Some things which caught our eye recently...with some links to how our programmes can help make sense of the business world.

Why does a car built in the summer cost more than in the winter?

GKN (suppliers to VW and BMW) has been benefiting from strong demand for upmarket cars, despite the economic situation. But performance in 2009 was pegged back by higher costs in the summer months, when permanent staff were on holiday, and more expensive temporary staff were recruited to cover a busy period. This is all about understanding the nature of costs in a business, and matching production capacity with demand - as featured in our Understanding Business Costs course.

What price a slice of Blacks leisure?

In the wake of a failed restructuring, Blacks (the leisure group which includes Milletts) has announced that several parties, possibly private equity investors, are interested in taking a stake. But how on earth do you value such a stake? There are indeed many different ways of valuing a business (and hence its share price), and many of these require an assessment of future earnings potential rather than a mere reliance on past performance. Our range of Financial Strategy programmes includes short courses or sessions which help people to understand the basis of the tricky task of valuing a company.

Big and broad risks in Iraq oil strategy

TNK-BP, co-owned by BP and four wealthy Russian oligarchs, has announced it is bidding in an acution for three of Iraq's oil fields. This sounds a huge, possibly unquantifiable risk, but one that could both be a measured risk, and one that could give a return commensurate with the risk. The company's ability to extract oil is not in doubt; this is a prme case of external factors creating the risk...and many of these factors are possibly beyond the control and influence of TNK-BP. But such risks can be identified, and assessed, allowing a business to make a reasoned decision. Many of our programmes aimed at developing commercial awareness encourage participants to take a broad view of an organisation, especially the external environment, and so developing an understanding of how organisations make this type of decision.

Inefficiencies in government budgets: right up our street

Sir Philip Green, of Arcadia fame, has stated quite forcibly that government departments are wasting billions through inefficient buying, poor budgetary control and a lack of accountability. He suggests that running an organisation in this way in the private sector would spell certain failure. To act more like a commercial organisation, there are certain basis skills in budget setting, management and control. But there are also the more nebulous aspects such as accountability and even value for money, which should also be in place. Whether you are in the private or public sector, we run a range of programmes for those involved in budgetary and financial processes, from budget managers to all staff who need an awareness and understanding.

Liverpool Football Club: whose ball is it?

The sale of Liverpool football club looks like it is heading for the courts next week. The issue to be resolved is in fact whose ball is it? There are apparent complex misunderstandings and issues about who has control - shareholders or directors, and who is in fact authorised to make what decisions. In principle, the ideas of corporate governance and agency theory should make this straightfoward. But if you don't play ball, you may end up in court. The roles and tensions in the relationship between business owners and business managers is a regular theme in a number of our training programmes, including commercial awareness. We can't solve Liverpool's problems for them, but we might at least help you and your people to understand the roles fo directors and shareholders.

Refinancing failure puts Connaught at risk

Connaught faces administration after the failure of an attempt to secure funding for its £220m of debt. In the current climate, the market has not shown enough interest to provide the funds to cover both short term and long term financing needs. Connaught has been hit by a couple of projects which have turned out to be loss making, and government spending cuts will see revenues fall by a further £80m this year. Understanding how the markets - both investors and banks - see companies is a vast, complex subject, but our Financial Strategy programme incorporates the aspects which are relevant to your particular needs. Click here for more information.

Stocks of holidays left on the shelves

Thomas Cook recently saw third quarter profits virtually halve, affected by a variety of external factors - volcano dust, strikes and the economy to name just a few. In contrast to its competitor TUI Travel (owner of Thomson Holidays), Thomas Cook has not added extra holiday capacity, and therefore had a lower "stock" of holidays to sell late in the season. The idea of holding stocks of services is an interesting one, and managing a service business is very different to one dealing in tangible goods - say in manufacturing or retail. But product lines need managing, and delivery of these as and when required is a challenge. Our business simulation Enterprise deals with precisely these issues - and many more - managing a service business, developing and maintaining products, market segmentation and positioning, generating a profit, not to mention developing people and processes to ensure effective delivery. Click here for more informaiton, or contact us.

Good results from UK Exporters, but risks abound

The latest trade figures show that British exports to countries outside of the EU has reached record levels - £10.75 bn in June this year. Exporters benefited from growth in the US and Chinese markets. But this is a fragile state of affairs as the US economy is particularly uncertain at the moment.

So there are business risks in the export markets, but exporting in itself can add significant risks and costs to a business, wherever you export to. There are a host of risks associated with non-payment and currency fluctutation, together with demanding documentation requirements. We provide a range of short training courses aimed at minimising and managing these risks and costs, so that exporters can get on with the business of exporting and generating sales. Have a look at our Trade Finance page for a taste of what we offer.

Skype: what do I get for $100m?

Skype has just announced plans to list on the stock exchange Nasdaq. Despite difficult conditions, and a spate of unspectacular flotations in the US so far this year, this is expected to raise over $100m. But what do you actually get when you invest in a company like Skype?

