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Return on Investment. If it fails to improve turnover ratios it is reasonable
for top management to ask “What are we online for?” or even “What are
we in business for?”
U
Undercapitalization The opposite of the profligate investment in daft
dot coms that was the norm before the “crash” of 2000. When seeking cap-
ital investment to cover, for example, the first year of trading, a company
is well advised to assess how long it takes to obtain the capital injection and
add that period of time to the date at which cash flow is forecast to become
positive and profits start to accrue. This gives a buffer period during which
further funding can be sought if necessary. Remember that there is no
mileage in an over-optimistic forecast and as David Myddleton has said: “A
forecast is what would have happened if what did happen didn’t happen.”
USP (unique selling proposition) The benefits of your offering that
your competitors either cannot match or do not promote that will persuade
the customer to come to you first and stay with you. If you fail to develop
a compelling USP you may have little choice other than to sell purely on
price. Those who sell on price alone are normally destined to be a follower
in the marketplace rather than a leader as they try to match or beat any
price reduction offered by any competitor anywhere. This approach is only
viable in the long term where there exists a recognized “low cost niche” as,
for example, in the airline business.
V
Value chain The addition of identifiable customer value at every stage
of development, production and distribution. Michael Porter identified
five critical success areas: research and design; development; production;
marketing and distribution. Each should contribute quantifiable added
value.
Variable costs Costs that vary directly with the levels of output. High
productivity reduces labour costs and therefore variable costs as well as
enabling fixed costs to be more readily absorbed, but too many organiza-
tions seek productivity on too narrow a front. The real art of management
is to increase and reward productivity throughout the business. That
includes productivity in the boardroom. Years ago Bob Townsend charged
directors for their time, the consumption of paper, food and alcohol (?) that
resulted from board meetings. He claimed (Up the Organisation) that
board meetings became infinitely more productive as a result. The Synec-
tics organization promoted the idea that all areas of board discussion
should be subject to a predetermined time guillotine. Better than 90 per
244 Key management questions