Implementing successful transformation will set your company apart from the competition. However, only about a third of businesses globally say their company is doing a good job preparing for change, according to the McKinsey Quarterly. There are several strategies used to help organizations better prepare for change; including setting ambitious goals, having a highly involved CEO and implementing good communication initiatives. Communicating transformation plans in a positive way is also important. Employees are more likely to get on board with this approach, improving your chances of success.
Creating a Successful Transformation
Your initiatives for transformation change will vary, based on your company’s goals. Some companies seek to move from good performance to exceptional performance. Other companies might be interested in completing a merger or acquisition. Or, your organization might want to enter an entirely new market. Regardless of your ambitions, the first step in any transformation plan is setting clear goals for your company. While this may seem obvious, organizations do not get this right as often as they would like. Research has shown that when asked what they would differently if they were able to do the transformation over again, almost half responded that they would set clearer targets. Companies that create clear goals are more likely to experience a successful transformation.
Engaging Employees
If both managers and employees aren’t engaged in the transformation plan, experiencing success will become difficult. In fact, research shows that when employees are on board, companies experience much better transformation results. The company’s CEO also needs to be highly visible and engaged with employees. When a leader is highly involved, employees are more likely to feel motivated and stay energized during the transformation process.
The stage at which you engage employees is also important. The earlier employees are engaged, the better. However, despite statistics, only a small portion of organizations are using this approach. Approximately only 38 percent of companies are engaging employees early in the transformation process.
Effective Communication
Companies also need to ensure that communication about transformation is clear and effective. When talking with employees, focus on building on existing success, rather than fixing and overhauling problem areas. Doing this keeps the focus positive and builds a more successful environment for transformation. The McKinsey Quarterly found that getting employees to take ownership of change is one of the most difficult tasks. Investing the time to motivate your employees has a large impact on your organization’s ability to transform.
Work diligently with employees on all levels by using a variety of tactics. Companies can engage and energize the organization through ongoing communications and involvement such as short-term wins, celebration of successes and symbolic actions. Another tactic that has been found to foster in success in transformations is establishing clear executive sponsorship and conducting ongoing monitoring to hold people accountable for impact. Companies can also mobilize a senior team to model desired changes or deploy resources to carry out effort and build required skills. Organizing transformation into a clear structure made up of readily understandable sections is yet another tactic that can be used. Other companies use the tactic of reinforcing and embedding change by using performance target and incentives. Some companies focus efforts on both corporate performance and corporate health while others create and communicate an emotionally compelling narrative about transformation which is often called the “change story.” Organizations should not use only one tactic but rather use a variety of them on all different levels and throughout different stages of the transformation. Successful companies tend to use more than three times as many tactics as unsuccessful companies. Giving employees specific goals will create accountability and ownership and assist in a successful outcome. This will also increase your employees’ ability to get on board with your company’s goals.
Moving Towards Success
Companies that successfully implement organizational change don’t use a single process. Instead, these organizations use many different processes to achieve the desired outcome. Get employee input when creating the organization’s plan. This will minimize resistance to important changes and better anticipate which initiatives employees respond to most positively. This approach will also help bridge the gap between management and staff when rolling out new initiatives.
Also, give your company enough time to plan organizational change. On average, organizations are spending an average of six months in the planning stages. During this time, make sure to set clear and inspirational goals to ensure you’re on the right track to successful change. Using strategies that have helped other organizations succeed in the past will assist in moving your company towards meeting its goals.
Resource:
“Creating Organizational Transformations.” The McKinsey Quarterly, July 2008.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at (770) 399-9512 or by email.
Wednesday, March 9, 2011
Thursday, February 24, 2011
Anticipate your Competitor’s Next Move
If you want to increase your company’s success, it’s important to fine tune your understanding of competitors. These key players have a large impact on your ability to win market share and boost revenue potential. Acquiring new skills to help you think like your competitors will help you anticipate your competitor’s next move.
Focus on Strategy
A competitor of similar assets and size might have strategies like your own organization. The McKinsey Quarterly calls this "symmetric competition." However, if your competitors have different market positions, assets and resources, you won’t react identically to the market conditions. This is called "asymmetrical competition" and your strategies are likely to be different in this situation. In order to understand your competitor’s strategies, identify if your largest competitors are symmetric or asymmetric competitors.
For example, McDonald's and Burger King are leading competitors in the market. However, when responding to the backlash from obesity, the companies select two very different strategies. McDonald's created a variety of new healthier products to address the concerns of consumers and the government. Smaller fast food organizations, like Burger King, however, choose to shift marketing focus to less conscious consumers. Since they didn’t hold as strong of a market position as McDonald's, the organization’s strategy was different.
Resource Based Strategy View
Companies should evaluate their competitors’ strategies by using a resource-based view of strategy. Resources generally have three categories; tangible assets, which include physical assets or technology, intangible assets which are a company’s brand and reputation among consumers and market position. A company’s ability to exploit opportunities better than you also plays a role in their strategy.
For example, think about Microsoft and Sony in the video game consol market. Each company is working towards dominating the next video console game system. Both organizations are looking to replace consumer electronic devises, such as the DVD player and MP3 player. However, each company’s strategy is different, based on which products they currently offer consumers. For example, Sony’s existing business includes consumer electronics. Therefore, the importance of establishing Sony’s new console as a living room hub is important to the company’s existing product lines. Since Microsoft has products in the software business, it’s critical to establish their console as a digital living room hub with software to protect the company’s existing business. Each company shapes their strategy to preserve existing products and revenue streams.
Get into a Competitor’s Mind
Anticipate your competitor’s next strategic move by thinking like a corporate decision maker. These decisions don’t always align with corporate objectives, so you need to take a new approach to anticipate strategy. You must first understand who will make the decisions and how that person’s objectives and incentives play a role in those decisions. Owners and top managers are usually the people who make the decisions. Frontline managers, however, are usually more heavily influenced by pricing and service decisions.
Owner’s decisions might be controlled by values, relationships or family history with the business. Top-level management decisions, however, might be influenced by business style. For example, top-level managers might favor experimentation in a new market and more operation accountability. By studying decisions made by top executives in the past, you will anticipate decisions patterns.
General manager decisions, however, are different. For example, let’s say the organization wants to replace an existing product with a new and improved version. If the existing product is still performing well, a general manager might not want to take the risk. He might want to continue enjoying the rewards of the existing product’s performance. His strategy might include waiting to introduce the new product until the well-performing product’s sales start to decline.
Reshape your Views
Once you understand your competitor’s strategy options, it’s important to understand how the organization would evaluate these options. Hold brainstorming sessions, where strategists pretend to be the organization making the competitor’s decisions. Use information from your frontline employees, study the competitor’s blogs, learn about current promotions or sales tactics to shape your decisions. When possible, establish information sharing agreements with your business partners. For example, suppliers might give you a heads up if a competitor price adjustment is scheduled. Based on this exercise, your company can make reasonable forecasts of what the competitor will do in the market conditions given their resources. Then, you can evaluate what your competitor actually does. If the organization does something different than you forecasted, study the decision for future strategy decisions.
In the current business environment, companies need to be more aware than ever of their competitor’s strategies for decision making. Accurately anticipating your competitor’s next move will assist in making better decisions and getting an edge in the marketplace. As a result, you have fewer surprises from competitors and more opportunities to grow your business.
Resource
Hugh Courtney, John T. Horn and Jayanti Kar. "Getting into your Competitor’s Head." The McKinsey Quarterly, 2009.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Thursday, November 11, 2010
Managing Employees for Results
Leaders set the culture in an organization. Employees look to leaders to guide and set an example for the company. Your success as a manager is highly dependent on your ability to understand employees. Having these skills will positively affect employees and improve performance and culture of an organization, according to the McKinsey Quarterly.
Lead with Confidence
The McKinsey Quarterly recommends using a strategy called “fake-it-until-you-make-it.” This means you need to make business and employee decisions despite your doubts. Use the best information available and move forward quickly. Having higher confidence will allow you to become a better manager and show employees that you’re a leader worth following. If employees sense low-confidence in decisions, they will start to doubt you too. Confidence is contagious. Employees will also become more confident in the company.
Also, don’t waiver on your decisions. Make a swift and definitive decision. Managers who delay and wafer from one decision to the next lose valuable employee respect. Choose a yes, no or I don’t know response and stick to it. Also, empower employees to make confident decisions.
Share the Credit
A manager usually gets most of the credit when a project goes well. It’s important to share credit with employees. Doing this will build moral and trust with your team. Managers who don’t share credit face hostile employees who simply aren’t motivated on the next project. Nothing is worse then not getting credit for a job well done.
Err on the side of giving employees more credit than they deserve. This will make your team admire your generosity and create a higher level of motivation. It’s a win-win situation.
Accept Blame
A good manager should always take responsibility for the team’s faults; even if a single team member was primarily to blame. This reinforces that the manager is in charge. The organization can be confident that the manager is leading the team, even in bad times. A study conducted by the University of Michigan found that managers who take responsibly for issues are perceived as more competent, likeable and powerful than managers who deny responsibilities. Employees will also have a higher level of respect for managers who share the blame, which increases employee morale.
Managers must also take immediate control of situations and make the necessary actions to correct all issues. A good manager will communicate what was learned from the problem. They will also implement and announce process changes to ensure the situation doesn’t occur again.
Forge Strong Employee Relationships
Effective managers need to forge strong relationships with employees. Create an environment where employees feel safe talking about new ideas and strategies. Employees should also be able to make mistakes without facing harsh punishment or criticism.
Managers who lead by fear don’t experience long-term gains. A manager must create a safe environment for employees to grow and prosper with the company. It is also important for employees to feel about safe about reporting issues and mistakes whether they are their own errors or other employees. One study conducted by the Harvard Business School found that nurses who fear their managers are less likely to report drug errors. Invest time in building a relationship with each employee to ensure they feel comfortable and safe in the working environment.
Protect your Employees
Create a positive team environment by letting employees know you’re on their side. The most effective managers create ways to minimize the emotional load of employees and protect them from negativity from other managers. Doing this will protect your team from a high stress environment and encourage them to take new risks to grow the company.
Managers also need to protect employees’ time. Getting rid of unnecessary meetings and tasks will free up employee time to focus on more important tasks.
Extend Gratitude to Employees
Employees appreciate compensation and other monetary rewards. However, a reward that is highly underused and doesn’t cost anything is a simple thank you. Projects need to end with a thank you when things go well. Even if the project doesn’t go as planned, thanking an employee for a job well done is still appreciated. The next time an employee tackles a difficult project; they will feel appreciated and work harder.
The most successful managers aren’t just focused on getting more out of each employee. Instead, they focus on building a culture where each employee wants to make valuable contributions. Employees are often a reflection of management. Managers need to evaluate how their own weaknesses are affecting the team. Focus on what is feels like to work for you. Changing your approach to managing employees will naturally boost the success of your team and the organization.
Resource
Robert I. Sutton. “Why Good Bosses Tune in to Their People.” McKinsey Quarterly, August 2010.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Lead with Confidence
The McKinsey Quarterly recommends using a strategy called “fake-it-until-you-make-it.” This means you need to make business and employee decisions despite your doubts. Use the best information available and move forward quickly. Having higher confidence will allow you to become a better manager and show employees that you’re a leader worth following. If employees sense low-confidence in decisions, they will start to doubt you too. Confidence is contagious. Employees will also become more confident in the company.
Also, don’t waiver on your decisions. Make a swift and definitive decision. Managers who delay and wafer from one decision to the next lose valuable employee respect. Choose a yes, no or I don’t know response and stick to it. Also, empower employees to make confident decisions.
Share the Credit
A manager usually gets most of the credit when a project goes well. It’s important to share credit with employees. Doing this will build moral and trust with your team. Managers who don’t share credit face hostile employees who simply aren’t motivated on the next project. Nothing is worse then not getting credit for a job well done.
Err on the side of giving employees more credit than they deserve. This will make your team admire your generosity and create a higher level of motivation. It’s a win-win situation.
Accept Blame
A good manager should always take responsibility for the team’s faults; even if a single team member was primarily to blame. This reinforces that the manager is in charge. The organization can be confident that the manager is leading the team, even in bad times. A study conducted by the University of Michigan found that managers who take responsibly for issues are perceived as more competent, likeable and powerful than managers who deny responsibilities. Employees will also have a higher level of respect for managers who share the blame, which increases employee morale.
Managers must also take immediate control of situations and make the necessary actions to correct all issues. A good manager will communicate what was learned from the problem. They will also implement and announce process changes to ensure the situation doesn’t occur again.
Forge Strong Employee Relationships
Effective managers need to forge strong relationships with employees. Create an environment where employees feel safe talking about new ideas and strategies. Employees should also be able to make mistakes without facing harsh punishment or criticism.
Managers who lead by fear don’t experience long-term gains. A manager must create a safe environment for employees to grow and prosper with the company. It is also important for employees to feel about safe about reporting issues and mistakes whether they are their own errors or other employees. One study conducted by the Harvard Business School found that nurses who fear their managers are less likely to report drug errors. Invest time in building a relationship with each employee to ensure they feel comfortable and safe in the working environment.
Protect your Employees
Create a positive team environment by letting employees know you’re on their side. The most effective managers create ways to minimize the emotional load of employees and protect them from negativity from other managers. Doing this will protect your team from a high stress environment and encourage them to take new risks to grow the company.
Managers also need to protect employees’ time. Getting rid of unnecessary meetings and tasks will free up employee time to focus on more important tasks.
Extend Gratitude to Employees
Employees appreciate compensation and other monetary rewards. However, a reward that is highly underused and doesn’t cost anything is a simple thank you. Projects need to end with a thank you when things go well. Even if the project doesn’t go as planned, thanking an employee for a job well done is still appreciated. The next time an employee tackles a difficult project; they will feel appreciated and work harder.
