful form in which the organizations can base decisions. In information security system should be developed so that secrets cannot be filled by those with the terrorist cause. Because ultimately, it is what is known time which can be frustrated or avoided. 19

Timely information means proper protection and deterrence. Since the field of protection is wide open, only the individual security measures and basic organizational protection will be discussed. Protection from terrorists who kill indiscriminately is much too broad a scope for this report and will not be dealt with as well.

Most foreign travelers, government officials or businessman not afforded the protection of 40 armed guards and round-the-clock security as our investors were senior executives. They must rely on public security. But this does not mean that there are not measures individual can do to protect themselves. Living overseas means being attuned to possible threats.

One obvious tactic is to keep a low profile. Don’t engage in any controversial activities, such as, political rallies, extracurricular social affairs that may lead to bad publicity etc. Avoid the routine; very journeys, times, habits. Being unpredictable stymies kidnappings, bombings and assassinations.

Be aware that the family is also a target for terrorism. Abduction of wives and children is a well-established form of blackmail. Wives and support ostentation, avoid easily recognizable cars and she missed user friends carefully. Young children should be kept it close friends houses when the parents are out. The adults might be advised not to enroll in the universities if the political climate warrants it. At the lowest level, the family might be used as a source of information about the parent’s whereabouts, movements and habits.

In extreme circumstances, the antiterrorist training courses can be attended. Courses such as hand-to-hand fighting, weapons training and vehicle division tactics are examples. The possibility of the threat would be the determining factor.

Aside from the threat against the individual person, there is the threat to property in which the individual lives. Public buildings are much easier to protect than private residences. But even the private residence can be made into a fortress, depending on the security needs. Today security firms are willing to survey the home, habits and movement of the family, so that they might advise on use of security guards dogs, or the use of special security hardware. Don’t be fooled, these things cost money and the addition of anything must be weighed against security needs.

Fixed barriers, box lights easily explanation. They come in a variety of forms. Alarm systems adjust as varied and can be triggered by a multitude of sensors. A few examples systems used can be from the triggering our movement, vibration and heat. Consideration should also be given to an escape route by the person’s in-house, while at the same time preventing unauthorized entry.

More sophisticated equipment is also available, but only at a cost the company could afford. Electromagnetic interrogators can be used to check fingerprints, ID cards, or eye pattern recognition systems to gain access. Only a correct match will release the lock. But of course, there is no substitute for personal recognition.

Ultrasonic motion detectors are designed to detect body movement in the subject area. Ultrasonic transceivers transmit and receive sine waves of the pitch of the ear. The radiation patterns or oblong, about 30′ x 20′ and with careful placement they can be reflected into concealed corners as well.20

Less effective are the Doppler effect detectors which are activated by continuous motion. They can be used in conjunction with ultrasonic devices as triggering mechanisms in order to save power. Radar and microwave systems work in the same way as, except they are useful greater distances. Several million cubic feet of space warehouse could be secured. Distant dates for the area along fences could be areas of security as well. Photoelectric detectors, similar to the ones found in automatic doors, can be used to detect passage through door or hallway.

Vibration for seismic detectors can alert to hammering, drilling, digging, crawling, blasting and tunneling. In spite of such hardware, there is no match for the human being with eyes and ears and brain. Such manifestations of security hardware project the conscientious and disciplined level and effort of protection and are likely to become an effective deterrent which will induce the terrorist search for a softer target.

A brief mention of bombs is in order before the conclusion, since they are most often the calling card of the terrorist. Bombs are one of their most deadly weapons, to both sides. Talk to the IRA21 , bombs kill Israeli victims visited the assailants. Mainly because of their crude improvisation.

Recognition and detection of possible bombs is an essential element in their detection and disposal before detonation occurs. Modern bombs can be triggered in various ways and tampering is ill-advised. With this in mind, with those telltale clues of terrorist bomb.

Virtually every bomb has metal. Detonators, firing pins, springs and wires are made of metal. These can be detected but extra machines. Certain explosives have a peculiar odor. Electronic sniffers can be used in the detection, or specifically trained dogs can signal bomb threats. Letter bombs are prone to be at least a quarter inch thick. It may feel like a heavily folded report or pamphlet, however, it will also feel heavy and non-resilient like clay. The explosives may sweat, causing greasy marks on the outside of the letter express mail pouch. There may also be an unusual smell. Detonation occurs from opening the top of the envelope, and one should inspect if the sides have been tampered. Parcel bombs unless easily detectable because of the variety of packaging. First question to ask is: who is from? Most parcels come from friends relatives or related to business transactions, so is the right familiar and/or the package expected. If these questions are asked is unlikely that the potential victim will fail to recognize the parcel as a bomb.

Car bombs are more difficult to detect. Outward signs of wear and how parked the car, whether the door, good trunk were left ajar Orthodox have been tampered. The best defense against car bomb is a good auto/vehicle security system.

All that the untrained person can do with any certainty is to have good idea of the kinds of signs that are suspicious – about letters, parcels, parked cars, or other booby-traps. Once suspicious, you should isolate the object and call the bomb squad. Tampering with it would be foolish. It is extremely rare for anyone to be blown up if they had stuck to these rules. This awareness probably saves more lives than all the detection equipment together.


The conclusions drawn from this report or that terrorist targets are ones with a potential of high visibility and little or no security risk for the terrorist. That the terrorist will stop at no end if so highly motivated and that informed security practices deter most would be terrorists. The foreign traveler must keep a low profile as to not attract attention to himself. Any such unavoidable attention should be covered with adequate security measures. This avoids victimization. Adequate security measures should be based on sound information. Remember, the terrorists are highly educated and cannot be easily placated. They feel that their cause is legitimate, it may or may not be the case, but an understanding of the terrorist motivation by world leaders and individuals can bring about such a change. Understanding of humans is the only real solution to stem the tide of terrorism. Until such empathy is reached, action and it turns out, is the only means to deny terrorism. Avoid ostentation, controversial stance and indiscriminate friendships. Knowing how to identify suspicious signs of people and things out of the ordinary. Be informed about the environment in which one lives. They sound like extreme cloak and dagger right measures, but not all countries enjoy same security as the United States. First looks over shoulder every 5 min in Dubuque, Iowa, might be considered paranoid, but in Belfast, Ireland, he is very prudent. So let the foreign traveler be prudent in his wait for the terrorist.


1“Target of Terrorism “, Target Terrorism: Providing Protective Services, International Assoc. of Chief of Police, 1978 p.7.

2“Out-Inventing the Terrorist”, Terrorism: Theory and Practice, Westview Press Inc., 1979, p.7.

3 Ibid. p.13.

4 Ibid p.8.

5 Clutterbuck, Richard Living with Terrorism, Arlington House Publishers, New Rochelle, New York, 1975 p.22.

6 Carlos Marigehela, For the Liberation of Brazil, Penguin Publishers, London, England, 1971.

7Clutterbuck, op. cit. pp 33-50

8Dobson/Payne, The Terrorist Their Weapons, Leaders and Tactics, Facts on File Inc., Park Avenue South New York, 1982 pp. 86-104.

9O’Ballance, Edgar, The Language of Violence, Presidio Press, San Rafael, 1979 p. 299.

