Strategy Muse

Pick of the Week 13

INCOME BOOSTING STRATEGIES

IBM, infotech giant:
1. It is focusing on forming partnerships to take its speech recognition and translation technologies to market, while spreading the risk, and improving ability to address the relatively small niche markets that include applications including autos, mobile phones, call centers, medical systems, and transcription services.

[Partners include Vlingo, PhoneTag, and Jajah]

2. It has built some of the technology into products sold by its software and services business.
3. It is focusing on commercial opportunities right now.
4. Its researchers are also exploring areas where the social impact could be huge - like creating Web pages and searching the Web purely with voice that could be a boon for illiterate people with access to a phone.

[Click here for full story at Businessweek.com]

Product differentiation = scope for more income (when the time and infrastructure available is right)
Cooperation = wider mastermind + wider resources + wider commitment = scope for more income

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Apple, converging technology company:
1. It built in a kill switch in the iPhone that lets it disable applications it considers malicious, even after they've been downloaded onto a subscriber's phone.
2. It collects first hand data about its customers' tastes in music, games, productivity applications and infrastructure environment on the basis of what is downloaded from iTunes and how long it takes to download to be super-responsive to glitches and push software updates onto phones.

[Click here for full story at Businessweek.com]

More info = more control
Control compels events to conform to plans - even income plans
Privacy evangelists: enter cyber world at your own risk

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Hyundai and Kia, South Korean carmakers of the Hyundai Group:
1. They have spent billions to go upmarket: Hyundai's new Genesis sedan will start at $33,000. Kia's new Borrego midsize SUV will start at $31,745
2. They will not abandon its strength in entry-level models
3. They are focused on fuel-efficiency and Hyundai is only a fraction of a mile per gallon Honda and Toyota.
4. They have improved product quality and some Hyundai and Kia models are among the leaders in J.D. Power quality surveys in the U.S.
5. They will more than double its factory capacity from 2001 levels to about 6.7 million by 2014 including joint ventures in China.

[Click here for full story at Businessweek.com]

Wider income stream + improved products + aggressive expansion = more scope for more income
[More investment = more income (if demand exceeds supply); but more over-investment = more expenses that cannot be recovered (if supply exceeds demand)]

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H.J. Heinz Co., the world's biggest ketchup maker that is very diversified:
1. It boosted U.S. sales with lower-calorie brands such as Weight Watchers
2. It offered more products in emerging markets.
3. It raised prices to counter rising costs for transportation fuel and corn sweetener used in condiments.
4. It keeps looking for opportunities to expand and grow through acquisitions

[Click here for full story at Bloomberg.com]

Customer focused products + wider product offerings = scope for more income
Raising prices for rising costs = income imperative
Acquisitions = scope for linear, synergic and accretive growth

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Shottenstein Stores, a private equity firm from Ohio that made its money as liquidators:
1. It buys well-known brands that have fallen on hard times and turns them around or sells their merchandise off.
2. It moved into the luxury market by creating the Schottenstein Luxury Group and acquiring Judith Lieber, which makes designer clothes, handbags, and jewelry, and Italian designer label Shiro, which specializes in handbags.
3. It has now acquired Steuben Glass, the high-end glassmaker, from Corning
4. It will grow Steuben Glass and keep it based in Corning
5. It will open new Steuben Glass stores
6. It will expose Steuben Glass Steuben to newly rich consumers in countries such as China, Russia, and the United Arab Emirates.
7. It increased salaries by 3% a year and will maintain benefits.

[Click here for full story at Businessweek.com]

Ability to give life to dying business = long source of income
Moving onto luxury goods + opening new stores + expansion in growing economies = larger income streams (as long as demand exceeds supply)
Keeping employees motivated with raises and benefits = better products = more income

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Blizzard Entertainment, creator of a string of best-selling, industry-shaping PC games including the world's most popular and profitable online game, World of Warcraft:
1. It makes fun games that are easy enough for casual players and deep enough to attract and hook hard-core players (Simple to learn, difficult to master is the holy grail of game design)
2. It champions creativity, both productive and experimental, inspiring enduring devotion from paying players. It gets improvements from employees who endlessly play and replay games both on and off the clock
3. It remains in touch with players effectively and persistently. (Betas of future expansions to World of Warcraft include reporting software that allows players to offer instant feedback from within the game).
4. It keeps releasing improved sequels to popular games to keep the titles competitive and to keep players paying the monthly subscription fees.
5. It spends on development like blockbuster Hollywood releases or major corporate product rollouts.
6. It cans numerous products, even nearly finished games it deems "not fun enough."
7. It has entered a $18.9 billion merger with Activision, primarily a maker of console titles such as Guitar Hero and Call of Duty - a rare union of two well-oiled machines

