BerlinPacific.com Blog

There’s a recent Forbes article on “Why Amazon Can’t Make A Kindle In the USA”
http://www.forbes.com/sites/stevedenning/2011/08/17/why-amazon-cant-make-a-kindle-in-the-usa/

It is quite interesting and people can learn a lot from Steve Denning about management. The article is a bit problematic though. The issue is probably more that the tone and content are misleading than that the fundamental ideas are totally off.

For one Dell makes a lot more money than Asus in profits and has as many employees. Its market cap is still much larger than Asus.

The implication of the article is that the Kindle probably couldn’t be made in any one country. (Interestingly too Germany still makes the machines that make the machines. Japan and the US do too.)

The classic essay ‘I, Pencil’ from 1958 talks about how no one can make a pencil.
http://www.econlib.org/library/Essays/rdPncl1.html
This is true about the international economy.

Apple is winning because it banks on designing its products in California and getting them built abroad. I don’t think they’re an exception at all. They’re the exemplar.

The author is right about throughput accounting though. Most companies don’t realize that this is an important way to help the align their business with customer demand. People should learn more about the Theory of Constraints www.scribd.com/doc/24192653/TOC-and-Mises . They’ve shown that many management theories apply bad economic theory - though they don’t approach it from the perspective of economic theory. (They complement the Austrian School quite well.)

I think his article is a bit misleading. It is true companies should not give up their core competency. However Dell could have grown more by creating more products that wow consumers and outsourced much of the production. That’s what Apple does.

He doesn’t seem to fully account for opportunity costs. Dell can find only so many workers. It is wasteful to use them to make things Asus can make IF it can find other useful thing for them to do. On a national scale this is true - expanding companies will bid up the price of US workers. This makes companies in older technology sectors less willing to hire many of them. U.S. Manufacturing is still huge - it just requires less workers. Also many workers may be vital but don’t count as traditional manufacturing workers. How would you count a bunch of highly paid engineers who manage a highly automated factory?

His point too is really about management - not so much manufacturing.

The key is not so much decreasing costs, as increasing the productive capacity of your assets to produce more goods and services that people will pay for. That’s throughput accounting and his real point. (In a sense though this can imply decreasing costs by finding unproductive uses assets and re-allocating those assets.)

Sometimes that means outsourcing though. Microsoft has or had a very profitable group that had few employees - they designed keyboards and mice etc. and outsourced all production. It was a good use of Microsoft’s assets to outsource.

Hopefully more people will be inspired by the article to learn more about throughput accounting and theory of constraints and put the focus on aligning productive assets with consumer demand.

We’ve made some interesting discoveries lately that could save your organization a lot of money on the cost of processing credit cards. This applies to people using Chase Paymentech and non-profits accepting American Express cards.

Chase Paymentech
The first item of interest is that if you’re a customer of Chase Paymentech, odds are you’re subject to a substantial billing error. We naturally won’t document on this blog how Chase Paymentech might be doing this. But we’re definitely available to take a look at your current bills. You can probably get a credit going back one year.

This also means that we’ll be able to use this opportunity to negotiate a better deal on your behalf.

Again, this isn’t a promise, but other firms are finding extraordinary savings.

If you’re a Chase Paymentech customer we definitely recommend you contact us.

Non-Profits and American Express
The second item is that we’ve had a 100% success rate helping non-profits substantially reduce the rate for processing American Express cards. We can help you work with the right people at American Express to quickly and painlessly reduce the costs of getting your donations via American Express cards.

We definitely encourage any non-profit to call us.

Better than money back guarantee
Remember there is no cost to discover if we can help you substantially reduce the costs of processing credit cards, be it with Chase Paymentech, American Express cards, or other processors. Any fees come out of your savings. There is no investment or risk on your part.

If your company pays federal taxes, like many you may not know all about the new IRS federal tax credits of 6.5 % for all spending on product development, especially employee salaries. Many companies aren’t aware of these new tax rules and just how much more is covered today, but our tax experts are.

The credit can go back 3 years plus the current year. The credit comes off your federal tax bill.

Any company that designs, develops, or improves products, processes, techniques, formulas, inventions, or software may be eligible. In fact, if a company has simply invested time, money, and resources toward the advancement and improvement of its products and processes, it may qualify.

Example – you spend $200,000 a year on employees who develop products. You qualify and get a $12,500 in credit off your federal tax bill per year, and you can go back three years plus save this year. That is $50,000 saved. Our experts told us the IRS is happy because you’re providing jobs. There may be additional credits for state taxes.

