Africa Agriculture’s potential-enough is enough (PART 2)

By Patrick Mayoh

Frankly, I was delighted to have so many feedbacks on PART 1 of this post. And I am humbled by the many remarks and criticisms I received from this article. Some feedbacks came as very challenging questions that required very deep and tough answers[1].

Having said that, I would equally like to talk about a video link a friend sent me on Facebook. This was a documentary (je mange donc je suis[2] is the title) about the difficulties faced by Africans trying to practice Agriculture as a trade. It is a shame the content is in FRENCH but for those who can understand the language I have put the link below[3].

But the bottom-line of the documentary is that as long as Africans are disfavoured by the stock markets in favour of other countries like Brazil, they will never be able to fully reap the economic benefits of doing Agriculture[4]. So how is it possible to ensure that Africans fully benefit from their trade is a very tough question and I hope you can start providing some answers that will hopefully benefit us all. This article is just beginning to scratch the surface about this and probably in its own way help shape our discussion on this crucial topic for the African Continent.

Meanwhile I strongly believe that Agriculture should be the main focus for Economic Development and prosperity for Africans despite all the present hurdles. Last week I suggested this could be done through the following four ways:

1) Technology to boost productivity and optimise information among key stakeholders

2) Benchmarking of China’s agricultural revolution

3) Perceiving the big picture

4) Adopting a market-based approach

The first two were discussed in part 1[5] of this post and I will set about discussing the remaining two in this last post.

Perceiving the big Picture

Maybe African leaders would be more enthused about heavily investing in Agriculture if they were informed about the enormous benefits at hand. Figures from MC KINSEY actually provide a very strong case for making agriculture a priority on the African continent.

Research by MC KINSEY shows that:

v A green revolution in Africa means the continent’s economies could raise their collective output to $500 billion in 2020 and $880 billion by 2030 from $280 billion now

v Sub-Saharan Africa alone could increase the value of its agricultural production by $235 billion annually if it could increase its yield of major crops

v Brazil between the late 1980s and mid 1960s expanded its land under cultivation by 1 million annually. MC KINSEY predicts that if Africa could increase its Agricultural Production by $225 billion annually by 2030 if it could expand its area of cultivable areas by half the same portion as Brazil

Those three facts in themselves are compelling enough to get African Leaders thinking about the prospects of stimulating growth on the continent through stronger regulatory (economic, legal) frameworks that will boost the Agricultural productivity of the continent.

Not only that but real investments in Agriculture through the building infrastructure will surely provide jobs for millions of unemployed young Africans (see my article entitled: Africa could be the next economic success story[6]).

Adopting a market-based approach

Lastly because we live in a globalised economy, products and services are no more produced from a local perspective only. From the outset a business of the 21^st century usually thinks in terms of a region, a continent or the world. Bananas from Africa are consumed virtually everywhere in the world and British rely on the flowers from Kenya on Mother’s day to cite just a few examples.

My point is, instead of producing low value crops like beans or soya for example, Africa’s vast areas of uncultivated lands should be dedicated to producing high value crops (fruits and vegetables[7]) meaning those that easily sell globally especially in the developed world.

Kenya just mentioned earlier tripled its exports in horticulture to 700 million annually by focussing more on market rather than local needs. MC KINSEY posits that if high value crops replaced low value ones in Africa, the Agricultural output could rise by $140 billion a year from 2030.

The “breadbasket approach” for example is a good example of how to encourage the production of high value crops only. A given country for example decides to concentrate investment for a particular high value crops within a specific region/province. Mali is for example considering a similar approach in the Sikasso region which will hopefully raise cereal production by 60% in the country. In the 1970s for example Brazil concentrated investment in the Cerrado region around Infrastructure development, Agricultural research and soil recuperation. Such a system would mean that a country that has highly areas like Cameroon (Central Africa) could identify 5 key regions where investment could be concentrated for the development of highly value crops like fruits and other delicacies enjoyed in the developed world.

In a nutshell the focus should be on the demand rather than the supply side of the spectrum. Crops should be produced to reflect the real needs of the market or what people actually want to buy. Unless this approach is adopted Africans will continue to waste its vast agricultural potentials to the detriment of farmers and the population at large.

Interestingly nearly three quarters of the increase in Agricultural output could come from 11 countries which include: Angola, Cameroon, Cote dIvoire, Ethiopia, Ghana, Kenya, Madagascar, Mozambique, Nigeria, Sudan and Tanzania.

