1. Hilliard Consulting Group, Inc.
Course Review
TOOLS
Hilliard Consulting Group, Inc.

2. Typical Forms of Business – Know your Customer
Corporate Form:
C Corp.
S Corp.
LLC
Partnership
Limited (including LLP)
General
Proprietorship
Hilliard Consulting Group, Inc.

3. Typical Corporate Business Structure
Board of Directors Staff
Executive Officers Legal
Marketing/ Finance & Fulfillment RDD&E
Sales Administration
Greater
Environment
Stakeholders
& Market
Influencers
Customers
Shareholders
Competitors
Disruptive Technology
Suppliers
Regulators
Financiers
Creditors
Press/Media
Associations
Trade Groups
Unions
Legal community
Environmental groups C O R P A T E U L
SUPPORTED BY PEOPLE, POLICIES, PROCEDURES, SYSTEMS, TECHNOLOGY & NETWORKS (P³STN)
High Level PRINCIPAL FUNCTIONS
Planning Planning Planning Planning
Executing Executing Executing Executing
Reporting Reporting Reporting Reporting
Forecasting Budgeting Forecasting Research
Research Accounting/Tax Variance Anal Design/Dev.
Analysis Fin. Analysis Cycle Time Imp. Engineering
4 Ps HR Sourcing Starts Controls
CRM Billing/Collections MRP/Purchasing Cycle Time
Order Input Banking QC/QoS/FPY IRR/RMM
Proposal dev. MIS/EDP Warranty/Repair Outsourcing
Outsourcing Outsourcing Outsourcing
Hilliard Consulting Group, Inc.

4. Converging/Diverging Gross Margins$ %
GROSS REVENUE $
CONVERGING GROSS MARGIN AS A % OF GROSS REVENUE - A Good Thing!!
DIVERGING GROSS MARGIN AS A %
OF GROSS REVENEUE - A Bad Thing!!!
TIME
CONVERGING GROSS MARGINS INDICATE OPERATIONAL EFFICIENCY
AS EACH SUCCESSIVE SALE IS MORE PROFITABLE THAN THE ONE THAT
PRECEDED IT. THE CONVERSE IS TRUE OF DIVERGING GROSS MARGINS.
Hilliard Consulting Group, Inc.

5. Hilliard Consulting Group, Inc.
Minute Margin Squeeze
Hilliard Consulting Group, Inc.

6. Third Party Market Studies
Typically, you know what 3rd party market
studies will show before you buy them - a growth
slope for the respective market of between 45° to
60°. The only thing that changes are the time
period on the “X” axis and the metrics on the “Y”
axis.
Hilliard Consulting Group, Inc.

7. Hilliard Consulting Group, Inc.
Environmental Models
FIST - Factors, Implications, Strategies & Tactics
PEST - Political, Economic, Social and Technological
MOST - Mission, Objectives, Strategies & Tactics
SWOT - Strengths, Weaknesses, Opportunities & Threats
TOWS - SWOT Backwards
Hilliard Consulting Group, Inc.

8. Hilliard Consulting Group, Inc.
TOWS Matrix
Hilliard Consulting Group, Inc.

9. Hilliard Consulting Group, Inc.
Product Curve
Performance
Bundling
Interconnectivity
Speed
Mobility
Convergence
Scalability
Dev. Cycle
Time
Heat
Weight
Size
Power
Cost
Upward Curve
Downward Curve
TIME
Hilliard Consulting Group, Inc.

10. State, Trend and Gap Analysis
Current State
Future State
THE
GAP
Hilliard Consulting Group, Inc.

11. Sales Forecasting Tool
The following Sales Forecasting Tool
was developed to take the HYPE out
of sales forecasts. The model presented
has ten steps, each equally weighted.
Your business may have fewer meaningful
steps, and most likely, steps will be
weighted unequally.
Hilliard Consulting Group, Inc.

12. Sales Forecasting Tool
In this example, assume the sales
department forecasts a sale to a single
customer in January of $20 million to occur
by November of the same year. Under the
process presented, sales may only include
in its forecast a percent of the $20
million relative to the step in the process
sales is at relative to that customer. If sales
is at step one in this example, only $2
million could be included in the forecast.
This number could not be increased until a
higher step is reached. Once you have refined your
steps and weights, this method becomes very accurate.
Hilliard Consulting Group, Inc.