There is no charge to find out if you can save. It is a four minute conversation with our subject matter experts to find out if you qualify. Our tax experts are saving companies $20,000 to $750,000.

We encourage any CFOs, or Controller, or Accountants to reach out to us with an e-mail or call 212-247-2502.

What Qualifies as R+D?
You may wonder if your firm has spending that qualifies. “Qualifying research” runs the gamut from initiating designs, to testing products, to manufacturing process improvements. The great thing about this is that many companies spend money on developing products. Because of the current broad definition, if you’re involved with any of these things you may be eligible for R+D Tax Incentives.

• Designing new products including software or materials
• Designing innovative product features or techniques
• Generating prototypes and samples of new products – for testing and validation
• Developing new or improved treatments for materials
• Developing new or improved manufacturing processes
• Developing and designing scaled up manufacturing processes

R+D Tax Credits are awarded across a wide range of diverse activities, and our expert can determine what credits are available for your company. We think you’ll be surprised how much qualifies.

We will be happy to schedule a 15 minute conversation, either by phone or in person, to determine if you qualify for this and other government sponsored incentive program. We would like to put tax dollars back in your pocket. Please e-mail or call us at 212-247-2502.

Our Short Presentation can be found here can be found here.

Our you can view it here if you have firefox, but the more info links don’t work.
(more…)

Today’s news shows that Allstate is suing Countrywide (owned by Bank of America) for misrepresenting the mortgage investments Countrywide sold Allstate.

You can read a good analysis here.
http://www.zerohedge.com/article/how-allstate-used-sampling-confirm-bofacountrywide-lied-about-virtually-everything-selling-m?goback=.gde_40850_member_38750536

Allstate claims to have had no idea what is was really buying, just like most firms have no idea what they’re really buying from their telecom vendors and if they could or should have paid less.

The root problem was that Countrywide apparently systematically did not collect valid information. (Many loans were ‘liar loans.’) Lacking good information Allstate bought investments it didn’t actually want (it wanted AAA securities.) Similarly Countrywide apparently did not report that many approved mortgages (around 20% sometimes more) were ‘exceptions’ to Countrywide’s underwriting standards. Countrywide management appears to have been aware that their loans didn’t meet their underwriting standards and information about the borrowers income, value of the home, etc. was often false but they didn’t do anything to disclose this to investors.

You can read the allegations here
http://www.scribd.com/doc/46005151/12-28-10-1
It is a very interesting document.

It is interesting to learn that the exact same problems (lack of visibility, lack of information, use of misleading aggregates) that we see in our clients’ spend on vendor purchases also plagued institutional investor spending on purchases of investments. However this mortgage mess was apparently systemic outright misrepresentation by the underwriters. We find vendors simply don’t provide the information clients need to make an informed decision, and they’re certainly under no obligation to provide it. A huge moral difference on the part of the sellers, but as far as the buyer is concerned the outcome is the same. Interestingly in both cases some important information isn’t even readily available to the sellers let alone the buyers.

Apparently Allstate went to the trouble of checking out many of the individual loans and found huge discrepancies between the reality of the applicants and what Countrywide had stated about the quality of the applicants. This is similar to what we do, our goal is to check EVERY single service to make sure it is adding value and is not misbilled, underused, or overpriced.

One has to wonder though why no one at Allstate did any due diligence sampling of the underlying loans before they bought them…

Presumably because they were too busy and they had no reason to suspect anything was wrong. Too bad they were wrong.

(more…)

[Download a Copy]

Rockefeller and Standard Oil gave the world inexpensive refined oil by continual improvement –decreasing the cost of even the humble stopper in a barrel of oil while maintaining quality. Japanese called this process Kaizen and using it gave consumers cars renowned for not breaking down.
Many firms see telecom expense management (TEM) as a process of bill processing and auditing, along with periodic contract negotiation. They do not see the opportunity for continuous improvement through lowered costs and better service year after year.
Continual savings do not come from periodic contract negotiations every few years or looking for billing errors that shouldn’t be there in the first place. Best practices require looking for continual improvements as prices decline, superior solutions come to market, and business needs diverge from current services. Firms that put in place these best practices realize savings of 20-50% compared with firms that do not implement these best practices.

Three Approaches
There are three primary ways to cut costs, all of which require a firm understanding of the company’s current infrastructure and bill detail. The three approaches are bill validation, infrastructure optimization, and contract management. This means that every single service must be individually scrutinized to ensure that the service is being billed for correctly, the service still serves a business need, and the service is billed for at market rate.