10Dobson/Payne op. cit. p.95

11Ibid., p. 23

12Ibid., p.42

13O’Ballance, Edgar, op. cit. p.300

14Dobson/Payne op. cit., p. 18

15Ibid., p. 19

16Ibid., p. 20

17Clutterbuck, op. cit., p. 141

18Clutterbuck, op. cit., p. 62

19Freedom Struggle, by the Provisional I.R.A., 1973

Selected Bibliography

Clutterbuck, Richard. Living with Terrorism, New Rochelle, New York: Arlington House Publishers 1975.

Dobson/Payne. The Terrorist, Their Weapons, Leaders and Tactics, 460 Park Avenue, South New York, New York, Facts on File Inc., 1982.

Kobetz, Richard W. Target Terrorism: Providing Protective Services, Gaithersburg, Maryland: International Association of Chiefs of Police 1978.

O’Balance, Edgar. Language of Violence, The Blood Politics of Terrorism, San Rafael, California: Presidio Press 1979.

Westview Special Studies in National and International Terrorism, Terrorism: Theroy and Practice, Boulder, Colorado: Westview Press Inc,. 1979.

Posted in International Relations, Terrorism and Nation Building | Leave a comment

Financial Management Comparison: Pepsi vs. Coke

Coca-Cola had strong sales in the fourth quarter of 2009 reporting at $7.51 billion, compared with the $7.13 billion the previous year. The most recent quarterly numbers met analyst estimates for 2009 put earnings of 66 cents a share, placing a high margin of revenue which will beat expectations for sales of $7.2 billion (MSN Money, 2009).

Coca-Cola’s overseas growth was the true driver of in the quarter. The company’s unit case volume — a metric of all the company’s soft drink distribution with worldwide sales– climbing 5%, and separate gains of 8% in Brazil, 20% in India with a notable posting of 29% in China. International sales have earned Coca-Cola $1.54 billion. This sales volume has propelled stock prices 66 cents a share, to close out the last quarter of the year in 2009 where Coca-Cola reported an impressive fourth-quarter gain in profits. The gain in net income was due largely to a 55% increase in sales over 2008. A consolidated year ending 2007 boosted stock prices 43 cents a share, the soft-drink maker earned of $995 million before taxes in the final quarter of 2008 (MSN Money, 2009). However, Coca-Cola’s earnings fell short of Pepsi’s in the fourth quarter on the strength of PepsiCo’s increasing market share. Pepsi’Co posted earnings that set the earnings bar even higher doubling of its fourth-quarter profit (MSN Money, 2009). .

On Feb. 11, PepsiCo reported higher than expected sales in overseas markets. For the quarter, the company reported that it earned $1.43 billion, or 90 cents a share. This earning figure compared favorably with $719 million, or 46 cents a share, the previous year. Given that though, the number was in line with Wall Street’s analyst earnings expectations.

PepsiCo also had revenue growth, for the final three months of the year which gained 4.5%, to $13.3 billion, rising from $12.74 billion the previous year. This top-line number beat the consensus forecast for revenue of $13.26 billion (MSN Money, 2009).

PepsiCo also saw its revenue grow, as sales for the final three months of the year rose about 4.5%, to $13.3 billion, from $12.74 billion the previous year. This top-line number bested the consensus forecast for revenue of $13.26 billion (MSN Money, 2009).

Coca-Cola shares were trading at a at a P/E ratio of 18.35, while PepsiCo shares traded at a P/E of 17.50. This means Pepsi shares are a little cheaper to purchase for the average investor. Coca-Cola shares paid a dividend yield of 3.2%, while Pepsi’s dividend yield came in slightly under, at 2.7%. This is the amount the money that is paid out from earnings for holding the stock — and an extra half-percentage-point return is a generous increase in payout for a dividend per share (MSN Money, 2009).

Noteworthy soft-drink sales


Sales (most recent year)

Price-earnings ratio

Recent share price

Coca-Cola (KO, news, msgs)

$30.99 billion



PepsiCo (PEP, news, msgs)

$43.23 billion



Dr Pepper Snapple (DPS, news, msgs)

$5.53 billion



Cott (COT, news, msgs)

$1.60 billion



Hansen Natural (HANS, news, msgs)

$1.14 billion



Table provided by MSN Money Central

In terms of profits and fiscal fitness, the companies run about neck and neck. What about the performance of their shares?

Positioning Strategy

Coke uses a product differentiation strategy to expand market share. The main approaches to create price competitiveness with its major rival Pepsi to ensure comparable margins. The advantage is that Coca-Cola wields a brand-name image which positions Pepsi as a late market entrant in the Coca-Cola imitator. The Coke brand once the consumer to think of soda as a Coke, which is why many restaurant patrons are corrected to say Coke instead of Pepsi if it does not carry Pepsi. Coca-Cola also creates high-value relationships and marketing presence through close ties with its bottlers. Although Pepsi carries it soda as well as many different snack brand names, heavily relies on its soda product to carry the business. This is why the Coca-Cola Company are very guarded of its name. However for both companies domestic consumption is declining, but international markets are where the growth is at and is where both companies are targeting growing market shares.

Getting technical

Both companies are currently pretty similar from a valuation standpoint. But historically, Coke has dropped to a 20 year low on a P/E basis (Alpha, 2010). Pepsi, on the other hand, has just begun to approach these levels. Coke seems to be the better choice based on the historical P/E data. The strong revenue margins and solid sales in a weak economy have helped protect Coke products from the recent downturn better than Pepsi (Alpha, 2010). Pepsi will need to make international sales a stronger contributor of their revenue stream in order to improve margins (some indications that stronger brand recognition and competitive pricing will play a factor). On an earnings ratio basis, Coke is the better choice. However, both Pepsi and Coke offer consistent advantages for investors with an eye towards earning consistent profits and dividend growth (Alpha, 2010). As a matter of preference, it really depends upon which one brand one leans towards, as always. The author’s preference is for Coca-Cola.

The key to growth

From an investor point both of the financials of Coke and Pepsi present a fairly even comparison. One could maintain it Pepsi had a faster growth rate because it was playing catch-up to Coca-Cola in the years after it was introduced, and consequently has more market growth in which it to expand. Coca-Cola stock has gained about 20% in S&P 500 for five years running, and Pepsi has increased in growth by 25% over the last 5 years (MSN Money, 2009).

Coca-Cola’s international sales generates three quarters of its sales in contrast Pepsi’s international sales constitute only about half of its revenue. Pepsi is entered the overseas market about 10 years ago, but still falls considerably behind Coca-Cola in that arena. Some analyst thinks because Pepsi has not broken into an expanding market (MSN Money, 2009), however, is a writers opinion that early market entry and high-profile brand name recognition keeps Coca-Cola sales at a high level (Cola Wars, 2009).

As mentioned previously, Pepsi not only markets the beverage side. With alternate sodas like Sun Drop and noncarbonated sodas like Gatorade, it also markets the snack side. Coca-Cola has stuck to its core business of beverage has not diversified into the snack arena. These factors as well as a cheaper stock price makes Pepsi a goodbye for a new investor, however, long-term, Coke’s consistent earnings and low debt-to-equity ratios make it a strong candidate for institutional buyers (Cola Wars, 2009).

