Tuesday, 4 September 2012

Choose only two out of three


JOHN MANGUN
OUTSIDE THE BOX  
Business Mirror
http://www.businessmirror.com.ph/home/opinion/32253-choose-only-two-out-of-three

SUPPOSE you wanted to send a very expensive watch to someone in Cebu.

The PhilPost will do it with a next day delivery for P115. A local courier service will charge you about P800 and get it there in two days. Another alternative is to go to the airport, and fly it to Cebu yourself for about P3,000 to P4,000.

Each of those choices requires trade-offs centered around the age-old business concept that you can have it at low cost or high quality or delivered quickly. Choose two of the three but only two.

PhilPost is cheap and fast but do you want a government run post office to be responsible for your P50,000 watch?

Entrusting your jewelry to a courier service is more expensive and takes longer but the security quality of the delivery may still be an issue even if better than PhilPost.

Taking the watch to Cebu yourself is expensive but it is guaranteed to get there safely and within hours.

Choose two of “The Three:” Price, Quality or Speed.

Once the absolute global gold standard of automobiles, Rolls-Royce began production in 1904. Even 20 years later and an expansion of its manufacturing faculties to the USA, every part of the vehicle was handmade down to the machine screws and nuts and bolts. While you could walk into a dealership, pay for the car and drive away, the price was enormously high in comparison to other available cars. Two out of the three choices.

You can buy a bottle of very fine Cabernet or Merlot wine for a reasonable price but do not plan on drinking it for three or four years as it must age to develop its great quality. Or you can go to the local wine store, buy a bottle of a five-year old vintage at a high price and drink it with dinner tonight.

Last week a part of a $350 million bridge complex collapsed in China. The bridge was built some 10 months ago and is the sixth major bridge to fall there in the past year and 13th in the last five years. There were reports that the bridge was completed ahead of schedule.

Governments have a problem understanding that you can only have two of the three choices. While the Chinese are claiming that the problem with failing infrastructure is a corruption issue, corruption also is part of The Three as is it both a part of the Quality and the Price factors.

Take those Chinese bridges. Price is always a consideration for the government but speed of delivery is the priority as the Chinese government wants the money for the infrastructure pumped into the economy as quickly as possible. Therefore quality is sacrificed and suffers. The problems of the Chinese bridges are actually being traced to design flaws. Had the government spent twice as much on design engineering, perhaps the bridges would still be standing.

The government’s conditional cash-transfer scheme seems to be working in that poorer people are receiving needed funds with what the government believes is an acceptable and manageable amount of overhead costs inherent with all government programs. It was implemented quickly. But is the long term “Quality” of the program in helping to alleviate poverty great enough to warrant the cost?

The Philippine government may be given credit for concentrating on the “Price” of its infrastructure spending as a way to curb corruption and protect public funds. However, in doing so it has sacrificed the speed of delivery to the point of inaction. The Public-Private Partnership Program is, for all intents and purposes, dead in the water.

Every business owner and operator and their customers understands the concept of The Three. Shoemart’s prices are higher than in Divisoria. If a customer wants Divisoria prices, then they must spend the time to go there. The Three is also why there is fast food and fine dining choices.

The quarter-to-quarter economic growth for 2012 is nothing short than terrible. Part of the reason is that government policy is not being formulated with The Three in mind.



E-mail to mangun@gmail.com, Web site is www.mangunonmarkets.com and Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by COL Financial Group Inc.

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