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.
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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.
Showing posts with label Mergers and acquisitions. Show all posts
Showing posts with label Mergers and acquisitions. Show all posts
Tuesday, June 29, 2010
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.
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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.
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.
Monday, January 25, 2010
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.
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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 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. .
Friday, August 7, 2009
Marketing Myopia: Expand Your Vision and Strategy
Even if your company has a successful product with very little competition, it’s important to stay on the defense. Getting too comfortable can leave you vulnerable to competitors – or, even worse, leave you unprotected if your product becomes obsolete. This process starts by shifting from a sales based approach to a marketing based approach, allowing you to focus more heavily on the customers’ current and future needs.
Defining your Business
When defining your business, it’s important to have an open mind. For example, a car manufacturer may choose to expand their business from automobiles to transportation – looking at new ways to address customers’ needs. Having a vague or outdated definition of your business can negatively impact the future of your company and severely limit growth opportunities.
Reshaping your Focus
Companies need to think about customers in a new way. Often times, companies are focused on sales efforts which directly impact revenue. However, understanding the customers’ unique needs, and addressing them through marketing efforts, will do a better job of driving results.
Piggybacking on New Innovation
New technology that makes a company’s core products irrelevant or obsolete often feels devastating. However, this should be a welcomed opportunity for businesses, allowing them to tap into new customer needs, or even serve an untapped market segment. This can also reduce the amount of time a company spends at the drawing board coming up with new products designed to sustain and grow a company.
Watching for Signals of a Changing Industry
According to the Harvard Business Review’s article “Marketing Myopia,” there are four factors that can indicate that turbulent conditions may be ahead. Here’s a quick breakdown:
Defining your Business
When defining your business, it’s important to have an open mind. For example, a car manufacturer may choose to expand their business from automobiles to transportation – looking at new ways to address customers’ needs. Having a vague or outdated definition of your business can negatively impact the future of your company and severely limit growth opportunities.
Reshaping your Focus
Companies need to think about customers in a new way. Often times, companies are focused on sales efforts which directly impact revenue. However, understanding the customers’ unique needs, and addressing them through marketing efforts, will do a better job of driving results.
Piggybacking on New Innovation
New technology that makes a company’s core products irrelevant or obsolete often feels devastating. However, this should be a welcomed opportunity for businesses, allowing them to tap into new customer needs, or even serve an untapped market segment. This can also reduce the amount of time a company spends at the drawing board coming up with new products designed to sustain and grow a company.
Watching for Signals of a Changing Industry
According to the Harvard Business Review’s article “Marketing Myopia,” there are four factors that can indicate that turbulent conditions may be ahead. Here’s a quick breakdown:
- There isn’t any competition for your product. Once your product gains popularity, competitors will quickly swoop in to cash in on the new “needs” created by the product.
- Your product serves an affluent client base. This gives businesses a false illusion that their product is safe from the highs and lows of market conditions.
- Having too much confidence in pricing the product lower, and selling more volume. This creates a disproportionate focus on sales instead of marketing efforts. These two components need to be carefully balanced.
- Your product is reliant on scientific experimentation and improvement to continue to grow.
Focusing on Improving Efficiency
Many companies focus on improving efficiency in hopes that larger profits and growth will follow. However, this can be a mistake for companies if it results in neglecting other important areas, such as focusing on marketing efforts or improving their generic product for future growth. Striking a balance between these factors will produce the best results.
Breaking a False Sense of Security
Often times, when a company creates a product that appeals to an affluent consumer base, they feel overly confident in the success of their business. This lack of focus can open up opportunities for other competitors to create products that appeal to the customers’ needs.
Also, some companies have the misconception that their product is “indispensable.” Although you might not see an immediate substitute for your product, it’s important to not get too comfortable. New developments in the market can quickly make your core product irrelevant, which will result in a downward spiral of profits.
Evaluating Mass Production
As a product gains popularity, often times a company will ramp up production to drive down per unit cost. However, companies should be careful about managing this process. This also creates a high amount of pressure to “move” the product. This attitude can shift the focus of staff to sales, rather then marketing the product to drive sales. This process is important because selling focuses on meeting the needs of your company, while marketing addresses the needs of the consumer. And, ultimately what drives growth is the connection consumers feel with your product.
Creating an Emotional Connection with Consumers
When a consumer is purchasing a product, they need to be able to connect with the item. For example, products that consumers “have” to buy instead of “want” to buy lack emotional appeal. For this reason, it’s important to approach these products differently. For example, buying gas for your car isn’t always pleasurable, but getting more gas mileage or another added benefit can create an emotional connection. This will drive growth in sales, and create enhanced profitability.
Creating Better Marketing Campaigns
Focusing on creating more creative advertising strategies and sales promotional strategies can protect your product from competition, and help establish a unique position for new products. Often times, when exploring these strategies, companies will discover they haven’t asked basic marketing and sales questions.
