Paradigm Shifts for Business and Stock Investing Today

How should we respond to business and stock market conditions in July 2008? There have been difficult trading conditions in the past. However, the tragic succession of sub-prime crime, instances of regulator duplicity, flagrant violations of the Basel II norms, crippling shortfalls of farm produce, and ascendancy of oil-rich countries, make a deadly brew that we have not faced before.

Business mimics war. It is time to resort to financial planning in the way of a soldier under siege. Established methods will not work in extreme adversity. Retreat, charge, and attrition are three major options available when an enemy force threatens to over-run you. Guerrillas excel in emergency practices compared to organized armies, because they are more accustomed to making as much as possible out of scarce resources. How can battle-field survival principles be used in a Board room or on a stock trading screen?

You have to make every shot count when you are surrounded. No bullet should be wasted while you wait for reinforcements to arrive. Cash is your ammunition in today's business environment and stock market. Impose a zero budget discipline with immediate effect. Do not spend money merely because that is your habit. Question all expenses. Be wary of small-ticket items. They add up faster than people think. Similarly, clamp down on purchases on credit. You are at risk of failing to meet commitments that others have made on your behalf. Make sure that your receivables are real. Negotiate discounts to liquidate book assets early. Phase expenditure so that financial closure can be brought forward. Scale down mega projects. Involve your entire team in cash flow crisis control.

Women, children, food, and water are top concerns of a garrison facing disaster. You also need power, communications, and medicines. Tomorrow's post will be on how to deploy scarce cash.

Exit Lessons for Business and Stocks from Horse Racing

A mark of etiquette is to know when to leave a party. It is the same in the commercial world. Entries are enthusiastic and full of dreams. Expectations are often exaggerated. Disappointments are nearly inevitable. How long should one hang on to a business or a stock?

A cash crunch may force an exit. The benefits of predicting the course of events are clear. A professional business manager or stock investor is like a reliable astrologer or a meteorologist. You have to be able to predict the future. The latter holds only possibilities and no certainties. Does this make business and stock investing forms of gambling?

President Bush has distinguished horse racing from online betting. His administration banned people from gambling online, while steadfastly refusing all requests to extend this bad habit to horse races. This discrimination was not because of any personal gains, as democrats and communists may like to suggest, but for world freedom and security. What can we get out of this?

Observe the ways of a successful punter. He or she will not bet on each and every race. Weather, turf, lineage, and the rider, must all be weighed before you double your bet or call it quits. You can also learn when to exit a stock or a business by finding out why the damned have lost fortunes on race tracks.

Motivated rumors, crooked jockeys, sick horses, and oddly-shaped race courses, may turn jackpots in to baskets of disaster. However, bookies never lose. They are only brokers. Similarly, publishers of racing forms make their bucks even before a race starts.

Please post or email StockWay.MyView@gmail.com if you are a horseracing enthusiast. We need your help with business moves and stock picking for the week that starts today.

Pinch Business and Stock Market Bottoms at Will

Only Italian men can wear unspeakable habits on their collective sleeves with abandon. However, bottom-fishing is an accepted and even a praise-worthy habit of a stock investor.

How should we deal with the stock trading week that will start tomorrow? It is no consolation anymore that world stock exchanges now seem to act in concert. Where can a global investor park money? Obviously, gold retains its legendary luster in this respect. However, market movements for this metal last week indicate that prices are already ascendant.

Contrariness is a hall-mark of successful stock investment. Theory says that it could be time to buy now. What if prices fall further? Sitting on the fence is not an option because money costs money unless you are part of an Islamic banking system.

We have to put money in to stocks that stand to gain from turmoil. Companies that can carry on business regardless of inflation, recession, inclement weather, and civil unrest threats are top picks for the week ahead.

Switzerland and the United Arab Emirates are the best countries in which to invest at this time. Investors with dollars are lucky because they can participate in stock exchanges of these countries, even if they live elsewhere. Global corporations based in these countries may offer investment opportunities in your local stock market, through listed subsidiaries. Here is an example:

http://www.nestle.in/inside_StockFin.aspx?IR=3&id=1

You cannot be sure that you have really touched a nadir with any stock, but the ones from professionally-managed companies, with classic brands from essential sections of the economy, will climb faster than the rest of the pack, and see you through to a pole position when the ongoing free-fall finally ends.