13. Relative Mix Shift in Total Communications Components
Hilliard Consulting Group, Inc.

14. Hilliard Consulting Group, Inc.
Relative Mix Shift
Hilliard Consulting Group, Inc.

15. Hanging Up - RBOC Line Decline
No. of
Lines in
Millions
168
160
150
140
130
120
164
163
150
140
125
130
YEARS
Source: Solomon Smith Barney Research
Wall Street Journal , p.B5
Hilliard Consulting Group, Inc.

16. Hilliard Consulting Group, Inc.
Spending Drops
Hilliard Consulting Group, Inc.

17. Average Price/Minute for Mobile Telephone Service
$0.53
$0.58
$0.57
$0.56
$0.54
$0.43
$0.35
$0.28
$0.21
$0.45
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Average Price Per Minute
Source: FCC Annual Report on Wireless Industry, June 2001
Hilliard Consulting Group, Inc.

18. Hilliard Consulting Group, Inc.
Drivers
What are They?
That element that turns a need, want, or requirement into a purchase
How can I use them?
To discern the size, direction, growth, and limits of a market thereby gaining competitive insight.
Hilliard Consulting Group, Inc.

19. Recent Market Conditions and Their Causes
CAGR
in % 25 20 15 10
Causes:
Confluence of Forces
1) Y2K - replace versus
remediate significant
network elements
2) Telecom Act of 1996-
create many new player with lots of infrastructure needs - CLECs, BLECs, ISPs, etc.
3) Internet growth
4) Wireless Digital One
Rate Plans - 30 to 100+
million subscribers
5) Shift from circuit to packet
CAPEX Growth
26%
The Revenue/Expenditure Gap
Gross Revenue Growth Rate
12-15%
6-8%
YEARS
Hilliard Consulting Group, Inc.

20. Wireless Narrowband Drivers
Hilliard Consulting Group, Inc.

21. Life Cycle Analysis - The Gaussian Curve - Where Are You?
Height and width
of the curve may
vary depending
on the number
of entrants and
time periods
involved. Also,
the curve will
usually be
skewed at one or both ends.
Main Street
The Tornado
The Bowling Alley
The Chasm
Early Market
Mid
Life
Teen
Age Years
Consolidation
Old
Age
Infant
Mortality
TIME
Technology Visionaries Pragmatists Conservatives
Enthusiasts
Emerging Rising Cash Sunset
Hopeful Stars Cows
Hilliard Consulting Group, Inc.

22. Life Cycle Curve Examples
Category Number/Year Number Year Number/Year
IXCs + Resellers 1 / ,000+/ ,000+/2001
CLEC/ISPs 300 / / /2002
RBOCs 0 / / / 2002
Hilliard Consulting Group, Inc.

23. Technology Penetration
Hilliard Consulting Group, Inc.

24. Hilliard Consulting Group, Inc.
Dramatic Growth in Mobile Wireless Industry Mobile Subscriber Estimates
Approx.
700 million
today
Hilliard Consulting Group, Inc.

25. Hilliard Consulting Group, Inc.
Dramatic Growth in Mobile Wireless Data - Data Enabled Terminal Estimates
Source: Nokia
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1,400
1,200
1,000
800
600
400
200
Projected Cellular Subscribers (Nokia 1999)
Projected Web handsets (Nokia 1999)
Projected PC’s connected to the Internet (Dataquest 1998)
Millions
Hilliard Consulting Group, Inc.

26. Porter’s Market Forces
Competitors
Other Stakeholders
New Entrants
Customers
Suppliers
YOU
Unions, Financiers
Governments
Disruptive Technologies
Hilliard Consulting Group, Inc.

27. Developmental Cycle Time Imperatives
The above is a graphical
representation of the table presented
on the previous slide.
Hilliard Consulting Group, Inc.