In 2005, Ebay paid $2.6bn for Skype, despite it only having revenues of £7m - a multiple of 371 times annual turnover. Ebay certainly overpaid, but the point is that it is the future potential that Ebay paid for (perhaps forecast revenues of $200m per annum). But of that $2.6bn price tag, only $300m was on actual, tangible assets - the rest of the $2.3bn was for intangible assets - goodwill. But virtually every acquisition involves paying over the book value of the net tangible assets.

Two things of interest spring to mind - how do you value a company, and how important are the intangible assets? Firstly, our programme Company Valuations provides an introduction to the many different ways of valuing companies, and draws on a range of recent examples to illustrate this. Secondly, many businesses should be actively trying to manage the intangible assets of their business (brand, knowledge, relationships, people, processes) just as much as the intangible assets. One of our business simulations, Tango, does exactly that - helps people understand the nature of intangible assets, and how to manage them to create value for the organisation. Click on the links above for more information.

BP pay-off: scandal or sound business practice?

A lot has been said about the proposed £11.8m pay-off for Tony Hayward in the aftermath of BP's oil spillage. Many are asking how this can happen when £50 billion has been wiped off the value of the company's shares. But the case of Tony Hayward is certainly not the first or the last case of apparent injustice in the relationship between shareholders and business executives. it is a theme we explore in a number of our programmes - such as . commercial awareness.

Ocado to deliver on stock market?

You’ll have probably seen Ocado vans out and about on your travels as they make their Waitrose deliveries.  Like most people you probably also thought that Ocado was part of the John Lewis / Waitrose empire.  Whilst Ocado delivers Waitrose-branded products (as well as other brands) the online service is an independent business.  Ocado recently confirmed that it will float on the London Stock Exchange with the aim of raising £200m.  Shares will be offered to institutional investors, employees and customers who have spent £300 or more so far this year. Ocado, which was set up in 2002, has never made a profit but they did recently announce a 30% rise in sales, compared with the previous year, in the 24 weeks to 16 May 2010.

Why might shares in a loss making business be an attractive investment?  How will the money raised impact the balance sheet?  These are some of the issues explored on our finance training and business simulation programmes.

Selling beer at minus £6 a case

Controversy surrounds the World Cup promotions by some supermarkets, including Tesco and ASDA, to reduce the price of some of their range of beers to less than the amount of duty payable. The Licensed Victuallers Association are quick to point out that pubs and clubs cannot compete when the supermarkets could be losing £6 a case from this offer. The supermarkets can cross-subsidise the cost reductions with many other lines but the options for the licensed trade are much more limited.This is a bold strategic move, but one which requires a real understanding of the competitive landscape, buying behaviours, and business costs. For a better understanding of the business issues here, have a look at business strategy, business simulations, and business costs.

Then decide where you will drink your beer this summer.

007 or 000?

MGM have canned the latest planned Bond film due to uncertainties over the studio's future and financial instability. But many of the costs have already been spent or "sunk" - including paying for the franchise. The last 007 movie, Quantum of Solace, cost $200m to make and generated revenues of $586m, so it clearly seems a profitable opportunity.However, the sheer scale of the costs of the film - which are virtually all spent long before any revenue is received - puts immense pressures on corporate cash flow, and coupled with the uncertainty over the size of future revenue streams, makes any project like this high risk. Our programmes on capital investment appraisal help to understand the issues behind making long term capital investment decisions, whether they be in films, oil & gas, transport, manufacturing or elsewhere.

Pepsi - The Healthy Option?

Indra Nooyi, Chair and CEO of PepsiCo wants her firm to be “seen as one of the defining companies of the first half of the 21st century” arguing that Pepsi should be part of the solution to the global obesity problem.Nooyi has introduced a series of targets to boost the healthiness of the Pepsi range of products.  By 2015, they will reduce the salt content in some of their leading brands by 25%.  Furthermore, by 2020, Pepsi are aiming to reduce the amount of added sugar in its drinks by 25% and the amount of saturated fats in certain snacks by 15%.Clearly Pepsi have had a good look around their marketplace and are responding to different strategic challenges.  So, if Pepsi need to review their strategy then surely we should all be looking at where we want to take our businesses.  But how?  Well one of our programmes or would be a good place to start! Perhaps Strategic Awareness or one of our business simulations...

The cost of a volcano

It is being reported that the affected Airlines have lost about £1.1 billion as a result of the travel chaos and plane free skies as a consequence of the unpronounceable Icelandic volcano. The head of the International Air Transport Association calculates that at the height of the disruption, airlines were losing £260 million a day.  Mr Bisignani said that the final bill to the industry included costs of providing accommodation to stranded customers, feeding them and laying on other modes of transport, such as buses to either get people home, or nearer to home. “We’ve seen a week without revenue but that has not stopped the costs,” he said.

So, how exactly do the costs impact a business?  Just how long can a business survive without any income flowing in?  These are just some of the questions we explore on our Understanding Business Costs course, click here to read more.

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