Post below or email StockWay.MyView@gmail.com if you have a great stock investing idea for the last day of the terrible month of June 2008, and the rest of the coming week. You can also ask for custom portfolio advice.

Lying Business and Stock Market Statistics

Information was not considered to be an express resource when business management was born as a vocation. The stock market is different in this respect, because the Great Depression was as much about rumors as related to facts.

Sociologists recognized the power of propaganda before business school professors. Paul Virilo's writings predate any other genre of scholarly publications. His jargon of 'dromology' and the 'information bomb' has also remained exclusive.

Stock market analysts and TV business channel anchors play on the powers of incomplete information. You can trick competing investors to buy and sell stocks at wrong times by using information as a weapon. Tell the truth, but not the whole truth. This is the technology of presenting lies as facts.

What does this mean for you today?

The world stock market has climbed on June 25. Is this a sign of a bottom?

World leaders met in Riyadh last Sunday. Crude oil prices have not registered any stable decline. Neither Chavez, nor Iran have withdrawn their threats to take this resource price still higher.

China still reels under excessive precipitation, while the vast majority of India's farmers wait anxiously for moisture to save their crops. Early rains and a normal monsoon are not the same thing by far.

The worst news is that politics continues to score over economics. Major governments, like Nero, fiddle while we burn.

How can we extend this example of dromology to acquire skills of separating grain from the chaff of media stock market news?

Here is a free and easy tip: modeling and simulation confirm or deny facts presented by numbers.

Do post or email Stockway.MyView@gmail.com if you want to know more.

Disbelieve every stock market of June 25 2008 in any case.

Tight Credit Conditions Benefit Business Managers and Stock Investors

A corporation, a partnership, or a proprietary concern can all work with their own funds. They can also invite others to share in ownership. Merchant banking is not an essential service.

All countries have regulatory central banks. It would appear from media reports that they have nothing else to do apart from changing lending rates and conditions.

Economists say that interest rates and industrial growth are related. Bank funds do result in growth, but the benefits may not be distributed equitably. You and I are powerless to change this, but tight money conditions need not be all bad.

A serious stock investor can use difficult fund conditions to pick top stocks. Firstly, it is an appropriate occasion to shed under-performing stocks. A portfolio can change for the better in difficult stock market conditions.

Bank managers are generally slower in raising pay-outs on deposits than on raising charges for money they lend. Divert your savings to stocks with durable values, when banks pay less than the rate of inflation.

That is one example of how it can make sense to stand up to a stock market bear.

Tight money conditions encourage managers to think more about the cash they waste. Consider how the oil marketing companies have curtailed advertising during June 2008. Only M. S. Dhoni and Narain Kartikeyan lose if India does not promote branded fossil fuels.

Some sales-dominated companies buy customers with credit rather than with their own products and services. Banks do them favors by raising interest rates, and by refusing inflated credit lines.

It is the same with inventory. Which warehouse does not have slow-moving items? Tight credit conditions remind managers to visit their godowns once again.

Do you need some tailoring to adjust to your central bank directives? Post below or email StockWay.MyView@gmail.com

Dividend Regression for Stock Picks Amidst Bears

Subsidiaries of global corporations are best examples of stocks for which you can expect dividends to climb like a jet in any weather. It is an important route for the real owners to get their hands on cash from operations in other countries. All demands on cash are subservient to the aspirations of group companies. Dividends of such corporations are nearly assured. Here is an example of a stock with 200% dividend in the face of pedestrian market share performance:

http://www.pharmabiz.com/article/detnews.asp?articleid=44218&sectionid=5

Since online trading has become hazardous nowadays, your time can be spent more profitably by making graphs of dividend histories. All you need is a likely dividend that beats the bank interest rate. Fortunately, this genre of stocks will also allow you exits with handsome gains once the market stabilizes again.

Please post below or email StockWay.MyView@gmail.com if you know of a stock that has a stable dividend record.

Companies with undervalued assets are other targets for a discerning stock investor during a recession. We will debate examples tomorrow.

Signs of Great Stocks

We considered top stock picks for turbulent market conditions, yesterday. U.S. auto manufacturers are frightening examples of how blue chips of the past can have bleak futures.

Nothing is forever in the stock market.

No stock issues guarantees against price declines.