Changing the way your company thinks about marketing can give your business a competitive edge in the marketplace. Also, understanding that even though your company has a strong position in the marketplace right now – it’s possible for that to change anytime. Investing resources in marketing will help protect and grow your company in the future.
Resource:
Theordore Levitt. “Marketing Myopia.” Harvard Business Review.
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.
Winning Over the Marketplace: Competing with Analytics
Maintaining and expanding your position in the current marketplace is essential for survival and growth. But many businesses are left asking the question, “What strategies can drive better success?” This is especially true if your company has a disadvantage, like higher pricing due to competition from companies that use offshore production.
But, even without the best pricing, there are ways to differentiate your products, become a market leader, and ultimately maximize your revenue. Analytics is the new “secret weapon” of choice for many companies. Having a heavy focus on analytics allows companies to make better decisions based on a high quality of data and analysis.
These tools can be used for a variety of functions, from determining pricing strategies to enhancing your company’s brand loyalty. But, before tackling your analytics strategy, it helps to have a few pointers.
Choosing your Focus
When creating a plan for analytics, it’s important to focus your efforts on areas with potential for the largest impact. Developing data and strategies around these areas pave the way for market leadership, and better results. Here are a few items to consider:
But, even without the best pricing, there are ways to differentiate your products, become a market leader, and ultimately maximize your revenue. Analytics is the new “secret weapon” of choice for many companies. Having a heavy focus on analytics allows companies to make better decisions based on a high quality of data and analysis.
These tools can be used for a variety of functions, from determining pricing strategies to enhancing your company’s brand loyalty. But, before tackling your analytics strategy, it helps to have a few pointers.
Choosing your Focus
When creating a plan for analytics, it’s important to focus your efforts on areas with potential for the largest impact. Developing data and strategies around these areas pave the way for market leadership, and better results. Here are a few items to consider:
- Research and Development: Many companies allocate large resources on research and development, which can be smart when done effectively. When managing this area, use analytics to improve the effectiveness of this process.
- Brand Loyalty: Once you’ve identified the most profitable market segment, it’s important to focus efforts on measurable retention strategies. Analytics can help you gather the information needed to accomplish your goal. This will enhance brand loyalty, and create lasting momentum for your company.
- Quality of Services or Products: Catching problems before they become widespread will help you quickly contain problems, and create solutions. Analytics can help you track this information, and create strategies for improvement.
- Supply Chain Management: Holding inventory too long is expensive and can negatively affect your bottom line. The quicker your product moves, the less holding costs, and the more revenue. Using analytics to manage this process will allow you to operate more efficiently, and have better cash flow.
Fine Tuning Pricing Strategies
An important part of analytics is determining your consumer’s threshold for pricing, and setting a pricing point accordingly. You can also expand your offerings, as discussed in The Harvard Business Review article, “Competing on Analytics.” After mastering pricing strategy, Marriott International expanded their expertise to areas like conferences, catering, and internet sales. This gave the company many opportunities to fine tune pricing, and appeal to profitable market segments.
Focusing on Retention Strategies
Most businesses know it’s more expensive to generate new customers than retaining your existing customer base. This means that developing optimized programs and targeting your loyal customers is worth the expense. Allocating resources on analytics focused on this area will yield positive results.
Shaping Revenue Strategies
In addition to implementing a retention program, companies should consider measurement tools which allow tracking for optimal revenue potential. For example, in the same article “Competing on Analytics” by the Harvard Business Review, Marriott created a revenue-management system that was designed to measure and grow revenue. Using this measurement tool allowed Marriott to grow their revenue from 83% to 91%.
High Impact Analytics Teams
When incorporating analytics into your company’s strategy, consider choosing skilled employers across all business units to join the team. For example, employees working in business units such as: marketing, operations, sales, and consumer research can maximize the impact of your team. That’s because a variety of backgrounds allows greater insight into the process and strategy behind analytics.
Role of Leadership in Analytics
Although not every CEO or senior manager has a background in statistics, having a trusted group of advisors can help them wade through information easier resulting in better decisions. These leaders should have internal consultants with expertise in this area to assist with questions. Also, when hiring employees in all departments, make sure there is a nice cross-section of employees who are skilled in analytics.
Managing and Sharing Analytics Data
The data collected during the analytics process is valuable across all sectors of your organization. For example, analytics can be used for developing pricing and promotional strategies - and for sharing with vendors and business partners to work towards future strategies and promotions.
In addition, this information can be used to tell a story about your company. Results generated from this information are valuable in your annual report, investor communications, and even marketing materials.
Balancing Analytics
Overcoming disadvantages in the marketplace isn’t easy. But having analytics on your side will enhance performance, and drive revenue. And remember that analytics should guide your decisions, but ultimately you’ll also need to trust your instincts. Using facts to direct your company’s resources, combined with your business instincts, will yield the best results.
