Bottom Line Management

Transcription

1 Bottom Line Management

2 Gary Fields Bottom Line Management 123

3 Prof. Gary Fields Cornell University ILR School 354 Ives Hall Ithaca, NY USA ISBN e-isbn Library of Congress Control Number: Springer-Verlag Berlin Heidelberg This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permissions for use must always be obtained from Springer. Violations are liable for prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Cover design: WMXDesign GmbH, Heidelberg, Germany Printed on acid-free paper springer.com

4 With thanks to the managers and students who helped me sharpen the Bottom Line Management message.

5 Table of Contents Chapter One Bottom Line Management: An Introduction... 1 Why You Should Read This Book... 1 Helping the Person in Charge Improve the Bottom Line... 1 What the Bottom Line Is... 2 It s Costly Not to Know What the Bottom Line Is... 4 One Company s Story... 6 Bottom Line Decision-Making... 7 In Summary... 8 Chapter Two Purposeful Behavior: What Are We Working Toward?...11 Mission...11 How the Bottom Line Is Different from Mission, Vision, and Values..12 How a Clearly-Defined Bottom Line Helps You Manage Yourself and Others...14 Lack of Clarity Is Endemic...15 Cultural and Ethical Constraints...18 In Summary...20 Chapter Three Five Types of Organizational Bottom Lines...23 Category 1: Profit-Seeking Companies...23 Category 2: Highly-Focused Not-for-Profits...25 Category 3: Dominant-Objective Organizations...27 Category 4: Double (or Multiple) Bottom Line Organizations...29 Category 5: Can t Tell Organizations...31 In Summary... 32

6 viii Chapter Four Benefits, Costs, Profits, and the Good Work of the Organization...35 Understanding the Organization s Scorecard...35 Profit and Loss, Revenue and Cost...37 Profit-Focused Decision-Making in Companies...40 Benefits and Costs in Not-for-Profits...41 What if Benefits and Costs are Hard to Quantify?...43 In Summary...45 Chapter Five Making Decisions to Maximize the Bottom Line When Do You Maximize and When Do You Optimize?...50 A First Case: The Advertising Agency Problem...51 The Most Common Decision...52 The Right Decision...52 Using Spreadsheets to Help You Maximize...54 Other Incorrect Answers...56 Thinking Inside and Outside the Box...57 Using Shorthand Rules Can Get You in Trouble...58 A Variant in a Not-for-Profit Setting...59 In Summary...60 Chapter Six Three Good Decision Rules and Many, Many Bad Ones...61 A Second Case: The Store Detectives Case...62 Correct and Incorrect Answers in the Store Detectives Case...64 Two Serious Mistakes: Considering Only Benefits or Only Costs...65 Other Serious Mistakes: Using the Wrong Ratios...66 Comparing the Decision Rules...67 Distinguishing the Good Decision Rules from the Bad Ones...69 A Third Case: Developing a New Product...72 In Summary...74 Chapter Seven Making Investment Decisions: Rate of Return and Net Present Value...77 Two Methods for Calculating ROI: Rate of Return and Net Present Value...78 Using Rate of Return and Net Present Value to Make Up/Down Decisions...80

7 ix Using Rate of Return and Net Present Value to Choose Among Projects...82 A Fourth Case: Basic Training or Deluxe Training?...82 Decisions Based on Rate of Return and Net Present Value...83 Rate of Return, Net Present Value, and the Bottom Line...84 A Variant of the Fourth Case: A Fixed Training Budget...85 In Summary...87 Appendix to Chapter Seven: Rate of Return and Net Present Value in Real Time...87 Chapter Eight Making Interdependent Decisions: People, Process, and Technology...91 The Interdependence of Product Market, Capital Market, and Labor Market Decisions...91 A Fifth Case: People, Process, and Technology in Custom Apparel Production...92 Some Possible Answers...93 Getting the Correct Answer...94 What s Wrong with Some of the Answers Given...97 Analyzing the Correct Decision...99 In Summary Chapter Nine Bottom Line Management: An Executive Summary...103