Sustained stock market success demands that investors must think like doctors. Think ahead. Do not be misled because patients say that they are fine. Make a thorough examination. Use the best diagnostics on offer. Arrive at a diagnosis. You can provide symptomatic relief in an emergency, but management without an established understanding of the cause will not lead to a durable solution.

You can use concepts of medicine even if you are not a doctor-not to practice quackery, but to survive in the stock market.

The term ‘cash is king’ has come back in to fashion as the penultimate week of June 2008 trading unfolds.

It is opportune because cash flow changes herald future changes in the fortunes of stocks.

Retained earnings, buy-backs, early loan repayments, titles to natural resources, hedging in favor of limited materials, protection against badly governed currencies, and cost re-engineering, are positive signs. Reverses are equally true.

Exit blue chips that exhibit negative signs. Divert your portfolio to stocks managed by professionals. Forget indices, today’s stock exchange, and day trading.

You can also switch your TV from business to music.

Emergency Stock Investment Advice for the Week Beginning June 23rd 2008

There have been informal suggestions that this kind of guidance would help small stock investors more than academic posts on business management strategy. The situation during the week ended Friday, June 20 2008 suggests that many organizations and people must be in quandaries over what to do with stock portfolios.

Here are some tips. Please post below or email StockWay.MyView@gmail.com if you would like to know more about any of the following suggestions:

1. Buy stocks of corporations that have decades of unbroken dividends.

2. Favor companies that make essential goods and services.

3. Look for global corporations that have shares in the United States, Japan, the European Union, and the BRIC block.

4. Focus on companies with safes full of patents, and balanced revenues from proprietary brands, as well as from large-volume generics.

5. Study balance sheets so as to pick stocks with strength to withstand market volatility.


Here is an example of a company with which I have been associated for all my professional life, and which has never let me down:

http://www.novartis.com/

MBO Infrastructure for Business & Stock Investment

MBO is a way of life more than a business management method alone. The wide gap between the MBO way and normal functioning may be a major reason for its neglect in conventional business.

Here is a reference to a book that you can use as a reference to implement MBO:

Drucker, P, 2007, The Essential Drucker, Butterworth-Heinemann

The rest of this post will dwell on work habits that can help a stock investor graduate to MBO.

Recording, Reviewing, and Restriction are the 3 Rs of MBO.

Objectives must be written down.

Performance should be measured regularly, and preferably independently.

Resource limitations should be stated expressly.

Why is any of this different from common stock investing?

Do you have written objectives for your stock portfolio?

Who reviewed your alpha and beta last?

Are authority limits, finances, hardware, time, and knowledge resources specified?

You will see that MBO takes time but costs nearly nothing. Anyone can learn the skill. An MBO-directed stock portfolio is unlikely to lose more than you can afford. It protects you by defining a worst case scenario.

MBO helps you implement strategy in a risk-management ambiance.

Post below or email StockWay.MyView@gmail.com if you would like some help with applying MBO to your stock portfolio.

The stock market scene of June 2008 is one of great crisis. We have to leave general thoughts on strategy aside, and try and put together an emergency plan for the rest of the month.

Please come back tomorrow, and let us put our heads together.

A Standard for Business & The Poor

Management Guru Peter Drucker first described MBO more than half a century ago. It is not part of most business school curricula, and even rarer in contemporary business practice.

There is no compelling argument for MBO to have fallen out of fashion. It is effective, and does not require large cash outlays.

MBO is a standard for business and the poor. It suits small stock investors, business enterprises that cannot afford expensive executives or consultants, and everyone who wishes to create commercial value out of intangibles.

MBO benefits transcend profits. All organizations and individuals can deploy MBO skills for improved performance. MBO levels the playing field for the Davids of this world. You can trade against private equity in a stock exchange with MBO by your side.

MBO transforms self and thinking. It can make you a social outcast. Why is this? MBO is like a language or a script. People who do not use MBO feel threatened by a skill that they lack. This may be a reason for the decline of MBO in the business world. It is not any established way of playing the stock market either.

You can use MBO to stand apart. It may not help with your popularity, but it certainly can improve your stock portfolio.

We will start a new series tomorrow, applying MBO step-by-step to stock investing strategy implementation.

Your posts and mails to StockWay.MyView@gmail.com are always welcome, and you are assured of responses as well.

Execution Excellence Delimits Business and Stock Strategies

A poor strategy with disciplined execution is better than a superior strategy that remains on paper.