Resource:
Author Info. “Competing on Analytics.” Harvard Business Review, January 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.
Thursday, July 2, 2009
The Balanced Score Card: Driving Better Performance
Whether your company is a market leader or brand new to the marketplace, all companies are constantly looking for fresh new ways to stay ahead of the competition. Although there are a wide variety of strategy and measurement tools, the balanced score card is a tool that ties these two components together.
This measurement tool was first introduced in the Harvard Business Journal in 1992. The balanced scorecard was designed to provide executives with a new formula for developing a company’s strategic objectives, while creating measurement tools. This tool quickly proved to be successful at motivating executives to come up with breakthroughs in critical areas, such as customer service and bringing new products to market.
While many companies have measurement tools, they are often disjointed and disconnected from financial initiatives. Some companies use the yearly budgeting tool to facilitate planning. However, this can leave gaps in planning and fail to address important points.
Implementing the Balanced Score Card
Introducing the balanced score card is a process that takes hard work from senior management and employees to drive success. Here’s a quick breakdown of the three steps needed to launch this planning tool:
1. Determine which Business Units Needs the Card
The first step in implementing a balanced scorecard is making a list of business units that will use the tool. According to the Harvard Business Review, a scorecard is appropriate for business units that have their own customers, production facilities, channels for distribution and financial performance measures. Once you’ve defined which business units will need their own scorecard, you’ll need to bring senior managers up to speed on the process.
2. Partner with Management Teams
Each senior manager should receive general information about how the balanced scorecard works and the benefits. Once the management team has reviewed the information, they will meet with the facilitator to discuss ideas and input for the process. In these meetings, senior managers will also accomplish the definition of success factors, the company’s mission and performance measures.
After the initial meeting, senior managers will meet for a second workshop to further define the scorecard goals. The attendees of this meeting will be more diverse including senior managers and high level and middle managers. At this meeting, an implementation plan will be developed.
Then, a final meeting will be held with the executive team only. In this meeting, the team will come up with a final plan for the company’s objectives and how they will be measured. During this process, senior management will also need to develop a strategy for rolling the process out to employees.
3. Implementing and Reviewing the Balanced Scorecard
Once all of the details of the balanced scorecard have been finalized, management will need to implement the scorecard. This process includes communication with employees and putting support in place for the new measurement systems. Once the information has been implemented, the scorecard will need to be reviewed quarterly to measure effectiveness and performance. In addition, the senior management team should evaluate the scorecard annually. In this meeting, they will need to determine if the measures still fit in terms of strategic planning and resource allocation.
Trying a Pilot Program
Some companies decide to start out slower when implementing the balanced scorecard. In these cases, a company can launch a pilot program in specific divisions to test the program’s effectiveness. During this process, many companies choose to focus on output measures to drive better success.
After the program has been launched, the company can evaluate the effectiveness of the program and determine if it should be integrated across the entire company.
External Reporting Issues
Many companies wonder if the balanced scorecard should be included in external reporting. The Stanford Business Review explains that the scorecard isn’t easily translated to the investment community. This tool is primarily useful for internal purposes that plan and shape the future of an organization. Also, the information used in the scorecard is sensitive and should be protected.
Getting Rid of Benchmarking
Although benchmarking is a common performance tool, companies often find this requires an investment without much return. If your company is using benchmarking, you’ll need to discontinue it when launching the balanced scorecard. Since the balanced scorecard focuses on output instead of process, it generally can’t be used in conjunction with benchmarking.
When adapting a balanced scorecard, remember to keep it simple. Companies that get carried away, adding hundreds or even thousands of performance goals, don’t get the full benefits. Instead, keep your goals to a dozen or less. The results of using this tool will be well worth the investment and will provide a solid foundation to grow and preserve your business.
Resource:Robert S. Kaplan and David P. Norton. “Putting the Balanced Scorecard to Work.” Harvard Business Review.
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.
This measurement tool was first introduced in the Harvard Business Journal in 1992. The balanced scorecard was designed to provide executives with a new formula for developing a company’s strategic objectives, while creating measurement tools. This tool quickly proved to be successful at motivating executives to come up with breakthroughs in critical areas, such as customer service and bringing new products to market.
While many companies have measurement tools, they are often disjointed and disconnected from financial initiatives. Some companies use the yearly budgeting tool to facilitate planning. However, this can leave gaps in planning and fail to address important points.
Implementing the Balanced Score Card
Introducing the balanced score card is a process that takes hard work from senior management and employees to drive success. Here’s a quick breakdown of the three steps needed to launch this planning tool:
1. Determine which Business Units Needs the Card
The first step in implementing a balanced scorecard is making a list of business units that will use the tool. According to the Harvard Business Review, a scorecard is appropriate for business units that have their own customers, production facilities, channels for distribution and financial performance measures. Once you’ve defined which business units will need their own scorecard, you’ll need to bring senior managers up to speed on the process.