Conclusively because so much has already been said about the vast potentials of the African continent; the Continent will need a combination of visionary leadership, strategic and creative decision-making regarding investment (in physical infrastructure especially) and strong regulatory frameworks to create the necessary conditions for reaping the full benefits of its large uncultivated lands.

References

Acha Leke, Jens Riese and Sunil Sanghvi (2011) Sizing Africa’s Agricultural Opportunity MC KINSEY Quarterly

Steve Davis and Jonathan Woetzel (2011) Chinese Agriculture: a model for Africa MC KINSEY Quarterly

https://www.mckinseyquarterly.com/Public_Sector/Management/Four_lessons_for_transforming_African_agriculture_2785

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[1] One reader from Nigeria for example, asked me: “No doubt this is very educative and revealing. You have really opened up the reason why agriculture should be the number one priority of the African governments. My question is how best can we make funding available to the real farmers (Bearing in mind the level of corruption)? {...} Lastly, how do we ensure a price control in an unstable economy like ours?”

Or what about another reader that observed that: “What feeds Agricultural development is investment. Like everything you absolutely reap what you sow If you invest in seed improvement, access to credit facilities for real farmers, supply chain to get crops to market and processing of those crops to a finished good, then by all means hunger will be a figment of our imagination in Africa. Until that happens, let's keep donating our $20 to Oxfam to solve Africa's problem.” Regarding China the same reader observed that: “China is united!!! This means you have no idea about China. China is a vast country with many races and different languages. The China that many people see, The Hans, oppress most other Chinese such as the Uiygurs, Mongols and the Tibetans. “I fully agree with this last observation. By no means is China a fully integrated society. Much still has to be done in terms of bringing all the different groups together, but one has to recognize that China’s rise to economic prosperity is in a sense down to the commitment by the Central Government to unite and organize the nation towards the same goal which: economic prosperity through a more productive agricultural system.

[2] I eat so I am

[3] http://vimeo.com/7893617

[4] The WTO (World Trade Organization) determines the rules of the game and in principle demands that all countries sell their crops at the market price which is usually the lowest. How low the price is much depends on individual countries and the cost associated with production in those. So an American Corporation that bought very cheap land in Brazil spends $30 producing a ton of corn using strong “Economy of Scale” techniques while a farmer in Africa spends about $230 to produce the same amount of corn. So in the end not only does the market buy from the American corporation in Brazil but it also demands that Africans sell their tons of maize or corn at the same price. So what happens is many Africans (50 million each year) give up farming as a trade and flock to cities in search of more lucrative trades.

[5] http://patrickmayoh.blogspot.com/2011/05/africa-agricultures-potential-enough-is.html?spref=fb

[6] http://patrickmayoh.blogspot.com/2010/10/africa-might-just-be-next-economic.html

[7] From MC KINSEY ARTICLE

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Africa Agriculture’s potential-enough is enough (PART 1)

By Patrick Mayoh

The chocolate bar you had for your snack was probably made with Cocoa cultivated in Ivory Coast. The Flowers you offered your mum on mother’s day were possibly shipped over from Kenya to the UK. Africa accounts for 60% of the total world area of cultivable and fertile lands. So why is it that the continent is yet to have a green revolution on the scale of Asia and China in particular? Having read a well researched and thoroughly written article from MC KINSEY Quarterly I believe Africa’s Green revolution should depend on the combination of the four following key factors:

· Technology to boost productivity and optimise information among key stakeholders

· Benchmarking of China’s agricultural revolution

· Perceiving the big picture

· Adopting a market-based approach

All of these factors as I will briefly explain below will boost productivity, provide jobs and take millions of rural farmers out of poverty while expanding GDP growth for the continent.

Technology

The Kenyan stock exchange in partnership with Safaricom a mobile phone network operator in the country have allowed rural farmers in the country to exchange key pieces of information about market trends and the prices of different agricultural commodities through SMS (short message services).

In Uganda the European Union have supported an initiative designed to help rural farmers (women to be more specific) to exchange information through text messages about market updates on different goods.

Similar initiatives ranging from translation of market information into local languages to web applications designed to help farmers make meaningful decisions about their crops are taking place across the continent.

The bottom-line is, technology does play a great role when it comes to boosting productivity while providing key facts to farmers regarding crops and their prices. Governments’ efforts to reap the full benefits of the agricultural potentials of Africa, should take into account the positive impact technology could have in this sense.

Exchanging information through SMS is a good start in addition educating rural farmers as well as making new technologies available to them is a priority. This is all about making sure African rural farmers have at their disposal the technological tools to create the long awaited green revolution through availability of data and information about their work and the possibility to exchange information between with other peers across the sector.

