When Management Wants to Spend, Spend, Spend

When it comes to determining future corporate direction, the strong tendency of management to opt for capital-intensive projects is well documented.

Indeed, this bias stems from a desire among divisional managers to grab more power and establish the type of reputation that comes from successfully running a project of this kind. This desire often flies in the face of headquarters (or shareholders), who normally favour projects that maximise the NPV or added value. Interestingly, many organisational HQs never hear about all available project alternatives, simply because divisions tend to manipulate the approval process by presenting their preferred project (not necessarily the best one) in the most favourable light.

The question of what HQ can do in response to this tendency has formed the basis of an in-depth research project that saw our University of Sydney Business School team examine four practical policies that have been used by companies in the past. Critically assessed and ranked in order of least to most effective, these were:

1 – The Capital Requirement Policy. Used by many companies, this stipulates that any proposed project must require the input of a certain amount of money.

2 - The Naïve Policy. This approach basically has no rules, ensuring that any project proposed by divisions will be approved. Typically, this will be a project that requires the highest capital, but will not necessarily entail the highest NPV or profitability.

3 - The NPV Policy. Requiring that the NPV of the proposed project must exceed a certain threshold, it turns out that this policy still contributes about a four to five percent loss of profit to HQ.

4 -The Hurdle Rate Policy. Used by many companies and quite simple in nature, this states that the profit index of a proposed project must exceed a certain level. If applied correctly, this policy should ensure a mere 0.1% profit loss by HQ.

We were surprised to find that the best approach when assessing the viability of potential projects and countering the arguments of management was in fact the Hurdle Rate Policy. Delivering optimum results, it’s easy to implement and delivers excellent benefits to HQ.

Author: Erick Li – Senior Lecturer, Discipline of Business Analytics. University of Sydney Business School

Battle Of The Bright Ideas

When it comes to nurturing and developing the entrepreneurs of the future, The University of Sydney’s Genesis Competition plays a starring role.

Now in its fourth year, this cutting-edge event features two streams – one centred on the commercialisation of new technology and innovative ideas, and the other based around much-needed social entrepreneurship. The actual format sees rival student teams (who have first submitted a one-page concept synopsis) attend a series of industry expert and academic workshops where they receive tutelage on areas ranging from start-up financing to marketing and legal issues.

 Each team then presents an improved business pitch, with the best 10 assigned an industry mentor who works with them on fine-tuning their final presentations. The competition culminates with a 10-minute pitch to a panel of judges, with the winning team receiving a cash prize and desk space at an entrepreneurial start-up.

Importantly, while there can only be two winners, all participants emerge from the process armed with invaluable knowledge and insight as well as potentially beneficial industry and mentor contacts. In short, it’s a competition for anyone who’s serious about running a real business in the very near future.

Of course, our support and assistance for budding entrepreneurs extends well beyond the boundaries of the Genesis Competition. Indeed, The Business School can also:

• Provide business flowchart diagrams and tools for explaining, clarifying or improving revenue models.
• Facilitate access to a large range of entrepreneurial support networks or people in similar industries.
• Facilitate access to external resources such as business incubators and the knowledge of experienced entrepreneurs.
• Offer advice on start-up finance options, including angel investors and venture capitalists.

It’s no secret that the development of original business ideas engenders no shortage of testing challenges. However, we believe our initiatives and expertise can help smooth the way forward and provide impetus for tomorrow’s entrepreneurial professionals.


Author: Andrew Lee – Associate Finance Director – University of Sydney Business School

How Social Media Changed My Game (Part Two)

While Facebook was certainly useful in my drive to raise funds for indigenous education in the lead-up to the 2012 Ironman World Championships, the real prize goes to Twitter.

With my aim being to draw people from social networks to my own website with a view to donating money, this platform was much more effective. In my mind, people see Twitter as a filter or conduit. They go there because they’re interested in getting content off the Internet, but don’t have enough time to discover that content for themselves. Therefore, they choose to follow certain businesses, people and sponsors, who can in turn promote their own interests and messages. Users can view these updates and then conduct their own subsequent follow-up. In effect, they’re nominating these providers as the arbiters of interesting content.

The thing to remember is this: if someone follows you on Twitter, they’re interested in what you have to say. If you meet their expectations, there’s a good chance they’ll come back.

