Archive for the ‘Weblog EN’ Category

december 3rd, 2016 · by John · Weblog EN

There are many questions people can ask themselves. The most fundamental of them, are: who am I, what can I know, and how should I act? The answer to the last questions is important for this book. Many philosophers and other thinkers have been trying to formulate an answer this question. Let’s briefly review their ideas.

Philosophy and Ethics

Philosophy is the study of general and fundamental problems concerning matters such as existence, knowledge and values. Ethics is the branch of philosophy involved with concepts of right and wrong conduct. It investigates two questions:

  • What is the best way for people to live?
  • What actions are right or wrong in a particular circumstance?

There are three branches of Ethics:

  • Virtue ethics focuses on the inherent character of a person rather than on specific actions.
  • Deontology argues that decisions should be made based on one’s duties and others’ rights.
  • Consequentialism argues that the morality of an action depends on its outcome or result.

The term virtue arises from the Latin term virtus, which means valor, merit and moral perfection. It is closely related to the Greek word arete. Virtue can be defined as moral excellence, it is a character trait or quality thought to be morally good.

Unlike deontology and consequentialism, virtue-based ethical theories place less emphasis on the rules people should follow. They focus on helping people develop good character traits, such as kindness and generosity. These character traits will allow a person to make the correct decisions in life. Virtue theorists also emphasize the need to learn how to break bad habits of character, like greed or anger. These are called vices and stand in the way of becoming a good person.

 

Historical overview  

The ancient Greeks

Central in ancient Greek ethical thought is the concept of eudaimonia. Eudaimonism is a self-realization theory that makes personal well-being the chief good for man. Eudaimonia literally means “the state of having a good indwelling spirit, a good genius”. It is often translated as happiness, but a better translation would be human flourishing or “the best activities of which man is capable”.

Ancient Greek philosophy arose in the 6th century BCE and continued throughout the Hellenistic period and the period in which Greece was part of the Roman Empire. Of the many philosophers in this era, three names stand out: Socrates, Plato and Aristotle.

For Socrates, the ultimate object of human activity is eudaimonia, and virtue is the necessary means to reach it. Since everybody necessarily seeks flourishing, no one is deliberately corrupt. All evil therefore arises from ignorance. Virtue for Socrates is wisdom and can therefore be taught.

Eudaimonia for Plato consists in the perfect imitation of the absolute good. Virtue enables man to order his conduct according to the dictates of reason. Plato does not consider virtue to consist in wisdom alone, but in justice, temperance and fortitude as well. These four carnal virtues constitute the proper harmony of man’s activities.

Also Aristotle concludes that men tend to eudaimonia as the highest good. It is sought for its own sake and other goods only can serve as means to get to it. True flourishing can be reached through activities proper to human nature. Not in the lower activity of the vegetative and sensitive life as man has in common with plants and animals, but in the highest and most perfect activity of his reason, which springs from virtue. This activity has to be exercised in a perfect and enduring life.

The existentialists

Existentialism as a philosophy, concentrates on the study of human existence. It tries to understand how humans realize their existence in this world. Its central idea is that humans run through series of self-exploration to change their nature in accordance with their own choices. Existentialism thus is about an individual’s way of finding his true meaning of life, which is achieved through its own choice, free will and self-responsibility.

Existentialism is the search and journey for true self and true personal meaning in life. People who believe in existentialism have faith in their own personal choice and responsibilities regardless of traditions, ethnic rules or laws. Among the great existentialists are Soren Kierkegaard, Friedrich Nietzsche and Jean-Paul Sartre.

The will to power (Wille zur Macht) is prominent in the philosophy of Friedrich Nietzsche (1844 – 1900). It describes the driving force in humans: achievement, ambition and striving to reach the highest possible position in life. Through self-overcoming, the will to power is harnessed and directed toward self-mastery and self-transformation, guided by the principle that your real self lies not deep within you but high above you.

Maslow’s hierarchy

Abraham Maslow (1908 – 1970) believes that people have an inborn desire to be self-actualized; to be all they can be. However, in order to achieve this ultimate goal, a number of more basic needs must be met first.

Maslow’s theory includes five motivational needs, often depicted as hierarchical levels within a pyramid. The lowest levels are made up of the basic needs and the more complex needs are located at the top of the pyramid. Basic needs are the physical requirements people need in order to survive. Once a lower-level need has been met, people can move on to the next level of needs.