Benchmarking China’s Model

In many ways Africa Differs from China. China is united, has a well organized central government, and boasts very strong infrastructure. Africa on the other hand is plagued with political instability, a blatant lack of adequate infrastructure (transportation and warehousing facilities for example) and in dire need of knowledge and experts in the field of agriculture.

However Africa could still implement (with success) some of the underlying principles behind China’s green revolution.

Firstly one of the reasons why China’s GDP keeps soaring dates back to the 1980s when the Government decided to prioritize agriculture as a means to boost the economy. The agricultural reform was not a peripheral objective but a key issue that had wide support from the Central Government. This in part explains why China decided to “open up” to the rest of the world. So the message is clear, Africa’s economic development is very dependent on a greater support from individual Governments of Agriculture. Bearing in mind the vast agricultural potentials of Africa (60% of the world cultivable area) there is a great incentive and rationale for making this a priority.

Barack Obama said in his speech Dakar that Africa does not need strong men but stronger institutions (paraphrasing). China has put in place excellent institutional capabilities at all levels; R&D, Micro-credit organizations and other organizations in charge of advising farmers on key issues ranging from irrigation to export and productivity issues. Africa does have the CAADP (Comprehensive Africa Agriculture Development Programme) which has been put in place by the AU (African’s union) to advise member countries on key Agricultural issues like market trends and other related factors. More institutions like these with specific roles linked to specific aspects pertaining to Agriculture on the continent could make a major difference in boosting the agricultural productivity of the continent.

Lastly given the massive potentials Africa boasts in terms of cultivable/arable lands, investments should be directed towards building R&D facilities that could improve research and new developments in the sector within the continent. The field of Agronomics in China flourished as a desire to develop the best conditions to improve the Agriculture sector in the country. Africa should take notice and Universities should devote resources to build research centres and institutes that will prioritize the development of Agronomics as a key academic discipline on the continent. Germany’s universities have the best industrial and technical facilities because Germany by essence manufactures a lot of machinery and is one of the leading exporters in the world in that field. Likewise Africa has the potential to specialise in Agronomics and set the pace in Agricultural Research. Thus becoming the World’s basket for all kinds of Food, this is becoming the case in a sense but the possibilities are even bigger than one can think of.

Part 2 of my article will discuss the two remaining factors in my roadmap for changing and benefiting from Africa’s Agricultural potentials.

References

Acha Leke, Jens Riese and Sunil Sanghvi (2011) Sizing Africa’s Agricultural Opportunity MC KINSEY Quarterly

Steve Davis and Jonathan Woetzel (2011) Chinese Agriculture: a model for Africa MC KINSEY Quarterly

https://www.mckinseyquarterly.com/Public_Sector/Management/Four_lessons_for_transforming_African_agriculture_2785

New Technologies for African Agriculture (2011) Afrique Avenir

http://www.afriqueavenir.org/en/2011/04/07/new-technologies-for-african-agriculture/

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Brainsteering: An alternative way to conduct your brainstorming session

By Patrick Mayoh

First of all can I just observe I prefer the term Brainsteering to brainstorming? Think of it; what comes to your mind when you consider brainstorming is where/when people in a group blurt out all kinds of ideas and propositions sometimes with a serious lack of focus or perspective. When it comes to Brainsteering you can think of the steering wheel in your car providing a clear sense of direction and leading you exactly to where you want to go.

Well Brainsteering is still a very new term out there; actually my Google search yielded very scanty information. However this is worth talking about for my post this week. And I came across the concept a couple of days ago in the MC Kinsey Quarterly. Simply put Brainsteering is a refined or an improved way of brainstorming. In a traditional brainstorming session, people sit around a table (with tea or coffee, pens and papers) and have to think “out of the box” to come up with the latest ideas on issues ranging from cost reduction, pricing, market entry strategies and all the rest.

While this has been greatly lauded in organizations and by virtue of the fact it has often yielded great results, MC Kinsey believes it could be done much better. So do me. They have therefore identified seven ways of completely turning your brainstorming session upside down. It is a combination of very commonsensical principles and details managers have to take into account when they meet up with their teams.