[Click here for full story at Businessweek.com]

Fun product with wide appeal = wider customer delight = more income
Intense creativity + co-creation + heavy development spends = better product = more income
Continuous product improvement = sustained customer delight = sustained income
Terminating substandard products = sustaining high income streams
Teaming up with another industry icon = linear, synergic and accretive income growth

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Standard Bank Group Ltd., Africa's largest lender with operations in 18 African nations and 20 other mostly emerging markets:
1. It seeks acquisitions in faster growing emerging markets outside South Africa. It will focus on developing countries. (It has already bought businesses in Nigeria, Kenya, Argentina and Turkey)
2. It will spend $878 million in 18 months on acquisitions
3. It is seeking to tap rising trade in commodities and investment-banking fees

[Click here for full story at Bloomberg.com]

Acquisitions in faster growing emerging markets = faster growth of income
Participating in growing businesses = scope of more income

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WPP Group Plc, the world's second- biggest advertising company:
1. It has made purchases in Brazil, Russia, India and China to spur sales. It made 29 acquisitions and investments in the first half.
2. It made a 1.1 billion-pound hostile bid for market researcher Taylor Nelson Sofres Plc to merge Taylor Nelson with its Kantar market research unit to cut its dependence on ad revenue. (Market research is more resilient to an economic decline than other media businesses.)

[Click here for full story at Bloomberg.com]

Acquisitions in emerging markets = scope for higher rate of income growth
Acquisition of resilient businesses = steadier income streams

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Boeing, airplane maker seeking more time to bid for the contract to build $35 billion worth of airborne refueling tankers, in competition with the Northrop Group and EADS alliance:
1. It has disclosed the intention to not bid for the contract if it is not allowed the time it requires to prepare its new proposals, betting that Congress will not tolerate a no-bid situation, preferring competition over a single-supplier award.
2. It had earlier protested a faulty award by the Air Force of the contract to the Northrop Alliance that led to a new competition.

[Click here for full story at Businessweek.com]
http://www.businessweek.com/bwdaily/dnflash/content/aug2008/db20080822_725647.htm?chan=top+news_top+news+index_news+%2B+analysis

More time to make business proposal = better proposal = more scope for income

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Microsoft Corp., the world's largest software maker:
1. It is trying to grab consumers' attention with its Internet services amid mounting competition from Google Inc.
2. It introduced a free online program called Photosynth, which lets users combine collections of photos into movie-like three-dimensional images of places or objects and includes 20 gigabytes of storage.
3. It may develop a corporate version of the software.
4. It may be able to use the technology behind Photosynth to enhance mobile-phone searches. (It would allow people to take a picture of a building and then have their phone tell them where they are. Or they could snap a photo of a movie poster and see the film's trailer on the phone.)

[Click here for full story at Bloomberg.com]

5. It is trying to reverse the negative public perception of Windows Vista, the latest version of the company's personal-computer operating system with an ad featuring uber-successful comedian Seinfeld, and company founder Bill Gates

[Click here for full story at Businessweek.com]

Useful new products that fill a need + ads that have impact = more income
[But the vindication of celebrity endorsements is not complete]

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Fresenius, the health-care company best known for its kidney dialysis products and services:
1. It makes products and renders services, which people cannot scrimp on during a downturn, since doing so can be fatal, and many of which are paid for by health plans
2. It has acquired U.S. drugmaker APP Pharmaceuticals, which makes generic drugs that are administered intravenously, fitting well with its Fresenius Kabi unit's business of providing intravenous therapies and nutrition.
3. Its biotech division is developing new cancer therapies and drugs that help patients accept transplanted organs.

[Click here for full story at Businessweek.com]

Products immune to economic cycles = steady predictable income streams
Synergic acquisitions = scope for synergic income growth
Good products in pipeline = healthy future income streams

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Apple, converging technology company which launched its 3G iPhone this year:
1. It boosted its production plans when initial sales proved stronger than the company expected. It will build 40 million to 45 million iPhone 3Gs in the 12 months through August 2009 instead of the initial plan for 30 million units.
2. It will sell the iPhone 3G in an ever broader circle of countries. It was to sell in 20 more countries on Aug. 22. In 2009 it will also sell in Russia and China.
3. It expanded distribution to include 986 Best Buy stores.
4. It is reducing the physical process of activating the phone from 30 minutes (which is a bottleneck) to about 15 minutes.
5. It will resolve performance glitches (no 3G access, dropped calls, and frequent switching from 3G to slower 2G networks) with an electronically distributed software upgrade, rather than a product recall.