As people progress up the pyramid, needs become more psychological and social. After the physiological and safety needs, the need for love, friendship and intimacy become important. Further up the pyramid, the need for personal esteem and feelings of accomplishment takes priority. The need for self-actualization refers to a person’s potential and to the realization of that potential. It is the desire to accomplish everything that one can, and to become the most that one can be.

 Individuals may focus very specifically on the need for self-actualization. One individual may have the desire to become an ideal parent, in another the desire may be expressed athletically and still for others, it may be expressed in paintings, pictures or inventionsVariations may include the quest for knowledge, understanding, peace, self-fulfillment, meaning in life or beauty. The aesthetic person may feel physically ill when driving past an ugly array of fast-food restaurants. But the need for beauty is neither higher nor lower than the other needs at the top of the pyramid. Self-actualization needs aren’t hierarchically ordered.

 

Become who you are

For the ancient Greek philosophers, eudaimonia (the best activities of which a humans are capable) is the central concept and ultimate goal to achieve. People can get at this stage of flourishing through the use of reason, and thereby reach a perfect and enduring life.

The central idea of the philosophical school of existentialism is about an individual’s way of finding its true meaning of life, which is achieved through its own choice, free will and self-responsibility. For Friedrich Nietzsche, the driving force in humans is: achievement, ambition and striving to reach the highest possible position in life.

Abraham Maslow holds that people have an inborn desire for self-actualization. It is the desire to accomplish everything that one can, and to become the most that one can be.

Looking back at more than two thousands of years of philosophizing, the answer on the question of n how to act, is to reach a perfect and enduring life, to reach the highest possible position and to become the most that one can be. This strive, I will refer to as the “drive towards excellence”, which makes it possible to “become who you are”.

As we shall see this drive towards excellence is not only applicable to individuals. It is also valid for organizations, which in fact are communities of individuals.

John Greijmans

juni 15th, 2016 · by John · Weblog EN

Oneerlijke concurrentie verhindert Innovatie

De Oostenrijke econoom Joseph Schumpeter (1883 – 1950) staat bekend om zijn idee van innovatie als ‘creative destruction’. Creatieve destructie, wellicht beter te vertalen als creërende vernietiging,  is een proces van voortdurende innovatie, waarbij succesvolle nieuwe technieken de oude vernietigen.   

Innovatie is in het klantbelang want creëert een voortdurende opwaartse druk op de kwaliteit en een neerwaartse druk op de prijs van goederen en diensten. Innovatie is echter niet in het belang van de bestaande ondernemingen. Zij worden door de innovators zwaar onder druk gezet en verliezen vaak hun bestaansrecht. Zij proberen daarom door diverse oneerlijke handelspraktijken de innovatie te stoppen en zo hun marktpositie te behouden. En dat is duidelijk niet in het klantbelang.

 

Independent Insurances is de Creërende Vernietiger

Innovatie is niet hetzelfde als een technische uitvinding. Pas als een ontdekking – en die hoeft niet nieuw te zijn – in productie wordt genomen en waarde voor de klant en onderneming creëert, kan het innovatie worden genoemd.  Independent Insurances is zo’n innovator die de verzekeringsmarkt wil veranderen door er iets nieuws en beters voor in de plaats te zetten. Creërende vernietiging dus. 

De verzekeringsmarkt kan in twee woorden worden beschreven: intransparant en inefficiënt. Door enerzijds alle provisies en andere verborgen kosten af te schaffen en anderzijds de administratieve processen te verkorten en te digitaliseren, maakt Independent Insurances die markt transparanter en efficiënter. Het klantbelang blijft daarbij centraal staan, dus de klant krijgt de dienstverlening en het advies dat hij nodig heeft.

 

Bestaande marktpartijen zijn de Destructieve Vernietigers

Net als bij elke innovatie zijn de bestaande ondernemingen op de verzekeringsmarkt het slachtoffer. Met name tussenpersonen en vergelijkingssites zullen – als ze zich niet aanpassen en met de innovatie meegaan – het onderspit delven en verdwijnen. Maar dat laten ze niet over zich heen gaan! Twee voorbeelden uit de recente praktijk. 