The most successful managers aren’t just focused on getting more out of each employee. Instead, they focus on building a culture where each employee wants to make valuable contributions. Employees are often a reflection of management. Managers need to evaluate how their own weaknesses are affecting the team. Focus on what is feels like to work for you. Changing your approach to managing employees will naturally boost the success of your team and the organization.
Resource
Robert I. Sutton. “Why Good Bosses Tune in to Their People.” McKinsey Quarterly, August 2010.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Monday, September 20, 2010
Rebound in a Poor Economy: Find Hidden Opportunities
For many companies, the weak economy is presenting some of the toughest struggles in the company’s history. On top of decreasing sales, organizations are left to battle inflation, exchange rate issues and regulation shifts. CEOs and executive teams are working hard to create the most solid strategies by putting their heads down and working diligently. However, according to the Harvard Business Review, this strategy simply isn’t enough to survive in today’s marketplace.
Executives need to brainstorm fresh new strategies to tap into hidden opportunities. They need to expand thinking to include broader and more creative approaches to business. Even in the most challenging market conditions, there are still untapped opportunities. Finding these opportunities is a little like striking gold; it allows you to prosper during difficult times. The Harvard Business Review studied companies that struggled with difficult market conditions. The study found there are several attributes successful companies have in common.
Missing the Best Opportunities
Some companies are overlooking some of the most valuable opportunities. The most effective way to find these opportunities is reviewing real time data. Share data trends throughout the organization. Encourage the management team to generate creative ideas for finding new opportunities based on the trends.
Front line employees are also valuable for uncovering new opportunities. These employees are in contact with customers every day. The employees are listening to the customer’s product needs every day and can anticipate new trends in the market. When you combine employee feedback with real time data, executives have an opportunity to identify some valuable trends.
For example, a retail store can anticipate which items are selling and which aren’t. Employees may share what customers are asking for when visiting the store. The organization can boost production on the best selling items and cut back on items that aren’t successful, allocating resources and time better.
Reward High Performance
Some organizations are moving away from traditional bonus structures. However, results from study conducted by the Harvard Business Review indicate that these organizations should reconsider. The strategy behind discontinuing bonuses is that it fosters teamwork. This strategy appears to hamper productivity and long-term success. Companies need to reward employees for a job well-done. A bonus structure or pay increases are the easiest way to accomplish this.
Create measurable goals for employees. Employees who meet and exceed these goals should be rewarded. The company should also tie rewards to long-term performance. By recognizing long-term performance for employee’s contributions, it will train staff to think about the long-term implications of actions.
Update Core Values
A company’s core values need to be updated to strengthen the organization. Values need to focus on recognizing employee leadership, ownership for results, teamwork, creativity and integrity. Most companies hang core value posters throughout the company. This is fine, however, it’s even more important for executives and managers to live and breathe the values. Leadership must act as an example to create the right company culture.
Promote employees based on their ability to demonstrate the company’s core values. Performance reviews should weave core values into the evaluation. When human resource departments interview new job candidates, select individuals with a track record of acting in accordance with the company’s core values. This will create a culture that is true to the organization’s most basic goals. Employees who aren’t willing to accept and incorporate the company’s values into daily activities should be reconsidered.
Create High-Impact Conversations
Executives and managers spend approximately 75 percent of their time in business discussions. Leading effective discussions will assist in strengthening the company. Conversations need to have execution requirements, deciding which actions need to be taken to accomplish success.
Each manager has a specialty. For example, a manager who is excellent in leading conversations on strategy may struggle with effective execution conversations. Give managers the skills needed to develop in all types of conversations and experience the best results.
Avoid Getting too Comfortable
It’s easy to get stuck in a business rut. When the economy is struggling, however, you simply can’t afford to do this. Some employees and managers will cling to safe strategies. Among your management team, you need some people willing to explore new territory, brainstorm new ideas and pioneer new strategies. Having these key players will assist in keeping your company stable and growing during difficult times.
Stick to Core Values
When the economy is struggling, leaders often go into panic mode, rushing around to put out fires. Leaders must be involved in solving these problems, but it shouldn’t consume all of their time. Organization leaders need to be focused on building and guiding the company’s core values. A leader must be willing to walk away from an attractive opportunity when it isn’t a good fit for the company’s core values. A leader can accomplish this by hiring plenty of creative talent to look for new opportunities that are a good fit for the organization. This will keep your company relevant in the current economic condition and boost performance.
Resources
Donald Sull. “Are you Ready to Rebound?” The Harvard Business Review, 2010.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Executives need to brainstorm fresh new strategies to tap into hidden opportunities. They need to expand thinking to include broader and more creative approaches to business. Even in the most challenging market conditions, there are still untapped opportunities. Finding these opportunities is a little like striking gold; it allows you to prosper during difficult times. The Harvard Business Review studied companies that struggled with difficult market conditions. The study found there are several attributes successful companies have in common.
Missing the Best Opportunities
Some companies are overlooking some of the most valuable opportunities. The most effective way to find these opportunities is reviewing real time data. Share data trends throughout the organization. Encourage the management team to generate creative ideas for finding new opportunities based on the trends.
Front line employees are also valuable for uncovering new opportunities. These employees are in contact with customers every day. The employees are listening to the customer’s product needs every day and can anticipate new trends in the market. When you combine employee feedback with real time data, executives have an opportunity to identify some valuable trends.
For example, a retail store can anticipate which items are selling and which aren’t. Employees may share what customers are asking for when visiting the store. The organization can boost production on the best selling items and cut back on items that aren’t successful, allocating resources and time better.
Reward High Performance
Some organizations are moving away from traditional bonus structures. However, results from study conducted by the Harvard Business Review indicate that these organizations should reconsider. The strategy behind discontinuing bonuses is that it fosters teamwork. This strategy appears to hamper productivity and long-term success. Companies need to reward employees for a job well-done. A bonus structure or pay increases are the easiest way to accomplish this.
Create measurable goals for employees. Employees who meet and exceed these goals should be rewarded. The company should also tie rewards to long-term performance. By recognizing long-term performance for employee’s contributions, it will train staff to think about the long-term implications of actions.
Update Core Values
A company’s core values need to be updated to strengthen the organization. Values need to focus on recognizing employee leadership, ownership for results, teamwork, creativity and integrity. Most companies hang core value posters throughout the company. This is fine, however, it’s even more important for executives and managers to live and breathe the values. Leadership must act as an example to create the right company culture.
Promote employees based on their ability to demonstrate the company’s core values. Performance reviews should weave core values into the evaluation. When human resource departments interview new job candidates, select individuals with a track record of acting in accordance with the company’s core values. This will create a culture that is true to the organization’s most basic goals. Employees who aren’t willing to accept and incorporate the company’s values into daily activities should be reconsidered.
Create High-Impact Conversations
Executives and managers spend approximately 75 percent of their time in business discussions. Leading effective discussions will assist in strengthening the company. Conversations need to have execution requirements, deciding which actions need to be taken to accomplish success.
Each manager has a specialty. For example, a manager who is excellent in leading conversations on strategy may struggle with effective execution conversations. Give managers the skills needed to develop in all types of conversations and experience the best results.
Avoid Getting too Comfortable
It’s easy to get stuck in a business rut. When the economy is struggling, however, you simply can’t afford to do this. Some employees and managers will cling to safe strategies. Among your management team, you need some people willing to explore new territory, brainstorm new ideas and pioneer new strategies. Having these key players will assist in keeping your company stable and growing during difficult times.
Stick to Core Values
When the economy is struggling, leaders often go into panic mode, rushing around to put out fires. Leaders must be involved in solving these problems, but it shouldn’t consume all of their time. Organization leaders need to be focused on building and guiding the company’s core values. A leader must be willing to walk away from an attractive opportunity when it isn’t a good fit for the company’s core values. A leader can accomplish this by hiring plenty of creative talent to look for new opportunities that are a good fit for the organization. This will keep your company relevant in the current economic condition and boost performance.
Resources
Donald Sull. “Are you Ready to Rebound?” The Harvard Business Review, 2010.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Anticipate Competitors More Effectively
Successful businesses are able to accurately identify the most threatening competitors. Having this ability allows your company to defend its place in the market. However, many managers make the error of overlooking some of the most threatening competition. According to the Harvard Business Review, there are several forces that are often missed when shaping competitive strategies.
Companies need to look beyond typical rivals. They need to focus on prospective new entrants, suppliers, customers and substitution threats. Creating strategies to address these threats will allow your company to sustain and grow market share.
Risk of New Entrants
A new company entering the market causes ripples in the industry. For example, when Pepsi entered the bottled water market, competitors were taken by surprise. The company leveraged assets from complementary products to secure a prominent position in the market. Apple used the same strategy when capturing the music distribution marketplace. These large companies quickly capture market share, even when competitors didn’t see it coming. The entrance of a new player in the market puts pressure on pricing and the return on investment necessary to compete. For companies already struggling, this is a serious challenge.
Industries have different risks for new competition entering the market. This risk depends on the barriers the new company faces when entering the playing field. If barriers are high, your company can expect a low risk for new entrants. If barriers are lower, however, you should pay attention to companies that may pose a threat.
Bargaining Power of Suppliers
Powerful suppliers are a hidden threat to your company. Suppliers charging high prices and limiting products or services can threaten your business model. If suppliers increase pricing, this puts the squeeze on companies who can’t afford to pass costs along to customers. For example, if the marketplace is saturated with competitors, the company may have limited ability to raise prices, fearing customers will chose the competitor’s product instead.
When a supplier is used by many companies in the industry, the supplier is usually powerful. For example, Microsoft is a large seller of operating systems. Companies have very few options when deciding to make a change, which makes the supplier a threat. Switching suppliers is also expensive. If a company can’t afford to pony up the resources to make the switch, the supplier gains power. Suppliers that offer a unique product, which can’t be easily be substituted, also have more leverage.
Bargaining Power of Buyers
Buyers are another force that is often overlooked. Powerful buyers have the ability to drive down prices, increase quality and play industry competitors against each other. If a single company makes up a large portion of your business, the company is usually a powerful buyer. A customer who has large fixed costs and low margins usually puts more pressure on your business.
Powerful buyers are aware of their leverage. Some of these buyers are willing to play your company against the competition to find the best deal. Buyers who don’t lose much money when switching vendors also have more power. If the customer can secure lower pricing elsewhere without a penalty, the organization doesn’t have anything to lose. Some buyers with significant resources may leverage better pricing with your company by threatening to take the service in-house. For example, soda companies have threatened packaging manufactures by showing they can produce the items in-house, if needed.
Substitution Items
The final threat to consider is substitution. A substitution product or service provides the same function to the customer, but is a different item. For example, online travel companies are a substitute for old fashion brick and mortar travel agents. Videoconferencing is a substitute for business travel. Businesses often overlook substitution products when planning for potential threats. However, these items can surprise a business and substantially affect the company’s success.
If your products and services have many prospective substitutes, profitability may be at risk. Substitute products may also interfere with your company’s pricing strategy. For example, once the product’s price exceeds a certain level, the customer may prefer the substitute which is less expensive.
Combat substitute products by differentiating your product or service. This can be accomplished through marketing campaigns, product quality or other strategies.
Understanding some of the most overlooked threats will assist in developing more effective strategies. A company should always consider these risks when evaluating potential strengths and weaknesses. If a new company is entering the market, evaluate the organization’s largest threats to identify their weaknesses. Taking a detailed look at the industry will also uncover potential opportunities. These opportunities are important to boosting performance and gaining market share. Your company will be positioned better in the market and have a more effective strategy in place.
Resource:
Michael E. Porter. “The Five Competitive Forces that Shape Strategy.” The Harvard Business Review 2006.
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Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Companies need to look beyond typical rivals. They need to focus on prospective new entrants, suppliers, customers and substitution threats. Creating strategies to address these threats will allow your company to sustain and grow market share.
Risk of New Entrants
A new company entering the market causes ripples in the industry. For example, when Pepsi entered the bottled water market, competitors were taken by surprise. The company leveraged assets from complementary products to secure a prominent position in the market. Apple used the same strategy when capturing the music distribution marketplace. These large companies quickly capture market share, even when competitors didn’t see it coming. The entrance of a new player in the market puts pressure on pricing and the return on investment necessary to compete. For companies already struggling, this is a serious challenge.
Industries have different risks for new competition entering the market. This risk depends on the barriers the new company faces when entering the playing field. If barriers are high, your company can expect a low risk for new entrants. If barriers are lower, however, you should pay attention to companies that may pose a threat.
Bargaining Power of Suppliers
Powerful suppliers are a hidden threat to your company. Suppliers charging high prices and limiting products or services can threaten your business model. If suppliers increase pricing, this puts the squeeze on companies who can’t afford to pass costs along to customers. For example, if the marketplace is saturated with competitors, the company may have limited ability to raise prices, fearing customers will chose the competitor’s product instead.
When a supplier is used by many companies in the industry, the supplier is usually powerful. For example, Microsoft is a large seller of operating systems. Companies have very few options when deciding to make a change, which makes the supplier a threat. Switching suppliers is also expensive. If a company can’t afford to pony up the resources to make the switch, the supplier gains power. Suppliers that offer a unique product, which can’t be easily be substituted, also have more leverage.
Bargaining Power of Buyers
Buyers are another force that is often overlooked. Powerful buyers have the ability to drive down prices, increase quality and play industry competitors against each other. If a single company makes up a large portion of your business, the company is usually a powerful buyer. A customer who has large fixed costs and low margins usually puts more pressure on your business.
Powerful buyers are aware of their leverage. Some of these buyers are willing to play your company against the competition to find the best deal. Buyers who don’t lose much money when switching vendors also have more power. If the customer can secure lower pricing elsewhere without a penalty, the organization doesn’t have anything to lose. Some buyers with significant resources may leverage better pricing with your company by threatening to take the service in-house. For example, soda companies have threatened packaging manufactures by showing they can produce the items in-house, if needed.
Substitution Items
The final threat to consider is substitution. A substitution product or service provides the same function to the customer, but is a different item. For example, online travel companies are a substitute for old fashion brick and mortar travel agents. Videoconferencing is a substitute for business travel. Businesses often overlook substitution products when planning for potential threats. However, these items can surprise a business and substantially affect the company’s success.