[Click here for full story at Businessweek.com]

More production = more income (if demand exists)
More markets tapped + more outlets = scope for more income
Reducing product activation time = customer delight = more income
Less downtime to rectify product defects = more income (share of wireless carriers' fees)

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Bramdean Alternatives Ltd., Nicola Horlick's money-management firm:
1. It constantly fine-tunes its transitional portfolio to the market environment to respond to the funding requirements of the private equity investments
2. It pulled money out of hedge funds run by Nobel prize-winner Myron Scholes and James Dinan and Enso Global Equities Fund and Oak Hill Credit Alpha Offshore Ltd. to focus on more defensive funds for capital preservation as market volatility increases.

[Transitional portfolios invest money set aside for private equity commitments. Buyout firms typically take as long as five years to draw down the money investors commit to a pool.]

[Click here for full story at Bloomberg.com]

Continuous monitoring and tweaking is the only secret of making money from money's journey through time and yield fields.

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Ebay, the online auction giant:
1. It wants to increase the inventory of items for sale and attract more buyers.
2. It will imitate Amazon and court users who sell at fixed prices.
3. It will make it easier to list items for sale at a fixed price
4. It will slash the upfront fees it charges to list sale items by as much as 75%, while increasing its final sales commission.
5. It instituted a ratings system that makes it easier for buyers to leave bad reviews without fear that the seller will flag them as a problem shopper to help identify risky sellers
6. It added a search system that de-emphasizes sellers with bad ratings
7. It has pledged that its online system, PayPal, will refund money from fraudulent transactions

[Click here for full story at Businessweek.com]

Acquiescing and changing to market preferences of business model and offering incentives for the transition  = more income
Making the business model more fair and healthy = customer appeal = more income

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Erento, a one-stop shop for leasing everything from wedding dresses and Apple iPhones to karaoke machines and heavy construction equipment:
1. It created an online rental marketplace that draws suppliers from so many areas. It enables anyone to become a rental supplier.

[8,000 European rental companies have elected to use erento as a sales channel. It now lists more than one million items across 2,200 product categories and claims up to 50,000 visitors a day. It is about to add cocktail dresses and jewelry. Rental suppliers upload their items, including an image, item description, and price for the rental duration. Renters then search and find their desired items according to location and price.]

2. It charges a display fee of 69¢ per item and takes a 4.9% cut of the rental price of any item procured through its site
3. It will expand its existing service in Europe first and then tap the U.S.

[Click here for full story at Businessweek.com]

Servicing human needs = key to income
Expansion into growing markets = more income

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Baugur, the Icelandic retail investment group with strategic investments or controlling stakes in retailers, department stores, jewellery chains, womenswear chains, and fashion conglomerates:
1. It makes an overwhelming majority of its investments in food, department stores and fashion chains.
2. It made an offer to purchase Woolworths' retail division to manage it more efficiently, with better ranges and availability. It will not put frozen food into a large number of Woolworths stores
3. It lets the management teams of its retail investments get on with the day-to-day job of running the business.
4. It uses its international presence to further export its brands overseas - it will launch Hamleys in India, after opening stores in Jordan.

[Click here for full story at Businessweek.com]

Focusing on core competence areas + making acquisitions that it can add value to + using international presence to further increase international growth = scope of greater growth of income
Giving management teams freedom in day-to-day jobs = ambivalent impact on income depending on circumstances and people involved

* * * * * * * * * *

Newcrest Mining Ltd. and Lihir Gold Ltd., the two biggest gold producers on the Australian stock exchange:
1. Both companies closed forward sales contracts last year to take advantage of a doubling in bullion prices in the past three years. Newcrest bough back A$1.7 billion of forward sales contracts in June.
2. Both companies are trying to boost production aggressively to record levels. Lihir bought Equigold NL to add projects in Ivory Coast and Australia.