28. Financial Metrics - Important High Level Tools
IRR Problem - Calculate the IRR(round-off) - $1,000* Inv’t.
Net Cash 10% $ 20% $
Year Flow $ PVIF NCF PVIF NCF
PV:
(1000*) (1000*)
PV= (76) = 15%
Internal Rate of Return (IRR) is an important concept to understand. IRRs permit a comparison of one project or activity to others on a stand alone basis. IRRs are based on NET CASH FLOWS, NOT net income. Additionally, IRRs are calculated on net cash flows after recovery of the cash investment.
Calculation of IRR is an iterative process and uses interpolation if done manually. Microsoft Excel and many calculators have this function built into them. If calculating manually, one needs present value tables found in many accounting or finance books. Most companies have an IRR hurdle rate of 40+%.
Hilliard Consulting Group, Inc.

29. Hilliard Consulting Group, Inc.
Macro Demand Curves
Hilliard Consulting Group, Inc.

30. Hilliard Consulting Group, Inc.
Price Volume Sensitivity Analysis - Changing One Variable at a Time: Micro Demand Curves
Hilliard Consulting Group, Inc.

31. Hilliard Consulting Group, Inc.
Inflection Points
MARKET
CAP
COMPANY A
PHASE
ONE
PHASE
TWO
COMPANY B
Inflection points represent major
turning points. We as individuals also
have inflection points (births of children,
marriage, divorce, death of a loved one,
etc.). So do corporations.
Above we see two companies running
neck an neck (Phase One). Then, one
company sees what the market wants,
while its competitors do not (Phase Two).
At Phase Two, we see the company that
gets it, breaks away from the competition.
TIME
INFLECTION POINT
COMPANY A AND B ARE RELATIVELY CLOSE IN PHASE ONE, BUT SUDDENLY ONE GETS IT,
AND THE OTHER DOESN’T. AT THE INFLECTION POINT, VALUATIONS DIVERGE.
Hilliard Consulting Group, Inc.

32. Microsoft, Apple & Lotus Shareholder Value
Microsoft $3 billion $220 billion
Apple $4 billion $4 billion
Lotus $1 billion $3 billion
The next few slides are illustrative of
Inflection Point Analysis. One does not
have to be in a high tech industry to
realize an Inflection Point.
Inflection Points may be foreseen
by constantly applying Altman’s Z
Score Discriminant Function Algorithm.
Altman’s tool will help in discerning changes in
overall health. Discerning such changes
early is important so that you may drill down
to find the root causes, and determine if you
are possibly at an Inflection Point.
One Apparently “Got it,” and two did not.
Hilliard Consulting Group, Inc.

33. Inflection Point Analysis - Altman’s Z Score
Z score above 2.99 represents a company
financially strong.
Z score 1.81 or less has over a 90% correlation
that they will be in bankruptcy in 12 months.
Z score in between 1.81 and 2.99 may go
either way. Over 90% accurate 12 months out!
Edward Altman a professor at NYU
developed a powerful tool for predicting
future financial performance of enterprises.
Altman used empirical data and regression
analysis to develop a weighted
discriminant algorithm that projects and
predicts financial health and wealth on a
going forward basis.
Hilliard Consulting Group, Inc.

34. Hilliard Consulting Group, Inc.
Z Score Continued
Algorithm
X1 = Working Capital/Total Assets
X2 = Retained Earnings/Total Assets
X3 = EBIT/Total Assets
X4 = Market Value of Equity/Book Value of Total Debt
X5 = Net Sales/Total Assets
Z = Overall Index of Corporate Health
Altman’s model is not perfect, and should
only be used by skilled professional as
but one more tool in their analytical
toolkit. It is not a “be all, end all.”
The version of Altman’s algorithm
presented here was developed for mid-sized
manufacturing companies. However, it
works relatively well for infrastructure
intensive industries such as telecom. However, as
this model was developed for mid-sized companies,
Altman’s time lines regarding failure may be pushed
out in time relative to the asset richness of the
enterprise.
Z = (1.2*X1) + (1.4*X2) + (3.3*X3) + (0.6*X4) + (1.0*X5)
Hilliard Consulting Group, Inc.

35. Modifications to Altman
I recommend modifying Altman’s Z Score based on changes in gross margin as debt becomes significantly more onerous as gross margins decline
See “Plan to Win: Analytical and Operational Tools - Gaining Competitive Advantage” for a suggested conversion table.
Hilliard Consulting Group, Inc.