If your products and services have many prospective substitutes, profitability may be at risk. Substitute products may also interfere with your company’s pricing strategy. For example, once the product’s price exceeds a certain level, the customer may prefer the substitute which is less expensive.
Combat substitute products by differentiating your product or service. This can be accomplished through marketing campaigns, product quality or other strategies.
Understanding some of the most overlooked threats will assist in developing more effective strategies. A company should always consider these risks when evaluating potential strengths and weaknesses. If a new company is entering the market, evaluate the organization’s largest threats to identify their weaknesses. Taking a detailed look at the industry will also uncover potential opportunities. These opportunities are important to boosting performance and gaining market share. Your company will be positioned better in the market and have a more effective strategy in place.
Resource:
Michael E. Porter. “The Five Competitive Forces that Shape Strategy.” The Harvard Business Review 2006.
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Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Tuesday, June 29, 2010
VERCOR's New Books
Selling Your Business: A Practical Guide to Getting It Done Right
Whether it is the unpacking of the life cycle of a deal or helpful Common Pitfalls sections, this book illustrates how business owners can achieve the business sale they deserve.
Driving Business Value in an Uncertain Economy
How can you ensure your company's financial solvency and value during an economic rollercoaster? This book reveals the key factors that drive business value in any economy
Enhancing Your Business Value...The Climb to the Top
This valuable resource is a strategy guide that inspires you to take action. Use it as an idea generator or a launching pad to guide you in your next steps for improved business growth.
Selling Your Business the Hard Easy Way
From important points to consider prior to selling along with critical pitfalls to avoid during the process, this is the one guide that businesses owners cannot afford to be without.
For more details, to purchase a hard copy Click Here
Whether it is the unpacking of the life cycle of a deal or helpful Common Pitfalls sections, this book illustrates how business owners can achieve the business sale they deserve.
Driving Business Value in an Uncertain Economy
How can you ensure your company's financial solvency and value during an economic rollercoaster? This book reveals the key factors that drive business value in any economy
Enhancing Your Business Value...The Climb to the Top
This valuable resource is a strategy guide that inspires you to take action. Use it as an idea generator or a launching pad to guide you in your next steps for improved business growth.
Selling Your Business the Hard Easy Way
From important points to consider prior to selling along with critical pitfalls to avoid during the process, this is the one guide that businesses owners cannot afford to be without.
For more details, to purchase a hard copy Click Here
Strategies to Improve Back-Office Efficiency
Companies often struggle with back-office productivity challenges. Figuring out the right way to group tasks and enhance customer value can be complicated. Some managers opt to have employees perform several transactions while others choose a specialization strategy. Understanding which strategy yields the best results can help boost back-office efficiency and the company’s bottom line.
Back-Office Inefficiencies
Back office staff faces a variety of struggles when improving operational efficiency. Customers need change, new products are developed and other situations occur which interferes with production cycles. Companies involved in finance, health care, insurance and other service organizations appear to be at highest risk for back-office efficiency challenges.
Seeking to solve this problem, some companies are investing heavily in training all back office employees to handle numerous types of transactions. This training is expensive, but many companies feel it’s worthwhile, providing more flexibility among employees. For example, when times get really busy, employees were cross-trained to handle back office functions that needed the most help. This approach however isn’t always successful. Despite the large investment, efficiency often continues to decline.
Challenges with Production
When executives studied why efficiency was declining, they found several problems. Employees with dozens of tasks to complete, rather then just a few, experienced difficultly meeting customer’s service expectations. It also made it difficult for management to accurately track and measure employee performance.
There were also other problems when front-line employees were generalist instead of specialists in specific tasks. Employees weren’t encountering specific tasks enough to handle them efficiency and correctly.
Executives also found that some employees were manipulating the system. These employees would only choose the easiest tasks, which delayed the more difficult transactions and damaged customer service. Other employees became upset about this practice which negatively affected teamwork. When customers weren’t getting the more complicated problems handled, this created even greater inefficiencies. Employees had more angry customers to deal with which further affected the back-log of work. When this happens, companies spend more money on overtime to catch up which severely affected the bottom line.
Boosting Efficiency
When faced with this problem, executives knew they needed to make changes quickly to boost efficiency. Executives studied all transactions that employees were currently handling. They allocated these transactions into groups, based on level of difficulty. These groups of transactions were distributed to employee “teams” that handled the same types of assignments each day. This made employees more efficient and created specialists in each transaction type. Employee performance was also easier to track and manage with this strategy.
When developing the “groupings” of transactions, executives made sure the tasks were variable enough that employees wouldn’t become bored with their daily tasks. Executives also created a team of “floaters” who assisted teams experiencing higher than normal transaction volume. These employees helped the existing team work though their back-log which prevented burnout and customer service challenges.
According to the McKinsey Quarterly, these solutions helped companies meet service deadlines and reduce frontline staff and management by 25 percent. They also decreased overtime costs by 90 percent.
The Results
According to the McKinsey Quarterly, this strategy to manage back-office efficiency is similar to power companies using “peaker” plants to handle increases in the demand for energy. Managers creating teams of floaters to handle overflow can work the same way. It will make teams more flexible without all of the productivity “waste.” To make these plans work, the company must spend adequate time understanding how their customer demand works. This will help the company design a more efficient plan for assigning and handling overflow work.
A company must select the right tasks for each specific team. For example, executives might discover if a team takes on assignments A, B and C, they’ll be more productive then handling A and D. To accomplish this, senior managers must look at the context of the assignments. Assignments can be assigned based on the customer segment, level of difficulty, regulation issues or other important factors within your company.
There should also be measures in place that encourage career paths for front-line employees to boost job satisfaction. Those who perform well should have opportunities for more complex team assignments and opportunities for advancement. Having an employee assigned to a very specific task also decreases the learning curve for new employees. An employee can train much quicker on five transactions then thirty transactions.
Evaluating front-line activities and creating ways to streamline these tasks can boost your company’s productivity. It also improves employee moral and gives managers better ways to measure front-line performance. Creating these strategies in your own company can boost your bottom line and increase employee satisfaction.
Resources
Dan Devroye and Andy Eichfeld. “Taming Demand Variability in Back-Office Services.” The McKinsey Quarterly, September 2009.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Back-Office Inefficiencies
Back office staff faces a variety of struggles when improving operational efficiency. Customers need change, new products are developed and other situations occur which interferes with production cycles. Companies involved in finance, health care, insurance and other service organizations appear to be at highest risk for back-office efficiency challenges.
Seeking to solve this problem, some companies are investing heavily in training all back office employees to handle numerous types of transactions. This training is expensive, but many companies feel it’s worthwhile, providing more flexibility among employees. For example, when times get really busy, employees were cross-trained to handle back office functions that needed the most help. This approach however isn’t always successful. Despite the large investment, efficiency often continues to decline.
Challenges with Production
When executives studied why efficiency was declining, they found several problems. Employees with dozens of tasks to complete, rather then just a few, experienced difficultly meeting customer’s service expectations. It also made it difficult for management to accurately track and measure employee performance.
There were also other problems when front-line employees were generalist instead of specialists in specific tasks. Employees weren’t encountering specific tasks enough to handle them efficiency and correctly.
Executives also found that some employees were manipulating the system. These employees would only choose the easiest tasks, which delayed the more difficult transactions and damaged customer service. Other employees became upset about this practice which negatively affected teamwork. When customers weren’t getting the more complicated problems handled, this created even greater inefficiencies. Employees had more angry customers to deal with which further affected the back-log of work. When this happens, companies spend more money on overtime to catch up which severely affected the bottom line.
Boosting Efficiency
When faced with this problem, executives knew they needed to make changes quickly to boost efficiency. Executives studied all transactions that employees were currently handling. They allocated these transactions into groups, based on level of difficulty. These groups of transactions were distributed to employee “teams” that handled the same types of assignments each day. This made employees more efficient and created specialists in each transaction type. Employee performance was also easier to track and manage with this strategy.
When developing the “groupings” of transactions, executives made sure the tasks were variable enough that employees wouldn’t become bored with their daily tasks. Executives also created a team of “floaters” who assisted teams experiencing higher than normal transaction volume. These employees helped the existing team work though their back-log which prevented burnout and customer service challenges.
According to the McKinsey Quarterly, these solutions helped companies meet service deadlines and reduce frontline staff and management by 25 percent. They also decreased overtime costs by 90 percent.
The Results
According to the McKinsey Quarterly, this strategy to manage back-office efficiency is similar to power companies using “peaker” plants to handle increases in the demand for energy. Managers creating teams of floaters to handle overflow can work the same way. It will make teams more flexible without all of the productivity “waste.” To make these plans work, the company must spend adequate time understanding how their customer demand works. This will help the company design a more efficient plan for assigning and handling overflow work.
A company must select the right tasks for each specific team. For example, executives might discover if a team takes on assignments A, B and C, they’ll be more productive then handling A and D. To accomplish this, senior managers must look at the context of the assignments. Assignments can be assigned based on the customer segment, level of difficulty, regulation issues or other important factors within your company.
There should also be measures in place that encourage career paths for front-line employees to boost job satisfaction. Those who perform well should have opportunities for more complex team assignments and opportunities for advancement. Having an employee assigned to a very specific task also decreases the learning curve for new employees. An employee can train much quicker on five transactions then thirty transactions.
Evaluating front-line activities and creating ways to streamline these tasks can boost your company’s productivity. It also improves employee moral and gives managers better ways to measure front-line performance. Creating these strategies in your own company can boost your bottom line and increase employee satisfaction.
Resources
Dan Devroye and Andy Eichfeld. “Taming Demand Variability in Back-Office Services.” The McKinsey Quarterly, September 2009.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Developing Talent More Effectively
Most companies know that employees are their most valuable asset. However, developing employee talents and retaining those individuals is a challenge for most employers. As baby boomers reach retirement age, this challenge becomes more important then ever. Trends suggest there will be more competition for talented workers and managers. Creating strategies to develop and retain employees can make a huge difference.
Managerial Challenges
According to the McKinsey Quarterly, there are three major challenges when developing talent, including demographics, rise of the knowledgeable worker and globalization. These challenges are forcing managers to come up with more creative strategies for developing talent.
Developed countries are struggling with a decline in birthrates and increased numbers of people reaching retirement age. However, emerging markets continue to produce a large group of talented young people. Professionals in emerging markets are graduating from universities at twice the rate of developed nations. As this trend continues, managers are looking to emerging markets to recruit new talent.
When tapping into this talent pool, however, companies need to be careful about issues such as English skills, culture issues and the employee’s experience working in a group setting. Weakness is these areas could make it difficult to develop employees to take on leadership roles.
Another group that companies need to consider when evaluating talent is Generation Y. These professionals were born after 1980. They’ve grown up in a generation described as “information overload.” Human Resource professionals explain these professionals desire more job flexibility, freedom, higher rewards and a high level of work life balance. People in this generation are likely to work a few years and switch jobs. This creates a challenge for companies. If they don’t meet this demographic’s needs, they’re faced with very high levels of turnover. As of 2008, this demographic made up 12 percent of the United States workforce.
Generation Y employees are also generally harder to manage then other generations. However, working to meet their needs and develop their talents can make these individuals very valuable to an organization.
Talent Programs
In the past, companies have invested money in expensive programs to develop talent. To the surprise of many executives, these efforts don’t always work well. This is frustrating to managers. Human resources professionals aren’t always heavily involved in these programs, which frustrates these individuals as well.
When evaluating the results of talent development programs, senior managers aren’t sure what went wrong. According to the McKinsey Quarterly, the largest challenge with existing programs is managers perceive the problem as a short-term tactical issue instead of a long-term strategy that requires a large amount of resources.
Collaboration
When looking for ways to improve talent development, companies need to focus more on collaboration between business units. For example, a talented employee might be interested in moving to another business unit. If the company discourages this behavior, the talented employee may look for opportunities outside of the organization. Companies need to put strategies in place for cross-business unit collaboration.
Managers also need to rethink existing talent development strategies. Instead of focusing solely on top performers, they must consider the entire group of employees (each team member’s strengths and abilities). Developing each person, instead of just a select few will make the entire organization stronger. If a person isn’t suited for their existing business unit, perhaps the company can develop their talents in another business unit more suited to their strengths.
Target Each Type of Talent
With a diverse talent pool, it’s important that companies develop a plan that targets each individual talent group. While top performers should continue to be generously rewarded for their achievements, other employees need some attention as well.
These other players are commonly referred to as “B” players because they are capable and consistent performers (yet, not top performers). When given the proper attention, some of these employees have the potential to become top performers. This includes employees that work on the frontline, technical employees and all units of the organization.
Developing Human Resources Teams
Human Resources are an important asset when developing talent. Previously, HR departments were focused on recruiting, training and managing performance. They didn’t have much influence in developing company talent.
HR needs to serve the entire organization in regards to talent recruitment and development instead of just the top tier of management. For example, Proctor and Gamble places aspiring HR managers to work with front-line managers and employees to gain their trust and collaboration. Coca-Cola places top performing managers in human resources positions for a few years to build business skills and forge a partnership.
Senior managers who are struggling with acquiring and retaining talent need to evaluate their strategy. Making changes that focus on retaining talent, recruiting talent and developing all employees within an organization will make the company much stronger.
Resources
Matthew Guthridge, Asmus B. Komm and Emily Lawson. “Making Talent a Strategic Priority.” The McKinsey Quarterly, November 2008.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Managerial Challenges
According to the McKinsey Quarterly, there are three major challenges when developing talent, including demographics, rise of the knowledgeable worker and globalization. These challenges are forcing managers to come up with more creative strategies for developing talent.
Developed countries are struggling with a decline in birthrates and increased numbers of people reaching retirement age. However, emerging markets continue to produce a large group of talented young people. Professionals in emerging markets are graduating from universities at twice the rate of developed nations. As this trend continues, managers are looking to emerging markets to recruit new talent.