Een volmachtbedrijf uit het zuidwesten van het land wilde Independent Insurances via de rechter dwingen haar portefeuille over de zetten naar de schamele twee volmachten die dat bedrijf had. De klant zou er niet op vooruit, en hoogstwaarschijnlijk zelfs erop achteruit gaan. Niet in het klantbelang dus. De tactiek van het volmachtbedrijf was om de innovator kapot te procederen.

 Ga naar www.independer.nl, beantwoord enkele vragen en de site presenteert de ‘beste’ verzekering. Je krijgt geen advies en Independer ontvangt een vergoeding van de verzekeraar voor elke afgesloten verzekering. Independer is dus afhankelijk van de verzekeraar.  

Ga naar de online-assurantieadviseur (www.independent.nl). Tijdens het hele proces van oriëntatie, het vergelijken en het afsluiten van een verzekering krijg je op diverse manieren persoonlijk advies. Je betaalt daarvoor een relatief lage vergoeding aan Independent Insurances, en Independent Insurances krijgt géén vergoeding van de verzekeraar. Independent Insurances is dus onafhankelijk van de verzekeraar, vandaar uiteraard de naam. 

Wat zegt Independer nu? Independent Insurances mag de url www.independent.nl niet meer gebruiken, en dreigt met de rechter. Weer een geval van de bestaande marktmacht die innovatie tracht tegen te houden.

 

Een mooie taak voor onze Minister

Vrijwel iedereen is er van overtuigd dat innovatie goed is. Het is goed voor de klant, vanwege de betere service en lagere kosten en het is goed voor de economie. Innovatie verbetert immers het concurrentievermogen van de Nederlandse bedrijven en creëert daarmee nieuwe banen en economische groei.  

Wil dat lukken dat zal het destructief-vernietigend vermogen van bestaande marktpartijen wel moeten worden ingeperkt. Minister Kamp, er is werk aan de winkel! Stel naast de Nederlandse economie ook het klantbelang centraal en grijp in! 

John Greijmans

maart 13th, 2015 · by John · Weblog EN

To many people, the term debtor carries a negative connotation like that of someone being guilty of a trespass or sin. Under ancient Athenian law debtors could pledge themselves as collateral for a loan. If they failed to pay, they would become the creditor’s slave. During the middle ages, debtors were locked up until their debt was paid. Conditions included starvation and abuse from other prisoners. Some debt prisoners were released from prison to become indentured servants.

Debt collection is the process to ensure that clients pay amounts, which they have not paid on time or even refuse to pay. Calling past due management debt collection however, given the aforementioned negative connotation, can hinder the resolution of the situation and endanger customer relations, future sales, customer retention, as well as harm the seller’s business reputation. The majority of past due customers are not trying to avoid payment; they have valid reasons why they have not paid yet.

Some customers pay late because they choose to practice cash management. These are often big companies who use their vendors as short term financers, and they will not pay any late fees. Other, companies and government agencies are slow payers because they are not well organized and can’t locate the invoice, or they are just plain lazy about taking care of accounts payable.

Other clients have not paid because something went wrong somewhere. One can think of sales or service disputes, shortages or overages, late delivery, lost paperwork, missing information, unauthorized purchases, returns, unissued or misapplied credits, damage, sales guys offering extended terms and failing to tell anyone in Credit, flood, famine, fire, oil spills and earthquakes. Underlying causes can be on the part of the customer, the seller or even come from an outside source. Murphy was an optimist.

Sometimes customers might be willing, but are not able to pay: they simply don’t have the money. This inability is short term and has an understandable explanation: they bill their customers at the end of the month, they have had an unexpected loss or expense, or their business may be of a seasonal nature. Most of these customers can, more or less accurately say when they will be able to pay. There can however, also be long term financial problems, for instance due to the divorce of principals in a small business, loss of a key person, new competition, a new product or service making the customer’s business obsolete. The latter customers represent a large risk of bankruptcy.

It is therefore important to determine why payment has not been made and resolving the matter so that customers pay and purchase again.