36. Chanos’ Discriminant Model
Like Altman, Chanos has developed a
tool for determining which companies are
likely to decline. Chanos developed this
tool as part of his business in “Short
Selling” securities. He has been highly
successful in his use of this tool.
No one should rely on this tool alone. Further, it should only be used by skilled
financial professionals as an adjunct to
traditional analytical tools.
Hilliard Consulting Group, Inc.

37. Market Share/Market Growth Matrix
Cash Cows
Milk the cows for
cash to fuel growth
for Winners and
High Potential units.
Cows are mature units.
Winners
Market Share
Fund Winners
Grow Winners
Dogs
High Potential
Bruce Henderson, founder of the Boston Consulting Group applied portfolio analysis to multi-unit enterprises.
His model permits a division of units based upon opportunities for growth.
Henderson postulates that enterprises should reallocate resources to those units with the highest growth prospects.
Model Shortcoming: Assumes that units with the largest market share growing the fastest are profitable. This need not be so.
Terminate or sell these
units. Of little value. Use
proceeds to fund Winners
and High Potential units.
Fund High Potential
Units. Try and move them
to Winner’s quadrant
Market Growth
Hilliard Consulting Group, Inc.

38. Portfolio Pruning – A Cautionary Note
When we decide we must reduce elements, projects, programs, etc. we must pay attention to how costs are being allocated.
When we eliminate a project/program, etc. in an entity that allocates costs, the remaining elements/programs/projects must now absorb previously otherwise allocated costs.
This may complicate your decision process.
Hilliard Consulting Group, Inc.

39. Relative Measure of Merit
A Relative Measure of Merit (RMM) function may be applied to a number of development activities in order to prioritize ongoing capital commitments and work initiatives.
The RMM function does not take in to consideration sunk costs. Rather, it only looks to future returns as a function of time each project will yield going forward.
Hilliard Consulting Group, Inc.

40. Hilliard Consulting Group, Inc.
Accounting Terms
Sales, General & Administrative Costs
Indirect Costs
Below the line Costs
Fixed Costs
They all mean the same thing
Cost of Goods Sold
Direct Costs
Above the Line Costs
Variable Costs
They all mean the same thing
It is important to understand and not be confused by interchangeable accounting terms. Hence as we see, CGS goes by several names as do SG&A expenses.
Please note that SG&A expenses are only fixed within a relevant range - that is, it is represented by a step function:
Hilliard Consulting Group, Inc.

41. Hilliard Consulting Group, Inc.
In Financial Form:
CGS
Cost of Services Sold
Above the Line Costs
Direct Expenses
(Costs)
Variable Costs
Gross Revenue
- Cost Of Goods Sold
THE LINE
Gross Margin (a/k/a Contribution Margin)
- Sales, General & Administrative Costs
SG&A
Indirect Expenses
Below the Line Costs
Fixed Costs
Net Income Before Tax
Hilliard Consulting Group, Inc.

42. Hilliard Consulting Group, Inc.
Fixed Costs – A Note
Fixed Costs are ONLY fixed within a relevant range!
Fixed Costs are a “Step Function”
Example: First factory
will only produce so
many widgets – even
going to 3 shifts.
When a second factory
is required, we reach
the “step function.”
Fixed Components
Hilliard Consulting Group, Inc.

43. Hilliard Consulting Group, Inc.
Breakeven Analysis
BES = FC + VC
BES = Breakeven Sales, always represented as 1.00
BES
FC = Fixed Costs, always represented in $s
VC = Variable Costs, always represented in decimal
form - CGS as a % of sales converted to a decimal
To calculate for profit use: (BES =FC + VC + P)
It is imperative that managers understand their cost and revenue relationships in order to effectively manage their business. The Breakeven formula is important in this regard.
The Breakeven formula tells managers how much in sales they need just to cover costs. By adding a profit %, one can calculate the needed revenue to realize the given profit %.
Example: FC = $1,000,000, VC (CGS) = 55% or .55
1.00 BES = $1,000,000
BES = $2,222,222
Hilliard Consulting Group, Inc.