When tapping into this talent pool, however, companies need to be careful about issues such as English skills, culture issues and the employee’s experience working in a group setting. Weakness is these areas could make it difficult to develop employees to take on leadership roles.
Another group that companies need to consider when evaluating talent is Generation Y. These professionals were born after 1980. They’ve grown up in a generation described as “information overload.” Human Resource professionals explain these professionals desire more job flexibility, freedom, higher rewards and a high level of work life balance. People in this generation are likely to work a few years and switch jobs. This creates a challenge for companies. If they don’t meet this demographic’s needs, they’re faced with very high levels of turnover. As of 2008, this demographic made up 12 percent of the United States workforce.
Generation Y employees are also generally harder to manage then other generations. However, working to meet their needs and develop their talents can make these individuals very valuable to an organization.
Talent Programs
In the past, companies have invested money in expensive programs to develop talent. To the surprise of many executives, these efforts don’t always work well. This is frustrating to managers. Human resources professionals aren’t always heavily involved in these programs, which frustrates these individuals as well.
When evaluating the results of talent development programs, senior managers aren’t sure what went wrong. According to the McKinsey Quarterly, the largest challenge with existing programs is managers perceive the problem as a short-term tactical issue instead of a long-term strategy that requires a large amount of resources.
Collaboration
When looking for ways to improve talent development, companies need to focus more on collaboration between business units. For example, a talented employee might be interested in moving to another business unit. If the company discourages this behavior, the talented employee may look for opportunities outside of the organization. Companies need to put strategies in place for cross-business unit collaboration.
Managers also need to rethink existing talent development strategies. Instead of focusing solely on top performers, they must consider the entire group of employees (each team member’s strengths and abilities). Developing each person, instead of just a select few will make the entire organization stronger. If a person isn’t suited for their existing business unit, perhaps the company can develop their talents in another business unit more suited to their strengths.
Target Each Type of Talent
With a diverse talent pool, it’s important that companies develop a plan that targets each individual talent group. While top performers should continue to be generously rewarded for their achievements, other employees need some attention as well.
These other players are commonly referred to as “B” players because they are capable and consistent performers (yet, not top performers). When given the proper attention, some of these employees have the potential to become top performers. This includes employees that work on the frontline, technical employees and all units of the organization.
Developing Human Resources Teams
Human Resources are an important asset when developing talent. Previously, HR departments were focused on recruiting, training and managing performance. They didn’t have much influence in developing company talent.
HR needs to serve the entire organization in regards to talent recruitment and development instead of just the top tier of management. For example, Proctor and Gamble places aspiring HR managers to work with front-line managers and employees to gain their trust and collaboration. Coca-Cola places top performing managers in human resources positions for a few years to build business skills and forge a partnership.
Senior managers who are struggling with acquiring and retaining talent need to evaluate their strategy. Making changes that focus on retaining talent, recruiting talent and developing all employees within an organization will make the company much stronger.
Resources
Matthew Guthridge, Asmus B. Komm and Emily Lawson. “Making Talent a Strategic Priority.” The McKinsey Quarterly, November 2008.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Wednesday, April 7, 2010
Anticipating a Hostile Takeover
Merger and acquisition activities reached record levels in 2007, according to the McKinsey Review. These transactions reached almost $4 trillion worldwide. However, with an increase of these transactions, deals are getting more aggressive. In 2007, $520 billion worth of merger and acquisition activity were “hostile transactions.” This amount beats the previous record for hostile transactions, which was set in 1999. This trend leaves managers wondering, what can I do to better anticipate a hostile takeover?
What Causes Hostile Transactions?
There are a variety of factors that cause hostile transactions, including a loss of trust between shareholders and management. When managers anticipate a hostile takeover, they typically put together a defensive plan to resist the takeover. However, according to the McKinsey Review, this strategy doesn’t necessarily create the most value. Managers are acting in the best interest of keeping the company’s independence, instead of evaluating what’s best for the company’s shareholders.
Serve the Company and Shareholders
Managers should focus on serving both shareholders and preserving long-term independence by acting preemptively. Managers need to recognize what another business owner might see in their company and seize those opportunities themselves. This will provide shareholders value and help protect your company.
To accomplish this, focus on corporate value strategy and creating initiatives that add value to the company. Having these measures in place allows a company to identity financial, operation, strategic and portfolio decisions that might otherwise make a company appealing for hostile takeover.
If you address these areas, your company will be stronger. Outside companies will look elsewhere for deals where they can buy at a low price (because your company will be valued higher).
Companies who don’t successfully implement these strategies will have a difficult time explaining why merger and acquisition activity isn’t in the best interest of the company.
Diagnosing your Company’s Vulnerability
Create strategies that focus on accurately diagnosing your company’s weak spots. For example, a company might be able to improve operations, improve governance and better manage their balance sheet.
Make operational changes: Companies should carefully evaluate opportunities for untapped potential. Find these opportunities by focusing on areas with average performance. Performance targets should be developed to create more operational value. For example, a company might increase efficiency by outsourcing production.
Evaluating your portfolio: Another item to consider is restructuring your portfolio. For example, if you have a large portion of capital that isn’t being maximized, you could be a target.
Focus on improving your portfolio by identifying opportunities to enhance its composition. According to the McKinsey Review, a European telecommunications company focused on diversifying noncore assets (15 to 20 percent of the total corporate value) to operate more efficiently and become less attractive to outside companies.
Make Changes in your Balance Sheet: If a company has an under performing balance sheet, it may become a target. Private equity firms who have long-term cash balances that are normal, high amounts of working capital and a balance sheet that’s underleveraged are more attractive to outside companies.
Management needs to evaluate the balance sheet to determine areas that have capital that can be given up. For example, could you give extra dividends to shareholders? During this process, make sure to retain enough cash to effectively grow the company in the future.
Improving Governance: Companies with weak governance need to focus on improvement. A management group with interests that don’t line up with shareholders creates more vulnerability.
If governance is an issue with your company, focus on strategies to re-align management interests with those of shareholders. Also, work on increasing the transparency of governance. Managers should also focus on communicating their commitment to increase shareholder confidence.
Dealing with Perceptions
Companies also need to address perception issues. Make sure the value of your company is perceived highly. You don’t want other companies thinking they have a lot of opportunity to increase the value after changes are made.
For example, if shareholders lack confidence in management’s ability to deliver value to an organization, a company may be perceived as a target for takeover. Improve communication with investors. Continue to work on improving shareholder earnings. If necessary, a company must take an aggressive approach to building confidence (if there are serious problems with management). This can be achieved by replacing problematic managers.
Focusing on strategies that improve shareholder value and building trust can minimize the chances of a hostile takeover. These measures also make sure a company is aligning their desire to stay independent with providing the most value to shareholders. Although value isn’t always the key driver for Merger and Acquisition activity, when a company has captured all of the opportunities for success, it’s valued higher. This can minimize company appeal and make shareholders happy.
Resources:
Jenny Askfelt Ruud, Johan Nas and Vincenzo Tortorici. “Preempting Hostile Takeovers.” The McKinsey on Finance, Number 24, Summer 2007
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.
What Causes Hostile Transactions?
There are a variety of factors that cause hostile transactions, including a loss of trust between shareholders and management. When managers anticipate a hostile takeover, they typically put together a defensive plan to resist the takeover. However, according to the McKinsey Review, this strategy doesn’t necessarily create the most value. Managers are acting in the best interest of keeping the company’s independence, instead of evaluating what’s best for the company’s shareholders.
Serve the Company and Shareholders
Managers should focus on serving both shareholders and preserving long-term independence by acting preemptively. Managers need to recognize what another business owner might see in their company and seize those opportunities themselves. This will provide shareholders value and help protect your company.
To accomplish this, focus on corporate value strategy and creating initiatives that add value to the company. Having these measures in place allows a company to identity financial, operation, strategic and portfolio decisions that might otherwise make a company appealing for hostile takeover.
If you address these areas, your company will be stronger. Outside companies will look elsewhere for deals where they can buy at a low price (because your company will be valued higher).
Companies who don’t successfully implement these strategies will have a difficult time explaining why merger and acquisition activity isn’t in the best interest of the company.
Diagnosing your Company’s Vulnerability
Create strategies that focus on accurately diagnosing your company’s weak spots. For example, a company might be able to improve operations, improve governance and better manage their balance sheet.
Make operational changes: Companies should carefully evaluate opportunities for untapped potential. Find these opportunities by focusing on areas with average performance. Performance targets should be developed to create more operational value. For example, a company might increase efficiency by outsourcing production.
Evaluating your portfolio: Another item to consider is restructuring your portfolio. For example, if you have a large portion of capital that isn’t being maximized, you could be a target.
Focus on improving your portfolio by identifying opportunities to enhance its composition. According to the McKinsey Review, a European telecommunications company focused on diversifying noncore assets (15 to 20 percent of the total corporate value) to operate more efficiently and become less attractive to outside companies.
Make Changes in your Balance Sheet: If a company has an under performing balance sheet, it may become a target. Private equity firms who have long-term cash balances that are normal, high amounts of working capital and a balance sheet that’s underleveraged are more attractive to outside companies.
Management needs to evaluate the balance sheet to determine areas that have capital that can be given up. For example, could you give extra dividends to shareholders? During this process, make sure to retain enough cash to effectively grow the company in the future.
Improving Governance: Companies with weak governance need to focus on improvement. A management group with interests that don’t line up with shareholders creates more vulnerability.
If governance is an issue with your company, focus on strategies to re-align management interests with those of shareholders. Also, work on increasing the transparency of governance. Managers should also focus on communicating their commitment to increase shareholder confidence.
Dealing with Perceptions
Companies also need to address perception issues. Make sure the value of your company is perceived highly. You don’t want other companies thinking they have a lot of opportunity to increase the value after changes are made.
For example, if shareholders lack confidence in management’s ability to deliver value to an organization, a company may be perceived as a target for takeover. Improve communication with investors. Continue to work on improving shareholder earnings. If necessary, a company must take an aggressive approach to building confidence (if there are serious problems with management). This can be achieved by replacing problematic managers.
Focusing on strategies that improve shareholder value and building trust can minimize the chances of a hostile takeover. These measures also make sure a company is aligning their desire to stay independent with providing the most value to shareholders. Although value isn’t always the key driver for Merger and Acquisition activity, when a company has captured all of the opportunities for success, it’s valued higher. This can minimize company appeal and make shareholders happy.
Resources:
Jenny Askfelt Ruud, Johan Nas and Vincenzo Tortorici. “Preempting Hostile Takeovers.” The McKinsey on Finance, Number 24, Summer 2007
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.
Creating a More Effective Risk Assessment Strategy
When creating a risk assessment strategy, companies spend a lot of time focusing on direct risks. Indirect risks, which are often overlooked, can have a serious impact on your business. These risks can cause issues with securing raw materials, limit revenue and your ability to compete in the market place.
For example, according to the McKinsey Review, in 2000 there was a lightening storm in New Mexico. It caused a fire which damaged a technology company that produced chips. Millions of mobile phone chips were damaged.
The technology company didn’t just supply one mobile company, it supplied chips to several. All of the companies were scrambling to shift production to suppliers in Japan. However, not all companies were able to make the adjustment quickly. Companies who didn’t move quickly lost serious revenue.
Regardless of your industry, indirect threats cause a ripple effect. It’s not realistic to eliminate these risks altogether, but with proper planning, you can minimize them.
Target the Value Chain
Most companies have a process in place for evaluating their value chain risk. However, companies need to incorporate processes for targeting the most common indirect risks. According to the McKinsey Review, there are four areas that should be examined (called risk cascades), including: competitors, supply chains, distribution channels and customer responses.
Evaluate the Risk of Competitors
When a company has a structure that is seriously different from competitors, they are at higher risk. Although you don’t want to “copy” competitors, if you plan on varying your strategy substantially, you must pay more attention to indirect risks.
Having a completely different strategy from your competitors means if you’re hit by an indirect risk, the competition may be able to capture your share of the market (because their strategy is much different). This can drive down revenue and hurt the company long-term.
Consider Supply Chain Exposure
When creating a strategy, focus on areas of weakness in your supply chain. Are there indirect threats that could interrupt your ability to secure parts and materials? If so, it could create pricing and supply issues. These issues can affect the customer’s ability to access your product, which can drive down sales.
Look out for Distribution Channel Risks
Managers should also spend some time evaluating potential distribution channel risks. These risks can hinder your ability to reach customers, interfere with costs and even pose a threat to your existing business model. For example, the McKinsey Review discuses the bankruptcy of Circuit City in 2008. As the electronic company liquidated, it created price pressure for other companies.
These companies were holding more then $600 million in unpaid receivables at the time. Customers were in “bargain hunting” mode which directly affected other retailers. Companies were forced to drop prices to make sales.
Anticipate Customer Response
Anticipating the response of customers is difficult. With so many factors involved in a purchasing decision, there are plenty of indirect risks associated with this category.
For example, consider the increase in gasoline prices. As this occurred, customers changed their vehicle purchasing behavior. There was a steady decline in the purchase of large vehicles. Automobiles with the ability to achieve better gas mileage experienced an increase in sales. Customers were also more willing to purchase new alternatives, like the Hybrid.
Evaluating your Risk Profile
When creating risk strategies, companies should carefully consider the risk cascades. Anticipating how direct and indirect risks move through the value chain can help companies prevent the “ripple effect” that occurs when indirect risks aren’t considered.
For example, most industrial companies believe they’re in trouble when the price of carbon increases. The McKinsey Review, however, argues that carbon price increases doesn’t always hurt business. In fact, some companies may benefit.
If carbon was more expensive, aluminum would become the material of choice, which could positively impact automobile manufacturing companies. Therefore, some companies might be negatively impacted, while others (like the automotive companies) would see positive results.
Although companies can’t see around every corner, they can be as prepared as possible. Creating the best possible risk assessment by identifying indirect threats can help create more effective, corporate strategies. Risk cascades can help your company create more effective strategies for anticipating future changes and getting ahead of the curve.