On the precipitous 2009 conference call, Pepsi announced the fact that it would be cutting costs by saving over $1.2 billion over the next three years. Pepsi cans use these funds to revitalize and recaptures a large portion of the North American business which has been lost in the recession (Property, 2011). Coca-Cola has seen its North American beverage business client about 2%. In response it is diversifying some of its product lines into healthier choices to include Coke light. Pepsi revenue declines and even then larger, around 3% to 4%, but it’s reinvestment initiative in North America will concentrate on growing volume sales to food outlets for its beverage and Frito-Lay, Quaker, Tropicana, product lines.

Coke’s gross profit margin is 65% compared to Pepsi’s whose is about 56%. Pepsi will plans to consolidate bottling plants operations in order to cut costs and take on new initiatives to improve the efficiency of the plants.

Another major play was a $1 billion investment in China in response to Coca-Cola’s aggressive market action in the Asian arena (Cola Wars, 2009). Pepsi board members were taken aback when Coca-Cola announced a acquisition of the largest Chinese beverage producer, Huiyan Juice company. Chinese marketers know, it takes good connections Chinese industry to break into new market territories. Also in the recent announcement, Pepsi stated that it is spending $3 billion in Mexico on both their beverage and snack product lines. Pepsi strategy is to limit acquisitions in its distribution network, and increase its brand recognition in major markets simulating customer loyalty in its international markets (Cola Wars, 2009). On the surface, it seems as though Pepsi is investing in areas that Coke Cola takes for granted, however, any change of tide could occur if Coca-Cola becomes complacent.


Coke or Pepsi? – Seeking Alpha (2009). (n.d.). Retrieved from /article/107813- coke-or-pepsi

Investing in Coca-Cola or Pepsi for stock gains – MSN Money.(2009) (n.d.). Retrieved from

Property on the move… (2011)|. (n.d.). Retrieved from http://advertisercomment.

The week in preview: Coke versus Pepsi (2009) – Blogging Stocks. (n.d.). Retrieved from pepsi/?icid=sphere_wsj_teaser

Report Cola Wars Continue (2009): Coke and Pepsi. (n.d.). Retrieved from /17929837/Report-Cola-Wars-Continue-Coke-and-Pepsi

Posted in Accounting and Business Policy, Business Issues, Marketing | Leave a comment

Marathon Gas & Oil Production Operations



The marathon gas and oil exploration company focused on the production of liquid hydrocarbons and natural gas worldwide. Some of the existing core production areas consist of the North Sea, US and Equatorial Guinea. Other areas of interest are being pursued in Indonesia and the Iraqi Kurdistan region.

Marathon’s oil and gas operations are integrated into a variety of downstream processes which lead to the production of products, such as, natural gas LNG, fuels, home heating oil, petrochemical feed stocks and methanol (Marathon Petroleum, 2011). The company’s main production interests lie in the Athabasca oil Sands project (ASOP) which is located in Alberta, Canada consisting of 50,000 acres of potentially mineable land near the Muskeg River, Jack Pine mines Scotford Upgrade (Marathon Petroleum, 2011).


Imported Crude oil starts in the port of Fourchon, also known as LOOP (Louisiana Offshore Oil Port) Marathon owns 50.7% of the LOOP. Duplicate ports capable of handling oil imports arriving into the US by a supertanker 3 million barrels a day. VLCC (very large crude carrier) takes 38 to 48 hours to unload (Marathon Petroleum, 2011). There is no storage capability at LOOP and all crude is delivered by undersea pipeline into one of eight underground salt caverns. The crude oil then piped into refineries on the Gulf coast and Midwest.

The Capline pipeline at St. James, Louisiana transports crude refineries in the Midwest at Robinson, Illinois, 769 miles away (Marathon Petroleum, 2011). Once the crude reaches the Midwestern at Patoka, Illinois after traveling from St. James at 4 miles an hour for about 14 days, it is been separated by types of crude, identified by density and sulfur content (Marathon Petroleum, 2011).

For example, light crude has a higher concentration of hydrocarbons and consequently can produce higher quality products with relatively simple refining installation processes (Marathon Petroleum, 2011). Heavy crude oil requires additional processing to produce a similar range of desired products. The mix of products running to the refineries pipelines would depend on the types of products the refinery is able to produce (Marathon Petroleum, 2011).mo_ship

Refineries can refine anywhere from 2000 barrels of crude oil up to nearly 600,000 barrels a day, depending on the demand of the products desired and the supply of the quality of crude received. Crude oil is then stored from additional 2 to 4 days to allow water to settle out. A typical refinery has only about 1 to 2 days crude supply that is ready to be refined into product. The production process takes about 4 to 8 days to produce a product. Once petroleum-based products are refined from crude oil must be stored separately in large storage tanks for about 2 to 4 days, prior to shipment to the retail and industrial users (Marathon Petroleum, 2011).


Approximately 1.33 to 2 trillion barrels of proven oil reserves, or about 60% of the global oil reserves, are located in Canada, and Middle Eastern countries such as Iran, Iraq, Kuwait, United Arab Emirates and Saudi Arabia (Excerpt, 2011).

Marathon projects that increased worldwide demand for crude oil will exceed 15 mean barrels a day over per action and 2030. OPEC is to pick up the increasing production demand as well as the developing resources of the Canadian oil sands and continued Deep-water exploration efforts (Excerpt, 2011).

Refinery operation has dropped 48.67% percent since 1981 from 300 refineries than operating to 146 refineries currently operating (Marathon Petroleum, 2011). Communities reject building new refineries in their city or township clamor for low gasoline fuel prices. Most of the current US refinery operations have equipment that is dated nearly 20 years old, more and more, become more dangerous to operate as time passes (Marathon Petroleum, 2011). Environmental and regulatory laws also inhibit the production and building of new facilities with a population increasingly concerned with carbon output and climate change.


Due to state laws, environmental regulatory requirements can require that refineries produce petroleum products with a variety of stringent specifications. This becomes an issue which can increase cost required refine crude oil as well as the capital requirements to pay for refinery infrastructure improvements (Marathon Petroleum, 2011).

There also logistics expenses required to handle excess butane produced by higher refining requirements to include storage, transportation and disposition (Marathon Petroleum, 2011). Unfortunately, these higher specific mission requirements produce a production shortage to the retail consumer in certain areas and states. Specialty gasoline also known as reformulated gasoline places great demands on the refinery system in terms of storage and distribution. Theoretically, if a national standard of refined product specifications, that could increase the production throughput many areas of the country, this could increase gas supplies and other petroleum products in shortage areas, ultimately reducing costs to the consumer.

Price/Demand Relationship

   Cutting transportation costs of foreign purchased oil is the single most important factor in bringing gasoline retail costs down. The oil industry has advocated boosting domestic energy production as part of a broader national energy strategy.

“If given access to key shale reserves,  if we can get the oil sands pipeline built that will allow us to import more  crude from Canadian oil sands, and if we can access areas of the US that are  currently off limits, our industry can create over a million new jobs and  generate over $194 billion in revenue,” said Erik Milito, upstream director for the American Petroleum Institute (Superville, 2011).