44. Some Typical Aggregate Valuation Metrics
Aggregate Valuation Metrics can be very misleading. They are used because they are easy to apply and understand.
However, each has shortcomings in that they do not permit tailored value based on a disaggregation of Key Performance Indicators (KPIs).
Hilliard Consulting Group, Inc.

45. Key Performance Indicators (KPIs)
Must identify, measure and use key performance indicators in managing an enterprise
Don’t measure unimportant things
Pareto is alive an well – 20% of the metrics will yield 80% of the bang for the buck
No more than 10 KPIs for each responsible professional
Cockpit Chart, Digital Dashboard, Balanced Scorecard, etc.
Hilliard Consulting Group, Inc.

46. A Disaggregate Weighting Value Model
By applying aggregate value metrics, we can then disaggregate those metrics to arrive at a tailored value by applying premiums or discounts to industry KPIs relative to how the enterprise under examination measures up. Premiums and discounts may be
calculated using empirical data or via statistical tools such as standard deviations.
Hilliard Consulting Group, Inc.

47. Disaggregate Value Worksheet
In the disaggregate model used above, we see that an aggregate value of almost $11 billion would result in a disaggregated tailored value of some 40% less based on how this company measures up KPI by KPI.
In some heated market situations where management does not have the discipline to not overpay, this tool will not have value.
Hilliard Consulting Group, Inc.

48. Hilliard Consulting Group, Inc.
Pricing
Value Pricing
Cost Pricing
Service Pricing
Porter’s Model
Hilliard Consulting Group, Inc.

49. Hilliard Consulting Group, Inc.
Porter’s Model
Porter proffers that there are two fundamental – but diametrically opposed means of pricing:
COST VALUE
Following is a model that uses these diametrically opposed models in concert.
Hilliard Consulting Group, Inc.

50. Hilliard Consulting Group, Inc.
Value Pricing
Value Price
Lead Price
Degradation
Slope
Force Compe-
tition to lower
prices before
NRE Recovery
Introduce next
Solution at a
Value price
As we have seen, cycle time, including development cycle time and time to market, are critical in a competitive landscape. By being first to market, one is able to quickly recapture development costs (NRE - non recurring engineering).
This permits one to lead the market and the price degradation slope at the appropriate time. Continuous implementations requires a high technology reuse function.
Studies indicate to be a market leader usually requires 30 to 35% market share, and to be a player, 13 to 15% market share.
Hilliard Consulting Group, Inc.

51. Hilliard Consulting Group, Inc.
Cost Pricing Model
Direct Labor
+ Direct Materials
+ Other Direct Charges (Consultants, etc.)
= Total Direct Charges
X + Overhead Rate
= Burdened Material, Labor & Overhead (MLO)
X + G & A Rate
= Total Burdened Costs
X + Risk Factor
= Total Costs
X + Profit Factor
= Price
Hilliard Consulting Group, Inc.

52. Hilliard Consulting Group, Inc.
Cost Issues
Can not look at only the direct cost of an expense element
Must look at burdened impact
Example: Give $10,000 to a charity when you have a 5% after tax profit and a 30% tax rate.
Real Cost is = $140,000 ($10,000/5% - 30% = $140,000). That is what the entity has to sell to cover this gift – not $10,000.
Hilliard Consulting Group, Inc.

53. Hilliard Consulting Group, Inc.
Service Pricing
Typically 2 primary functions: Rate & Time
Realization RATE = % of stated rate actually billed and collected
Utilization RATE = % of workable hours in a man year (2080) actually billed
Hilliard Consulting Group, Inc.

54. Hilliard Consulting Group, Inc.
Realization Rate
Stated Hourly Rate: $300 per hour
Through negotiation rate is cut to $200 per hour
Realization Rate is 67%.
Hilliard Consulting Group, Inc.

55. Hilliard Consulting Group, Inc.
Utilization Rate
2080 Work hours in the US work year
Less than available hours are typically billable because of vacation time, sick time, training time, etc.
So if 1500 hours are billed, the utilization rate 75%.
Hilliard Consulting Group, Inc.