Nevertheless, in a limited number of cases debt collections will be needed. Depending on the quality of your credit approval process, a small percentage of customers will try to avoid payment. They are out to beat sellers out of what they owe. They will be un-cooperative and they will lie, break promises or even skip out altogether. Then it’s time for debt collection. Pity you can’t enslave them anymore……

John Greijmans


september 26th, 2014 · by John · Weblog EN

The first decades of the twentieth century were dark years for organizational psychology. Two approaches were leading the thinking on human behavior. On was psycho-analysis. Consistent with the survival-of-the-fittest views of Charles Darwin (1809-1882), Sigmund Freud (1856-1839) saw no moral difference between people and animals. Next there was the behaviorism of B. F. Skinner (1904-1990) where human needs models were solely based on hunger, thirst, sex and the avoidance of pain. Warm human bodies thus were reduced to cold statistical averages.

Then in 1943, Abraham Maslow (1908 – 1970) presented the hierarchy of needs. It was a radical departure from prior thinking on human behavior. Maslow wanted to understand what really motivates people. As a humanist, he believed that people have an inborn desire to be all they can be.

Maslow’s hierarchy includes five motivational needs, often depicted as levels within a pyramid. The lowest levels are made up of the basic needs and the more complex needs are located at the top of the pyramid. The basic needs are the physical requirements people need in order to survive. Once a lower-level need has been met, people can move on to the next level of needs.

If you’re hungry and thirsty, you’ll try to take care of the thirst first.  You can do without food for weeks, but you can only do without water for a couple of days!  Thirst is a stronger need than hunger.  Likewise, if you’re thirsty, but someone has put a choke hold on you. Which is more important?  The need to breathe, of course. 

 

As people progress up the pyramid, their needs become more psychological and social. After the physiological and safety needs, the need for love, friendship and intimacy become important. Further up the pyramid, the need for personal esteem and feelings of accomplishment take priority. In line with his humanistic beliefs, Maslow emphasized the importance of self-actualization: the process of growing and developing as a person in order to achieve potential.

The need for self-actualization refers the realization of a person’s potential. It is the desire to accomplish everything that one can and to become the most that one can be.  The self-actualization level is fundamentally different from the other needs. Once engaged, they continue to be felt and they become stronger as people feed them.  The need for self-actualization involves the continuous desire to fulfill potentials.  They are a matter of becoming the most complete, the fullest you.

Individuals may focus specifically on the need for self-actualization. One may have the desire to become an ideal parent, in another the desire may be expressed athletically and still for others, it may be expressed in paintings or inventions

 

Human motivation is based on people seeking fulfillment and change through personal growth. Self-actualized people are those who are doing all they are capable of. In self-actualization people come to find a meaning to life. It is a continual process of becoming rather than a perfect state of being happy ever after. The dark days were over. To paraphrase Alexander Pope: Behaviorism and Psycho-analysis made organizational psychology lay hid in night. But the Maslow said, “Let the Pyramid be!” and all was light.

John Greijmans

juli 26th, 2014 · by John · Weblog EN

Every organization whether for-profit or not, exists to realize value for its stakeholders. Value is created (or destroyed) by management decisions in all activities, ranging from setting strategy to managing the daily operations of the enterprise. But value is at risk, and risks need to be managed in order to be able to create value.

Stakeholder Management

Value is what people value. It is what is important to them. In the traditional view of the firm, shareholders are the owners. The company therefore has a duty to put the shareholders’ needs first, and to create value for them. In the more modern view, an organization converts inputs of investors, employees and suppliers into outputs which customers buy, thereby returning capital benefit to the firm.

In this view a company has not only to take into account the interest of the shareholders, but it also has to create value for its employees, its suppliers and its customers. The stakeholder theory goes one step further and asserts that there are more parties involved, than the four mentioned above. All of them have an interest in the organization, and the company creates (or destroys) value for them.

A corporate stakeholder is a party that can affect or can be affected by the actions of an organization. Stakeholders are those groups without whose support the organization would cease to exist. The stakeholder concept has been broadened to include everyone with an interest (or “stake”) in what the entity does. Examples of stakeholders and their stakes are:

• Government: taxation, legislation, low unemployment and truthful reporting.
• Employees: pay rates, job security, compensation, respect and truthful communication.
• Customers: quality, customer care and ethical products.
• Suppliers: equitable business opportunities.
• Creditors: credit score, new contracts and liquidity.
• Community: jobs, involvement, environmental protection, shares and truthful communication.
• Trade Unions: quality, staff protection and jobs.
• Owner(s): success of the business.

Stakeholders can, either directly or indirectly have a strong influence on the objectives of an organization. They therefore are of prime importance in the business, as it is their stake in the enterprise which is at risk.