Resources:
Eric Lamarre and Martin Pergler. “Risk: Seeing Around the Corner.” The McKinsey Review, October 2009.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.
For example, according to the McKinsey Review, in 2000 there was a lightening storm in New Mexico. It caused a fire which damaged a technology company that produced chips. Millions of mobile phone chips were damaged.
The technology company didn’t just supply one mobile company, it supplied chips to several. All of the companies were scrambling to shift production to suppliers in Japan. However, not all companies were able to make the adjustment quickly. Companies who didn’t move quickly lost serious revenue.
Regardless of your industry, indirect threats cause a ripple effect. It’s not realistic to eliminate these risks altogether, but with proper planning, you can minimize them.
Target the Value Chain
Most companies have a process in place for evaluating their value chain risk. However, companies need to incorporate processes for targeting the most common indirect risks. According to the McKinsey Review, there are four areas that should be examined (called risk cascades), including: competitors, supply chains, distribution channels and customer responses.
Evaluate the Risk of Competitors
When a company has a structure that is seriously different from competitors, they are at higher risk. Although you don’t want to “copy” competitors, if you plan on varying your strategy substantially, you must pay more attention to indirect risks.
Having a completely different strategy from your competitors means if you’re hit by an indirect risk, the competition may be able to capture your share of the market (because their strategy is much different). This can drive down revenue and hurt the company long-term.
Consider Supply Chain Exposure
When creating a strategy, focus on areas of weakness in your supply chain. Are there indirect threats that could interrupt your ability to secure parts and materials? If so, it could create pricing and supply issues. These issues can affect the customer’s ability to access your product, which can drive down sales.
Look out for Distribution Channel Risks
Managers should also spend some time evaluating potential distribution channel risks. These risks can hinder your ability to reach customers, interfere with costs and even pose a threat to your existing business model. For example, the McKinsey Review discuses the bankruptcy of Circuit City in 2008. As the electronic company liquidated, it created price pressure for other companies.
These companies were holding more then $600 million in unpaid receivables at the time. Customers were in “bargain hunting” mode which directly affected other retailers. Companies were forced to drop prices to make sales.
Anticipate Customer Response
Anticipating the response of customers is difficult. With so many factors involved in a purchasing decision, there are plenty of indirect risks associated with this category.
For example, consider the increase in gasoline prices. As this occurred, customers changed their vehicle purchasing behavior. There was a steady decline in the purchase of large vehicles. Automobiles with the ability to achieve better gas mileage experienced an increase in sales. Customers were also more willing to purchase new alternatives, like the Hybrid.
Evaluating your Risk Profile
When creating risk strategies, companies should carefully consider the risk cascades. Anticipating how direct and indirect risks move through the value chain can help companies prevent the “ripple effect” that occurs when indirect risks aren’t considered.
For example, most industrial companies believe they’re in trouble when the price of carbon increases. The McKinsey Review, however, argues that carbon price increases doesn’t always hurt business. In fact, some companies may benefit.
If carbon was more expensive, aluminum would become the material of choice, which could positively impact automobile manufacturing companies. Therefore, some companies might be negatively impacted, while others (like the automotive companies) would see positive results.
Although companies can’t see around every corner, they can be as prepared as possible. Creating the best possible risk assessment by identifying indirect threats can help create more effective, corporate strategies. Risk cascades can help your company create more effective strategies for anticipating future changes and getting ahead of the curve.
Resources:
Eric Lamarre and Martin Pergler. “Risk: Seeing Around the Corner.” The McKinsey Review, October 2009.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.
Thursday, February 4, 2010
New Book: Selling Your Business: A Practical Guide to Getting It Done Right
Selling Your Business: A Practical Guide to Getting It Done Right engages business owners with storytelling—narrating readers through a tour of successful and unsuccessful business transactions. Whether it is the unpacking of the life cycle of a deal or helpful Common Pitfalls sections, they illustrate how business owners can achieve the business sale they deserve and avoid the potential blunders that await them.
• The authors examine which action will sabotage your efforts to sell your business - revealing too much about your company or playing your cards too close to your chest?
• Why do some business sellers close deals with synergistic buyers while others court financial ones?
Fortunately, Mark Jordan, Mark Gould and Rex Slagel have provided answers in Selling Your Business: A Practical Guide to Getting It Done Right. As investment bankers and authors, they are passionate about helping business owners successfully navigate the process of selling a company. Their deep experience in delivering mergers and acquisitions advice at VERCOR uniquely positions them to bring a dose of reality to the process. Jordan, Gould and Slagel examine scores of business sales—carefully deconstructing them—for potential strengths and weaknesses. The trio also scrutinizes missteps of business owners involved in deals that fell apart so you do not make the same mistakes.
• The authors examine which action will sabotage your efforts to sell your business - revealing too much about your company or playing your cards too close to your chest?
• Why do some business sellers close deals with synergistic buyers while others court financial ones?
Fortunately, Mark Jordan, Mark Gould and Rex Slagel have provided answers in Selling Your Business: A Practical Guide to Getting It Done Right. As investment bankers and authors, they are passionate about helping business owners successfully navigate the process of selling a company. Their deep experience in delivering mergers and acquisitions advice at VERCOR uniquely positions them to bring a dose of reality to the process. Jordan, Gould and Slagel examine scores of business sales—carefully deconstructing them—for potential strengths and weaknesses. The trio also scrutinizes missteps of business owners involved in deals that fell apart so you do not make the same mistakes.
Monday, January 25, 2010
Generating Better Business Ideas
Some of the best business ideas originate from countercultural roots, according to the Booz & Co. article “The LifeCycle of Great Business Ideas.” But many business leaders struggle with how to weed out the non-effective ideas and find the few gems. Understanding the business idea lifecycle, learning how to identify the best ideas and understanding trends of the future can help business leaders navigate this process.
Lifecycle of Management Ideas
When evaluating the sustainability of lifecycle management ideas, it’s important to evaluate the ideas in the context of the company. Performance is more relative than absolute. For this reason, the success of business ideas can’t be replicated in every company. If ideas can be replicated, the competitive advantage is lost.
The Role of the Business Leader
Managers with revolutionary business ideas usually have a different concept about authority and have a unique management style. These managers are dedicated to making the organization much different from when they started.
For example, P.V. Kannan, CEO and Co-Founder of 24/7 Customer, a company that focuses on outsourcing, developed a company that managed email (before companies routinely used email communication). He ran into a lot of resistance when marketing the idea to business owners. However, companies use email routinely today, which makes Kannan a revolutionary leader (although the idea doesn’t provide a competitive edge any longer). Kannan also launched a call center in India and received a lot of push back. The call center currently has over 7,000 employees and is a huge success.
Some business leaders aren’t confident there are many new business ideas in the marketplace. They believe that most leaders are taking existing ideas and tweaking them to improve success. Business ideas often go through cycles. What’s successful today may be obsolete several years down the road and then make a come back in 20-years.
Recognizing Good Management Ideas
Even the brightest leaders get confused about drivers and results. Management should invest time ensuring that data is independent and reliable. When testing the success of an idea, make sure the independent variables are truly independent and aren’t influenced by outside factors. If you don’t follow this rule, companies don’t have an accurate picture of what is driving the results.
For example, Kannan was asked by a large client to develop two new customer service measures. Customer service representatives were now required to end the call by asking if there’s anything else needed and saying “have a nice day.” However, by measuring the impact of these changes, Kannan found the new changes didn’t make a positive impact. In fact, customers were annoyed by representatives prolonging the conversation and wanted to get off the phone quickly.
Generating Larger Pools of Ideas
When coming up with good ideas, it should be generated from a large pool of ideas. This way, management can throw out the bad ideas, and hone in on the most promising strategies. Employees developing the pool of ideas should come from a variety of business units. When everyone in the room comes from the same place, the organization may miss out on a truly great idea. Conformity in this process will only lead to short-term results. More diversity provides more opportunities for long-term results.
Another challenge in implementing good ideas is taking the ideas from concept to implementation. As management teams go through changes, ideas often get lost in the mix and don’t see the light of day. Streamlining the process for rolling out new ideas will ensure the strategies aren’t sabotaged by unnecessary roadblocks.
Rolling out revolutionary ideas can seem risky. However, having good research to support the new ideas allows leaders to make educated guesses when the outcome is risky. Taking calculated risks provides an opportunity to win market share and boost long-term results. When planning new ideas, management should think outside the “boom and bust” cycles and build capabilities that have the potential to provide a competitive advantage for years to come.
The Future of Management Practices and Thinking
Generating ideas to create long-term success will require a higher degree of attention paid to daily events. Managing daily activities more efficiently will continue to drive better performance and revenue. Management need to change practices to become more accountable for results. Companies also need to develop new ideas that will keep pace with the changing marketplace. Executives of the future will need to focus on ideas for generating better data and improving the accuracy of decisions.
Resource:
Bridget Finn. “The Life Cycle of Great Business Ideas” Booz & Co, September 2008.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.
Lifecycle of Management Ideas
When evaluating the sustainability of lifecycle management ideas, it’s important to evaluate the ideas in the context of the company. Performance is more relative than absolute. For this reason, the success of business ideas can’t be replicated in every company. If ideas can be replicated, the competitive advantage is lost.
The Role of the Business Leader
Managers with revolutionary business ideas usually have a different concept about authority and have a unique management style. These managers are dedicated to making the organization much different from when they started.
For example, P.V. Kannan, CEO and Co-Founder of 24/7 Customer, a company that focuses on outsourcing, developed a company that managed email (before companies routinely used email communication). He ran into a lot of resistance when marketing the idea to business owners. However, companies use email routinely today, which makes Kannan a revolutionary leader (although the idea doesn’t provide a competitive edge any longer). Kannan also launched a call center in India and received a lot of push back. The call center currently has over 7,000 employees and is a huge success.
Some business leaders aren’t confident there are many new business ideas in the marketplace. They believe that most leaders are taking existing ideas and tweaking them to improve success. Business ideas often go through cycles. What’s successful today may be obsolete several years down the road and then make a come back in 20-years.
Recognizing Good Management Ideas
Even the brightest leaders get confused about drivers and results. Management should invest time ensuring that data is independent and reliable. When testing the success of an idea, make sure the independent variables are truly independent and aren’t influenced by outside factors. If you don’t follow this rule, companies don’t have an accurate picture of what is driving the results.
For example, Kannan was asked by a large client to develop two new customer service measures. Customer service representatives were now required to end the call by asking if there’s anything else needed and saying “have a nice day.” However, by measuring the impact of these changes, Kannan found the new changes didn’t make a positive impact. In fact, customers were annoyed by representatives prolonging the conversation and wanted to get off the phone quickly.
Generating Larger Pools of Ideas
When coming up with good ideas, it should be generated from a large pool of ideas. This way, management can throw out the bad ideas, and hone in on the most promising strategies. Employees developing the pool of ideas should come from a variety of business units. When everyone in the room comes from the same place, the organization may miss out on a truly great idea. Conformity in this process will only lead to short-term results. More diversity provides more opportunities for long-term results.
Another challenge in implementing good ideas is taking the ideas from concept to implementation. As management teams go through changes, ideas often get lost in the mix and don’t see the light of day. Streamlining the process for rolling out new ideas will ensure the strategies aren’t sabotaged by unnecessary roadblocks.
Rolling out revolutionary ideas can seem risky. However, having good research to support the new ideas allows leaders to make educated guesses when the outcome is risky. Taking calculated risks provides an opportunity to win market share and boost long-term results. When planning new ideas, management should think outside the “boom and bust” cycles and build capabilities that have the potential to provide a competitive advantage for years to come.
The Future of Management Practices and Thinking
Generating ideas to create long-term success will require a higher degree of attention paid to daily events. Managing daily activities more efficiently will continue to drive better performance and revenue. Management need to change practices to become more accountable for results. Companies also need to develop new ideas that will keep pace with the changing marketplace. Executives of the future will need to focus on ideas for generating better data and improving the accuracy of decisions.
Resource:
Bridget Finn. “The Life Cycle of Great Business Ideas” Booz & Co, September 2008.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.
Creating Messages that Stick
Communicating complicated messages to fragmented audiences isn’t an easy task. According to the article “Crafting a Message that Sticks: An interview with Chip Heath”, understanding how to create memorable messages allows the audience to visualize the end result which accomplishes long-term success. Chip Heath, a professor at the Stanford Graduate School of Business, has extensively studied why some communication strategies thrive while others fail.
Inspiring Employees
Some leaders are able to create messages that inspire thousands of employees, while other leaders struggle to make an impact. Often times, employees hear a presentation but aren’t inspired to make changes in their daily routines. Leaders may invest weeks or even months preparing these presentations without any significant results – because the message wasn’t “sticky” enough. Managers who change their communication approach can invoke that light bulb moment in audience members which inspires the desired action.
For example, the McKinsey Review discusses how John F. Kennedy proposed to send a man to the moon in 1961. This concept motivated thousands of people across the private and public sector. The idea stuck because it was surprising, bold and people could picture the outcome.
Prioritizing Messages
When creating a successful message, it’s important to understand that every message isn’t worth laboring over. For instance, the status update of your organization is important but doesn’t require a lot of work. Messages that impact the vision and future of your company, however, require an investment that will leave employees with a message that isn’t forgotten weeks and even months later.
Creating a Successful Message
Leaders may become so enthusiastic about their message that they present too much information to employees. When creating a message that sticks, Heath recommends keeping it simple. He doesn’t recommend dumbing down the message, but rather identifying the core issues and presenting these in a simplified way. This helps employees to stay focused and understand simple concepts instead of being bombarded with too much information.
Heath explains the result of creating sticky messages is employees who understand the actions needed to make an impact. Employees will come up with innovative strategies to accomplish the task at hand because they will have a clear understanding of the desired outcome. One example would be a company who is communicating a message of “maximizing shareholder value. The company needs to create a message that will stick with employees during their daily tasks.
