Thursday, November 29, 2007

What is the Outlook for Business Investment in 2008?

Photo ©Linda & Colin McKie
International Trade

Central bank action to ease interest rates will mitigate the repercussions in the financial markets, but the economy needs to adjust to the new reality that the supply of credit has fallen sharply in real terms. Lenders have fewer reserves with which to cover existing loans. Moreover, their management and investors are less willing to extend what credit they have to finance risky ventures.

Don't expect good news from U.S. retailers in December with regard to holiday sales activity. Cash-strapped consumers are feeling the effects of high energy costs, inflated costs of imports, high credit balances, and reduced borrowing power.

Other sectors are no less troubling. Foreign investors are already showing reluctance to continue funding U.S. trade deficits, reducing the supply of capital available to U.S. business.

State and local governments that had enjoyed expanding tax bases during years of high employment and highly valued housing property are looking for ways to increase taxes, raise user fees and even sell off infrastructure. Aging workforces are a particular problem for state and municipal governments with generous health and pension benefits.

The one bright spot may be business investment. U.S.-based multinationals have earned impressive profits in recent years, helped by the declining dollar and spurred by high demand in developing countries. Suppliers of equipment to build infrastructure and develop raw materials (e.g., Caterpillar, Ingersoll-Rand and Illinois Tool Works) have done especially well, as have branded consumer goods marketers that have developed overseas channels.

It will be interesting to see how big business chooses to invest in 2008. With the continuing drop in the value of the U.S. dollar and rising employment in India, U.S. outsourcing of back office processes to low cost countries has lost some of its appeal. Investment in ERP systems remains steady, but its character is changing. Most major corporations have already installed ERP systems and are now trying to simplify their maintenance of their applications and improve the management of their underlying data. Consulting firms are betting that Service Oriented Architectures (SOA) will begin to supplant development within existing ERP platforms. However, business cases for that kind of development will prove difficult in a business climate focused on maintaining profitability in the face of weak demand.

U.S.-based businesses would do well to continue their investment in capacity to serve foreign markets. Manufacturers benefit both from the low-cost U.S. dollar as well as excess outbound shipping capacity from the U.S. Companies that can open new channels for sales to Canada, Europe, and Asia have the opportunity to add scale to their manufacturing operations.

To learn more about our work in consulting, read about our Practice or check out our Case Studies

Management Owns the Enterprise Architecture

Great management pays particular attention to the way they structure relationships and organize resources to provide offerings. If market-facing strategy is the essence of business, enterprise architecture is its being.

Enterprise Architecture is the description of the current and/or future structure and behavior of an organization's processes, information systems, personnel and organizational sub-units, aligned with the organization's core goals and strategic direction. Although often associated strictly with information technology, it relates more broadly to the practice of business optimization in that it addresses business architecture, performance management, organizational structure and process architecture as well. - Wikipedia
The world economy is in a turbulent period, adjusting to major shifts in resource prices and extreme uncertainty with regard to the geopolitical forces that underlie them.

This is a particularly critical time for management to rethink the structures of its trading channels, supply chains, back office services, and information infrastructures. There are opportunities for the nimble. Others are in for a rough ride.

To learn more about our work in consulting, read about our Practice or check out our Case Studies

Sunday, November 11, 2007

Managing the Consultants

This is an excerp
t from a letter to a client.

If I could suggest a course of action for managing your consulting engagements, it would be this:
  • Put all truly corporate initiatives under a common executive committee so that scopes can be managed and trade-offs can be more easily assessed
  • Combine and prune initiatives as a means of simplifying the messages and focusing the efforts on key strategic objectives
  • Grade initiatives for their ability to impact the critical corporate standards

Then you might consider side-railing any initiative that does not yield 50% or more of its benefit within 12 months and does not turn cash flow positive within 15 months.

If the light is not visible at the end of the tunnel, you may not be in a tunnel at all.

Our approach to management consulting can be found here.

To learn more about our work in consulting, read about our Practice or check out our Case Studies

A Management Consultant @ Large

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