Crafting strategy takes time and money. It is better to focus on operations if commitment to abide by agreements are lacking.

The best way to implement strategy is to make action plans. The latter should identify responsible people, and set quantity, quality, cost, and time targets.

Management by Objectives (MBO) is a rather old-fashioned but highly effective way of ensuring implementation discipline after strategy has been agreed.

MBO is ruthless and exposes all cases of prevarication without mercy. Perhaps that is why MBO has gone out of fashion in modern offices staffed by salaried personnel.

MBO life is easier for stock investors because they work alone or in small groups.

Let us start a new series tomorrow on MBO for stock investment.

Targeting Business and Stock Segments-Part 5 of 5

Here is a link to a post that you should read:

http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article.jsp?value=BR0801&ml_subscriber=true&ml_action=get-article&ml_issueid=BR0801&articleID=R0801E&pageNumber=1

This last post in the series on targeting will try to apply Professor Porter's concepts to stock investing.

Structure is the last element of S4.

Governments, technologies, social trends, and Mother Nature, are four overpowering forces that structurally change sector and industry targeting. Even if three elements of S4 are stable, structure alone can upset the apple cart.

China is a prime example of governance that dominates stock market targeting. Russia is gradually veering towards a similar situation. Government policies are weapons of competition in the United States, where lobbying in Washington is a major industry in its own right. Non-communist parties in India follow the U.S. lead, though the means of influence are not easily apparent. Brazil is heavily influenced by environmental and indigenous concerns. Each country has its own equation between politics and business, and democracies see periodic changes as well.

Technology is a dicey matter. The journey from laboratory to market is long and tortuous. A drug may pass one clinical trial with flying colors, only to fall at the next hurdle. Many electronic technologies first appear well ahead of time. Imagine what would have happened if India had persisted with socialist propaganda against computers in the 1970s. Some technologies suffer from the abuse of power politics. The best telecommunications technology can give way to an inferior one in which powerful people have business interests. The worst part is that technology does not stand still. Today's wonder calculator is junk tomorrow. Stock portfolio targeting cannot work unless the dynamics of technology are taken in to account.

Generation gaps are infamous but inevitable. Young people with new purchasing powers create upheavals in the market. Similarly, business segments of yesteryear decline as paying customers retire, grow old, and fade away. There were no significant demands for denim and designers when senior citizens of India today were young. How many new tailors start shops every year now? Fashions change within generations. People consume less soda now, but eat more fries. Dining out and fine wines are new status symbols, but buying encyclopedias and charity donations for public utilities have become rare. Suffice it to say that an alert stock investor will look for subtle changes in society, and change stock market targeting accordingly.

Earthquakes, tsunamis, and droughts are stark examples of disruptive elements that can affect any stock portfolio without warnings. Fortunately, the effects of floods are not as lasting. The only action a stock investor can take is to construct low probability but serious scenarios, and to rehearse the best contingent actions possible. That is why it is better to avoid excess exposure to farm production and insurance.

This brings concepts of targeting for stock investing to a juncture. There can be no end to such a voluminous topic, and your posts and emails to StockWay.MyView@gmail.com will always be welcome and acknowledged.

We will take another step on the business and stock strategy journey tomorrow.

Targeting Business and Stock Segments-Part 4 of 5

Information drives systems for targeting a stock portfolio.

Currency is the key issue: private equity and credit rating agencies look at business plans for the future, while retail stock investors are fed dated information about the past.

Insider trading rules makes the stock exchange playing field unequal.

You can make money by hanging on to the coat tails of the rich. Here are some secrets of legal insider trading:

1. Large corporations have their own versions of the CIA. They know what happens in the engine rooms of competitors. Your friend cannot tell you about the workings of his or her company, but may be happy to spill the beans on competitors.

2. Make friends in the cargo booking office of a transporter. Even truck drivers and their assistants can tell you whether shipments to and from factories have risen or fallen.

3. All tiers of a distribution chain can compare business trends within a particular company, as well as compare performances by competing brands.

4. Suppliers know first. Industrial clients cut back or scale up capacities through suppliers. New products and services mean new requirements. Competitors knew details of the Nano launch by Tata Motors before most other stakeholders, because the automobile industry shares manufacturers of tires and a host of other accessories.

5. The Internet has put many tax collection points in the public domain. Advance tax paid by a corporation may be distorted by fiscal incentive systems, but is otherwise a reliable indicator of near-term results.