2. Partner with Management Teams
Each senior manager should receive general information about how the balanced scorecard works and the benefits. Once the management team has reviewed the information, they will meet with the facilitator to discuss ideas and input for the process. In these meetings, senior managers will also accomplish the definition of success factors, the company’s mission and performance measures.
After the initial meeting, senior managers will meet for a second workshop to further define the scorecard goals. The attendees of this meeting will be more diverse including senior managers and high level and middle managers. At this meeting, an implementation plan will be developed.
Then, a final meeting will be held with the executive team only. In this meeting, the team will come up with a final plan for the company’s objectives and how they will be measured. During this process, senior management will also need to develop a strategy for rolling the process out to employees.
3. Implementing and Reviewing the Balanced Scorecard
Once all of the details of the balanced scorecard have been finalized, management will need to implement the scorecard. This process includes communication with employees and putting support in place for the new measurement systems. Once the information has been implemented, the scorecard will need to be reviewed quarterly to measure effectiveness and performance. In addition, the senior management team should evaluate the scorecard annually. In this meeting, they will need to determine if the measures still fit in terms of strategic planning and resource allocation.
Trying a Pilot Program
Some companies decide to start out slower when implementing the balanced scorecard. In these cases, a company can launch a pilot program in specific divisions to test the program’s effectiveness. During this process, many companies choose to focus on output measures to drive better success.
After the program has been launched, the company can evaluate the effectiveness of the program and determine if it should be integrated across the entire company.
External Reporting Issues
Many companies wonder if the balanced scorecard should be included in external reporting. The Stanford Business Review explains that the scorecard isn’t easily translated to the investment community. This tool is primarily useful for internal purposes that plan and shape the future of an organization. Also, the information used in the scorecard is sensitive and should be protected.
Getting Rid of Benchmarking
Although benchmarking is a common performance tool, companies often find this requires an investment without much return. If your company is using benchmarking, you’ll need to discontinue it when launching the balanced scorecard. Since the balanced scorecard focuses on output instead of process, it generally can’t be used in conjunction with benchmarking.
When adapting a balanced scorecard, remember to keep it simple. Companies that get carried away, adding hundreds or even thousands of performance goals, don’t get the full benefits. Instead, keep your goals to a dozen or less. The results of using this tool will be well worth the investment and will provide a solid foundation to grow and preserve your business.
Resource:Robert S. Kaplan and David P. Norton. “Putting the Balanced Scorecard to Work.” Harvard Business Review.
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 Core Competence of the Corporation: Develop for Growth
Often times, companies discover that losing sight of core competencies isn’t difficult. With expanding technology, many businesses find themselves offering new products and services that simply don’t mesh with their core competencies. But the problem is, losing sight of these attributes can severely limit a company’s success and hamper future opportunities for growth. Investing time in developing a set of strong core competencies can give a company the ability to expand product offerings, and drive profit - without sacrificing the foundation of the company.
Developing Core Competencies
When perfecting core competencies, it’s important to ask a few questions about your current product offerings. Determine if your current core competencies allow you to tap into a variety of markets. If not, you could be limiting your company’s ability to grow in the future. Also, determine if your competencies are producing strong benefits to consumers. And finally, make sure your competencies aren’t generic and competitors can’t “copy” your unique abilities.
Reshaping Management Strategies
Although market leaders make developing core competencies look easy, it’s often the complete opposite. This leaves many businesses wondering “what’s the secret?” These skilled companies are able to design competencies that are flexible; they can easily change with the marketplace. When rethinking these attributes, keep in mind that products need to be capable of adapting to a consumer’s desire for functionality and likeability.
This may sound straightforward, but in practice, accomplishing this task is often difficult. Companies need strong management to make these changes. And often times, management changes will be needed. Maximizing internal resources can also help companies recognize their core competencies and then develop additional opportunities.
Making Core Competencies Stronger
Once a company has identified core competencies, it’s important to strengthen those attributes to drive success. Putting together groups and committees that include individuals from all business units of the organization can help a company develop stronger core competencies. During this process, the company will also need to look at how funds are allocated. For example, if a large chunk of the budget is allocated for breaking into emerging markets, some of that money should be shifted back to strengthening core competencies.
Organizing Delivery Value
Before a company can successfully strengthen their core competencies, they must determine the delivery value. Marketers, salespeople and production staff must all understand the customer’s needs and how to deliver a message and product that fits perfectly with those needs. This will allow companies to differentiate their products from key competitors and earn a reputation as the market leader.
Partnering with Employees
Senior managers should invest time in employees so they understand the company’s core competencies. Employees who work in a “silo” environment are so focused on their individual tasks they often can’t see the big picture. Integrating employees into a process that helps connect their job function to core competencies can help employees have a broader focus. They will also be able to share their experience with other individuals in the organization, which is crucial to success.