Value Creation

All entities exist to provide recognizable benefits for their stakeholders or, in other words to create value for them. Value is created if on balance, a stakeholder gets more of something she finds important. Value is created or destroyed by (management) decisions. Decisions entail the recognition of risk and opportunity and require that management considers information about the internal and external environment, deploys scarce resources and recalibrates activities to changing circumstances

Risk Management

Today’s business is constantly changing. It is unpredictable, volatile and seems to become more complex every day. By its very nature, it is fraught with risk. Organizations thus face uncertainty, and they are not able to precisely determine likelihood and impact of potential events. Events which could either destroy (risks) value of present opportunities to create value.

Risk Management enables management to deal with risks by reducing their likelihood or downside impact. It aims to protect the value already created by the organization, but also its future opportunities.

Historically, businesses have viewed risk as an evil that should be minimized or mitigated. In recent years, increased regulatory requirements have forced businesses to expend significant resources to address risk, and other stakeholders in turn have begun to scrutinize whether businesses have the right risk mitigation controls in place. In the current global economic environment, identifying, managing and exploiting risk across an organization has become increasingly important to the success and longevity of any business.

John Greijmans

 

november 29th, 2013 · by John · Weblog EN

What is a marketing distribution channel?
The term marketing distribution channels refers to the chain of activities to move goods, from the point of production to the point of consumption. A marketing distribution channel can be split into two groups of activities:

• Transaction channel: the process of advertising, negotiating and selling, concerned with the transfer of ownership of goods and services.
• Distribution channel: the supply chain of wholesalers, retailers and distributors through which a product is distributed and delivered until it reaches the end user.

How can value be created?
Customer value is the difference between what a customer gets from a product, and what he has to give in order to get it. The value received by the customer thus is the sum of benefits coming from the product as such (quality, assortment or form), the service associated with the product (after-sale, availability, delivery or transaction services) and the perceived value of the brand.
Since, the difference between benefits received and expenses made is the value of the product in the eyes of the customer; value can be created by increasing benefits and by reducing costs. So, what are the drivers that will create value for the customer?

How can a marketing distribution channel create value?
Intermediaries are used because they create efficiency in making goods available to target markets. Through their contacts, experience, specialization and scale of operation, intermediaries can offer the manufacturer or brand owner more than it can achieve on its own.

The main value creating activity however lies in the overcoming of discrepancies between the supply of products by the manufacturer and the demand of those products by the end user. There are four categories of discrepancies:

• Quantity: the difference between the amount of product produced and the amount an end user wants to buy.
• Assortment: the lack of all the items a customer needs, to receive full satisfaction from a product or products.
• Time: a product is produced but a customer is not ready to buy it.
• Space: the difference between the location of a producer and the location of widely scattered markets.

E-commerce as the Creative Destructor
Historically the marketing distribution channel has indeed created value by bridging the discrepancies of quantity, assortment, time and space. E-commerce will however change this situation dramatically.

Consumers can directly order at the website of the manufacturer, who can then organize the fulfillment needed to deliver products in the quantities ordered. Even if a manufacturer has only one product, meaning a discrepancy in assortment, there are numerous other online suppliers who can bridge that gap. If a customer is not ready to buy a product, a manufacturer can keep it in stock or, if deemed necessary, immediately cut production. In every country we have parcel delivery organizations that can reach any corner of “widely scattered markets”.

The role of traditional wholesalers and retailers in the marketing channel will be destroyed by e-commerce. But this development will create new opportunities for a complete value creating reorganization of the traditional supply chain.

John Greijmans

november 10th, 2013 · by John · Weblog EN

The key to the success of any business is customer satisfaction. How can organizations achieve this? The answer is the marketing mix, also known as the 4 P’s. The variables in this mix can be adapted in order to generate and sustain customer satisfaction. Traditionally, the emphasis in the marketing mix was on product strategy, with pricing and promotion in a strong supporting role. Here we will discuss some trends and developments which explain the increasing importance of the fourth P (place), the marketing channel distribution strategy.

Search for Competitive Advantage
Due to a number of trends, it has become far more difficult for companies to attain a sustainable advantage through product, price and promotion strategies.