How do you fashion your information system tools for sharp targeting of a stock portfolio? Post below or email StockWay.MyView@gmail.com

Let us conclude this series with a final piece on S4.

Targeting Business and Stock Segments-Part 3 of 5

Business and stock investing can be like sports: you must know the rules and keep the goal-posts in view.

This is why Standards are S2 of 4.

Profit, stock price, growth, and dividends are secular measures, but they do not suffice for targeting.

Investors and executives should set additional standards which are relevant for their targeted business segments. One can find these from the Key Factors for Success that drive an industry.

Brands, peak production capacities, excellence in logistics, sourcing moats, and credit-appraisal, are some examples of standards that facilitate sharp targeting.

Standards are more qualitative than a set of numbers alone. However, they can be specified tightly, for group review and records.

Please post below or email StockWay.MyView@gmail.com with your views and issues on standards for targeting.

We will move on to Systems tomorrow.

Targeting Business and Stock Segments-Part 2 of 5

Large financial institutions typically retain domain specialists at enormous sums of money. It is the same with business channels on television. You cannot substitute experience when it comes to obtaining an insider view of an industry or a sector, in a legal way.

Specialization need not involve big bucks. The Internal Revenue Service of the United States encourages the formation of investment clubs. The latter enjoy fiscal benefits if they run as trusts. You can form an investment club wherever you live. You can enjoy specialization benefits whether or not your tax authorities encourage this.

A common error is to ask for free or casual advice. Most domain experts will exercise their minds only if they are held accountable for their opinions. They may also voice misleading ideas with selfish angles. Specialization will work on a professional plane for targeting only if the advisor has a stake in the action he or she recommends.

A compromise approach to specialization for targeting is to limit your portfolio to the industry which you know best. This works well for loners, who enter a stock exchange only after decades of service in a single segment. However, one head is rarely better than at least two.

Do post below if you are an authority in at least one segment of the world economy. You can also mail

StockWay.MyView@gmail.com

Let us turn to standards tomorrow.

Targeting Business and Stock Segments-Part 1 of 5

The Marketing Mix is the optimal process to target in the business world. There are four elements Philip Kotler immortalized for products. Services Marketing has added another four elements. They also start with the letter 'P'.

The Marketing Mix is not an appropriate thought process for a stock investor in search of sharper portfolio targeting. It is better to think of four approaches, each of which begins with the letter 'S'.

Specialization, Standards, Systems, and Structure are the four elements for targeting in stock investment. The S4 System breathes new life in to a stock portfolio, whether bulls or bears rule the stock exchange jungle.

Please do not forget: S4 without Segmentation is like a powerful automobile with an empty fuel tank.

Do you have questions or comments on the S4 Segmentation equation. Post below or email StockWay.MyView@gmail.com
You have a guarantee of a response within less than 24 hours.

We will take up Specialization tomorrow.

Sector and Industry Segmentation for Top Stock Picks

Most of the earlier posts on this web log have related to both business management and to stock investment. Very senior executives and business owners have rare opportunities to consider new sectors and industries for entry. However, all genres of stock investors have to decide on this kind of segmentation at least once every few months.


Does your stock portfolio need a reshuffle? Here are some leads from creative segmentation:

1. A corporation may be in the wrong category. It may have changed the nature of its business, while its stock exchange basks in the past. Here is a link to new revenue lines of a tobacco company:

http://www.itcportal.com/


2. A particular sector may move contrary to the general economic trend. The Basic Materials Sector for example, has appreciated by more than 30% in the 12 months ended May 2008, against a 10% decline in the S&P 500. The Capital Goods Sector, on the other hand, has declined by 20% during the same period.


3. All industry members of a sector do not move in unison. Though Basic Materials have appreciated, the Chemical Manufacturing part of this sector, has declined over the past year. Similarly, the Construction and Agricultural Industry has appreciated by 10% over the past year, though its parent sector has declined.


4. Individual stocks can be identified by the Beta they achieve. Here is a link to a member of the sluggish Chemical Manufacturing Industry, which the stock market values 90% higher than a year ago:


http://www.praxair.com/


5. Some investors are ruthless, and segment only by dividend track records. Who can argue with a company started by a Guru, with more than 60% dividend growth over five years, more than 40% Payout Ratio, and less than 22 for a Price to Equity Ratio?