    Also, the easing of offshore drilling permits in the Gulf of Mexico is a step in the right direction to ease the cost of gasoline at the pump. But offshore drilling still faces opposition in the US government in both the House and Senate which contend the current doing regulations are needed safety reviews in the aftermath of the Gulf oil spill which damaged environmentally sensitive wildlife areas. These new safety measures will have a delaying effect on the opening of drilling in the Alaska wilderness. However, the demand for oil increasing, and interagency task force has been organized to expedite and coordinate necessary approvals in the vast national petroleum reserve on Alaska’s North Slope.

Alabama Rep. Martha Roby said “It’s time for Washington to get serious about the challenges facing the country, including straightening out its finances and tackling the gas price issue.” She praised the House for passing measures to expand domestic energy production “because when we’re talking about energy, we’re talking about jobs (Superville, 2011).

Recent events overseas in the Middle East have temporarily spiked gas prices within the US. North American consumers are looking at their pocketbook issues, even in the middle of broad turmoil in the Middle East. The speculation in oil prices has been also cited as a contributing factor in rising retail gas prices. The current administration will begin annual oil and gas leases in the national petroleum reserve, a move to satisfy the demands of many industry executives as well as Alaska Senators Lisa Murowski (R) and Mark Begich (D) (Broder, 2011).


Price of gasoline is conceived of components consisting of refinery processing costs, marketing and distribution costs, retail distribution costs and state and federal and local taxes as well as profits and losses involved in all stages. Federal and state and local taxes can be as high as $.40-$.50 per gallon (Marathon Petroleum, 2011). These taxes are the root cause of significant varying prices from state to state and area to area.

marathon-petroleum-speedway-gas-stationsThe effect of the price of raw crude consists from about 55% to 70% of the remaining cost. The price range from 1999 to 2008 has been from $12 a barrel to $145 per barrel. Refining costs consist of about 20% of the cost, and slightly higher for reformed gas mixtures (Marathon Petroleum, 2011). 10% to 20% is accounted for by marketing and distribution and storage costs. This leaves about 3% to 5% margin for profit at best the retail gas dealership (Marathon Petroleum, 2011).


    The Impact of importing large amounts of foreign oil as well as constraining the types and quality of petroleum products produced has resulted in excessive speculation in oil futures market. Under questioning from Senator Maria Cantwill (D-WA) Exxon Mobil CEO Mr. Tillerson, (Exxon-Mobil Corporation), testified that the price per barrel of oil increased $12 per barrel immediately after Middle East conflict in Libya. He reiterated that the cost per barrel depends largely on the marginal cost per barrel to extract or have access to the next barrel in the future. When pressed, Mr. Tillerson acknowledged that under normal supply and demand curves, the price per oil would average cost somewhere in the in the range $60-$70 per barrel.


    Clearly we can see through the examination of the petrochemical production process, the heavy reliance of foreign oil imports, the regulatory requirements for a variety of fuel mixes and qualities and finally unchecked speculation in the oil industry combine to breed a condition of low supply and high demand which is often at the advantage of large corporations and to the disadvantage of the retail consumers. A national re-examination of the US energy policy should take into account producing more crude oil domestically, explaining to refinery capacity, reducing the diversification of petroleum products required across state lines and commodity speculation control in the energy sector. Such actions will have the effect of mitigating or light energy spike crisis in the US. A big push will also be required in the development of alternative energies, since as we all know, peak oil has climaxed and is on the downward decline.


Broder, J.M. (2011). Obama
Shifts to Speed Oil and Gas Drilling in U.S.
, New York Times, New York. Retrieved from,
/2011/05/15/us/politics/15address.html ?_r=2&ref=us

Cantrell, M., (2011), Exxon CEO Admits that Oil Should Be $60-70 Dollars a Barrel Based on Supply and Demand, Senate testimony on the effects of oil speculation and high frequency trading. Retrieved from,

Excerpt, (2011). Marathon Oil Financial Operating Report  

Marathon Oil (2011), The time it takes to provide America’s transportation fuels, Retrieved from, Retrieved from,
time_it takes/index.htm

(2011). Obama announces steps to speed US oil production,

Associated Wire Service. Retrieved from,

Hydrocarbon P, (2011).
Marathon Oil subsidiary Speedway named top US retail gasoline brand for third year, Hydrocarbon Processing.

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Outside influences to drive innovation:

Herman Miller’s, current CEO Brian Walker approaches marketing by trying to solve a problem area in relation to the environment in which the product will be used. Walker attempts to find ‘a fresh perspective on existing or emerging problems’. (Boone, 2011, p 29) This problem-solving approach lends to unique designs and creates commercial value in otherwise unreachable markets. The company focuses on green design and production which focuses on data management systems for office buildings. It also caters to outside influences by publishing a magazine about future trends in environmental issues. This knowledgebase creates what the company refers to as “global scenario planning”. (Boone, 2011, p 29)

This approach has an historical legacy in the company. Bill Birchard, author of Strategy & Leadership, says that one of the main concerns of previous Herman Miller CEO, Michael Volkema, in 2000 was that the white-collar workforce was beginning a trend to slow their numbers in the workplace. This is a factor which could retard the growth in the company’s target market. The Zealand, Michigan-based office furniture maker target is based on sales to white-collar workers on products such as office desks, chairs, shelves and cabinets. It was Volkema’s mission for identifying adjacent or similar markets. In this way, the business could build significant new streams of revenue apart from the traditional office supply and business markets. (Birchard, 2011 p.1)

Gary Miller, a 26 year veteran company researcher, was assigned to lead the effort of Volkema’s ‘Creative Office’ campaign with the intent to explore ‘unfamiliar market territory’ without altering the design bounds of the current office interior products. (Birchard, 2011 p.1) Miller’s approach the problem was to ask the larger question of what ‘unsolved problems’ exist in the existing market for office furniture as opposed to seeking a more specific answer to a single product market niche, such as desk, shelves, or office lighting. Miller pulled together technologists and architects from both the West Coast and East Coast which resulted in a multiyear development partnership to study integration of new lighting concepts which could be integrated with office furniture and fixtures in new ways. This study led to what the company refers to as the ‘Programmable Environments’ and resulted in a new business named Convia. (Birchard, 2011) The concept resulted in office lighting using low-voltage DC illumination as light tunnels, lighted wall objects, and wearable light devices. Office workers would be able to program the new lighting devices via their desktop computers in order to reconfigure the office environment. According to Miller and his team, ‘this allows people to redefine how they think about and utilize their personal space, office geometry, privacy, and illumination’. Technology innovation and adaptation aside, the new company environment created management history by becoming a laboratory for ‘testing new management ideas and turning them into effective practice’. (Birchard, 2011 p.1)


Bichard, Bill: Strategy and Leadership, Herman Miller’s Design for Growth. 2010 (n.d.). Retrieved from /herman-millers-design-for-growth.html

Boone, Louis E., Kurtz, David L.: Contemporary Business, Herman Miller has Designs on the Future. Wiley & Sons Inc., 2011 (n.d.). Retrieved from

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Amazon E-Business Model

Amazon Growth is considered the foremost bookseller online because it specializes in customer orientation. serves about 7 million customers per year. Books represent the core business interest of and its specialization, or rather customization, to each and every customer based on his account is a trait that is rarely seen and businesses before It tracks the customers buying preferences and presents suggested selections based on a history of previous purchases ( web site). The business has furthered its success from the bookselling field to other fields such as automotive accessories shoes and apparel (Amazon annual report, 2009). According to Amazon’s annual report, the company is growing and has recently acquired the shoe portal sales outlet Zappos (p.5). This gives Amazon customers access to the latest retail shoes in addition to purchasing the well-known books and media for which Amazon is currently known. The brand has continued to grow in the Northern California region and plans to expand into the Asia-Pacific since beginning its market growth Campaign in 2010 (Amazon annual report, 2009).