• Rapid technology transfer and global competition have made it easier for competitors to achieve parity in product design, features and quality.
• The ability to operate production facilities all over the world has created fierce price competition in many product categories.
• The daily bombardment of advertising and other forms of promotion has reduced the effectiveness of promotional messages.

A marketing channel strategy offers potential for gaining a competitive advantage, because it is more difficult to copy. Developing and realizing a channel strategy is a long term enterprise; it depends on relationships and people and requires inter-organizational management.

Growing power of retailers
Strong competition among retailers is an important factor in keeping prices low. Often as a consequence of that, concentration in the retailing sector has increased, which contributed to the rising buyer power of retailers. As a result, manufacturers and brand owners are losing negotiating clout.

• A lower number of independent retailers will weaken the threat of a supplier switching to another retailer.
• Large retailing companies will account for a large share of the revenue of a supplier. Once the revenue from a particular retailer exceeds a crucial level, the supplier cannot afford loosing this key customer.
• A large retailer can distribute the fixed costs of searching for an alternative over a greater range of output, effectively reducing the cost of switching to another supplier.

Reduce distribution costs
Distribution costs account for a significant percentage of the final price of products; they are sometimes higher than the manufacturing costs. Cost reduction efforts are therefore being extended to the channels that firms use to reach their customers. Terms like restructuring and downsizing also apply to marketing channels. The latest term here is disintermediation. In other words: Kill the Middleman.

Increasing Role of Technology
Corporations are rethinking their businesses in terms of the Internet and its new culture and capabilities. Technology has the power to enhance the effectiveness and efficiency of marketing channels and could potentially change the entire structure of distribution around the world. Firms that make effective use of these technologies can gain a substantial competitive advantage.

Relationship Marketing
The focus of channel relationship management is shifting away from vertical market systems and authoritative control toward relationships that involve contactual and normative control mechanisms in the form of alliances and partnerships. The traditional ‘us-against-them’ mentality is replaced with a cooperative perception of ‘us’ in an effective channel partnership.

Who will survive?
There are four parties in a traditional marketing channel. The supply chain moves from Manufacturers to Wholesalers, to Retailers and to Consumers. You will always need someone who can produce the products and someone who can consume them, but what will happen to the parties in between?

John Greijmans

 

oktober 31st, 2013 · by John · Weblog EN

The most important task within the value chain of the consumer goods and services industry is to ensure that the value proposition of the various companies is accurately delivered to the consumer or end user. This route-to-consumer does not consist of a single road. It is a complex array of internal structures providing a complicated set of intermediaries with critical information on pricing and promotion.

The balance of power in the distribution channel from manufacturer to consumer has seen a dramatic shift towards and in favor of the retail industry. The vast majority of the brand owners face a daily battle to get their products on the shelves of ever more powerful supermarket giants. Even when they do get their new product listed, chances are it will not be merchandised the way they want it. Even worse, super markets place their own white-label copycat products next to the ones, for which the brand owner has spent large amounts on R&D and advertising.

Countervailing power however has emerged. A new generation of brands is doing business in a different way, by (again) taking control of the route-to-consumer and reaping huge benefits. The benefits of taking control are evident:

Brand Presentation
A perfect presentation of the brand, with the most profitable lines taking pride of place, rather than lying out of sight on the bottom shelf of the retailer. Imagine putting your brand on a billboard in a central place in the city. People can order your products directly by scanning the QR code, or even better by looking through it by Google glass. The ordered goods get delivered to them the next days

Instant Distribution
Instant, 100% distribution of new products is possible. Take Nespresso for example. This coffee brand is able to do a global, synchronized launch of its annual limited edition range, in a way conventional brand owners can only dream of.

Free market testing
Test new products and get consumer feedback free of charge in real market conditions. Take the example of the billboard again. Put one at Amsterdam Central Station with a mark-up of 10% and one in Rotterdam in with a 10% discount. Measure what happens and you can determine the price elasticity of your products.

When it comes to consumer interaction, brand owners of the future will no longer let retailers rule the distribution channel. They will re-take control of the route to consumer to drive superior growth and stronger brand equity. In future weblog, I will discuss some background and aspects of the revolution that is taking place in the distribution channel from manufacturer.

John Greijmans

juni 17th, 2013 · by John · Weblog EN

Extending credit to customers is like offering clients an interest free loan. There is no immediate expense, but granting credit entails additional costs. Allowing clients to defer payments increases the risk of bad debts and drains your cash flow. The only reason therefore to incur these costs, is to get a profitable sale that would otherwise be lost.