56. Hilliard Consulting Group, Inc.
Combined Rate
Most consulting firms strike to reach a combined rate of 140 (70% + 70%).
It was just reported in Business Week that McKinsey’s utilization rate dropped to under 50% and that its realization rate was also below plan.
What actions do you think McKinsey partners are likely to take?
Hilliard Consulting Group, Inc.

57. Sensitivity and Scenario Analysis
Sensitivity Analysis is where we change one variable at a time. This permits direct correlation between cause and effect.
Scenario Analysis is where we change multiple variables at the same time making it harder to discern cause and effect.
Hilliard Consulting Group, Inc.

58. Hilliard Consulting Group, Inc.
Price Volume Sensitivity Analysis - Changing One Variable at a Time: Micro Demand Curves
Hilliard Consulting Group, Inc.

59. Simple Scenario Analysis
Pay Metric/ Hour/yr.
Rate Per Hour
XYX Co.
Annual
Revenue
Estimate/operator
Number Of
Operators
Est.
Opera-tor
Expense
$17/hr
burdened
Supr
$19/hr
G&A
From
John
$75K/mo
Net
Income
<Loss>
2080
$25
$52,000 10
$520K
$354K
$40K
$900K
<$774K> 20
$1,040K
$707K
$80K
<$647K> 30
$1,560K
$1,062K
$120K
<$522K>
$24
$49,920
$499K
<$795K>
$998K
<$689K>
$1,498K
<$584K>
$23
$47,840
$478K
<$816K>
$957K
<$730K>
$1,435K
Hilliard Consulting Group, Inc.

60. Hilliard Consulting Group, Inc.
Pareto’s Rule
4. Pareto’s Rule = 80/20 split – In any given activity, 20% of the set will be responsible for 80% of the effect.
Dr. Juran’s repostulation: “The Vital few and the Trivial Many!”
Hilliard Consulting Group, Inc.

61. Typical Corporate Business Structure
Board of Directors Staff
Executive Officers Legal
Marketing/ Finance & Fulfillment RDD&E
Sales Administration
Greater
Environment
Stakeholders
& Market
Influencers
Customers
Shareholders
Competitors
Disruptive Technology
Suppliers
Regulators
Financiers
Creditors
Press/Media
Associations
Trade Groups
Unions
Legal community
Environmental groups C O R P A T E U L
SUPPORTED BY PEOPLE, POLICIES, PROCEDURES, SYSTEMS, TECHNOLOGY & NETWORKS (P³STN)
High Level PRINCIPAL FUNCTIONS
Planning Planning Planning Planning
Executing Executing Executing Executing
Reporting Reporting Reporting Reporting
Forecasting Budgeting Forecasting Research
Research Accounting/Tax Variance Anal Design/Dev.
Analysis Fin. Analysis Cycle Time Imp. Engineering
4 Ps HR Sourcing Starts Controls
CRM Billing/Collections MRP/Purchasing Cycle Time
Order Input Banking QC/QoS/FPY IRR/RMM
Proposal dev. MIS/EDP Warranty/Repair Outsourcing
Outsourcing Outsourcing Outsourcing
Hilliard Consulting Group, Inc.

62. Porter’s Market Forces
Competitors
Other Stakeholders
New Entrants
Customers
Suppliers
YOU
Unions, Financiers
Governments
Disruptive Technologies
Hilliard Consulting Group, Inc.

63. Wireless: Some Definitions
Broadband - US FCC defines broadband as 200 KBPS in both directions
5G - Free Air Optics above 300 GHz and delivering over 100 MBPS throughputs - already in the market - Terabeam, AirFiber, etc., packet - Soon Intel with UWB solutions
4G - 2 definitions: US NSF MBPS throughputs, DoCoMo 2-20 MBPS throughputs - UWB, a WLAN, etc., packet
3G - WCDMA, IMTS, UMTS, CDMA MBPS, packet
2.75G - EDGE, 1XRTTEV(some use 1XRTTDO) - 384KBPS,packet
2.5G - GPRS, 1XRTT and 144 KBPS respectively,packet
2G - TDMA, CDMA, GSM narrowband digital - typically <14.4KBPS, circuit
1G - AMPs, etc., narrowband analog - typically <10KBPS, circuit
Hilliard Consulting Group, Inc.