Amazon Diversification

Amazon Web services will launch new services to include Amazons relational database service, states its corporate report. Amazon has been offering the Kindle electronic book reader on its website since the Kindle’s launch (Amazon Kindle, 2011). It also caters to more than four and 60,000 electronic books to its customer base (Amazon annual report, 2009). Amazon’s annual group report reveals that it has shipped two new readers to over 120 countries in six languages. If Amazon decides to split up its brand names into a variety of niche markets, and they will have to compete with other niche markets with established reputations in the markets, known for their marketing savvy their respective niche (Eechambadi, 2005). could its brand identity as a bookseller if it ventures to far into such unknown territory for the company. Amazon would have to compete with the likes of Toys “R” Us, Levi jeans, Pottery Barn, where such unique branding and customer loyalty known for a strong brand identity (Eechambadi, 2005).

Market Extension presence is dominated by its online portal. It is not known for having a brick-and-mortar presence, furthermore, it is not an established a rationale for a retail brick-and-mortar presence similar to the ones currently held by Borders and Barnes & Noble. It is quite likely that if attempts to establish a brick-and-mortar presence, they would quickly be in competition with its online sales and possibly be counterproductive. It would require an extensive advertising campaign and in the event campaign such as writer signings in order to attract sales to a brick-and-mortar presence (Eechambadi, 2005). Such an approach seems to be counter intuitive to a company which would like to maintain an agile inventory based on its just-in-time delivery through the Internet and the U.S. Postal Services.


Amazon’s growth includes expansion into China market what they offer apparel made in China and shoes made in France (Amazon annual report, 2009). Amazon reports that Lucky Brand jeans as well as Levi jeans, and the brand-name for all mankind have been added to the Market Basket products offered by the website ( p. 6 ). However, it is rapidly strengthen its core business outside of bookselling, this smacks of an attempt to be a Wal-Mart-like mass distributor of a variety of product lines. A ‘Wal-Mart’ of the online book retailers, so to speak. In response, Wal-Mart is striking back and breaching/invading the online space with its variety of products. Wal-Mart built its reputation on mixed retail, whereas did not and [Amazon] may face stiff competition as it seeks to vary its product offerings on a par with Wal-Mart ( 2011). Although both names are well recognized brand names, Wal-Mart is probably much stronger in the mass distribution of multiple product lines than and financially more agile to carry out similar future operations ( 2011).


Borders is extensively known for its brick and mortar stores. This is also true for Barnes & Noble. Their physical facility presence in urban areas, along with their coffee house type reading areas is the attraction for their customer base. Although each has an online presence, they are not known exclusively as an online retailer in that sense. This puts them at a great disadvantage when it comes to marketing to areas outside of their core retail bookseller niche. Shoes apparel or other non-reading material products are not specifically identified with their brand logos. This would in turn confuse customers trying to buy products not usually associated with these product areas. however, is diversifying into variety product areas, essentially trying to become an online eBay minus the auction aspect (Kopyoff, 2011).’s heavy online presence, however implement them to this market strategy of aging into an eBay type market. Whereas the Barnes & Noble’s and the Borders brands cannot have, without further concerted effort, brand association connected to multivariate product offerings (Cheng, 2011).

    One of the most amazing aspects of is its newest Kindle store which carries more than 460,000 online books. This electronic book market keenly places in the marketplace for online news and online blogs which are rapidly becoming very popular with the online computer shopper. states that “we have shipped kindles to more than 120 countries ”’s electronic books have hit the New York Times bestsellers 103 times out of 110 (Amazon annual report, 2009).

Web Portal Model


Barnes & Noble’s web technology uses HTML with a minimal of page sections (table 1). The distinctiveness of the Barnes & Noble a webpage does little to promote the company’s presence and merely serves as a title and content page to access the company’s reading products. The company vision of the Barnes & Noble e-commerce web portal merely extends the company’s reach into the online marketplace rather than to attract a new market segment.

Borders uses the standard HTML webpage to provide some brand connection with its brick-and-mortar stores and is very good job in breaking down its product categories use the search for the user. Several featured items are listed on the front to assist the customer in finding some of the most popular and current works available. The distinctiveness or the red color-coded company logo is prominently placed on the webpage largely for brand recognition purposes. This allows the customer to associate the web portal with the brick and mortar presence of the bookstores. The vision the Borders [bookstore] is to celebrate their brand recognition and penetrate the market in a fashion while staying true to its own original look and feel of the existing icons (table 1). is one of the true innovators in the online bookseller around and has a corporate model look and feel to its website/portal. Its innovative technology provides ‘customerization’ to its products books, technology and other items. It is a model that no other bookseller has been able to emulate thus far. The company’s website has a distinctiveness which is name the alone confers, Amazon, without the brick-and-mortar presence is able to project a larger product line sponsorship of the just books, somewhat akin to eBay’s vision consists of maintaining and expanding its perception of a mega-online retailer (table 1). has entered common vernacular, as a place to find information as well as products. It intends to stretch its reach into Wal-Mart like mass distribution enterprises.


The Barnes & Noble’s content is accessible through a left-handed drop down box to each of its content departments. The HTML Quality is somewhat bland with about 60 to 70 percent dedicated to white space filler or background. The Web sites’ Navigation is straight forward with pop up boxes for sub department interest area. Barnes & Noble category lists which brings up a pop-up box featuring subcategory areas. This tends to be in irritating feature as the user must scroll over the left column subject to find the sub indexes. This creates a busy and unreadable box of lists as the user scrolls of the desired nature had in areas (table 1). Better to have the feature loaded on the front page is a manual eye scan rather than automated pop-up. Its website HTML quality, as noted before, contains pages of the minimal content and minimal color features are present on the first page which needs the customer to initiate all first actions on the webpage. Navigation is minimal based on the column subject boxes, rated downward in regards to the public subcategory boxes which leave in irritating trail of subcategory screen-print.

Borders has a terrific accessibility to their product lines through category lists and many banners. There are also many subject content suggestions arranged under various tabs the customer immediately adds to shopping list. It is a extremely powerful method of suggestive shopping. The sites’ HTML quality of the front page is good. Although there is a lot of white space, there are categorized column which are shaded in an effort to give a balanced appearance. Navigation is quick and easy as referred to in the tabbed books editions in the categorized list by highly specific areas in which to look for desired selection (table 1).


Barnes & Noble’s graphic design is minimal with the Logo to the upper left and, other than the basic brand identity marking on the upper left hand side of the page. The measure of the site’s user friendliness of the menu provides quick access to the desired content with a minimum of advertising distraction. Aesthetics are also minimal providing only very basic blank page feel to the user (table 1).

