How the cloud makes businesses possible
I have written a few posts previously on cloud computing and how it affects costs, software and business models.
I came across a nice article in Forces which details how businesses like Instagram and Snapchat can use the cloud to grow very quickly at minimum cost. Once such businesses grow, they can acquire a large value (e.g. WhatsApp recently), without actually having much in terms of what accountants would associate with value i.e. assets.
You can read the full article here.
Tax deductible expenses – ABBA style
In most tax jurisdictions, a business can deduct expenses which are solely for the business. For example, employee wages are deducted to arrive at taxable profits. But some expenses are not allowable against taxes, for example entertainment.
The words “wholly and exclusively for the purposes of the business” are often used to describe the expenses that are allowable. A recent article in The Guardian has a great example – the costumes worn by ABBA. Apparently Swedish law determined that any stage costumes could not be worn on the street. Can’t image myself in an ABBA costume walking down the street, so I think this would be a whole and exclusive business expense without much doubt.
You can read the full Guardian article here
Non-financial performance measures – example of one difficulty from Deutsche Bahn
According to a report in Der Spiegel, German rail company Deutsche Bahn has had quite an increase in the volume of customer complaints last year (2013). Complaints reached a new record in fact and were 50% higher than previous years.
For a rail company, customer complaints are probably one key non-financial performance measure. Ideally, the complaints should be as low as possible and I am sure a there’s a target in Deutsche Bahn on this measure. Reading the report though, it’s easy to see why using non-financial performance metrics can be tricky. Apparently the increase is down to ow things. First, more complaints arose due to poor weather – something beyond anyone’s control. And second, a new system for customers made it easier to complain. So, a simple year on year comparison of customer complaints would be quite useless. Maybe even setting a target is tricky too, as weather, strikes and many other non-controllable factors could come into play.
Despite such difficulties with non-financial measures, they will always augment monetary measures. While money is typically quite a stable measure , it can’t capture qualitative factors like customer satisfaction.
Operating leverage – seasonal woes at UPS & Fedex
Apparently, logistics firms UPS and Fedex ran into a bit of bother during the pre-Christmas parcel rush – see this article on Forbes by Steve Banker.
The problem may be one of bad planning. Simply put, Steve Banker suggests both firms did not have enough capacity in terms of aircraft or parcel sorting at their highly automated distribution centres. While Banker talks about strategic planning, when I read his article I immediately thought about operating leverage – which would of course be part of the strategic planning.
Operating leverage can be simply defined as the percentage of fixed costs compared to total costs. If UPS or Fedex wants to add capacity, by either leasing aircraft or adding more automation, this will increase fixed costs and operating leverage worsens as these fixed costs affect profits. Alternatively, firms like UPS or Fedex could instead hire more temporary staff, which represents a variable cost. No doubt they do this, but from my limited knowledge it would seem Amazon have this well organised. Increasing variable costs does not affect operating leverage, and is thus preferable in the longer term.
Of course it may be that firms like UPS and Fedex actually need to increase capacity and thus fixed costs. But as Banker points out in the Forbes article, investing to cover short term seasonal capacity issues implies over or idle capacity at other times.
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