Here we are approaching the end of our time together this semester, and I am starting to get a little sentimental. My thoughts turn to all of you and the exciting journey upon which you are about to embark. You are about to be newly-minted business professionals, and my prayer is that we, the faculty, have prepared you well.
This semester we have looked at the world of finance from two sides: the technical and the spiritual. We learned to use sound tools and good judgment, and we have talked a lot about relationships. We learned about the relationships among variables and also among persons-- both corporate persons and man, himself.
The video for this post discusses working capital. We spent a great deal of time with week working on these fundamentals. What does this dialog try to tell us about the relationship that we have with our clients, and how is that relationship impacted based upon our working capital decisions?
I am interested in your thoughts.
MSBA511 - Applied Financial Management, exploring our vocations in business with a vision of service to God and community.
This video concentrates on the type of company one is working with. Is it a company that wants to enhance quality or value of a firm? If a company really does want to enhance the quality of a product because it is in the best interest of the consumer/client (even though the client may not see it this way) then they may end up incurring extra expenses making working capital decisions to improve this quality. If the company wants to truly increase the value of their firm, first and foremost, then they may not make those working capital decisions that will cause them to spend more money to increase quality. Why? Because even though the improvement may be good for the consumer, the client doesn’t value it this way. If the customer doesn’t value the improvement, they are not willing to pay the extra cost for quality and thus, why should the firm spend more money if nobody else is willing to?
ReplyDeleteEssentially, relationships with our customers AND employees are effected through working capital decisions when incentives for them to keep a relationship with the firm are compromised or promoted in these decisions. In terms of employees, if a firm spends more money on them but lacks any sort of relationship (good treatment) with the management, the employee is not going to work as hard. In turn, the employees’ interactions with the client may not be as positive as it would have been if they had a positive relationship with management at the firm. I thought it was interesting that they pointed out the value of incentives in performance and the fact that if it’s all about money and there is no real relationship or treatment, it could lead to value destruction of the firm…as opposed to one who treats people well which enhances value.
I think Amelia was on track when she wrote “if the customer doesn’t value the improvement, they are not willing to pay the extra cost”. This piece- the wants and needs of a given set of consumers- should be central to any capital decisions. As with the stakeholder model one must take all potential consumers/users into account when making working capital decisions aimed at improving value and quality. If those groups do not appreciate or value the improvements made by quality enhancements then the money spent isn’t working as hard as it otherwise could. To ensure these decisions are made properly, both fiscally and with solid aim on satiating consumers’ needs decision makers must be focused on relationships. Not just a holiday e-card or well wishes on a birthday- rather one must work to cultivate true, working relationships with stakeholders who will feel the change created, directly or indirectly, by decisions you make. If a decision maker has worked to create and maintain these relationships the road to achieving their goals- in the case above the target was to improve the value of a given firm- will be much easier, as the money will be spent efficiently, making financial sense and meeting a perceived need or want.
ReplyDeleteIt is all about relationships... Amelia summed up the video very well. As far as the relationship that we have/should have with our clients as business professionals... here I go...
ReplyDeleteTechnology has made communication easier. But it has also ruined our ability to form and maintain relationships. People are hiding behind there computers and texts/MMS/BBM's; we have lost that personal touch. I think we have lulled ourselves into a false sense of security by the impersonal communications of today’s technological resources.
Professionally, strong relationships- with clients, supervisors, managers, colleagues, competition... the list goes on- add value to the firm. Building strong relationships and facilitating a relationship mindset is critical to the overall success of the firm. Businesses are based around knowing the client and their needs very well, in order to provide a satisfactory service/good to them.
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ReplyDeleteAs stated prior, Amelia summarized the video thoroughly. Although, Jenna makes strong arguments—which I agree with—I’d like to play devil’s advocate per usual. While technology has limited our ability to form intrapersonal relationships, I recently read couples spend more time with their computers than their significant other, I would argue technology has allowed us to come closer in our relationships.
ReplyDeleteHow many of you have friends on Facebook who live in other countries? How many of you skype friends in faraway locations? How many business deals are conducted globally? How many of these deals require working capital decisions when the companies are unable to be face-to-face with one another? I’m pretty sure most of you reading this answered, “Yes, Yes and Yes.” When making working capital decisions, you seek quality and value. Our communication mediums have allowed us maintain and uphold our working relationships. Therefore, technology is needed and is essential for allowing corporate relations to flourish.