Protecting Core Competencies
If a company loses sight of core competencies, they can often lose their best assets in the marketplace. These attributes provide strength and lay the foundation to develop new products and technologies. Keeping core competencies in mind when entering new markets can also help guide success. The Harvard Business Review article “The Core Competence of the Corporation” discusses 3M’s competency with sticky tape. The company recognized that their core competency lay with sticky tapes and developed the famous post-it-notes, magnetic tape and pressure sensitive tapes. Although the company’s product offerings are broad, each product can still be tied to the company’s core competencies.
Perfecting Technology
Technology is an important driver to success. For example, auto manufactures often have distinct engines that give them a competitive advantage in the market place. This is also true for video cameras, digital cameras and computers. Focusing on technology provides a core competency that customers start to recognize and feel a loyalty towards.
Also, over time the marketplace changes and consumers demand technology advances. For example, many consumers are drawn to “miniaturization,” wanting smaller, sleeker and more advanced products. Companies that anticipate these advances and incorporate them into current core competencies can gain market share and drive up profits.
Protecting Core Competencies
The Harvard Business Review article explains that companies who judge their competitiveness by pricing and performance of end products are risking the erosion of core competencies. Outsourcing important components can often be a mistake. Instead of outsourcing, companies should try to keep unique technology and designs in-house instead of trusting them with an outsourced company. This allows a company to keep control over their core products and services and have greater power to determine future success.
Investing in the development and preservation of core competencies can help a company enter markets more effectively and develop a market leader position. All business units must work together and share talented employees for the greater good of the company. Managers must be willing to circulate talent and skills to protect and build the most effective core competencies.
Resource:C.K. Prahalad and Gary Hamel. “The Core Competence of the Corporation.” Harvard Business Review.
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.
Developing Core Competencies
When perfecting core competencies, it’s important to ask a few questions about your current product offerings. Determine if your current core competencies allow you to tap into a variety of markets. If not, you could be limiting your company’s ability to grow in the future. Also, determine if your competencies are producing strong benefits to consumers. And finally, make sure your competencies aren’t generic and competitors can’t “copy” your unique abilities.
Reshaping Management Strategies
Although market leaders make developing core competencies look easy, it’s often the complete opposite. This leaves many businesses wondering “what’s the secret?” These skilled companies are able to design competencies that are flexible; they can easily change with the marketplace. When rethinking these attributes, keep in mind that products need to be capable of adapting to a consumer’s desire for functionality and likeability.
This may sound straightforward, but in practice, accomplishing this task is often difficult. Companies need strong management to make these changes. And often times, management changes will be needed. Maximizing internal resources can also help companies recognize their core competencies and then develop additional opportunities.
Making Core Competencies Stronger
Once a company has identified core competencies, it’s important to strengthen those attributes to drive success. Putting together groups and committees that include individuals from all business units of the organization can help a company develop stronger core competencies. During this process, the company will also need to look at how funds are allocated. For example, if a large chunk of the budget is allocated for breaking into emerging markets, some of that money should be shifted back to strengthening core competencies.
Organizing Delivery Value
Before a company can successfully strengthen their core competencies, they must determine the delivery value. Marketers, salespeople and production staff must all understand the customer’s needs and how to deliver a message and product that fits perfectly with those needs. This will allow companies to differentiate their products from key competitors and earn a reputation as the market leader.
Partnering with Employees
Senior managers should invest time in employees so they understand the company’s core competencies. Employees who work in a “silo” environment are so focused on their individual tasks they often can’t see the big picture. Integrating employees into a process that helps connect their job function to core competencies can help employees have a broader focus. They will also be able to share their experience with other individuals in the organization, which is crucial to success.
Protecting Core Competencies
If a company loses sight of core competencies, they can often lose their best assets in the marketplace. These attributes provide strength and lay the foundation to develop new products and technologies. Keeping core competencies in mind when entering new markets can also help guide success. The Harvard Business Review article “The Core Competence of the Corporation” discusses 3M’s competency with sticky tape. The company recognized that their core competency lay with sticky tapes and developed the famous post-it-notes, magnetic tape and pressure sensitive tapes. Although the company’s product offerings are broad, each product can still be tied to the company’s core competencies.
Perfecting Technology
Technology is an important driver to success. For example, auto manufactures often have distinct engines that give them a competitive advantage in the market place. This is also true for video cameras, digital cameras and computers. Focusing on technology provides a core competency that customers start to recognize and feel a loyalty towards.
Also, over time the marketplace changes and consumers demand technology advances. For example, many consumers are drawn to “miniaturization,” wanting smaller, sleeker and more advanced products. Companies that anticipate these advances and incorporate them into current core competencies can gain market share and drive up profits.