The Borders graphic design the presents pages that are nicely color-coded and logically set up to present the customer with an appealing graphic sense of order. It is user friendly because the embedded categories window and the featured items windows create an intuitive searching methodology for the customer to find prefer content. Aesthetics again, are nicely color schemed to present a memorable experience for the customer that centers on the company’s colors and logos. Accuracy is satisfactory and the page loads well with no jumbled text

The graphic design Amazons page is nicely done color scheme which helps to keep the corporate logo and company branding in the customer’s mind’s eye. User Friendly once the user is in the dedicated customer page it provides a history product purchases and a suggested new lineup of suggestive purchase based on the history of previous purchases


Barnes & Noble’s purpose is to find reading content or other related product information. Interactivity no overt personalization features to save your favorite or make wish lists. I t serves as a ‘what you see is what you get’ platform. Information process is rated good if the customer is looking for a book, school text, or movie; one will not be distracted using a focused search. The Customer can go right to the product, purchase and get out. It makes the search effort tremendously functional and minimalist (table 1). The web portal’s Verbal Expression some short authors bio or reviews or featured on the front page in summary, but not too elaborates to crowd the page.

The purpose of the Borders website is to continue the brand recognition of the Borders icon and brick-and-mortar storefront presence. The site’s interactivity is rated as satisfactory based on the layout and searched for this page (table 1). The Border front page information process is rated as intuitive for the customer based on well-thought-out layout and design (table 1). Verbal Expression Accuracy and verbal expression accuracy rate is good also based on well-thought-out design and functional category lists that are easily visible using the appropriate color scheme (table 1).’s purpose has been to be a pioneer in the field on-line retail and it has unquestionably pursued an aggressive effort to maintain and grow its market share. These efforts are ensuring that the website is closely recognized with its brand name and values. The Amazon interactivity is rated tops due to its personalization efforts, that is, creating a personalized page reach customers purchase history and perceived preferences. Amazon’s information process , while adequate, the information processing is limited by a single categorized banner and the user’s ability ton a searchable subject matter area (chart 1). Getting a positive assessment of the search engine was slightly lower view of the lack of menu-driven devices. The site’s Verbal Expression/Accuracy is good once the user gets to the customized page and decides what to research and where to find it.

Table 1

Website            Barnes & Noble’s     Borders  





Technology: HTML(rating – 5)
Distinctiveness: Minimalist (rating – 4)

Vision: Functional Portal only (rating – 5)

Technology: HTML(rating – 5)
Distinctiveness: Color Schemed to brand (rating – 7)

Vision: Has front page selection features and basic tabbed search and shopping cart access only (rating – 8)

Technology: HTML(rating – 5)
Distinctiveness: Color Schemed to brand (rating – 7)

Vision: Has front page selection features and basic tabbed search and shopping cart access (rating – 8)





Accessibility: Menu/Drop List (rating – 7)
HTML Quality: Good (rating – 6)

Navigation: Visible Quick Search ability

(rating – 8)

User Friendly: (rating – 8)

Accessibility: Menu/Drop List (rating – 7)
HTML Quality : Good (rating – 6)

Navigation: Visible Quick Search ability

(rating – 8)

User Friendly: (rating – 8)

Accessibility: Menu/Search Bar (rating – 7)
HTML Quality: Good (rating – 6)

Navigation: Search ability focused

(rating – 7)

User Friendly: (rating – 8)




Graphic Design: Too much White (rating – 3)
User Friendly: Straight forward (rating – 6)

Aesthetics: Little Branding, Not memorable (rating – 3)

Graphic Design: Balanced White Space (rating – 5)
User Friendly: Separate distinct features and search areas (rating – 7)

Aesthetics: Good Branding/Brand Recognition (rating – 6)

Graphic Design: Blended (rating – 6)
User Friendly: title/Name Search Emphasis (rating – 7)

Aesthetics: Good Branding, Features Customer’s name (rating – 8)





Purpose: Bookselling, Sticks to core business (rating – 8)
Interactivity: No Personalization (rating – 5)

Information Process: Good product Categorization (rating – 7)

Verbal Expression/

Accuracy: good review exposition (rating – 8)

Purpose: Bookselling, Sticks to core business (rating – 8)
Interactivity: No Personalization (rating – 5)

Information Process: Good product Categorization (rating – 7)

Verbal Expression/

Accuracy: : no front page review exposition (rating – 4)

Purpose: Bookselling, Features (rating – 7)
Interactivity: Personalization non –reading products (rating – 6)

Information Process: Good product Cate- gorization, No books featured on front page. (rating – 6)

Verbal Expression/

Accuracy: : good review exposition (rating – 8)

Content Organization




Innovation: Basic Trade and Stock commercial portal, designed to supplement brick and mortar presence (rating – 5)
Creativity: Lacks a customer connected Brand and Feel. (rating – 4)
Innovation: More a branding identity approach with a color schemed banner layout. (rating – 7)
Creativity: good use of standard formatting to enhance company recognition and image (rating – 7)
Innovation: Branding identity approach with a color schemed banner layout and a user name personalization (rating – 9)
Creativity: Iconic use of branding banner and name recognition to perpetuate customer loyalty. (rating – 9)


Amazon, 2009 Annual Report

Cheng, A., 2011Barnes & Noble Shares Up On Buy Rating, The Wall Street Journal Digital

Network, New York

Darwin, I., 0211 A Better Way to Buy Books? Knowlegde Wharton Today,

Elliot, S., 2002, Electronic Commerce B2C Strategies and Models, Wiley Information Systems, West Sussex, England.

Eechambadi, N., 2005, High Performance Marketing Bringing Method to the Madness of Marketing, Dearborn Trade Publishing.

Kary, T., Sandler, L. 2011, Borders Files Bankruptcy, Is Closing Up to 275 Stores,Bloomberg, Electronic Media,

Kopyoff V.G., 2011 Amazon Earnings Hurt by Spending as Revenue Increases 38%, New York Times.

Murphy M,.2011, Barnes & Noble to unveil new e-reader on May 24  http://www.marketwatchcom  /story/barnes-noble-to-unveil-new-e-reader-on-may-24-2011-05-04 

Spector, M., Trachtenberg, J.A. 2011, Chapter 11 for Borders, New Chapter for Books, The Wall Street Journal Digital Network, New York SB10001424052 48704329104576138353865644420.html

Quality Criteria for Website Excellence, 2011, .htm

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Entrepreneurial Leadership

Steve Case and

Steve Case says that in the economic malaise today, business leadership requires innovation, entrepreneurship and risk-taking. These are qualities which are needed to keep the economy moving forward and growing. Case read ‘The Third Wave by futurist, Al Toffler, early in his business career and this spurred on in his drive to create the interactive services service of AOL. From his perspective, the basis of a well connected interactive empire would create a ‘golden era of target viewership’. Steve Case recounts, after many tenuous lean years to build AOL that the company’s strength later lead up to the AOL / Time-Warner merger. It was the hottest technology of its day merger, yet he describes it as worst merger in history (2011). It occurred in a similar economic malaise which we are experiencing today. His dissection is: ‘As the economy goes into recession the conditions to freefall stem from broader systemic economic events and should not be attributed to a single firm’s lack of success (Case, 2011)’. That is where is his value of persistence plays in holding to a vision of a product or service idea and its outcome.

