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Final advice from Drucker for knowledge organisations
October, 25th 2007

Some books count.

What is the first sign of decline of a company? Not a splash of red on the financial statements, as accountants may tend to think, but loss of appeal to qualified, able, and ambitious people, as Elizabeth Haas Edersheim writes in The Definitive Drucker ( ), citing the management icon.

In the new world of the knowledge worker, attracting and retaining high-talent people is at least as important as anything else a company does. What attracts talent is a truly interesting work where they can make a significant contribution; however, as highly skilled and independent professionals, knowledge workers are highly mobile.

Despite their migratory nature, the knowledge organisation invests in them and seeks to retain them by fostering an excellent working environment a culture that respects and values them as knowledge professionals, and that sets them up to win.

Edersheim divides the organisation into two rooms that deliver value to customer. The front room is the area of heaviest investment in people and knowledge; the backroom is where you cut costs by minimising investment or farming out the activity entirely. An example she cites is of Morgan Stanley, which is moving the bulk of its information systems to India in an effort to reduce its backroom or support costs, even as it is investing heavily in its front room by training and developing its traders.

Another example is of Apple, which with its strong customer focus has made working as a genius at the genius bar in its retail stores a prestigious and sought-after position, because serving customers is part of its front room. But Apple is outsourcing all its technical repairs, which are part of its backroom.

Precious insights in the final advice.

* * *

Missing transparency

The Internet is an effective vehicle for transparency, but grossly under-utilised by the electricity regulators, find Navroz K. Dubash and D. Narasimha Rao in The Practice and Politics of Regulation ( ). For example, Delhi has produced only one annual report in seven years and Andhra Pradesh has produced no annual report after 2002-2003.

The single biggest limitation in transparency, according to the authors, is that none of the regulators has gone beyond promising access to documentation to actually make it feasible and easy to access documents. Thus, no regulator has produced an index of their documents and clear procedures to access them. Without clear procedures for access, consumers are, in practice, subject to discretionary decisions by documentary gatekeepers.

A vital area that demands attention.

* * *

At the bar

Cost-plus pricing, rate of return approach, and market-oriented method these are the three basic pricing practices for restaurant wine and drink, write John Cousins, David Foskett and Cailein Gillespie in Food and Beverage Management, second edition ( ).

In the cost-plus method, selling price is determined by adding a specific percentage of cost price to the cost of the drink. Percentages may be varied to achieve standard pricing for similar groups of products, for example all spirits or all minerals. The rate of return method is aimed at ensuring the viability of business. And the market-oriented method of pricing considers both what the customer is likely to pay as well as what others in similar operations locally are charging.

An alternative to cost-plus or formula approaches is to recognise that the gross profit cash contribution derives from the total number of sales of an item multiplied by the cash profit that the item provides, the authors suggest.

Thus, the most profitable item is the one that gives the highest total cash contribution. In this approach, the pricing of wines achieves a potential profit irrespective of the cost price of the wine. Prices in this method are determined by adding a fixed amount to the cost price. In some cases a banding system is used where the fixed amount is increased slightly the higher the cost price of the wine. With this approach, the higher-priced wines look more attractive to the customer and this encourages sales


* * *

Iceberg viewing!

First in the list of what not to do is do nothing, in Project Management Disasters & How to Survive them by David Nickson and Suzy Siddons ( ). The do nothing strategy involves masterly inactivity: carry on regardless, with the project team attempting the activities as planned and hope it all comes right in the end. This is the equivalent of something will turn up. Dangerous response, which can be more disastrous than the disaster!

There is a saying about rearranging the deck chairs on the Titanic. This strategy is just sitting in them and admiring the view of the iceberg.

A book that will urge you to do something, right away.

Tools from statistics

Sample these problems: Compare four different newspaper advertisement styles to see if they produce the same effect on a panel of readers. A petroleum company tests three additives on its premium unleaded petrol to assess their effect on petrol consumption. Two teams of financial sales persons are to be compared to see if their training is leading to different success rates. An investment analyst wishes to examine a time series for a particular investment portfolio, keen on knowing if there are any turning points or if the series is effectively random in nature

For solving these and 96 more posers, here is helpful guidance: Gopal K. Kanjis 100 Statistical Tests, third edition (

* * *

Avoid giving free advice

There are many ways you can increase your profits apart from raising fees, says Douglas Gray in Start & Run a Consulting Business ( First, work on keeping your overall fixed overhead down, he advises. Review all the ways of saving costs on space, telephone, and personnel.

Another tip is to keep an accurate record of all out-of-pocket expenses incurred pertaining to the clients project. If you are consulting on an hourly basis, attempt to arrange to be at your clients office or project for a full day if possible, rather than a portion of the day.

And very important, avoid giving away free consulting. For instance, when relatives and friends come to you for advice, develop ways to maintain the relationship while clarifying your role as a professional who provides service for a fee.

A simple avoidance technique is to say that you have a policy of not advising family or friends because of possible conflict of interest or bias. Alternatively, you can tell them that you are not able to provide advice because of incomplete information, and it would be irresponsible, unprofessional, and unfair on your part to give an opinion based on incomplete facts.

Recommended addition to the professionals bookshelf.

* * *

Growth insured

The future of the insurance sector is bright because it is largely untapped, observes Jayshree Sengupta in A Nation in Transition ( The huge middle class and the break-up of the joint family system have led to an increase in demand for life insurance cover for the breadwinner, she notes.

In nuclear families there are many in the older age groups who have to fend for themselves in their old age. Their demand for insurance is likely to be up because by 2010, almost 10 per cent of the population will be above 60 years of age.

Other factors behind insurance growth, according to the author, are higher economic activity and greater consumer awareness, combined with increasing levels of education. A huge database will be required to profile customers and assign them the right insurance policy

Of assistance in decoding the economic shifts.

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