(more…)

We’re uploading different document to the site Scribd.

Visibility and Vendor Cost Management How to find hidden savings in your services spend. It relates to Telecom Expense Management, but also IT support and maintenance contract costs, Waste and Recycling Costs, Credit Card processing costs, etc

Vendor Cost Management for C Level Officers It uses Telecom Expense Management as an example, but also mentions our practices Private Jet Management and Maintenance Costs, Freight and Shipping Costs, Utility Costs / Power Costs

We also uploaded our simple overview of Visibility and Managing Recurring IT Costs It relates especially to Telecom Expense Management, and IT support and maintenance contract costs but the general principles relates to vendor costs in general.

They’re a pretty amazing repository of documents.

-Anders

We had a previous post on free collaboration tools,
http://berlinpacific.com/blog2/2009/09/23/free-collaboration-tools/

Mikogo is an excellent product.

The one downside was that it was wasn’t compatible with the Mac.

Cross Loop’s product is.
http://www.crossloop.com/

The only down side with cross loop is that it requires an install, but it will help with remote cross platform collaboration. (Mikogo only requires that the host install the program - other people can just run a program.) I’m not a heave user, so I don’t know how reliable it is. But I know people who use it a lot.

[Download one pager on Visibility.]

Visibility is the key to managing any cost, including network costs.

Surprisingly even smaller firms have network management systems that give visibility in to the network and make tight management possible, yet they aren’t provided with network cost management systems that give them visibility it to their costs. This makes optimal management of the costs impossible and excess spending inevitable.

With networks especially much of the cost is a sunk cost - the capital spent on buying and deploying fiber and equipment. Carriers, whose network is their business, are conscious of the need to maximize dollars of profit per unit of capacity. (Interestingly some accounting practices aren’t congruent with this goal, more on this in a future post.)

Many people might assume that all telecom carriers have only labor costs once the equipment is installed. This would be wrong. In today’s world carriers are constantly interconnecting and have recurring carrier and equipment vendor costs of their own. Wireless firms need a way to backhaul traffic from their cell towers, and use local low cost providers rather than building their own capacity every time. In order for us to make long distance and international calls, many carriers need to be paid. In addition the equipment itself needs support and maintenance from the manufacturer. All this creates recurring costs.

Without Visibility

We know our important services. We usually know what bills pay for services, but little else.
A service can be anything, including a support and maintenance contract, or a voice or data line.
Vendors don’t provide consolidated bill break down with a single pane of glass for all vendors.

Note: Network Management vs. Network Cost Management

Interestingly most firms have a network management system. They know full well what services and device they have and whether they go up and down. Operations has a very clear view in to all their devices and carrier services connecting them.

What the systems don’t do is tell you the recurring monthly or annual cost of the circuit or the support and maintenance contract associated with the device and whether you’re still being billed for something that is off your network.

With Visibility

Bills are consolidated and broken down.
We can see connections, without always having to look at multiple files, or worse yet flip through paper bills.

Note that there was a service the firm was paying for that no one wanted, at least not anymore. This happens more often than one would hope. We regularly find expensive items buried in bills that serve no business purpose.

Given the poor quality the data received by carriers or enterprises from many if not most of their vendor’s, creating visibility can be quite a task in any area, not just networks. One of the reasons firms use us to help manage their costs is because they have no one on staff with the time and expertise to take the data they have and put it in a proper database. Often additional data has to be requested from the vendors themselves.

Since nothing can be managed without visibility, it is usually worth the effort to create it even for $100,000 a year vendor categories.

With Visibility

We can manage each cost by:

1. Eliminating or consolidating unused and underutilized services
2. Fixing billing errors
3. Renegotiating rates

In the above example we assumed there were no billing errors. We were able to remove the unused service saving a significant amount. We routinely find many unused services for our clients, saving a significant portion of their budget. Many costs in the IT and telecom world have also fallen dramatically, including of course voice and data services. It is also possible to get lower costs on many IT Support and Maintenance contracts with OEMs like Cisco. With our connections in the market place we’re able to routinely roll over and re-negotiate contracts for our clients at a much lower price point.

We’ve seen how with visibility one can manage costs. While the 50% savings above may seem like an exaggeration, we routinely find those kinds of saving for clients by giving them visibility and managing their costs for them. Even 20% savings, low for our clients, is a substantial win with a large enough budget.