Bearing in mind that the cardinal rule for great products and services is to have great ideas Brainsteering therefore revolves around the followings even steps:

1. Knowing your organization’s decision-making criteria

2. Asking the right questions

3. Choosing the right people

4. Dividing and conquering

5. On your mark, get set, go

6. Wrapping it up

7. Following up quickly

Assessing your decision-making criteria

This pretty much makes sense doesn’t it? Before you get your team to think about your market entry strategy for South Asia, you should as a coordinator check and ensure which decisions your team can or not make. The old cliché according to which brainstorming is all about “thinking out of the box” is very misguided. Because like it or not you operate in a specific context governed by particular rules and regulations pertaining to your organizations. So although going into China for example (everyone wants to) would be a fantastic idea for your business do you have the means as a team to make such a decision? The point here is Brainsteering strategically and wisely delineates the confines of an idea generation process. Members suggest ideas based on their collective decision-making power. Good ideas not matter how good they are, are discouraged if they cannot be implemented by the group.

Asking the right Questions

Quality is definitely better than Quantity. It is not about the number of ideas but about the pertinence of those in a given context. Therefore the ideal Brainsteering session manager carefully identifies a problem, pattern or issue and then articulates specific question built around finding key answers to the problem. This is about saving time; frankly going into a brainstorming session where the manager says “any idea?” is catastrophic. Rather the “any idea?” could be replaced with something like “any suggestions about providing better customer service for new mums that come to our store”.

Choosing the right mix of people

This does not need much explaining does it? Ideally when it comes to decision-making you should have a mix of people working within all the layers of the organization. This is even when the decision to implement for example is just affecting the operational layer. The idea is to obtain perspectives from key sectors of the organization. Say your Brainsteering session decides you should upgrade your computers. Sounds great; but what if unbeknownst to you, the top management has decided to freeze capital investments in IT. So the idea is to ideally have a Vice-President, Middle managers and Customer service reps for example. Ideas are guaranteed within such a context to flow better and to be generated in a more coherent way.

Dividing and Conquering

Sounds like a line from the Iliad or the Lord of the Rings. But this is probably one of the very important and attractive aspects of Brainsteering. It is common wisdom that when you have a large group of people three things happen. You have those who never run out of ideas and keep on suggesting off the wall perspectives. Then you have those that enjoy contradicting those who have the good ideas without suggesting anything of value. And then you have the stone faced, those who never say anything and that are hardly noticed in the course of the brainstorming session. This is usually a waste of time, ideas and resources. Because that quiet member could surely contribute something given the right context/atmosphere; and it is up to the manager to acknowledge that. An ideal Brainsteering session means you have to divide a large group say of 8 into small groups of 3 or 2 members. The tendency is to talk more when there is smaller group. The taciturn colleague will undoubtedly contribute something if he finds herself or himself in a smaller group. Conquering is then about assigning each group the task of finding specific answers to pre-articulated question (before the meeting).

On your marks, get set and go

This is most likely to be at the beginning of your meeting having prepared already (the four steps above). Here your participants will have to briefed on what you are up to (as the manager) many of these might find your paradigm shift very strange. Ideally you will set out the problem, the pattern or the issue and then proceed to lay out the key questions to be answered and therefore assign people to their various groups.

Wrapping it up

There is still the likelihood that your participants will come up with many ideas although they are in sub-groups (you can’t help it can you?). Wrapping it up is the stage where you get your team to summarize their main points. It could be done in two steps. First each group indicates how many ideas they have regarding a specific question assigned to them. Say 4 ideas per group about 16 for the whole group; the next step will be then to get them to narrow down their points to 2 or just 1 depending on your context and end up with 8 top ideas.

Following up quickly

Once you have generated ideas you should with a decision-making team (CFO or COO) tick in or out the best ideas. Informing the members even those whose ideas have not been implemented is critical at this stage. You need to thank everyone and clarify the fact that decision making based on capabilities is actually the reason why one idea gets rejected or accepted.

You are ready! Find it very useful actually. Hope you do as well. I am still thinking about my article on Phone applications. See you next week.

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The Branding era or how your branding strategy can attract and retain faithfuls

Patrick Mayoh

It is a reasoning I recently read in a book that prompted me to write something about branding this week (after a long break). The book itself is about youth culture and its ramifications within the field of business in general and marketing in particular[1]. The author made an observation which got me thinking about the whole idea of branding and how it was affecting our choices or even emotions today. Jason Gardner (that is the author of the book) hypothesised that today’s generation are the first to “have grown up within a brand culture”. Adding that “promoting brand isn’t a new idea, but the heavy emphasis on selling the image of a company, as opposed to promoting the quality of goods they sell is new”. In addition he reckons that “companies realised they could create a cheap product but sell it at a high price if the image of the company was right”. Although this needs may be to be substantially proved and empirically demonstrated, you cannot help but feel this series of statement is very reflective of what is going on today. Traditional marketing which consists of promoting goods and services is not as relevant as it was before for three keys reasons:

· Product/service lifecycles are shorter

· There are too many offerings (products and services) out there nowadays

· Product/service information are widely and easily available these days

Shorter lifecycles

Well think of it honestly, new Ipads come up every year, blackberries are released virtually every 3 or 6 months, phone apps every seconds and new car models every year as well and this is not just about the technology and automotive industries; all sectors in our current economy are constantly reinventing products and services be it in retail, groceries, fashion and sport industries to name just these. The product lifecycle model as we know it (birth- maturity- growth- decline) is outdated and irrelevant to the 21^st century business environment. The way it is today, is products and services are born and mature virtually within the same time while growth and decline occur so quickly that you do not have time to see when they actually happen—think of the last time you thought you needed a new phone after you had bought one just 3 weeks before—clearly the idea of positioning a product in a particular niche market is as complex as it has ever been for many years.

So many offerings

The reason why we have shorter lifecycles comes down to the fact that we seem to have more of the same everywhere. Just about 10 years ago Nokia was the leader of the mobile phone industry with just a few competitors like Motorola, Sony Ericsson and in a certain measure Samsung and LG. Today the picture is totally different. This is the same with the automotive industry, there used to be a time where only Volkswagen, BMW, Toyota and Ford were the only choices available when you thought of purchasing a car. Well you know this is totally different today. It even sounds ludicrous to observe that new products and services are produced virtually every second today, overshadowing the current ones, and conveying the feeling that what we have just bought from the store or over the Internet is so outdated we need to get something new. This is probably what Belden Menkus referred to when he talked about the age of discontinuity (his article is published on this blog) where everything that happens now seems to be so disconnected from what went on before.

Information overload

Information overload is just a consequence from the previous two. It is actually a term I read about the first time in a MC Kinsey article about coping with the vast amount of information available to CEOs and individuals nowadays. Traditional marketing methods with popular models like the 4Ps (product, price, promotion and place) aims to ensure that customers get the best information available about products. It is based on the premise that a customer that possesses all the good information will surely make the best choice when deciding which product or service to choose. Nowadays such information is widely available, not only that, but it is available in such a big amount that it becomes confusing to make a good decision. From websites, to consumer reports and blogs it is so easy to lose your head over what to believe when it comes to making the right decision about a product or service you wish to purchase.

Why branding

And this is where my point for branding comes into play. Because traditional marketing alone is no more necessary to attract and retain customers, your business will need to capitalize on branding to make a difference. I preferred to use the term faithfuls rather than customers because I reckon that nowadays you really want to retain people that will not only buy what you sell but will tell or keep telling others and spread the gospel (getting a bit religious here!) about your products/services and its various attributes. I believe branding in this sense has a big role to play for three reasons:

· Your identity

· What you stand for

· Why people can and should relate to your company

First of all branding “is the complete set of signals that surround a product, service or a company” according to Van Assen et al (2009) regarding the definition of a brand and how it affects a company’s image and reputation.

Your Identity

This is not just about your name or logo. It has to do with how you make sure you distinguish yourself from others in your sector or industry. It is a combination of the products/services you offer and what your organization understands/believes itself to be within the wider society and why. And this is the reason why you need to agree as an organization what you want to be passionate about especially in terms of improving and changing your environment(the wider society). There are actually so many causes and issues your organization could be passionate about. These will have to be incorporated within your identity statement.

Your values

What you stand for in your organization should not be secretive; rather you need to make sure your customers know about your values and those things that add flavour to your identity. This is the only way you start to connect to customers and their deepest needs. What people get/buy from your business, they can easily get from elsewhere, and not just that, chances are what you offer is available in many other locations and businesses. Your values will ensure customers connect to your organizations and will eventually make them want to stay and continue doing business with you. Integrity, honesty, customer-first, innovation, reinvention and agility are just some of the values out there you might want to emulate to make sure people stay with you and do not go elsewhere.

Create connections

I recently watched Comic Relief, a programme on the red nose day in Britain designed to attract funding from the public through a TV show hosted by popular comedians. The thing which most struck me about the programme was the level of support from the business sector. You would expect a TV show designed to attract financial aid for Africa to be supported by major charity organizations. However the level of support from the profit sector was even more than from the non-profit sector. Ernst and young (many people do not know about) as well as retail stores like Asda (Wal-mart), Tesco and Sainsbury featured in the TV programme.