64. Current Wireless Landscape
FCC Defines Broadband as 200KBPS in both directions
Narrowband/Broad- band Divide
Analog/Digital Divide
Circuit/Packet Divide
GSM
TDMA
CDMA
GPRS
EDGE
WCDMA/3G
AMPS
1XRTT
1XRTTDO
1XRTTDV/3G/
CDMA2000
1G G G G G
Narrowband/Analog/Circuit
Broadband/Digital/Packet
1980s 1990s
Hilliard Consulting Group, Inc.

65. Comparative Stage Chart
Hilliard Consulting Group, Inc.

66. 3G? Which Country, Which Standard ? North American Carriers
cdmaOne
IS95
IS95B
cdma2000
1xRTT
3xRTT
(Sprint, Verizon, Qwest Wireless, Leap Wireless, Bell Mobility)
TDMA,
IS136+
IS-136HS, (EDGE)
TDMA,IS-136
(CDPD)
Gate ?
(AT&T Wireless, Cingular)
GSM
(HSCSD)
GPRS
(EDGE)
WCDMA
(VoiceStream, Microcell)
Hilliard Consulting Group, Inc.

67. Navini NLOS Portable/Nomadic Modem
    Solutions    Partners    Careers    Press    Contact
PCMCIA Version also available
Hilliard Consulting Group, Inc.

68. Hilliard Consulting Group, Inc.
a,b & Wireless LANs
802.11b - a/k/a Wi-Fi (Wireless Fidelity), 2.4 Ghz.
5.5, 11 MBPS, DSSS, security issues
no roaming interface specified (but see MeshNetworks)
802.11a -
5Ghz bands, up to 54 MBPS, OFDM
802.11d - Worldwide Mode - SDLans
802.11e - QoS
802.11g - Standards implementation suspended temporarily- broadband nature of a, & backward compatible with 2.4Ghz
802.11i - Authentication and Security
802.16
10-66 Ghz bands, up to 135 MBPS
Bluetooth - 30 ft., <1MBPS, 2.4Ghz, FHSS, up to 8 devices
Hilliard Consulting Group, Inc.

69. Wireless LANs & Bluetooth
Hilliard Consulting Group, Inc.

70. Some Primary Wireless Disruptive Technologies
HDR (Qualcomm)
1X Plus (Motorola)
Ultra Wideband Radio (Time-Domain, Intel) - 4G/5G
Spitfire (TRW) - 4G
iBurst (ArrayComm) - 4G
MeshNetworks, Bell Labs BLAST
Free Air Optics - Optical Wireless (Terabeam, AirFiber) - 5G
Software Defined Phone (Quicksilver Technologies)
Hilliard Consulting Group, Inc.

71. Inflection Point Analysis - Altman’s Z Score
Z score above 2.99 represents a company
financially strong.
Z score 1.81 or less has over a 90% correlation
that they will be in bankruptcy in 12 months.
Z score in between 1.81 and 2.99 may go
either way. Over 90% accurate 12 months out!
Edward Altman a professor at NYU
developed a powerful tool for predicting
future financial performance of enterprises.
Altman used empirical data and regression
analysis to develop a weighted
discriminant algorithm that projects and
predicts financial health and wealth on a
going forward basis.
Hilliard Consulting Group, Inc.

72. Hilliard Consulting Group, Inc.
Z Score Continued
Algorithm
X1 = Working Capital/Total Assets
X2 = Retained Earnings/Total Assets
X3 = EBIT/Total Assets
X4 = Market Value of Equity/Book Value of Total Debt
X5 = Net Sales/Total Assets
Z = Overall Index of Corporate Health
Altman’s model is not perfect, and should
only be used by skilled professional as
but one more tool in their analytical
toolkit. It is not a “be all, end all.”
The version of Altman’s algorithm
presented here was developed for mid-sized
manufacturing companies. However, it
works relatively well for infrastructure
intensive industries such as telecom. However, as
this model was developed for mid-sized companies,
Altman’s time lines regarding failure may be pushed
out in time relative to the asset richness of the
enterprise.
Z = (1.2*X1) + (1.4*X2) + (3.3*X3) + (0.6*X4) + (1.0*X5)
Hilliard Consulting Group, Inc.