Post below or send an email to StockWay.MyView@gmail.com

if you fail to guess to which stock point five above pays tribute.

We will move on to targeting for the coming week-end.

Money from Country Segmentation for Business and Stock Investing

This post dwells on some unusual ways of segmenting between stock markets and within a single stock exchange.

Retail stock investors are rarely accustomed to operating abroad. Regulators and politicians like it this way. It leaves the field of world-wide investing to elite private equity.

Here are some revealing facts about why stocks on the other side of a border may be greener:

1. Interest rates vary widely. All Central Banks do not act in concert.

2. Inflation rates also vary between countries. Some governments reduce their deficits to manage the phenomenon.

3. Gross Domestic Product varies by base sizes, and growth rates.

4. Some countries form blocs. Cartels lend group powers to some stocks, while destroying others.

5. Some governments are driven by business owners, albeit behind the scenes. They take decisions in favor or against targeted stocks.

Now you may be annoyed, for none of this is new. However, creative segmentation starts by putting discrete environment scan factors together.

How can the five pieces of common knowledge listed above lead to segmentation for a better stock portfolio?

- Focus on stocks of international companies that buy cheap and sell in the first world.

- Use time zone differences to make intra-day gains in a stock exchange that is heavily influenced by another

- Track and mimic foreign financial institutions

- Analyze implications of public statements by politicians heavily influenced by business and extraneous interests

- Study political donations by business where such information is in the public domain, as in the United States

Retail investors in some countries are barred from buying stocks overseas. Such freedoms are restricted to elite. However, it does make sense to pick and choose between stocks in various exchanges, where possible.

We will turn to sectors and industries tomorrow.

The Business Management Way of Segmentation for Top Stock Picks

Segmentation joins business management and stock investment.

A comment on yesterday's post points to the need to separate segmentation for a portfolio from the same process for individual stock picks.

Similarly, a business manager has to distinguish segmentation for brand development from the same process for a horizontal integration decision.

Everyone segments, at least in casual manner. Misunderstandings arise when each member of a team segments in his or her mind. We may forget or get confused even if we segment alone in our minds.

Formal segmentation is written. It stays on record. This is a major advantage of professional segmentation.

It is time for an example.

Yesterday's post has a comment on conventional segmentation for a stock portfolio.

Tomorrow, we will dwell on other approaches to segmentation between countries, and within a single stock exchange.

Segmentation for Business and Stock Investing

All marketing curricula include training in segmentation.

It is a skill that requires practice. Business school alumni who branch in to finance and other functions, quickly lose their abilities to segment optimally.

Segmentation also has creative dimensions. You can keep improving at doing it, or gain by using a third-party consultant.

Segmentation is a starting point for the craft of a differentiation strategy. You can use it for business or for stock investing.

Most text-book segmentation methods have become generic. Demographics and economics are typical examples. You cannot arrive at differentiation through a generic route. That is an oxymoron.

Differentiated business and stock investment strategies need creative segmentation. Just as various artists using the same media can produce novel works, so a professional marketer can use data and hypotheses to conjure new and profitable growth segments. Investors should check the segmentation values of stocks they pick. Here is an example of great segmentation:

http://www.senorx.com/

Everyone fears cancer. Women have additional vulnerabilities in this respect. Early detection is a key to successful management. Doctors, engineers, and scientists, have come together for a unique segment.

Do you know of other examples of creative segmentation? Do you use this parameter in your stock picks? Post your opinions and ideas below or email

StockWay.MyView@gmail.com

We will consider tomorrow if business process can be used for top-quality segmentation. That will reduce the chances of an entirely creative method remaining incomplete.

Differentiation Strategies for Business and Stock Picks

Customer preferences are common starting lines for all strategies related to differentiation. This applies equally to business management and to stock market operations.

Technocrats are often guilty of trying to force their products and services on disinterested customers. It used to work in the early days of the 19th century Industrial Revolution. The approach persists in monopolies and oligopolies. However, there is no place for imposition in conditions of nearly perfect competition.

The first step towards meeting customer preferences is to target a segment or a cluster. Customers may be final consumers, influencers, sellers, or even colleagues. All stakeholders are customers. Readers are customers of this web log. Everyone is a customer, and has customers as well.