Protecting Core Competencies
The Harvard Business Review article explains that companies who judge their competitiveness by pricing and performance of end products are risking the erosion of core competencies. Outsourcing important components can often be a mistake. Instead of outsourcing, companies should try to keep unique technology and designs in-house instead of trusting them with an outsourced company. This allows a company to keep control over their core products and services and have greater power to determine future success.
Investing in the development and preservation of core competencies can help a company enter markets more effectively and develop a market leader position. All business units must work together and share talented employees for the greater good of the company. Managers must be willing to circulate talent and skills to protect and build the most effective core competencies.
Resource:C.K. Prahalad and Gary Hamel. “The Core Competence of the Corporation.” Harvard Business Review.
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, June 8, 2009
How to Make the Most of Your Back Office: Cost Cutting Strategies
When times get difficult and sales are falling, companies often make back office cuts in departments that provide support. Departments that usually face these cuts are finance, human resources and other cost centers that don’t directly generate revenue.
However, a recently study conducted by Bain found alternatives to support center cuts can actually be more effective. This study examined 37 companies in a variety of industries and found that reconfiguring support services and trimming, instead of cutting costs, is a more effective strategy to recovering from falling sales.
Evaluating Department Activities
When trimming costs, managers need to work together to identify which activities aren’t essential. Focus on keeping the activities that are adding the most value to customers, and cut activities that have less impact.
This task will require managers to carefully evaluate the steps involved in each process. For example, human resources may evaluate the recruiting process and find that applicant information is entered in two different places. Consolidating that information into the same database reduces inefficiencies, freeing up additional time and saving costs.
Implementing Department Accountability
If a specific business unit is incurring large expenses from items such as ordering reports - change the way the money is budgeted. For example, the department may have to take those costs directly out of their budget instead of a general cost center. This will encourage the department manager to generate guidelines for ordering reports, which effectively cuts out non-essential ordering costs.
Automating Tasks
When trimming expenses, evaluate opportunities for automating back office tasks. Implementing Customer Relationship Management (CRM) software may allow your sales force to operate quicker and generate faster quotes. This will also enhance customer satisfaction and reduce the amount of time spent generating sales quotes. Have managers work diligently to identify these cost saving opportunities.
Cutting Expenses
When companies examine expenses, they often find areas for improvement. For example, regulating hotel and travel expenses more carefully can save the company money and cut down on wasted resources.
Restructuring Departments
When evaluating each business unit’s tasks, it often makes sense to restructure the entire department. For example, a company that operates in five states might have a marketing department in each state. After careful analysis, senior managers might discover that consolidating the department into a regional office will save resources and positively impact the bottom line.
Outsourcing Business Functions
Before outsourcing, make sure to invest time in weighing the costs and benefits. Evaluate how the decision will affect the customer experience. This is especially true when outsourcing customer service functions. If customers are disappointed with the outsourcing result, it can decrease sales, which leads to decreased profit.
Implementing these cost-saving strategies can minimize the amount of employee cuts and make a company more efficient. And when business starts to pick up again, the company will be positioned better for increased growth and profits.
Resource:Paul Rogers and Herman Sawnz. “How to Make the Most of your Back Office.” Results Brief Newsletter.
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 email him.
However, a recently study conducted by Bain found alternatives to support center cuts can actually be more effective. This study examined 37 companies in a variety of industries and found that reconfiguring support services and trimming, instead of cutting costs, is a more effective strategy to recovering from falling sales.
Evaluating Department Activities
When trimming costs, managers need to work together to identify which activities aren’t essential. Focus on keeping the activities that are adding the most value to customers, and cut activities that have less impact.
This task will require managers to carefully evaluate the steps involved in each process. For example, human resources may evaluate the recruiting process and find that applicant information is entered in two different places. Consolidating that information into the same database reduces inefficiencies, freeing up additional time and saving costs.
Implementing Department Accountability
If a specific business unit is incurring large expenses from items such as ordering reports - change the way the money is budgeted. For example, the department may have to take those costs directly out of their budget instead of a general cost center. This will encourage the department manager to generate guidelines for ordering reports, which effectively cuts out non-essential ordering costs.
Automating Tasks
When trimming expenses, evaluate opportunities for automating back office tasks. Implementing Customer Relationship Management (CRM) software may allow your sales force to operate quicker and generate faster quotes. This will also enhance customer satisfaction and reduce the amount of time spent generating sales quotes. Have managers work diligently to identify these cost saving opportunities.
Cutting Expenses
When companies examine expenses, they often find areas for improvement. For example, regulating hotel and travel expenses more carefully can save the company money and cut down on wasted resources.
Restructuring Departments
When evaluating each business unit’s tasks, it often makes sense to restructure the entire department. For example, a company that operates in five states might have a marketing department in each state. After careful analysis, senior managers might discover that consolidating the department into a regional office will save resources and positively impact the bottom line.