The AOL/Time-Warner deal was done at the peak of Internet value. AOL perceived value came off as much greater than that of Time-Warner due to its technological uniqueness, although the reality was that Time-Warner a much larger and more power player in the ‘interactive communications’ venue. The fact that it was cable TV’ and not peer-to-peer computer network link meant little to the enthusiasts of the ‘narrow band’ AOL up start. This created a culture clash between AOL and Time Warner people. Manager’s focused on their own separate agendas instead of stepping back of and taking in the larger picture of how to integrate the two technologies into the same service environment. Vision without execution is a hallucinationCase is quoted to say, ‘we had the right vision and the right people but the wrong execution which seemed to lead to an illusion (Case, 2011).’ Google was in its infancy and relatively unknown, and shares were purchased by AOL. Case and his management team wondered, ‘Was the Internet a fleeting phenomenon?’ Google shares were later sold after the IPO, to take a nice gain at the time, but had they held, well the worth to the company would have been enormous as business history has shown.

Will this change the way the world invests in people and ideas that will change the world? Case emphasizes the today’s entrepreneurs should choose areas that are ripe for ‘disruption’. However, you need to change the ‘build to flip mentality’ to the ‘build to last mentality,’ Case believes (2011). He did have to look 10 years down the road when developing innovative ideas. Return on investment may be lowered or years but toward the latter years of hanging onto the idea will pay off in the end. His advocating of the 3P’s, people passion and perseverance, serves as a great new thought mechanism that drives conversion. A vision of product related services becoming service related services based on the usage of the product (Case, 2011).

The new economy and changing world will require that the private sector take the initiatives, especially entrepreneurs, as established corporate firms will lose their edge on innovation and appetite for risk to maintain their status quo. Case propounds that ‘large-companies play defense as opposed to small companies that go on the offense (2011). It’s not just luck, but it’s a matter of being there and finding opportunities, recognizing patterns perseverance really does matter. An ‘Overnight success’ usually has been there for years struggling to create the infrastructure for success. Case advocates for entrepreneurs to figure a way to stay in the game surviving to play another day. Eventually the market will open up and the opportunity for which one is looking for will arise. ‘Get around the wall over the wall go through the wall to get there (Case, 2011). ‘The standard of economic growth and expansion will be measured buy the answer to the question, ‘Is the 3rd century of America going to be as good as the 2nd century America (Case1, 2011)?’

Kouses’ leadership philosophy

What is Kouses’ leadership philosophy? Kouses’ intellectual development passed through at the Levi School of Business which emphasize that there are the five exemplary practices business practices (2011). 1.) The leader models the way, in other words he sets the example through a a clear set of values. 2.) He inspires a shared vision which is about being forward-looking. 3.) He challenges the process, searching for new opportunities to grow and innovate experiment and take risks. 4.) He enables others to act which is about fostering collaboration and strengthening individual capacity. 5.) He encourages the heart by celebrating the values and victories recognize individuals for their contributions (Kouse, 2011).

Leadership is not the private preserve of individuals at the top as they are not the majority leaders in the world. (Kouse, 2011) The majority leaders of the volunteer at the front line and first line supervisor level, they have the most intimate contact with the processes involved (Kouse, 2011). These leaders have more influence than the chief executive officer of the company (Kouse, 2011). Kouse regards that the vision of the future is not just the vision of the top; it must come from those closest to the process and has to be what is practicable (2011). However, Kouse observes, first-line supervisors conduct themselves in terms of short-term goals and processes as opposed to long-term goals or what happens after the project is finished. It must include an expectation what is required on the next project ( 2011).

This is what ‘explanation variance’ means, enabling others to act is by focusing on the team; Focusing on those functioning what best is it that motivates these team members (Kouse, 2011). It is an attendance to their needs and aspirations, but is also inculcating hope for the future for what team members do to revalue quality. Kouse explains, leaders need to build the team’s skills in order to execute, not to provide solely an orientation as the to the leader view, but more towards the people in order to gain connectivity to do what they need do to complete a process (2011). It is a need to improve need to continuously improve on the way we do things on a daily / weekly basis (Kouse, 2011). These new techniques are designed to reinforce what the leaders have tried earlier, a concept of learning theory and how to make the desired outcome of a process happen.

It is better that the leader gain an understanding on the prior week’s activities in order to focus on improvement and innovation. Kouse reports many workers find that the time that was the best for them was when they practiced the improvement designed for increasing productivity for the group (2011). People never do their best when they’re keeping things the same, it’s when they’re doing something, developing new kinds of skills and bridging new challenges, though difficult, but attainable, makes you be at your best to challenge yourself (Kouse, 2011).

Credibility is geared toward modeling the way and credibility is the foundation of leadership, therefore, most precious asset leader has is credibility (Kouse, 2011). Practice what you preach setting a good example in which you do what you preach that’s the core of the concept to model your way according to Kouse (2011).

People work harder and longer for people that they like. If a person don’t think that their interests at heart in the eyes of the leader, they’re less likely to excel and produce me to value says Kouse (2011). Others’ performance in the work creates a climate with people feel cared for and respected. Kouse encourages leaders to say ‘Thank you’ and say often, everyday. Positives must outweigh the negatives. This allows people to be engaged in their work. They need to make time for happy talk so people feel that they want to give their best (2011). Leaders are encouraged, in fact, by the need to conduct a personal audit of identity. Ask themselves, what is the intonation my voice, the presence of a scowl or a smile in my face advocates Kouse (2011).



Case S. (2011) Title: People, Passion, Perseverance: You’ve Got Entrepreneurship


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How CFOs Can Drive Innovation

Innovation is sometimes one of the most difficult areas for companies to master. In this interview, Vijay Govindarajan explains some innovative ways of thinking and offers CFOs some advice on how they can succeed and become leaders in this crucial sphere
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Publication: Strategic Finance
Author: Frigo, Mark L
Date published: July 1, 2010

In today’s economic environment, companies are challenged to find the right pathways to innovation and growth. CFOs can play a vital role in this area. This month’s column features a special interview with Vijay Govindarajan (known as VG), director of the William F. Achtmeyer Center for Global Leadership at the Tuck School of Business at Dartmouth; author of Ten Rules for Strategic Innovation-From Ideas to Execution; and first Professor-in- Residence and chief innovation consultant at General Electric (GE).Widely regarded as one of the world’s leading experts on strategy and innovation, he will publish his next book, The Other Side of Innovation: Solving the Execution Challenge (HBS Press), in fall 2010. This book will focus on successful execution of innovation. In this interview, he shares his thoughts and insights on how CFOs can drive innovation.

MLF: In today’s economic environment, companies are seeking ways to achieve growth through innovation.Why do management teams need to redefine business strategies in 2010?