A customer is someone we are charged to serve. Even leaders and people in positions of authority actually have duties to serve the people who are their customers. The concept is not widely practiced because not everyone is a professional business manager. However, it is the only sustainable option when customers have alternatives.

Please list all the manufacturers and service providers for which you are a consumer.

Make a list of your own internal and external customers.

Exercises in identifying customer groups will help in segmentation, clustering, and targeting.

Post below or email StockWay.MyView@gmail.com if you need help with customer identification.

We will dwell on segmentation tomorrow.

When and How Cost Leadership Works for Business & Stocks

1. The product or service involved should be essential for a viable market segment.

2. Size and growth justify cost leadership: it is generally inappropriate for niches.

3. Cost leadership needs deep and wide moats. Capital, technology, regulations of other barriers should keep competition away.

4. Cost leadership should be sustainable. You may enter a market through pricing, but operating costs will gnaw away at your position.

5. Productivity and value engineering sustain cost leadership. You must stay one jump ahead on the learning curve at all times.


Each of these five concepts need expansion, clarification, and examples. Post below or email StockWay.MyView@gmail.com if you would like to know more. Your own inputs on cost leadership are also welcome.

We will move on to differentiation tomorrow.

Cost Leadership as a Business and Stock Investment Strategy

Since the craft of strategy is so nebulous, it helps to think in terms of generic options.

Cost leadership leads to a whole slew of strategies. Business managers and stock investors can deploy cost leadership with equal facility and efficacy.

Vertical integration is a major plank of a cost leadership strategy.

Here is an example of extreme vertical integration:

http://www.wockhardt.com/mainpage.php

The Group does everything from research to generics. It sells fast food and insulin as well. It spans health care all the way from pharmaceuticals to hospitals. It sells cheap and generates cash at the same time.

Cost leadership can be risky. It can be confused with penetrative pricing, exposing stocks to uncontrollable inflation. Here is an example of such muddled thinking:

http://www.telegraphindia.com/1080607/jsp/business/story_9377523.jsp

Cost leadership is also confused with regulatory largess. You enter a low-margin business segment because cronies keep the competition at bay. However, the tide can turn against you. Take a look at:

http://www.moneycontrol.com/india/news/buzzingstocks/relianceenergy/relianceenergyplunges51/market/stocks/article/320719

There is no dearth of reasons for cost leadership strategies to fail.

Please post below or email

StockWay.MyView@gmail.com

with your views on this matter.

Tomorrow's post will consider some measures to make cost leadership work.

The Building Blocks of Business and Stock Strategy

A military person can explain strategy crafting best. Business and stock investors have borrowed the term from the bloody stretches of the battle-field. It is said that business mimics war. This is certainly true of strategy.

Strategy is creative though one may employ process to fashion the outcome. As with numerous artists who work with the same media, various teams of business managers and stock investors may craft different strategies out of a single set of Environment Scans, Goals, and Assumptions.

There is one major and a minor aim for strategy.

It should leverage strengths and opportunities as much as possible.

The lesser aim is to shield weaknesses and to protect from threats.

The major aim contributes the goals, while the other protects from unfavorable developments.

Strategy should open as many degrees of freedom as possible. It should work in a broad range of situations.

Execution of strategy takes major resources. It is expensive to change strategy. That is why crafting deserves all the attention we can provide.

Secrecy and surprise are important elements of strategy. Many professionals go to all legal lengths to throw competitors and adversaries on wrong tracks.

However, strategy does not need to be expressed in writing, so that it can be reviewed in future. Written strategy helps large teams pull in the same direction. Strategy must be written succinctly, comprehensively, expressively, and in inspiring manner.

We shall consider examples of strategy tomorrow.

A Wrap of Assumptions, Strategy, Business, and Stock Investing

The last several posts have dwelt on next steps after goals have been set in response to an Environment Scan. Our concern has been to craft strategy with equal relevance to business management and to stock investing activities.

We have encountered major road blocks in enumerating assumptions. We have listed 10 of them, and discovered that they may force us to revisit strategy more often than once a year. Classically, strategy is supposed to be relatively unchanged, for otherwise it will merge in to operational tactics.

How can we distinguish between the two? Frequent changes in strategy can sap organizational vitality. It may also confuse a stock investor. here are some ideas:

1. Make management a duopoly: form a team, whether you run a business, or manage a stock portfolio. Divide execution from review. Encourage one person to drive while you keep a look-out. Reverse roles from time to time. Put heads together to decide whether to stick with strategy, or to change course.