Avoiding the “Knowledge Curse”
According to the McKinsey Review, when a leader doesn’t have success with communication, he may be suffering from “the curse of knowledge.” Psychologists have found when people know a lot of information about a concept, it’s very difficult to imagine not knowing anything. Consider an executive who has been working for a company for 30 years. He has come to understand what “maximizing shareholder value” means. This statement, however, may seem abstract to a new employee with little company experience. Making the concept simple and creating a visual of the outcome will help employees relate the message to daily tasks.
Creating Examples
An idea or concept sticks better when the leader paints a picture of the end result. A good story makes the presentation more portable. This allows the leader to adapt the presentation to a variety of audiences such as employees and board members. Since each audience has a different agenda, a good story will allow the leader to quickly customize the presentation without making as many changes.
Fine Tuning the Presentation
If you want to make your message stick, you need to spend more time making the presentation more concrete. Stay away from vague or abstract concepts and convert those ideas into strong statements and examples. Instead of saying you want to offer “exceptional customer value”, the leader might discuss a concrete example such as how customers get free gift wrapping with every purchase. This makes the statement less abstract and allows the audience to visualize the desired outcome.
When a leader finalizes a presentation, he should ask himself a few questions about the message. Test the message to make sure it isn’t too complex and check if you included enough stories. The leader should also make sure the message carries creditability and emotional impact. This will make it more memorable. Once these changes have been made, the message should be stronger and have more “sticking power.”
The Value of Employee Focus Groups
For messages that are extremely important, consider holding an employee focus group. This group should include employees from across the organization to provide honest feedback. Getting this feedback before rolling out the message to the entire organization will make your message even better.
Resource:
Lenny T. Mendonca and Matt Miller. “Crafting a Message that Sticks: An Interview with Chip Heath.” The McKinsey Quarterly, November 2007.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.
Inspiring Employees
Some leaders are able to create messages that inspire thousands of employees, while other leaders struggle to make an impact. Often times, employees hear a presentation but aren’t inspired to make changes in their daily routines. Leaders may invest weeks or even months preparing these presentations without any significant results – because the message wasn’t “sticky” enough. Managers who change their communication approach can invoke that light bulb moment in audience members which inspires the desired action.
For example, the McKinsey Review discusses how John F. Kennedy proposed to send a man to the moon in 1961. This concept motivated thousands of people across the private and public sector. The idea stuck because it was surprising, bold and people could picture the outcome.
Prioritizing Messages
When creating a successful message, it’s important to understand that every message isn’t worth laboring over. For instance, the status update of your organization is important but doesn’t require a lot of work. Messages that impact the vision and future of your company, however, require an investment that will leave employees with a message that isn’t forgotten weeks and even months later.
Creating a Successful Message
Leaders may become so enthusiastic about their message that they present too much information to employees. When creating a message that sticks, Heath recommends keeping it simple. He doesn’t recommend dumbing down the message, but rather identifying the core issues and presenting these in a simplified way. This helps employees to stay focused and understand simple concepts instead of being bombarded with too much information.
Heath explains the result of creating sticky messages is employees who understand the actions needed to make an impact. Employees will come up with innovative strategies to accomplish the task at hand because they will have a clear understanding of the desired outcome. One example would be a company who is communicating a message of “maximizing shareholder value. The company needs to create a message that will stick with employees during their daily tasks.
Avoiding the “Knowledge Curse”
According to the McKinsey Review, when a leader doesn’t have success with communication, he may be suffering from “the curse of knowledge.” Psychologists have found when people know a lot of information about a concept, it’s very difficult to imagine not knowing anything. Consider an executive who has been working for a company for 30 years. He has come to understand what “maximizing shareholder value” means. This statement, however, may seem abstract to a new employee with little company experience. Making the concept simple and creating a visual of the outcome will help employees relate the message to daily tasks.
Creating Examples
An idea or concept sticks better when the leader paints a picture of the end result. A good story makes the presentation more portable. This allows the leader to adapt the presentation to a variety of audiences such as employees and board members. Since each audience has a different agenda, a good story will allow the leader to quickly customize the presentation without making as many changes.
Fine Tuning the Presentation
If you want to make your message stick, you need to spend more time making the presentation more concrete. Stay away from vague or abstract concepts and convert those ideas into strong statements and examples. Instead of saying you want to offer “exceptional customer value”, the leader might discuss a concrete example such as how customers get free gift wrapping with every purchase. This makes the statement less abstract and allows the audience to visualize the desired outcome.
When a leader finalizes a presentation, he should ask himself a few questions about the message. Test the message to make sure it isn’t too complex and check if you included enough stories. The leader should also make sure the message carries creditability and emotional impact. This will make it more memorable. Once these changes have been made, the message should be stronger and have more “sticking power.”
The Value of Employee Focus Groups
For messages that are extremely important, consider holding an employee focus group. This group should include employees from across the organization to provide honest feedback. Getting this feedback before rolling out the message to the entire organization will make your message even better.
Resource:
Lenny T. Mendonca and Matt Miller. “Crafting a Message that Sticks: An Interview with Chip Heath.” The McKinsey Quarterly, November 2007.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.
Wednesday, November 11, 2009
Fostering Career Leadership
People with the right set of skills, background and ambition have more career opportunities than ever. However, with so many opportunities comes the responsibility of taking a leadership role in your career. Understanding important factors such as strengths, weaknesses and values can open up more doors and accelerate employee achievements.
Perfecting Raw Talent
Although most people think they understand their own strength, they are often wrong. Discovering strengths helps decode where you “fit” within an organization. The best way to understand strengths is to track the decisions you make and determine the results several months down the line. You might discover that you have a natural ability to negotiate important deals or a talent for building rapport with key decision makers.
This technique isn’t new, according to the Harvard Business Review. It was developed over 150 years ago by a German theologian. The result of this practice is a deeper understanding of natural abilities.
As an employee begins to understand their own strengths, areas of weakness will become apparent. It might be tempting to try and “fix” these areas. People should however focus their energy on improving strengths. Perfecting raw talent will take employee skills to new levels, providing companies with better long-term results.
Taking a Realistic Look at Performance
Employee development should consider a variety of learning styles. An employee must also understand how they learn. Programs that are tailored to a single type of learning won’t be successful for everyone. For example, some people learn by taking notes. If they don’t write something down, the concept doesn’t stick. Other professionals learn by fleshing out concepts with colleagues. When an employee understands their learning style, they can get the most out of development opportunities.
Employees should also understand a few characteristics about their performance style to better find their “place” in the professional workforce. Some people work best as subordinates while others are natural leaders. For example, forcing a person who is a loner into a heavy team environment won’t be a natural fit and may even hinder performance for the entire team.
Getting a Value Fit
Employees who are most effective are an organizational fit with the company’s values. People should evaluate a company’s ethics and ask themselves “Is the company’s ethics a good fit with my values?” For example, the Harvard Business Review explains that after a merger an employee was promoted to become a human resources director. The director was responsible for selecting managers and executives in the company.
The employee strongly believed that promotions should come from within the company’s talent pool. The new company, however, believed that high level positions should be recruited from outside of the organization. After several years of frustration, the human resources professional become frustrated and quit. The employee would have been much happier if she selected a company with shared values.
Another example of a “value mismatch” is an executive’s disagreement on short-term and long-term goals. Although most financial experts believe these goals can (and should) run concurrently, at times they might conflict. With some companies, long-term goals trump short term results; however, other companies have the opposite strategy. This is a fundamental philosophy that employees should understand before signing on.
Finding the Right Place
Most people don’t know where they fit career wise right off the bat. People that are highly gifted don’t usually find where they belong until they’re well into their twenties. Employees can narrow down career paths by thinking about what isn’t a good fit for their skills. For example, a mathematician may decide that she isn’t interested in managing people. Employees who understand their skills are able to say “no” when offered positions that aren’t a good fit.
Piggybacking on Co-Workers’ Talents
The majority of professionals work with co-workers on some level. When working with a team, employees need to understand their teammate’s strengths and weaknesses. Employees can draw from co-worker’s strengths, making the entire team more productive. This is also true when working with a new manager. Being intuitive about their strengths and weaknesses will help you understand how they like to manage business, anticipate areas where you can help, and build better strategies.
Creating a Challenge
Often times, after two or three decades of working, professionals get bored. Finding new ways to use strengths can revitalize your ambition. Sometimes the change is as simple as working in the same capacity, but at a different industry. While other times, a professional may apply his strengths to an entirely new career. As long as you’re focusing on strengthening and growing your core talents, a successful career will follow. Talents are mobile and being the driving force in your own career will prevent you from veering off course.
Resource:
Peter F. Drucker. “Managing Oneself.” The Harvard Business Review, January 2005.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 770.399.9512 or click here to email Mark.
Perfecting Raw Talent
Although most people think they understand their own strength, they are often wrong. Discovering strengths helps decode where you “fit” within an organization. The best way to understand strengths is to track the decisions you make and determine the results several months down the line. You might discover that you have a natural ability to negotiate important deals or a talent for building rapport with key decision makers.
This technique isn’t new, according to the Harvard Business Review. It was developed over 150 years ago by a German theologian. The result of this practice is a deeper understanding of natural abilities.
As an employee begins to understand their own strengths, areas of weakness will become apparent. It might be tempting to try and “fix” these areas. People should however focus their energy on improving strengths. Perfecting raw talent will take employee skills to new levels, providing companies with better long-term results.
Taking a Realistic Look at Performance
Employee development should consider a variety of learning styles. An employee must also understand how they learn. Programs that are tailored to a single type of learning won’t be successful for everyone. For example, some people learn by taking notes. If they don’t write something down, the concept doesn’t stick. Other professionals learn by fleshing out concepts with colleagues. When an employee understands their learning style, they can get the most out of development opportunities.
Employees should also understand a few characteristics about their performance style to better find their “place” in the professional workforce. Some people work best as subordinates while others are natural leaders. For example, forcing a person who is a loner into a heavy team environment won’t be a natural fit and may even hinder performance for the entire team.
Getting a Value Fit
Employees who are most effective are an organizational fit with the company’s values. People should evaluate a company’s ethics and ask themselves “Is the company’s ethics a good fit with my values?” For example, the Harvard Business Review explains that after a merger an employee was promoted to become a human resources director. The director was responsible for selecting managers and executives in the company.
The employee strongly believed that promotions should come from within the company’s talent pool. The new company, however, believed that high level positions should be recruited from outside of the organization. After several years of frustration, the human resources professional become frustrated and quit. The employee would have been much happier if she selected a company with shared values.
Another example of a “value mismatch” is an executive’s disagreement on short-term and long-term goals. Although most financial experts believe these goals can (and should) run concurrently, at times they might conflict. With some companies, long-term goals trump short term results; however, other companies have the opposite strategy. This is a fundamental philosophy that employees should understand before signing on.
Finding the Right Place
Most people don’t know where they fit career wise right off the bat. People that are highly gifted don’t usually find where they belong until they’re well into their twenties. Employees can narrow down career paths by thinking about what isn’t a good fit for their skills. For example, a mathematician may decide that she isn’t interested in managing people. Employees who understand their skills are able to say “no” when offered positions that aren’t a good fit.
Piggybacking on Co-Workers’ Talents
The majority of professionals work with co-workers on some level. When working with a team, employees need to understand their teammate’s strengths and weaknesses. Employees can draw from co-worker’s strengths, making the entire team more productive. This is also true when working with a new manager. Being intuitive about their strengths and weaknesses will help you understand how they like to manage business, anticipate areas where you can help, and build better strategies.
Creating a Challenge
Often times, after two or three decades of working, professionals get bored. Finding new ways to use strengths can revitalize your ambition. Sometimes the change is as simple as working in the same capacity, but at a different industry. While other times, a professional may apply his strengths to an entirely new career. As long as you’re focusing on strengthening and growing your core talents, a successful career will follow. Talents are mobile and being the driving force in your own career will prevent you from veering off course.
Resource:
Peter F. Drucker. “Managing Oneself.” The Harvard Business Review, January 2005.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 770.399.9512 or click here to email Mark.
What Makes a Leader?
Bright, innovative and persuasive leaders have the special talent of winning over employees and achieving unprecedented results. Being an effective leader, however, isn’t easy for everyone. Daniel Coleman first discussed the concept of emotional intelligence in the 1998 Harvard Business Review Article “What Makes an Effective Leader?” He studied 200 large companies and found that effective leaders didn’t just have toughness, vision and motivation – they also have a high level of “emotional intelligence.”
Even if an executive is highly trained and has bright ideas, they won’t make a good leader if they don’t have emotional intelligence, according to Coleman. Fortunately, companies can learn to identify these traits and help executives develop the skills needed to support emotional intelligence.
Identifying Emotional Intelligence
When searching for senior managers and executives, a list of skills such as strategic vision and ability to take initiative are tested. During these studies Coleman found that emotional intelligence is twice as important as the other factors used for identifying future leaders. It was also determined the higher the employee was on the organizational chart, the larger role emotional intelligence played in success. For example, David McClelland, a researcher of organizational behavior, found senior managers with emotional intelligence outperformed peers by 20 percent.
The Five Components of Emotional Intelligence
There are five components of emotional intelligence including: self awareness, self-regulation, motivation, empathy and social skills. Here’s a quick breakdown of each component.
Self-Awareness: People who are self aware have a high level of confidence, sense of humor about themselves and a realistic handle on their skills. They also have the ability to understand people’s emotions and moods and their affect on other people. A person with a high degree of self-awareness will be able to turn down a lucrative job offer because it doesn’t mesh with his professional goals and values. Having a high level of self-awareness allows individuals to be more focused on their career path and avoid becoming bored and uninspired in their work.
Self-Regulation: Professionals with this skill are generally trustworthy and have a high level of integrity. They’re also open to organizational changes and have the ability to adapt well. Think of self-regulation as the inner conversation in your head. For example, Coleman discusses an executive that is angry at his team for poor performance. A manager without self-regulation may pound his hands on the table and express his frustration. An executive with a keen sense of self-regulation, however, will explain his disappointment and move on to more productive conversations about why the incident occurred.