The idea I believe is for those companies to connect with customers; something like “we are the good guys, we do not just sell the good products and services”. Increasingly customers will not just buy the best products and services, customers will equally put their favourite brands under scrutiny to understand whether those actually contribute to the common good of society. That sounds very utilitarian but it is a true picture of how things stand in the UK and the world over. Recent protests in Central London about cuts are a prime example of that. Big corporations were accused of tax evasion and therefore responsible for the current economic climate. I will not go into much detail about that, but think of those companies like Nike which recently came under the spotlight for allowing children in Asia to work under inhumane conditions in their factories.

If your branding strategy needs to be successful you need to make sure people can relate not only to your products or services but also to your actions and initiatives within your environment especially in terms of how they contribute to make a happier society.

Good...hope that makes sense for you and your business...see you next week with an article on phone apps

References

Jason Gardner (2010) Mend the Gap Inter Varsity Press

Baker, M. And Hart, S. (1999) Product Strategy and Management. Harlow: Pearson Education.

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[1] Mend the Gap by Jason Gardner

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Why your business should think about web 2.0 technologies/social media?

Patrick Mayoh

Back to my geeky mood again! I have been reflecting about the impact of social media in our westernized societies, well not just the west but globally. I was thinking especially about the ways in which a business, say a start-up could fully reap the benefits of utilising those emerging means of communication to benefit a business/organization. Over the past two weeks my attention was caught by this article from MC Kinsey about a book by Stanford Marketing Profession Jennifer Aaker and marketing guru Andy Smith entitled “the dragon fly effect” on engaging customers or the general public through social media.

Interestingly, a couple of weeks ago I read about this research results from communications agency The Group, about twitter use by FTSE 100. According to findings almost half of those companies use twitter to engage with their publics and this is up from about 50% last year. If you add these figures to the 25% rise in Facebook use and 39% for YouTube, you start to get the big picture.

I believe your organization can benefit from social media use in the five following ways:

· There are a critical barometer of your company’s image and performance

· They will help you engage with customers in new ways

· It is probably one of the cheapest marketing strategies to implement

· They can bring organizational members closer

1) Another Barometer

Traditional ways of assessing whether people like or dislike your organization or are even aware or unaware of it is to monitor the press, the TV and Internet posts and articles. Embarking on social media use is also a critical and more refined way of doing the more of the same. As a starting point creating a Facebook or Twitter page will be a good way to know if your customers/fans have a good perception about your company and its activities in general. Although you cannot specifically tell if your company is liked from the number of Facebook or twitter followers you have, I think this is still a good starting point especially if you are a new start-up and you are still not getting enough coverage from mainstream media.

2) Engaging with Customers

Engaging with your customers goes beyond having numerous Facebook or Twitter fans. The big question is how your organizations use those followers to for example:

· Create new products/services

· Improve customer service

· Acquire new customers

· Expand to new markets

70% of executives interviewed by MC Kinsey in a global survey in 2007 have admitted to the fact that their organizations create more value for customers through web-based technologies. There are currently about more than 70 million bloggers (like myself) posting reviews about products and services according to MC Kinsey Quarterly (2010).

A couple of months ago Facebook freely marshalled 300,000 users to translate its website into 70 languages. The translation of the French version took just about....well a day. Procter and Gamble have set in place a social network of mums trying and reporting of their experience of using specific products for their babies. Like it or not the possibilities and opportunities are endless for your organization and it is time your PR team sat and thought about that.

3) It is very cheap to start with

Honestly the cost of setting a Facebook, twitter, Beebo or YouTube account is basically free. You will not have to convince your manager to spend more money. But you will have to highlight the specific objective of using such means of communication within your organization. The possibilities are endless especially for a new marketing campaign. Instead of paying a ridiculous amount of money to advertise your new insurance service on TV why not consider the possibility of using YouTube at a definitely lesser cost, virtually all companies have video messages of some sort ranging from interview preparation for university leavers to new products and services, so why should you not think likewise for your business?

4) What about starting a blog for your organization

Up to now we have just briefly looked at the external applications of Web 2.0 technologies. However corporate blogging is just another way to get people together within your company. It is all about creating a sense of community within your company, whereby people use your blog as a forum or a way to exchange perspective with your colleagues in a newer way. Therefore it could a good idea to set up one for your business and get your organization’s members to regroup for the benefit of your organization.