Outsourcing Business Functions
Before outsourcing, make sure to invest time in weighing the costs and benefits. Evaluate how the decision will affect the customer experience. This is especially true when outsourcing customer service functions. If customers are disappointed with the outsourcing result, it can decrease sales, which leads to decreased profit.
Implementing these cost-saving strategies can minimize the amount of employee cuts and make a company more efficient. And when business starts to pick up again, the company will be positioned better for increased growth and profits.
Resource:Paul Rogers and Herman Sawnz. “How to Make the Most of your Back Office.” Results Brief Newsletter.
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 email him.
Lessons Learned from Private Equity: Enhancing Performance
As private equity firms become more successful, many public firms are learning how to implement these companies’ winning strategies. According to McKinsey research, about 75% of private equity firms do not experience better success than the stock market. However, the remaining 25% of these firms consistently achieve results that outperform the stock market.
This high performing group has mastered several components to enhancing performance. For example, deals in the private sector that are worth over $100 million, did not evolve because private firms paid less then market value. Instead, these private equity firms are using calculated strategies to determine which companies to purchase.
This high performing group has mastered several components to enhancing performance. For example, deals in the private sector that are worth over $100 million, did not evolve because private firms paid less then market value. Instead, these private equity firms are using calculated strategies to determine which companies to purchase.
Researching Deals
Public firms can enhance success during acquisitions by investing in a strategic assessment of potential deals. This assessment is typically taken during the first few months of a deal, and accomplishes several goals:
- Determining which costs to cut
- If there are new markets to pursue
- Potential portfolio changes
Once these components have been evaluated, a value creation plan can be implemented. In this plan, managers will determine the possible risks and value from acquisition activities.
Compensation Strategies
Private equity firms are highly committed to overseeing investments once the deal is closed. A method used to enhance performance is using compensation strategies to align high level managers with strategic objectives. This entices managers to invest more of their time in collaborating with the board and completing research to help set the direction of the company.
According to McKinsey research, private equity partners using this strategy invested about 50% of their time three months after the deal closed. While, less successful private equity firms devoted only 15% of their time.
Successful partners also spent more time working with management to determine if staffing changes needed to be made after the deal closed. Active partners also used operation indicators to measure performance instead of standard financial measures.
Realigning Governing Structures
Although many companies use financial engineering or price arbitrage to measure performance, private equity firms are finding these tools to be less effective in current market conditions. The highest performing equity firms are adapting governance arbitrage, which involves realigning governing structures that are not aligned well.
Public Firm Challenges
Many public companies are focused on compliance instead of enhancing the effectiveness of governance. This is partially because of the growing number of regulations and codes that are evolving.
In addition, those who are not at the executive level do not always experience financial gains when the company is performing well. However, if the company experiences hardship, these individuals are affected. Since these individuals are often recruited from professional management positions, they are usually more emphatic with managers than shareholders.
Spending more time on strategy and developing talented managers can help board members have a better understanding of the company’s initiatives and objectives. Currently, most executives feel that the board has limited understanding of goals and corporate strategy.
Sharing Information
Public companies can implement strategies used by private equity firms such as creating a free flow of information between managers and non-executives. This includes sharing information that is not financial in nature – like strategies and initiatives. Although public companies do not have incentives, implementing these strategies can help boost performance.
External Benchmarking
There are also external benchmarks that can be used to determine performances initiatives. For example, these benchmarks may include overhead costs, cost per unit production, manufacturing processes and purchasing. Benchmarking these areas can give a company a competitive edge.
The benchmarking process should also provide independent verification that the benchmarks are being achieved. Companies also need to evaluate how often benchmarks are created. Since this process can be time consuming and expensive, companies can reevaluate these areas every few years.
Performance Challenges
Unlike pubic firms, private equity firms can offer managers equity stakes, investment opportunities, and bonuses for meeting objectives. In fact, top managers in equity firms own up to 19% of the equity. This creates personal motives for outperforming the competition.
When a private equity firm is having difficult times, management is quick to act swiftly – spending more time with management, minimizing underperforming areas, and hiring consultants to improve performance.
Because incentives are structured differently with public firms, the strategies and actions are often less aggressive. This is an area of opportunity for public companies. Taking aggressive steps to improve performance will ensure that actions are better linked to value creation objectives.
Searching for Talent
Finding a management group that is ready for extreme change can be challenging. If executives are not completely behind the changes, they will not be effective. These leaders must also have a high level of understanding of each team’s strengths and identify weak players.
Although public companies may face challenges, learning a few lessons from private equity firms can enhance performance. Revamping the governance structure will allow public firms to compete more effectively with leading private equity firms.
Resource:Andreas Beroutsos, Andrew Freeman and Conor F. Kehoe. “What Public Companies Can Learn from Private Equity.” McKinsey on Finance, Winter 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 by email.