2. Benchmark with airline pilots: regular rehearsals with realistic simulators keep this fraternity ready to deal with emergencies at any time. Business modeling and wide exposure to management cases can keep you on your toes. It is a great way to hone execution skills as well. Online trading allows us to play with theoretical portfolios and to see improbable implications of stock investment options.

3. Optimize rather than maximise: this is related to the previous point. A strategy that promises reasonable results over a large number of scenarios is better than one which links super rewards with high risks. A corollary to this approach is to bank on internal appraisal systems, because people who are not privy to the strategy crafting process will not see optimal results in true light.

We are now ready to craft strategy, and will start the journey tomorrow.

Three Assumptions That Impact Business and Stock Investing Strategies

The subject of assumptions and their impacts on the Strategy Crafting process for Business Management and for Stock Investing is more complex and involved than I thought when I first started these posts.

Bear with me as I tarry on this subject like an airline which keeps delaying take-off. The pay-offs will make your patience worthwhile.

Do troll earlier posts if you are a first-timer here, and searching for context and relevance to your business or stock situations.

8. Human resources: all people are created equal, but some business managers matter more than others. They can shift balances between competing stock values when they change employers. Besides, they tend to hunt in groups, and one separation may trigger a veritable flood. Changes in fitments to organizational structures are amongst the most important developments for business managers and stock investors to track. Recall how private equity loves to tag their capital supports with specific individuals to remain in key executive positions.

9. Funding: this point is related to the previous one. Separations and acquisitions of highly-valued executives can make strategic and financial stock investors pull plugs on fund flows. Strategy is not affected by such developments when an enterprise depends mainly on internal cash generation and reliable lines of credit. However, stocks in closely-held corporations, and ones in early stages of the business development life-cycle, may crash overnight because of some key personal decisions. The Biotechnology & Drugs Industry is a key case in point.

10. Investor sentiment: stock market trends are rarely logical. Academics and professionals make incorrect forecasts every business and trading day. Official statements by regulators and business tycoons are sometimes dismissed out of hand by masses of investors in a stock market. Mass media is a powerful element of Dromology. Business channels on TV may affect factual reviews based on positions to which their owners, sponsors, advertisers, and anchors may be committed. Investor sentiment changes over time, and can influence the relevance of business strategy. India's apparent preference for polluting uranium over its natural sun, wind, hydrogen, gas, geo-thermal, water, and tidal resources, is a case in point.

Whew!

We are done with assumptions at last. Perhaps a wrap will be in order. This will be the aim of tomorrow's post.

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StockWay.MyView@gmail.com

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Business, Stocks, Strategy, and Assumptions

Please visit yesterday's post, right below this one, for the first five assumptions that can force a review of business strategy.

6. Public values: business and stocks both depend on consumers. Some companies sell direct to final users: automobiles and consumer durables are examples (in cases of company showrooms). Such enterprises feel the effects of changes in consumer tastes immediately and directly. Other sectors of the economy have multiple links in chains between producers and final users. This is why Other Equipment Manufacturers which supply automobile and consumer durable manufacturers with components, may take time to feel the effects of changes in consumer preferences. Nevertheless, the effects are never to be denied. Business managers and stock investors have to set fresh course when consumer tastes and preferences change. These things happen gradually most often, and can be covered in annual strategy reviews. However, public demonstrations by icons and natural events are typical instances of sudden and disruptive changes in consumer behavior. A popular star can cause upheavals of brands by endorsing or rejecting some form of clothing. Reports of virus outbreaks have turned masses of people away from meat overnight.

7. Nature: the tragic May 2008 earthquake in China is a stark reminder of how nature can put paid to the best-laid plans in a flash. One of the main tests of the quality of strategy is to check the number of scenarios with which it can deal optimally. However, possibilities that something totally unforeseen happens cannot be eliminated. Thus, major course correction following a human-made or natural event of cataclysmic proportions, is an essential management process for business managers and for stock investors. Large corporations commonly restrict their Business Continuity Planning thinking to breakdowns for Information Technology systems, but Stock Investment Continuity Planning should respect no such limits.

Three other categories of assumptions impact business and stock market strategies. They will form topics for tomorrow's post.

Please post your views below, or email in confidence to:

StockWay.MyView@gmail.com

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