References

Steve Dinesen (February 2011) Almost half of FTSE 100 firms now use Twitter CITY AM 8 February 2011

Jacques Begin, Michael Chui and James Manyika (2010) Clouds, Big Data and smart assets: ten tech-enabled business trends to watch MC Kinsey Quarterly

Dan Singer (2010) The power of storytelling: What nonprofits can teach the private sector about social media Interview with Jennifer Aaker and Andy Smith on the Dragonfly effect MC Kinsey Quarterly

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Dupont Analysis – Understanding what factors affect your profitability

By Patrick Mayoh

A lot of you guys had a look at my article on cloud computing and I really appreciate that. I Hope you agreed with me that, this was a must-have IT applications for organizations wishing to save on capital investments, willing to improve their team’s flexibility and mobility, mindful about the environment and overall desiring to be trendy.

This week I am going to talk about something quite different. But it is still about efficiency, that is focussing on the elements around your organizations or units that really matter to your profitability and productivity overall.

The Dupont model or analysis is one of those frameworks that allow you to see the big picture, compare yourself to competitors in your industry and make informed decisions regarding where and why you allocate financial resources as well as how you can improve those elements that add value to your organization.

The big picture

Traditionally organizations across all industries and sectors measure profitability using such key indicators as ROCE (Return on Capital employed), ROE (return on equity – for investors and shareholders) and ROA (return on assets – how well your company uses its assets relative to its overall performance). While each of those ratios provides analysts with key figures or proportions regarding their organizations, they fail to tell the whole story. This is with regard to individual factors affecting each of the ratios. Take for example the ROE, which is obtained by simply dividing the net income from the income statement by the owner’s equity from the balance sheet. What you end up getting is simply a single figure that does not tell you much apart from how well or bad your company is doing. A Dupont analysis will break down the same figure and give you a clearer picture of what affects (positively or negatively) that measure of your organization.

Say you want to understand what affects your shareholders’ profitability using the ROE, the dupont analysis breaks it down in the following manner:

ROE=Net profit/Equity=Net profit-pre-tax profit x Pre-tax profit/EBIT x Ebit/Sales x Sales/Assets x Assets/Equity

The good thing is you do not need to calculate each of the elements that can be found in either your balance sheet or income statement, so just playing with the same figures around means you will understand which of those between EBIT, Sales, Assets or Pre-tax profits affect the performance of your organization and in this case the profitability of your shareholders.

This equally works when you want to look at those elements affecting your return on investments say for one of your flagship product.

ROI= Net income/Total Assets= Net Income/Sales x Sales/Total Assets

Lastly the profit margin that helps you to know how much sales affect your net income can be decomposed in the following manner:

ROE= Net profit/Sales x Sales/Assets x Assets/Equity

Conclusively each of those figures helps you and your team to understand what individual factors between assets, sales, EBIT, Equity, Net profit affect your performance.

Comparing yourself to competitors

In an age of free access to financial information, it is easily possible for you to gain access to key financial information of your competitors. The Dupont analysis will actually help to make a comparison between what affect your performance and theirs. In terms of benchmarking, you have the opportunity as a business to understand how the leaders positively affect the performance of their organization. As a rule of thumb for example, retail businesses have high turnovers and very low profit margins while service industries like banks make high profit margin with very few assets. Looking at such elements will likely make you understand what you need to improve on or what you need to work on within your organization to do just like or if not better than your competitors.

Assuming your shop does not turn any profit at all. Maybe the problem lies in your sales, although you make good turnover, there is the possibility that you could improve your sales or that your assets are underutilised. Likewise if you are in a sector that need very few assets to turn a profit and assuming you are not getting much return, maybe you need to invest just a little bit more in assets in terms of IT applications or machinery to name just a few. All these appear clearer when you use a Dupont analysis.

Decision making

You only want to invest money where it really matters. Therefore the Dupont analysis is a good starting point when you want to decide as an organization where money should go and why. Also it is a good framework when you have to decide what elements to scrap or maybe those ones which need more attention from your team. Maybe weak sales affect your profitability because of a weak marketing strategy or it is possible your assets are underutilised which explains why you still cannot make the most out of them.

Informed decision making is possibly one of the greatest benefit this model yields to manager when they have to decide where to invest, how and why.

To conclude you always need to understand as a manager why organization makes or does not make profit and the Dupont model is a good framework for that.

References

Bodie, Z., Kane A and Marcus, A.J. (2004) Essentials of Investments, 5^th edition New-York, Mc Graw Hill

Groppello, A.A. and Nikbakjt, E. (2000) Finance, 4^th edition New York, Barron’s Educational Series

Ross, S.A., Westerfield, R. And Jaffe, J. (1999) Corporate Finance, 5^th edition Mc Graw Hill

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The Era of Cloud Computing – Five reasons why your organization needs to adopt it

Patrick Mayoh

I cannot tell why I am turning geeky these days. I had to choose between writing on cloud computing or web 2.0 technologies. The reason I guess is because I believe those two topics just show how much, more efficient IT systems in the future will boost productivity and increase profitability. Cloud computing is one of those IT applications that your organizations should be thinking about for five reasons:

· It is trendy

· It is cost-effective

· It is sustainable

· It is Accessible

· It boosts your team productivity

What is it?