It is the responsibility of Credit Management to make a sale possible and, at the same time manage the costs of extending credit: bad debt and interest. Credit management should therefore be involved in both the credit approval (before the product or service is delivered) and I past due management (after the product or service has been delivered).

If you are a credit manager, you therefore have a tough job to do. Sticking to the Golden Rules below will make your life somewhat easier, but still very challenging.

  1. Determine the creditworthiness of each customer before credit is extended. Assess the credit risk, and based on that set credit terms (days), credit limit (amount) and, if needed securities.
  2. Continuously and at least annually, review the credit rating of existing clients. Always evaluate creditworthiness when clients exceed their limit or when you seek and become aware of other relevant information.
  3. Apply a strict review, authorization and communication process for granting credit limits and setting credit terms. A credit application should contain full business and personal contact details, trading name, credit guarantors, referees, identification number and years in business. Obtain a credit report to determine whether the client is creditworthy.
  4. Send out customer invoices immediately, and allocate payments to outstanding invoices on the day of receipt of the bank statement or remittance.
  5. Have a management review of aging reports at least twice a month and take appropriate actions to resolve issues.  Set targets for improving DSO per client and follow up on plans.
  6. Put customers on credit hold when they exceed their credit limit or when they have past due amounts. Implement a system lock to prevent handling shipments of customers on credit hold.
  7. Follow up collection through reminders and dunning letters. Treat delinquent payment as debt, and decide on what in-house collection measures to take, and when to refer to an external professional.
  8. We are all in Credit Management! Work with sales, operations and other departments to stay on top of what’s happening with a customer and to resolve issues quickly.

These Golden Rules are only a high level overview of what you as a credit manager should do and, no less important what your organization should do to finalize the sale. And the sale is finalized no earlier than the moment the money is on your bank account. In future blogs I will go into more details on the various aspects of credit management.

John Greijmans

mei 6th, 2013 · by John · Weblog EN

The theory of the firm consists of a number of economic theories that describe, explain and predict the nature of a firm, company or corporation, including its existence, behavior, structure and relationship to the market. Discussions on these theories have highlighted a rivalry between two models:

  • Shareholder model: the purpose of the corporation is to promote shareholder value
  • Stakeholder model: the purpose of the corporation is to serve a wider range of interests

The shareholder model sees the business as an economic institution: the company interacts with various parties in society, but only through transactions in the marketplace. In this traditional view, the owner (shareholders) decides on the purpose of the organization, typically profit or shareholder value.

Nowadays managers and even shareholders themselves are more inclined to also look at other stakeholders. In the stakeholder concept the company is seen as a socio-political institution. It interacts with society in order to add value and increase prosperity for individual (groups of) stakeholders as well as for society at large. In this view, management of an organization assumes the role of, and acts as a trustee for all other stakeholders.

According to the traditional theory of the firm, a company should thus only strive to create value for its shareholder. But even in the modern theory of the firm with its emphasis on the stakeholder, creating shareholder value is often the most important goal of a company. There is however some confusion to what creating shareholder value is. Is it just about getting the highest stock price at the end of the quarter, or is there more to it?

The economic value of a company is calculated as the present value of the cash flows that the business is expected to bring in the future. From this amount, the debt the company has needs to be deducted, to arrive at the value for the shareholder. The quarterly stock price does not seem to enter this equation.

There is however a relation between stock price and shareholder value. But it is not that value is created when the share price increases. It is the other way round: if a company builds value, the stock price will eventually follow. The objective of shareholder value creation thus is to create value, and then let the share price reflect that value.

To maximize long-term cash flow, a company must manage its relationships with all stakeholders. A company that charges too much will lose customers to competition. If it charges too little, it may have happy customers, but will be unable to meet its financial obligations or finance the resources to offer new and improved products to customers. Paying employees too little ensures a substandard workforce; in a competitive world that could be killing. Paying too much however hampers the ability of the company to remain competitive. The same logic extends to suppliers and the government.

A successful shareholder value-oriented company must therefore formulate a strategy that adds value for shareholders as well as for its other stakeholders. A company cannot maximize shareholder value through systematic exploitation of its other stakeholders.

John Greijmans

 

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