73. Hilliard Consulting Group, Inc.
AT&T Financials
In this application of Altman’s algorithm,
financial information was taken from
AT&T’s home page.
This financial information was then
inserted into Altman’s algorithm.
As will be seen, in 1999 one could have
foreseen the large problems encumbering
AT&T long before market analysts did.
This model may be employed quarterly
regarding public companies.
Hilliard Consulting Group, Inc.

74. Hilliard Consulting Group, Inc.
AT&T Z Score Results - -
As can be seen, AT&T’s Z Score was cut
by more than half in a single year. This
is disastrous. CHANGES IN SCORE
ARE AS IMPORTANT AS THE SCORE
ITSELF.
As AT&T is an asset rich enterprise, the
likelihood that it would default into
bankruptcy is negligible.
Nevertheless, if we were a supplier or
creditor to AT&T, such early warnings
would yield a competitive advantage.
Hilliard Consulting Group, Inc.

75. Altman’s Z Score Caveats
Not a “be all, end all” metric.
Just another data point.
Decent leading indicator/predictor.
The degree of entity asset wealth can mitigate Altman’s time line.
Should only be used in conjunction with other tools.
Should tailor for different industries.
Clearly Altman’s tool is very powerful.
We may run it on ourselves, our
competitors, our suppliers, and our
customers. Variants of the weighted
algorithm presented herein have been
developed by Altman for use in different
industries.
Hilliard Consulting Group, Inc.

76. Modifications to Altman
I recommend modifying Altman’s Z Score based on changes in gross margin as debt becomes significantly more onerous as gross margins decline
See “Plan to Win: Analytical and Operational Tools - Gaining Competitive Advantage” for a suggested conversion table.
Hilliard Consulting Group, Inc.

77. Chanos’ Discriminant Model
Like Altman, Chanos has developed a
tool for determining which companies are
likely to decline. Chanos developed this
tool as part of his business in “Short
Selling” securities. He has been highly
successful in his use of this tool.
No one should rely on this tool alone. Further, it should only be used by skilled
financial professionals as an adjunct to
traditional analytical tools.
Hilliard Consulting Group, Inc.

78. Financial Metrics - Important High Level Tools
IRR Problem - Calculate the IRR(round-off) - $1,000* Inv’t.
Net Cash 10% $ 20% $
Year Flow $ PVIF NCF PVIF NCF
PV:
(1000*) (1000*)
PV= (76) = 15%
Internal Rate of Return (IRR) is an important concept to understand. IRRs permit a comparison of one project or activity to others on a stand alone basis. IRRs are based on NET CASH FLOWS, NOT net income. Additionally, IRRs are calculated on net cash flows after recovery of the cash investment.
Calculation of IRR is an iterative process and uses interpolation if done manually. Microsoft Excel and many calculators have this function built into them. If calculating manually, one needs present value tables found in many accounting or finance books. Most companies have an IRR hurdle rate of 40+%.
Hilliard Consulting Group, Inc.

79. Financial Metrics - Important High Level Tools
High level look at time cycle cost & savings
Y1 Y2 Y3 (Y1+2) Savings
Rev
COGS GM
NRE+Sus
SG&A
EBBT (3.5) (.3) 1.4
Applying the concept presented by Sterling Design of quartering one’s cycle time in the empirical example above, it can be seen on the next slide that in additional to a significant reduction in costs, the IRR relative to development efforts was also increased.
By employing cycle time imperatives and shortening development
times(some of Y2 into Y1), significant early period costs can be saved.
Hilliard Consulting Group, Inc.

80. Hilliard Consulting Group, Inc.
Cycle Time - IRR Imperatives Based on $1M investment and cash savings from 1/4 Cycle Time - all $ in Ms
Year NCF NCF
(3.5) (2.1)
IRR % %
By shifting forward one quarter to one third of a year’s development efforts (time to market), the company’s IRR is increased almost 20%.
By quartering cycle times, expenses were reduced and the IRR dramatically increased.
Hilliard Consulting Group, Inc.