Simply put according to Jacques Bughin et al (2010) in the MC Kinsey Quarterly, cloud computing consists of “accessing computer resources provided through networks rather than running software or storing data on a local computer”. Mell and Grance (2009) of the National Institute of Standards and Technology NIST provide a more comprehensive definition as they define it as “a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction”. Let us see why you need it in your organization and how this will change and possibly improve your business as a whole.

It is trendy

This is one of the hot IT topics nowadays. It is one of those applications that will set the pace of the future and will be widely used by organization for its many benefits. It is gaining such momentum that the MC Kinsey Quarterly devoted a section to it in its article on the top “ten-tech enabled business trends to watch”. Big pharmaceutical giants like Genentech have begun to reap the benefits of cloud computing, as this enables them to design and create documents and spreadsheets from enabled web browsers like Google for example.

IT is cost-effective

Your company spends a lot of money on a yearly basis just to acquire software licences and purchase or maintain computer servers. Cloud computing means your business has a unique opportunity to save in capital investments. If your organization invests in a private cloud, the need to renew say your Microsoft Office licence or your Anti-Virus every year will become irrelevant. Likewise the need to buy servers to support your internal network will also disappear. Cloud computing simply means that if you invest in a private cloud for example, all you need is a reliable and fast enough working Internet connection to access all your files and documents on the “cloud” from your laptop or smart phone. So you can even think about getting rid of all your licences and servers now cloud computing is the new way.

It is Sustainable

Sustainability is one of those terms everyone has become so passionate about in the business world. It is all about how we use natural resources without preventing next generations from doing the same. I think Jim Wallis (2010) gets it better than anyone else. In his book “rediscovering values” he introduces a concept called “the seventh generation” principle whereby American Founding Fathers in the past would make decisions based on how these would affect the next seven generations. According to MC Kinsey Quarterly, the Electricity needed to power IT structures around the world generates greenhouse gases emissions of the scale of countries like Argentina or the Netherlands. This is set to increase by fourfold in 2020. This alone is a good reason why cloud computing is necessary for your business. No need to make capital investments in items such as USB drives, CDs, Servers and paper to name just a few. Because all IT applications can be organized, shared, processed and saved on the cloud using your normal Internet connection; there will not be any need to invest in hardware equipments anymore.

It is accessible

It just used to be something people vaguely knew about but just as Jimmy Harris, Managing director of Accenture Cloud services observes, “More and more money is being allocated to exploring and implementing cloud services; believe it, it is gonna happen and it is gonna continue to evolve”. This is because major software companies like Microsoft and Google to name just those two giants have already developed solutions for clients enabling them to access cloud computing services. Microsoft has devoted a whole platform on its website explaining and clearly outlining the benefits of the cloud for organizations. This just shows that nowadays this is an investment many organizations can venture to make.

It boosts your team productivity

Cloud computing means the IT applications containing your files, spreadsheets and documents can be accessed from anywhere and faster than before. Therefore enhancing your team mobility, flexibility and speeding up the way you deliver services and products to customers or clients.

Maybe you will even cut capital investments in infrastructure like buildings. Because data can be accessed anywhere some of your staff might not have to come to work Monday to Friday. Most of their tasks could be completed from the comfort of their sofas at homes just using their normal internet connection to work on projects.

Also projects could be treated simultaneously as staff can access the same files and documents from the cloud boosting the flexibility and productivity of your team while increasing the speed at which you deliver your services to clients. In an ideal scenario you could get team members from Europe, Asia and Central America to work say on a service or project that is meant for a client in Africa. And this could be done simultaneously using just the cloud and provided those team members can access it from where they are using a normal internet connection.

In a nutshell this is why you can benefit from using cloud computing services. Feel free to leave any comment (I would really appreciate if you did as it only helps me to improve and write about more relevant topics).

References

Jacques Bughin, James Manyika and Michael Chui (2010) ten-tech enabled business trends to watch MC Kinsey Quarterly

Jim Wallis (2010) rediscovering values: on Wall Street, Main Street and your street Howard Books New-York

Peter Mell and Tim Grance The NSIT definition of cloud computing

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