I agree with both Jenna and Stephanie. Technology has allowed us to maintain friendships with more people across greater distances. But there are only 24 hours in a day and you cannot have all your friends, be close friends. If you want to have a 100 good friends it’s hard to have a couple great friends just because time doesn’t allow it.
ReplyDeleteTechnology has allowed us to be friends or more like acquaintances with more people but it has also diminished person-to-person relationships. A message sent through a text or IBM will never have the same meaning or response as that same message given person-to-person. I agree with Jenna that professional, strong relationships with clients, supervisors, managers, colleagues and the competition add value to the firm. I would even go so far as to say they add the greatest value to the firm. I also think getting away from profit based incentives helps add professional, strong relationships which in turn adds value.
This video points out a very important part of business: building a relationship with customers. This example can be seen clearly in small local businesses, a customer is likely to return to a store where the staff were friendly than where they were cold. For example, I always go to the same nail salon and know and love all the people that work there because they go out of their way to build a relationship with their customers. This isn't as easy to do for larger and non-service businesses because there isn't always the personal interaction. This is when the concept from the video of understanding the quality that customers are willing to pay for comes in. Businesses can build a rwlationship with their consumers by understanding what the consumer actually wants and giving it to them.
ReplyDeleteI think that this video did a great job of stressing the need for communication, such as when a customer owes money; it is a good time to counsel them so that there is mutual benefit. Often, both parties are struggling for cash, and it is important to be incentivized not just by the bottom line. I think profit-based incentives are good, because they are fair, but they should not be the only motivation.
ReplyDeleteIn response to the Italian quality control example: It is sad that certain customers may not appreciate the quality of your product, but I do not think that means we should diminish the quality, as long as there is still a market and a fair profit available. While the consumers have a certain amount of power in what is supplied, I do not believe that “the customer is always right”, especially when the customer would really appreciate an expert to provide the best, even if it was not what was originally desired by the customer. Moreover, if something is simply immoral to provide, the customer again, is wrong. Quality on many levels, including moral levels, need to always be considered.
In order to be successful, truly successful, a company should incentivize their workforce as well as the customer.
ReplyDeleteYou can't make it all about dollars and pennies because people will only respond to that for so long.
This reminds me of two things: something Prof. McHie once said and one of the things that I took issue with in Ayn Rand's "Atlas Shrugged."
McHie, when talking about DDB , mentioned how he had purposely nurtured a personal relationship with that firm because people respond much better. Instead of viewing them as simply work mules, he treated them as actual partners. That way people will view the job or assignment as something a little more personal than just "work."
The other thing was that Ayn Rand opposes this type of relationship. She more or less believes that workers are workers and creators are like gods among men. Those lines are clearly drawn and she does not think they should be blurred. As a result of this, the "heroes" in this trash heap of a novel treat their workers like mules. The ironic thing is that the characters then wonder why it's hard to find talented workers.
Huh, huge mystery...
Starting from the first discussion which touched on strategies companies can implement to free up capital, one of the first step upper management usually take involves deflating receivables. The success and failure of a company receiving the money owed to them by customers, on the company’s terms depends on the relationship the company has with their customers and the tradeoffs both parties are willing to make. When companies sell their products to customers on credit, they assume the position of being entitled to providing terms upon which the customers have to adhere to, usually about but not limited to the duration of the credit facility, the method of payment, and how much inventory the company is willing to sell on credit. Companies have to provide a balanced terms that helps not just them and their profit margins, but also provided the customers the ability to turn over the credit facility to generate income; income that will be used to settle their payables. Effective communication is key because if the company’s terms are too unreasonable, the customer will not be able to pay, the companies receivables will continue to inflate, leading to less liquidity in the company, which will translate to mismanagement of company’s assets. Also if the terms are poorly constructed, customers could take advantage of the company and delay payments forcing the company to tie their receivables to payables which was one of the points pointed out in the video.
ReplyDeleteFor many corporations, building relationships is what brings in the profit. For one of my interviews, the hiring manager was stressing as to how important building relationships and one of the questions he asked me was to outline my steps in building a relationship. This is a strategy that many people are uncomfortable with today especially with the ability to hide behind technology. It is an art form that needs to be appreciated due to the wealth it provides. How important it is to know someone, and not just know them, but have a relationship with them. This is true in personal lives as well as business. The purpose of business is to form a relationship with the market - provide them services that fulfill a need and in turn the market gives them the profit to maintain their business.
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