Motivation: People with this quality are highly optimistic, even when a company is facing difficult times. Professional motivation stems from reasons deeper then compensation and status. They’re also highly energetic and persistent in their work.
When looking for people with this quality, look for executives with a track record of seeking new challenges, overcoming obstacles and a sense of pride about their work. These people are constantly looking for ways to be innovative and improve performance.
Empathy: Leaders with a high level of emotional intelligence have the ability to empathize with employees, leading to better rates of employee retention. They are able to anticipate people’s emotional reactions and diffuse situations. A manager who possesses empathy considers employee feelings when making business decisions. It doesn’t mean that “feelings” are the only factor, but simply a consideration.
Social Skills: The final skill of people with emotional intelligence is a high degree of social skills. Having these skills allows people to be more persuasive and build highly effective teams. They’re also able to build effective networks and successfully create rapport with business associates.
For example, consider an executive with a high level of social skills. He is able to be friendly with business associates while persuading them towards the desired outcome.
Training for Emotional Intelligence
Since emotional intelligence is a precursor to leadership success, many people wonder if you can “teach emotional intelligence.” Emotional intelligence resides in the brain’s limbic system. These neurotransmitters are responsible for motivation, drive and impulses. Most training programs cater to the“neocortex” of the brain which focuses on analytical abilities.
Emotional intelligence can be taught by revamping training techniques. When conducting this type of training, focus on breaking behavioral habits that work against emotional intelligence. Take for example, a sales woman who doesn’t listen well and interrupts business associates. When teaching her emotional intelligence, feedback should be given when the behavior is occurring so she can reshape her responses. An executive who doesn’t have a high degree of empathy may be feared by subordinates. Practicing situations and receiving feedback can build a higher level of empathy and boost management ability.
When hiring executives, understanding their level of emotional intelligence can enhance your company’s performance. Developing these skills in existing employees can be beneficial as well. However, building emotional intelligence is only possible if employees have a strong desire to change.
Resource:
Daniel Coleman. “What Makes a Leader?” Harvard Business Review, January 2004.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 770.399.9512 or click here to email Mark.
Even if an executive is highly trained and has bright ideas, they won’t make a good leader if they don’t have emotional intelligence, according to Coleman. Fortunately, companies can learn to identify these traits and help executives develop the skills needed to support emotional intelligence.
Identifying Emotional Intelligence
When searching for senior managers and executives, a list of skills such as strategic vision and ability to take initiative are tested. During these studies Coleman found that emotional intelligence is twice as important as the other factors used for identifying future leaders. It was also determined the higher the employee was on the organizational chart, the larger role emotional intelligence played in success. For example, David McClelland, a researcher of organizational behavior, found senior managers with emotional intelligence outperformed peers by 20 percent.
The Five Components of Emotional Intelligence
There are five components of emotional intelligence including: self awareness, self-regulation, motivation, empathy and social skills. Here’s a quick breakdown of each component.
Self-Awareness: People who are self aware have a high level of confidence, sense of humor about themselves and a realistic handle on their skills. They also have the ability to understand people’s emotions and moods and their affect on other people. A person with a high degree of self-awareness will be able to turn down a lucrative job offer because it doesn’t mesh with his professional goals and values. Having a high level of self-awareness allows individuals to be more focused on their career path and avoid becoming bored and uninspired in their work.
Self-Regulation: Professionals with this skill are generally trustworthy and have a high level of integrity. They’re also open to organizational changes and have the ability to adapt well. Think of self-regulation as the inner conversation in your head. For example, Coleman discusses an executive that is angry at his team for poor performance. A manager without self-regulation may pound his hands on the table and express his frustration. An executive with a keen sense of self-regulation, however, will explain his disappointment and move on to more productive conversations about why the incident occurred.
Motivation: People with this quality are highly optimistic, even when a company is facing difficult times. Professional motivation stems from reasons deeper then compensation and status. They’re also highly energetic and persistent in their work.
When looking for people with this quality, look for executives with a track record of seeking new challenges, overcoming obstacles and a sense of pride about their work. These people are constantly looking for ways to be innovative and improve performance.
Empathy: Leaders with a high level of emotional intelligence have the ability to empathize with employees, leading to better rates of employee retention. They are able to anticipate people’s emotional reactions and diffuse situations. A manager who possesses empathy considers employee feelings when making business decisions. It doesn’t mean that “feelings” are the only factor, but simply a consideration.
Social Skills: The final skill of people with emotional intelligence is a high degree of social skills. Having these skills allows people to be more persuasive and build highly effective teams. They’re also able to build effective networks and successfully create rapport with business associates.
For example, consider an executive with a high level of social skills. He is able to be friendly with business associates while persuading them towards the desired outcome.
Training for Emotional Intelligence
Since emotional intelligence is a precursor to leadership success, many people wonder if you can “teach emotional intelligence.” Emotional intelligence resides in the brain’s limbic system. These neurotransmitters are responsible for motivation, drive and impulses. Most training programs cater to the“neocortex” of the brain which focuses on analytical abilities.
Emotional intelligence can be taught by revamping training techniques. When conducting this type of training, focus on breaking behavioral habits that work against emotional intelligence. Take for example, a sales woman who doesn’t listen well and interrupts business associates. When teaching her emotional intelligence, feedback should be given when the behavior is occurring so she can reshape her responses. An executive who doesn’t have a high degree of empathy may be feared by subordinates. Practicing situations and receiving feedback can build a higher level of empathy and boost management ability.
When hiring executives, understanding their level of emotional intelligence can enhance your company’s performance. Developing these skills in existing employees can be beneficial as well. However, building emotional intelligence is only possible if employees have a strong desire to change.
Resource:
Daniel Coleman. “What Makes a Leader?” Harvard Business Review, January 2004.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 770.399.9512 or click here to email Mark.
Monday, November 9, 2009
Leadership Challenges: Tackling Organizational Change
No business can survive the long term without change. Human nature, however, is resistant to change. The ultimate test of a good leader may well be the ability to guide change. Whether you’re a CEO dealing with corporate financial issues or a senior manager with new innovative ideas, implementing change isn’t an easy task. But John P. Kotter, retired Harvard Business School Professor and author of Harvard Business Review article “Leading Change: Why Transformation Efforts Fail,” points out that taking the right actions during this time is essential. Creating urgency, recruiting a coalition and avoiding organizational pitfalls can be the difference between either the failure or success of an organization.
Creating Organizational Urgency
In order for change to be effective, you must first create a sense of urgency. Having cooperation at all levels of an organization will provide the momentum needed to achieve the desired result. According to Kotter, over 50% of companies fail while implementing change from a lack of urgency.
A true leader must work quickly to solicit support within the organization. By examining market and competitive realities for potential crisis and untapped opportunities, leaders will be able to back up the need for change. Presenting facts like the anticipated revenue loss if the changes aren’t made or the impact of new competition in the market can help persuade others to get on board. Sometimes it may be advantageous to have an outsider such as an analyst, consultant or customer deliver the information. Whether delivered internally or by an outsider, the message that needs to be delivered is that the status quo is far more dangerous than the unknown. This message will ramp up urgency and create a more immediate requirement for change.
Forming a Team of Advocates
Once managers understand why change is needed, they must communicate the message within the organization and get others on board. Creating a “coalition” will put more force behind your efforts and provide the momentum needed to move the changes forward.
The coalition should be a group with a shared commitment and enough power to lead the transformation. The core of the group is typically made up of senior management members. Because reform generally demands activity outside of protocol, a coalition can also include board members, customers or even union leaders. The coalition should be made up of people with strong expertise, experience, reputations and relationships. The members will work together as a team to evaluate the company’s challenges and opportunities. Companies without this powerful coalition are at risk of losing momentum and getting stuck.
Once the coalition is formed, members should work closely to create a clear vision to direct the change. It will need to be more than numbers and should describe the goals and outcomes of the proposed change. The vision needs to be easy to understand and appealing, so when communicated to others, they will buy into it. This vision will eventually evolve into the strategy for the implementation of change.
Ramping up Communication
Effective communication is vital to transformation. Communication isn’t as effective when only coming from a few individuals. The corporation needs an army of people delivering the message through all existing communication channels such as emails, speeches and employee newsletters. It is also important to remember that communication comes in both words and deeds. If members of the coalition “walk the talk” and embody the new corporate culture, the message will be more credible and powerful. This will provide employees the confidence needed to get on board and devote their energy to making the change possible.
Getting Rid of Obstacles
Employees will become frustrated if the new changes have obstacles. Managers must work hard to remove any obstacles and help employees maneuver around unanticipated problems. Otherwise employees may become irritated and resistant to the changes.
Be careful of managers who don’t support the vision and become roadblocks for employees. This can create a sub-culture that is working against the changes. It can also create a “toxic” environment by building resentment between employees and upper management.
Taking Small Steps
Transformation takes time, but people want to see evidence that the changes are producing results. If this evidence isn’t presented within 12 to 24 months, people may jump ship and start to work against the required changes. Remind managers and employees about positive results that are happening because of their hard work. This should help keep the momentum in place.
While it may be tempting to celebrate at the first sign of improvement, be careful not to declare victory too soon. Doing this may actually hinder your company’s momentum and slow down progress. People that have been fighting for change will back down and lose their sense of urgency. Keeping the sense of urgency high will help your company continue to move forward.
Even for the best leaders, change is difficult to accomplish. It can’t be achieved by one person working alone. Assembling a team and keeping your momentum strong will help win over more employees and provide the energy needed to successfully implement change. As employees witness the success of the changes, even opposing employees will begin to join your team and work towards moving the company to the next stage of success. Further, your company will be able to handle shifts in the market, competitors and technology while your rivals struggle to adapt to change.
Resource:
John P. Kotter. “Leading Change: Why Transformation Efforts Fail.” The Harvard Business Review, January 2007.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.
Creating Organizational Urgency
In order for change to be effective, you must first create a sense of urgency. Having cooperation at all levels of an organization will provide the momentum needed to achieve the desired result. According to Kotter, over 50% of companies fail while implementing change from a lack of urgency.
A true leader must work quickly to solicit support within the organization. By examining market and competitive realities for potential crisis and untapped opportunities, leaders will be able to back up the need for change. Presenting facts like the anticipated revenue loss if the changes aren’t made or the impact of new competition in the market can help persuade others to get on board. Sometimes it may be advantageous to have an outsider such as an analyst, consultant or customer deliver the information. Whether delivered internally or by an outsider, the message that needs to be delivered is that the status quo is far more dangerous than the unknown. This message will ramp up urgency and create a more immediate requirement for change.
Forming a Team of Advocates
Once managers understand why change is needed, they must communicate the message within the organization and get others on board. Creating a “coalition” will put more force behind your efforts and provide the momentum needed to move the changes forward.
The coalition should be a group with a shared commitment and enough power to lead the transformation. The core of the group is typically made up of senior management members. Because reform generally demands activity outside of protocol, a coalition can also include board members, customers or even union leaders. The coalition should be made up of people with strong expertise, experience, reputations and relationships. The members will work together as a team to evaluate the company’s challenges and opportunities. Companies without this powerful coalition are at risk of losing momentum and getting stuck.
Once the coalition is formed, members should work closely to create a clear vision to direct the change. It will need to be more than numbers and should describe the goals and outcomes of the proposed change. The vision needs to be easy to understand and appealing, so when communicated to others, they will buy into it. This vision will eventually evolve into the strategy for the implementation of change.
Ramping up Communication
Effective communication is vital to transformation. Communication isn’t as effective when only coming from a few individuals. The corporation needs an army of people delivering the message through all existing communication channels such as emails, speeches and employee newsletters. It is also important to remember that communication comes in both words and deeds. If members of the coalition “walk the talk” and embody the new corporate culture, the message will be more credible and powerful. This will provide employees the confidence needed to get on board and devote their energy to making the change possible.
Getting Rid of Obstacles
Employees will become frustrated if the new changes have obstacles. Managers must work hard to remove any obstacles and help employees maneuver around unanticipated problems. Otherwise employees may become irritated and resistant to the changes.
Be careful of managers who don’t support the vision and become roadblocks for employees. This can create a sub-culture that is working against the changes. It can also create a “toxic” environment by building resentment between employees and upper management.
Taking Small Steps
Transformation takes time, but people want to see evidence that the changes are producing results. If this evidence isn’t presented within 12 to 24 months, people may jump ship and start to work against the required changes. Remind managers and employees about positive results that are happening because of their hard work. This should help keep the momentum in place.
While it may be tempting to celebrate at the first sign of improvement, be careful not to declare victory too soon. Doing this may actually hinder your company’s momentum and slow down progress. People that have been fighting for change will back down and lose their sense of urgency. Keeping the sense of urgency high will help your company continue to move forward.
Even for the best leaders, change is difficult to accomplish. It can’t be achieved by one person working alone. Assembling a team and keeping your momentum strong will help win over more employees and provide the energy needed to successfully implement change. As employees witness the success of the changes, even opposing employees will begin to join your team and work towards moving the company to the next stage of success. Further, your company will be able to handle shifts in the market, competitors and technology while your rivals struggle to adapt to change.
Resource:
John P. Kotter. “Leading Change: Why Transformation Efforts Fail.” The Harvard Business Review, January 2007.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.
Monday, September 14, 2009
Increasing Efficiently: Is Your Company’s Framework Working Against You?
Even if a company hires the most talented individuals, ineffective processes and procedures will hinder a company’s prosperity. In addition, having a rigid structure that doesn’t respond well to change can limit a company’s ability to grow. Mastering a few strategies for managing disruptions in processes and procedures can give your company a competitive edge.
Finding Organizational Fit In Employees
A company can increase their success by devoting resources to finding the right person for the right job. Even if the person is highly capable with an impressive background, if they aren’t a good match for the organization, the effects can be felt across the entire company. Work closely with managers to develop a list of desirable employee characteristics. Also, potential employees should have the potential to grow within the organization.