My two most successful Twitter initiatives were:

• Linking my Facebook page and all my blog entries to my Twitter feed. On the subject of my blogs, I had to ensure they constituted a key reason for people to visit my site in the first place. As such, they had to be short, interesting, insightful, entertaining and emotionally honest. This was crucial to reader buy-in.
•  Engaging my sponsors and supporters on Twitter. If I could get a sponsor like Champion Systems to Retweet some of my tweets, this enabled me to access their already large audience and build credibility.

So, what didn’t work? In a nutshell, cold post updates that failed to offer any new information, as well as reminders. If you don’t initially engage someone with a particular post, you’re better off scrapping that angle and going for a new approach entirely. My Twitter hash tags (eg: #AIMEfor Kona) also never trended. While people knew what they were about, they never really responded to it, probably because of the small scale of my operation.

Author: James Goswell – Bachelor of Commerce graduate, University of Sydney Business School.

How Social Media Changed My Game (Part One)

Two-weeks ago I blogged about my campaign to raise funds for indigenous education through my push to qualify for the 2012 Ironman World Championships in Hawaii.

As I explained, a huge part of my strategy hinged on being effective in social media channels, particularly Facebook and Twitter. With my fundraising ambitions having already been achieved, it’s a good time to reflect on the relative merits of both platforms and ascertain what worked, and, just as importantly, what didn’t.

Let’s start with Facebook. I employed it because I was small-scale and thought it important to engage with people I already knew in real life. As I’d hoped, these were people who were immediately interested in what I was doing. I also found that:

 • Facebook is a great medium for posting photos. With images playing a key role in conveying my message, the style of presentation enabled by the site’s album facility made a strong visual impact.
 • Facebook’s event tool was extremely useful, enabling me to run little fundraising incentive programs. One such program saw me ask people to select a calendar day on which they’d donate the price of a coffee. It only took one person to click “attending” for others to follow.
 • Facebook groups enabled me to access people that would automatically be interested in my campaign, such as the Triathlon Club, and raise awareness in specific spheres.

Less than successful was using Facebook for posting links. There’s a lot there already (eg: companies and radio stations people have liked), so putting up yet another link and asking people to leave Facebook to go somewhere else, such as my own personal web blog, proved fairly ineffective. I also found that posting updates like, “here’s my fundraising page, visit it, buy something, donate”, didn’t work. People needed a more substantial reason to divert to my page from Facebook (more on that later).

Next week I’ll talk about Twitter, and the significant impact it had on my campaign.

Author: James Goswell – Bachelor of Commerce graduate, University of Sydney Business School.

Taxing Times

That individuals and businesses frequently disagree with the ATO regarding the amount of tax dollars they owe is virtually an unwritten law of the universe.

In the past, these types of impasses have traditionally led to the government opting for lengthy, costly, and often fruitless court action in an attempt to right the ledger. That is, until two weeks ago, when the ATO released an updated version of their idea for recouping tax liabilities. The re-worked policy applies to every level of taxpayer - from normal individuals, micro and medium-sized businesses, to large businesses and not-for profit organisations.

The upshot is this: when it comes to a dispute around what appears on a tax return and what the ATO believes to be assessable income, litigation is out and mediation is in. This radical rethink comes in the wake of this year’s unsuccessful High Court pursuit of James Hardie over alleged moneys owed. It was the latest in a catalogue of similar failed campaigns, stymied largely by clever tax lawyers who were successfully able to refute allegations of illegal tax minimisation strategies.

So, will this push for cost-effective mediation be effective? Yes and no. For normal individuals going through the self-assessment process, mediation makes good sense. Likewise for cases involving small to medium-sized businesses. But when it comes to larger companies, particularly those that have been identified as high-risk by the ATO, the strategy will fail. This is also the case in regards to the ATO’s new request to point a finger at yourself if there’s something questionable in your tax return. That’s because companies with the financial resources to fight the ATO are simply going to ignore the call for mediation if they can’t get the outcome they want.

Despite the huge effort of altering existing policies to suit their own purposes, the ATO’s ethically questionable change of direction will struggle to achieve a return on investment when it comes to targeting the big end of town – the very demographic they have in their sites.

Author: Wes Hamilton-Jessop - Discipline of Accounting - The University of Sydney Business School