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Sunday, June 11, 2006


Term-2 is all set to rule our lives. So let me bring an end to the "term-1 reflection" series with this post. What I feel after the class lectures is that all the topics (Statistics, Economics, Marketing and Accounting) are closely related. Without going through the complexities of technicality, let me provide the layman’s description of how all these topics are related. For instance, let’s say a great visionary comes up with an idea of creating a new company. Various stages define the process from the inception of the idea to a profit making entity. Things are much more complex than what I decide to type down, nevertheless, just to give a very minute picture of the real life story…
1) According to me, the inception stage is the most critical one. Starting from complex regression analysis of dependence of market success on the affecting factors, to the segmentation of market which helps decide whom to target, this stage demands great business acumen. Starting from issuance of bonds to creation of infrastructures, this period is closely attached with numerous economic costs, sunk costs and fixed costs, without appreciable profit. Numerous accounts maintaining the details of assets, shareholder’s equity and liabilities are also to be maintained.

2) Now suppose, the entrant enters into the market where market players already exist (this is normally the reality), then the situation turns out to be really interesting. This very topic is one of the most interesting aspects of economics and marketing.

3) Now let’s assume that the entrant is successful in entering the market and capturing a market share. Situation turns out to be no simpler and the entrant now has to worry about how to position its product, how to price the product, how to make the product reach the customers, how to get customer feedback and all this from a profit making viewpoint. The whole concept of channel management comes into picture. Now that the entrant has now successfully entered the market, it also has to guard itself against the competition. Books have been written on this and as I move ahead in my MBA curriculum I get to learn more of this.

4) Debts, shares, debentures, revenues, turnover….. a lexicon of such terms can never be ignored in a functioning entity. Accountants are always ready to maintain and manipulate the history of the minutest transactions that occur during the course of business.

5) Once all the above stuff is taken care of, the entity now plans to be more competitive and strives to be the market leader. It tries to develop better products, spend more on advertising, and get better accountants who can get the best out of the balance sheets and net income statements. Quality gets a premium with limits set on the quality of the goods produced. And all this has to be done with relatively lower variable cost. The company (let the word "company" define the entity now) now has to benchmark itself successfully against the competitors to maintain its lead.

6) The company has also to deal with shareholders. If it makes profits, people decide to buy the shares of the company. Suddenly the “alpha” and “beta” comes into picture which helps us to predict how the market affects the stocks of the company…. and how the market fluctuation is likely to affect the company.

This cycle defines the competitive business environment with each player trying to outdo each other. The real game is too complex and I feel intuition and experience has got a great role to play in deciding how to play the game. It will take years to learn the rules of the game and I aspire to be good player of this complicated game, which is commonly known as “business”.

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