VG: One of the important reasons as to why companies need to redesign their business strategies is the fact that industries transform fundamentally because of nonlinear shifts. These nonlinear shifts fall into three broad categories. There could be technical discontinuities. Examples would be digital technologies, which are fundamentally transforming media, entertainment, and music industries; nanotechnologies; and genetic technologies, which are fundamentally transforming the pharmaceutical industries. The second discontinuity relates to customers. Customers of the future could be fundamentally different from customers of the present. If they’re fundamentally different, they would also demand fundamentally new business models. Take, for instance, the aging of the population in developed economies. This opens up all kinds of opportunities for the healthcare industry. The third discontinuity is nontraditional competitors. We are seeing a whole new class of competitors coming from emerging markets- countries like India and China. For instance, in the agricultural tractor business, John Deere Company historically faced multinational competitors like New Holland or Kubota. In the future, John Deere will face a nontraditional competitor from India called Mahindra & Mahindra.

Richard Pascale has given us an effective illustration of nonlinear change in the history of the highjump event at the Olympics [Figure 1]. There have been four distinct “business models” in the high jump. Each has enabled athletes to achieve breakout performance.

Early on, the “scissors” style dominated. (It was much like hurdling.) Because all high jumpers used the scissors approach, winning depended upon being the best at that technique. The high jumpers were operating in Box 1 of my Three Box Model of thinking. [See Figure 2.] Had they been businesspeople, they would have been competing on cost, market share, and margins.

Someone changed the rules of the game one day by inventing the “western roll.” (High jumpers launched and landed on the same foot and kept their backs to the bar.) The western roll was the style for 25 years until someone changed the rules again, introducing the “straddle,” aka the “eastern roll.” (High jumpers launched and landed on opposite feet and faced the bar.) In the 1968 Olympics, former gymnast Dick Fosbury broke the Olympic record by three inches, creating a third, discontinuous change. (The “Fosbury flop” involved a straight approach, jumping with both feet and twisting the body 180 degrees, like a gymnast, looking away from the bar.) These nonlinear shifts exemplify Box 3 thinking. Each transformed the high-jump “industry.” In each case, the inventive high jumpers were not just managing the present, they were creating the future.

MLF: In your writings and presentations, you discuss the Three Box Model for thinking strategically: Box 1,Manage the Present; Box 2, Selectively Abandon the Past; and Box 3, Create the Future [see Figure 2]. In today’s economic environment, how can CFOs use this approach to help senior leadership teams drive growth and innovation? Do you have any recommendations or guidelines on approximately what percentage of resources should be devoted to managing the present and creating the future?

VG: In my view, companies need to allocate from 50% to 60% of the projects in 2010 to what I call Horizon 1 [see Figure 3]. Horizon 1 projects are really targeted at the core business. Companies should allocate about 20%-30% of resources in 2010 for Horizon 2 projects. Horizon 2 projects are in the adjacent space. What the company is doing here is taking the current core competencies and pushing them outside their core business into an adjacent space. It could be an adjacent product space, an adjacent customer space, or an adjacent geography space. As an example, when GE moved from selling aircraft engines, which was their core business, to servicing the aircraft engines, that was an adjacency. Companies should allocate 10%- 20% of their resources in 2010 to Horizon 3 projects, which are entirely new business concepts. An example would be Apple’s fundamental transformation of the music industry with iPod, or the telecom industry with iPhone, or the computer industry with iPad.

MLF: In the Harvard Business Review, your article with Jeffrey Immelt and Chris Trimble described how GE is disrupting itself through “reverse innovation.” How would you describe reverse innovation to CFOs, and how can CFOs facilitate it?

VG:We introduced the concept of reverse innovation in our Harvard Business Review article “How GE Is Disrupting Itself” [October 2009]. Historically, multinationals developed products and then sold them in poor countries. Reverse innovation is doing the exact opposite. Reverse innovation is about innovating breakthrough products in poor countries and then bringing them into rich countries. In our view, emerging markets will represent the next growth vector, and reverse innovation is the way to capture that growth.

In the 1980s, GE Healthcare led the development of big, powerful, premium-priced ultrasound scanners designed for use in U.S. hospitals. In 2002, GE introduced its first portable ultrasound scanner, and, by 2008, the portable product was offered for a price of $15,000, which was 15% of the cost of the traditional ultrasound. Today the portable machine is the growth engine of GE’s ultrasound business in China. Rather than the bulky conventional machine, the new scanner looks like a laptop computer. In the Chinese health system, most patients are not treated in hospitals, so equipment has to be portable. The new scanner is also cheaper-recognizing that the Chinese market required “value products.” Even more important, portable ultrasounds have created new markets in the United States. They have been put into use in nontraditional applications, sometimes in entirely unexpected ways. They are employed, for example, in U.S. hospital environments where space is limited and patients are immobile, such as emergency rooms and operating rooms. Between 2002 and 2008, worldwide sales from portable ultrasound products skyrocketed from $4 million to around $278 million-an average annual compounded growth of 50% to 60%.

MLF:What questions would you pose to CFOs to help them frame the strategies of their organization toward greater innovation and growth?

VG: I would say that CFOs should focus on three important issues in generating innovation and growth. The first is to participate in discussions that identify nonlinear shifts that could potentially transform industries. The second is that CFOs should participate in conversations around identifying the current core competencies of the corporation:What is the organization really good at doing? The third area where CFOs can help is to identify projects for the three horizons. Horizon 1 focuses on core business, Horizon 2 focuses on adjacent growth, and Horizon 3 focuses on entirely new business models.

MLF:What advice would you give to CFOs about driving innovation?

VG: The major advice I will give CFOs is they should use very different criteria to select projects that support Box 1 projects, which are related to the core business, as compared to selecting projects that are in Horizon 2 or in Horizon 3, which are really Box 2/3 projects. In Box 2/3 projects it is very difficult to ask for net present value, market research, cash flows, return on investment, etc. because a Box 2/3, by definition, is creating the industry. It would be very difficult to supply market research when you’re trying to create the market. Therefore, CFOs need to approach the selection of Box2/3 projects very differently from the way they select Box 1 projects. SF

Editor’s Note

The ideas presented by Vijay Govindarajan provide great insight for CFOs as they seek to drive innovation and growth. “Reverse innovation” can become an important strategic theme in organizations, and it’s one that can be linked to the overall strategy of the organization. Readers of Strategic Finance will recognize the logic of reverse innovation when viewed through the lens of Return Driven Strategy. The development by GE of the $15,000 portable ultrasound machine shows how focusing on customer otherwise unmet needs (price, portability, and ease of use in India and China vs. high performance in the U.S.) enabled GE to innovate its offering around those targeted customer needs, partner strategically through joint ventures in China and India, and use reverse innovation as a viable options strategy for growth. In addition, reverse innovation can be an effective way to avoid “Innovation Risk” (the inability of an organization to innovate its offerings to better fulfill changing customer needs and needs of customers of the future). This type of strategic leadership and strategic thinking is needed by CFOs as they face the challenges of driving innovation and growth in today’s environment.-Mark L. Frigo

Author affiliation:

Vijay Govindarajan, Ph.D., is the Earl C. Daum 1924 Professor of International Business and founding director of the William F. Achtmeyer Center for Global Leadership at the Tuck School of Business at Dartmouth College. You can reach VG at

Mark L. Frigo, Ph.D., CMA, CPA, is director of the Center for Strategy, Execution and Valuation and the Strategic Risk Management Lab in the Kellstadt Graduate School of Business and Ledger & Quill Alumni Foundation Distinguished Professor of Strategy and Leadership at DePaul University in Chicago. He also is an IMA member. You can reach Mark at


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