[Click here for full story at Bloomberg.com]

Closing forward sales contracts in times of rising selling prices = income boost
More production = more income (IF demand exceeds supply)

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BHP Billiton, the Anglo-Australian mining giant:
1. It is trying hard to buy rival Rio Tinto with a $150 billion bid to create the world's largest mining company
2. It has a diversified portfolio of businesses and none of its three major business areas - base metals (copper, nickel, etc.), petroleum, and iron ore - constitutes more than a quarter of total revenues so that it is less susceptible to market volatility
3. It negotiated a near doubling of contract iron ore prices with Chinese industrial giant Baosteel.
4. It has cashed in on rising commodity prices

[Click here for full story at Businessweek.com]

Raising and re-negotiating selling prices = more income
Acquiring rivals = scope for linear, synergic and accretive growth
Wide, equally balanced income streams = scope for steady future income

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COST SAVING STRATEGIES

Fresenius, the health-care company best known for its kidney dialysis products and services:
It exploited the exchange rate (strong euro, weak dollar) to make a major acquisition - U.S. drugmaker APP Pharmaceuticals - for $3.7 billion.

[Click here for full story at Businessweek.com]

Purchases in weak currency countries = cost savings

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Hyundai and Kia, South Korean carmakers of the Hyundai Group:
They share engines and some components though they are largely separate.

[Click here for full story at Businessweek.com]

Sharing engines and components = savings of development costs and greater benefits of scale

* * * * * * * * * *

Grindrod Ltd., Africa's largest shipping company:
It will avoid the increased raw material costs of building new vessels by buying rivals to expand

[Click here for full story at Bloomberg.com]

Finding ways to avoid rising raw material costs = cost savings
(Will not the rising prices be factored into the selling prices of the rivals it seeks to buy out?)

* * * * * * * * * *

Tata Motors Ltd., the Indian automaker planning to introduce the $2,500 Nano car later this year:
It may move its Nano plant from the state of West Bengal to avoid protests stemming from its factory land dispute even though it has already spent $346 million on the factory.

[Click here for full story at Bloomberg.com]

Avoiding dispute = saving of cost of litigation, delay and disruption.

* * * * * * * * * *

Reliance Industries, India's largest private sector company that is highly profitable but still under increasing cost pressures:
1. It has always been very prudent about costs. It has set world records in low project execution costs.
2. It has taken up high costs as a major issue, especially in its subsidiary Reliance Retail to cut down avoidable costs
3. It has issued strict guidelines on unnecessary travel, mode of travel, courier despatches, use of stationery in office, use of cabs and type of accommodation while on tour, and even on the number of times employees can have tea and coffee.
4. It is seeking to reduce travel through video-conferencing.
5. It will issue only blue and black ball pens. It will not give calculators, tissue boxes, gel pens and uniball pens. It is encouraging employees to opt for pen refills and not to print in hurry to avoid unnecessary wastage of paper.
6. It will serve tea and coffee only in meeting rooms and visitor's rooms. The rest will be on self-service. Water bottles will be filled only once in the morning
7. It is seeking joint ventures with foreign retail companies to stabilize the supply chain
8. It is extending the austerity measures to the oil and gas business.

[Click here for full story at Businessweek.com]

Real intention is the seed of real cost savings.
(But sometimes it augurs a sense of depression.)

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Office of Government Commerce, the British government's buying body:
It resorted to reverse e-auctions for 5,000 laptops and 5,000 PCs (for all public sector customers) and achieved savings of 50 per cent on the laptops and 20 per cent on the PCs. And there will also be a range of upgrades available, which will be offered at discount prices.

[Reverse auctions force suppliers to bid decreasing prices for the contract offered, in response to competitors' bids. Only the buyer can see who is offering each price.]

[Click here for full story at Businessweek.com]

Is this more efficient and dynamic than sealed tender procedures?

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AnnTaylor Stores Corp., the clothing retailer that targets women 25 to 55:
1. It is embarking on a restructuring program that will save $20 million to $25 million this year and at least $50 million before taxes by 2010.
2. It cut inventory
3. It will reduce the number of products offered
4. It closed unprofitable locations and will close more under-performing stores
5. It repurchased shares.

[Click here for full story at Bloomberg.com]

Restructuring + cutting inventory + reducing the number of products offered + closing unprofitable locations = cost savings
Repurchase of shares = lower cost of finance if idle funds in the business cannot be more profitable invested

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For more posts about how businesses are boosting income and controlling cost please visit the URL below:
http://blogs.livemint.com/members/Sourav%20Mitra.aspx