Understanding Your Company’s Strengths
According to the Harvard Business Review article “Meeting the Challenge of Disruptive Change,” there are three critical factors that influence success:
1. Resources. When evaluating resources, don’t just look at technology and equipment. Expand your thinking to your company’s branding, current customer base and success with vendors.
2. Processes. When considering your processes, evaluate your company’s current communication processes and framework to determine if it’s formal or less formal. Determine if the current style is still a good fit for your company and if it can accommodate new products and services – or will it bog down the process, and hamper efficiency? Once you’ve identified areas that need improvement, you can create an action plan for change.
3. Values. The last factor that helps a company understand their strengths is analyzing corporate values. Values aren’t just the core values posted on your company’s website. They extend further than this. Values include how employees operate during their daily tasks, how they handle customers and prioritize daily tasks. As a company grows, it becomes increasingly important that employees are trained to operate in a way that fits the company’s values and strategic vision. Organizational values should not just be listed on paper. They should become a part of the company’s culture.
Maximizing Your Strengths
Once your company has fine tuned the resources, processes and values, it is time to focus on identifying opportunities for innovation within your company. For example, in the Harvard Business Review article “Meeting the Challenge of Disruptive Change,” Merrill Lynch introduced the Cash Management account. This development allowed clients to use checks to tap into their equity accounts. Merrill Lynch marketed this feature to customers and the response was positive. Finding ways to provide customers with new innovations, while capitalizing on your company’s strengths and values, will allow you to create more opportunities for revenue. Also, make sure that your company has a framework that allows frequent innovations.
Fostering Innovation
Although the majority of innovation is positive for a company, at times, it can also be disruptive. For example, new innovations that go unnoticed by customers create a disruption. Many companies do not have a process for dealing with these disruptions. Creating strategic plans to deal with these issues will help your company handle these challenges better.
Creating Successful Teams
When refining your company’s processes and procedures, consider forming a team dedicated to the new challenge. The size of the team will depend how well the innovation fits within the organization’s current framework. For example, if the new innovation doesn’t fit well within your framework, consider hiring a larger team to manage the task closely. These individuals should be recruited from other business units across your company. However, if the innovation is a good fit within the current structure, create a very small team within your company’s current employee base. Each player on the team should have a specific function to move the idea from concept to market.
Enhancing Capabilities Through Acquisition Activity
When looking to purchase capabilities, companies often acquire a new company. However, during this process, senior managers should evaluate the company processes and values. For example, according to the Harvard Business Review article “Meeting the Challenge of Disruptive Change,” if an organization has been purchased solely for its process and values, it shouldn’t be integrated into the parent company. This will jeopardize the new company’s processes and values (which is why you purchased the company in the first place). Instead, allow the business to function as a stand alone company.
Taking the time to evaluate your company’s processes can get rid of roadblocks and frustration, allowing your company more opportunities to grow and prosper. Making changes to ensure your company has the right processes and procedures in place will support innovation and your company’s core values.
Resource:
Clayton M Christensen and Michael Overdorf. “Meeting the Challenge of Disruptive Change.” Harvard Business Review, March-April 2000.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy,” “Selling Your Business the Easy Way,” “Enhancing Your Business Value…The Climb to the Top,” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark. .
Finding Organizational Fit In Employees
A company can increase their success by devoting resources to finding the right person for the right job. Even if the person is highly capable with an impressive background, if they aren’t a good match for the organization, the effects can be felt across the entire company. Work closely with managers to develop a list of desirable employee characteristics. Also, potential employees should have the potential to grow within the organization.
Understanding Your Company’s Strengths
According to the Harvard Business Review article “Meeting the Challenge of Disruptive Change,” there are three critical factors that influence success:
1. Resources. When evaluating resources, don’t just look at technology and equipment. Expand your thinking to your company’s branding, current customer base and success with vendors.
2. Processes. When considering your processes, evaluate your company’s current communication processes and framework to determine if it’s formal or less formal. Determine if the current style is still a good fit for your company and if it can accommodate new products and services – or will it bog down the process, and hamper efficiency? Once you’ve identified areas that need improvement, you can create an action plan for change.
3. Values. The last factor that helps a company understand their strengths is analyzing corporate values. Values aren’t just the core values posted on your company’s website. They extend further than this. Values include how employees operate during their daily tasks, how they handle customers and prioritize daily tasks. As a company grows, it becomes increasingly important that employees are trained to operate in a way that fits the company’s values and strategic vision. Organizational values should not just be listed on paper. They should become a part of the company’s culture.
Maximizing Your Strengths
Once your company has fine tuned the resources, processes and values, it is time to focus on identifying opportunities for innovation within your company. For example, in the Harvard Business Review article “Meeting the Challenge of Disruptive Change,” Merrill Lynch introduced the Cash Management account. This development allowed clients to use checks to tap into their equity accounts. Merrill Lynch marketed this feature to customers and the response was positive. Finding ways to provide customers with new innovations, while capitalizing on your company’s strengths and values, will allow you to create more opportunities for revenue. Also, make sure that your company has a framework that allows frequent innovations.
Fostering Innovation
Although the majority of innovation is positive for a company, at times, it can also be disruptive. For example, new innovations that go unnoticed by customers create a disruption. Many companies do not have a process for dealing with these disruptions. Creating strategic plans to deal with these issues will help your company handle these challenges better.
Creating Successful Teams
When refining your company’s processes and procedures, consider forming a team dedicated to the new challenge. The size of the team will depend how well the innovation fits within the organization’s current framework. For example, if the new innovation doesn’t fit well within your framework, consider hiring a larger team to manage the task closely. These individuals should be recruited from other business units across your company. However, if the innovation is a good fit within the current structure, create a very small team within your company’s current employee base. Each player on the team should have a specific function to move the idea from concept to market.
Enhancing Capabilities Through Acquisition Activity
When looking to purchase capabilities, companies often acquire a new company. However, during this process, senior managers should evaluate the company processes and values. For example, according to the Harvard Business Review article “Meeting the Challenge of Disruptive Change,” if an organization has been purchased solely for its process and values, it shouldn’t be integrated into the parent company. This will jeopardize the new company’s processes and values (which is why you purchased the company in the first place). Instead, allow the business to function as a stand alone company.
Taking the time to evaluate your company’s processes can get rid of roadblocks and frustration, allowing your company more opportunities to grow and prosper. Making changes to ensure your company has the right processes and procedures in place will support innovation and your company’s core values.
Resource:
Clayton M Christensen and Michael Overdorf. “Meeting the Challenge of Disruptive Change.” Harvard Business Review, March-April 2000.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy,” “Selling Your Business the Easy Way,” “Enhancing Your Business Value…The Climb to the Top,” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark. .
Building an Innovation Portfolio: Avoid the Classic Traps
Creating innovative products and services doesn’t just allow companies to expand market share – it provides an opportunity to enter new markets and come up with new processes to enhance productivity. When tackling these projects, there are many pitfalls and roadblocks along the way. Projects that don’t have enough direction or too many constraints can face problems. But, learning common mistakes provides an opportunity to enhance innovation and achieve your goals.
The Balancing Act
In some ways, tackling innovation is like a balancing act. Many companies struggle to strike a balance between maintaining current research and development projects while adding new projects into the mix. Having a healthy mix of innovation in different life cycles will allow your company more opportunities for growth.
Broaden Innovation Strategy
When presented with a new innovation opportunity, executives typically evaluate the opportunity’s potential for high margins. Ideas with low margins may be rejected assuming that revenue opportunities are too small. However, rejecting ideas on these assumptions can limit your company’s ability to grow and expand to new markets. Instead, research all viable opportunities (even the small ones) to determine the long-term potential.
Also, don’t get caught up in chasing the next huge hit. The potential for high margins lure many companies into chasing after the next big thing. While it’s possible to come up with the next hit on the market, don’t forget to diversify. This way, if your “huge idea” doesn’t hit the big time, your innovation portfolio is diverse enough to provide other avenues for revenue. Find a mix of high and low risk opportunities to diverse your company’s innovation portfolio.
For example, companies looking to expand innovation should have a few “potential high revenue” opportunities at the top (yielding high margins and a premium pricing point), several promising midrange ideas and a larger base of ideas that are in the early stages of planning but still have promise. This pyramid approach has achieved high results for many companies.
Make Processes More Flexible
Stringent rules and regulations don’t create an ideal environment for innovation. Although new projects shouldn’t have free reign, there needs to be a balance between having a rigid structure and creating a system with more flexibility. According to the Harvard Review article “Innovation, The Classic Traps,” creating a reserve account for unplanned expenses resulting from innovation can help your company have more flexibility.
Break Barriers Across Departments
The task of innovation shouldn’t be limited to a handful of employees and executives. It’s important that those who are involved in daily business activities be tightly connected with innovators. For example, your business could create an innovation committee, charged with coming up with new ideas, running “real life” scenarios, and getting input from employees on the front line. This will help close the gap between the “idea generators” and those who are charged with executing and delivering the new products and services to the end users.
Look Beyond Technical Skills
When choosing the players on your innovation team, don’t just choose individuals with technical skills. They should also possess a high level of communication and interpersonal skills. Having team members who possess these skills will help break the barriers across business unit lines. For example, in the Harvard Business Review article “Innovation, The Classic Traps,” it highlights Williams-Sonoma’s e-commerce group, which choose a manager that wasn’t a technology expert, but was highly skilled in assembling a strong team of employees. With this expertise, she was able to build a team with diverse skills to generate and implement new innovative ideas that helped the company grow.
The people in charge of innovation should also be natural leaders. Although the leader doesn’t need to be an expert in the specific venture, they must be able to solicit support, partner with internal experts and execute innovation to drive success. It is important to find managers with the ability to get employees passionate about ventures. This will drive creativity, teamwork and success in your innovation projects.
Look Outside of Product Innovation
Innovation teams shouldn’t be limited to creating new products or services. In fact, they can create ideas that make distribution or marketing more efficient, increase customer value and drive down costs. Having a good mix of product, service and business operation innovation strategies will help make your innovation portfolio more diverse and positively affect your revenue.
Balancing your company’s innovation leadership, team players and mix of ideas won’t just help your company come up with better strategies – you’ll benefit from better execution as well. Companies can also learn from past mistakes and implement those lessons for future success.
Resource:
Rosabeth Moss Kanter. “Innovation, The Classic Traps.” The Harvard Business Review, November 2006.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy,” “Selling Your Business the Easy Way,” “Enhancing Your Business Value…The Climb to the Top,” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark. .
The Balancing Act
In some ways, tackling innovation is like a balancing act. Many companies struggle to strike a balance between maintaining current research and development projects while adding new projects into the mix. Having a healthy mix of innovation in different life cycles will allow your company more opportunities for growth.
Broaden Innovation Strategy
When presented with a new innovation opportunity, executives typically evaluate the opportunity’s potential for high margins. Ideas with low margins may be rejected assuming that revenue opportunities are too small. However, rejecting ideas on these assumptions can limit your company’s ability to grow and expand to new markets. Instead, research all viable opportunities (even the small ones) to determine the long-term potential.
Also, don’t get caught up in chasing the next huge hit. The potential for high margins lure many companies into chasing after the next big thing. While it’s possible to come up with the next hit on the market, don’t forget to diversify. This way, if your “huge idea” doesn’t hit the big time, your innovation portfolio is diverse enough to provide other avenues for revenue. Find a mix of high and low risk opportunities to diverse your company’s innovation portfolio.
For example, companies looking to expand innovation should have a few “potential high revenue” opportunities at the top (yielding high margins and a premium pricing point), several promising midrange ideas and a larger base of ideas that are in the early stages of planning but still have promise. This pyramid approach has achieved high results for many companies.
Make Processes More Flexible
Stringent rules and regulations don’t create an ideal environment for innovation. Although new projects shouldn’t have free reign, there needs to be a balance between having a rigid structure and creating a system with more flexibility. According to the Harvard Review article “Innovation, The Classic Traps,” creating a reserve account for unplanned expenses resulting from innovation can help your company have more flexibility.
Break Barriers Across Departments
The task of innovation shouldn’t be limited to a handful of employees and executives. It’s important that those who are involved in daily business activities be tightly connected with innovators. For example, your business could create an innovation committee, charged with coming up with new ideas, running “real life” scenarios, and getting input from employees on the front line. This will help close the gap between the “idea generators” and those who are charged with executing and delivering the new products and services to the end users.
Look Beyond Technical Skills
When choosing the players on your innovation team, don’t just choose individuals with technical skills. They should also possess a high level of communication and interpersonal skills. Having team members who possess these skills will help break the barriers across business unit lines. For example, in the Harvard Business Review article “Innovation, The Classic Traps,” it highlights Williams-Sonoma’s e-commerce group, which choose a manager that wasn’t a technology expert, but was highly skilled in assembling a strong team of employees. With this expertise, she was able to build a team with diverse skills to generate and implement new innovative ideas that helped the company grow.
The people in charge of innovation should also be natural leaders. Although the leader doesn’t need to be an expert in the specific venture, they must be able to solicit support, partner with internal experts and execute innovation to drive success. It is important to find managers with the ability to get employees passionate about ventures. This will drive creativity, teamwork and success in your innovation projects.
Look Outside of Product Innovation
Innovation teams shouldn’t be limited to creating new products or services. In fact, they can create ideas that make distribution or marketing more efficient, increase customer value and drive down costs. Having a good mix of product, service and business operation innovation strategies will help make your innovation portfolio more diverse and positively affect your revenue.
Balancing your company’s innovation leadership, team players and mix of ideas won’t just help your company come up with better strategies – you’ll benefit from better execution as well. Companies can also learn from past mistakes and implement those lessons for future success.
Resource:
Rosabeth Moss Kanter. “Innovation, The Classic Traps.” The Harvard Business Review, November 2006.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy,” “Selling Your Business the Easy Way,” “Enhancing Your Business Value…The Climb to the Top,” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark. .
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