Thursday, April 23, 2009
Winning in an Uncertain Economy: Strategies for Lowering Costs and Improving Performance
In turbulent economic times, companies are faced with difficult decisions; including where to cut costs. Although an executive’s first instinct may be to reduce staff, there are many options available. With a few creative strategies, your business can identify opportunities to maximize efficiency while minimize job loss.
Sustainable Cost-Cutting
Sustainable cost cutting starts with looking at your company’s organizational chart. This allows you to brainstorm what options are on the table. To accomplish this, determine which activities each business unit performs, and how these tasks are adding value to revenue production. Then, determine which activities can be streamlined or discontinued without effecting productivity or sales.
For example, evaluate the Human Resources department and determine which activities are contributing to hiring and retaining valuable employees. You might find that employees are bogged down with a cumbersome system that does not efficiently handle candidate information. Solving this issue would increase efficiency, and allow staff to concentrate on other company initiatives.
Maximize Process Efficiency
When a company grows, sometimes old processes get in the way of becoming more efficient. Identifying processes that are outdated and need an overhaul will boost your overall efficiency.
There are many options for revamping processes that are not efficient. For example, you can change which employees handle the process if the task is not appropriate for the department. Also, in some situations, you may have the option of automating the process. Automating does not just make the process faster, it frees up employee time to focus on other projects.
Another option to consider is outsourcing functions that can be achieved more efficiency than handling in-house. This can include support functions that need to be more flexible to accommodate the organization’s growth.
Balance Cost-Cutting with Growth
Cutting costs should be balanced with investing in the company’s future growth. That is because cutting costs too deeply can paralyze a company’s ability to plan for growth; jeopardizing their market position. To accomplish this, focus heavily on efficiency while simultaneously planning for future growth.
Creating Customized Solutions
Using a one-size-fits-all approach to cutting costs can hamper your company’s ability to succeed. That is because each product you produce has a unique set of customers, with individual needs.
Implement effective cost-cutting strategies by examining your customer’s priorities. If price is a priority, you will need to examine options that will drive the price down without compromising quality. If value is a factor, consider offering special discounts to loyal customers. And if quality or brand image is an issue, make sure to avoid cuts that will affect these factors.
Customizing cuts based on the customer’s needs will preserve your profits and boost productivity.
Cut Duplicate Services
As an organization grows, sometimes functions are duplicated. Identifying these areas is an important opportunity for cutting costs.
For example, you might examine back office functions to determine if two employees or business units are doing the same thing. And if so, determine how those processes can be consolidated to maximize efficiency.
And remember to always consider technology solutions when cutting duplicate services. For example, if two business units are collecting the exact same information, it would make sense to create a centralized system; minimizing the duplication of work and increasing efficiency.
Connect with Front Line Employees
Since front line employees are in direct contact with customers, it is important to carefully analyze their activities. This is because these employees have a huge impact on your company’s ability to produce revenue.
Examine how much of their time is spent selling versus completing paperwork or administrative functions. Brainstorm ways to shift more of their time to sales and less time on paperwork. This could include delegating paperwork tasks to a support person, or streamlining processes to require less paperwork.
Also, it is important to motivate employees to connect with the customer. This can be achieved with incentive programs or special recognition for a job well done.
Look for Opportunities to Increase Sales
Saving your organization money is important. But it is just one strategy in a muti-faceted approach to success. It is important to understand other opportunities for success – like making contact with customers more effective.
For example, if a customer contacts a bank call center to order checks, what other opportunities exist for that customer? You might train call center employees to discuss the benefits of receiving online statements; which saves paper and is better for the environment. This cuts the organization’s mailing costs and improves efficiency. Analyze how to make points of contact more effective and entice employees to grow business.
Even in financially difficult times, it is important to look deeper when cutting costs. Take the time to create strategies for maximizing efficiency without tabling plans for future growth. This will allow your company to save money while maximizing market share.
Resource:
Hernan Saenz and Darrell Rigbyi. “Winning in Turbulence, Streamline G&A.”
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 email him.
Sustainable Cost-Cutting
Sustainable cost cutting starts with looking at your company’s organizational chart. This allows you to brainstorm what options are on the table. To accomplish this, determine which activities each business unit performs, and how these tasks are adding value to revenue production. Then, determine which activities can be streamlined or discontinued without effecting productivity or sales.
For example, evaluate the Human Resources department and determine which activities are contributing to hiring and retaining valuable employees. You might find that employees are bogged down with a cumbersome system that does not efficiently handle candidate information. Solving this issue would increase efficiency, and allow staff to concentrate on other company initiatives.
Maximize Process Efficiency
When a company grows, sometimes old processes get in the way of becoming more efficient. Identifying processes that are outdated and need an overhaul will boost your overall efficiency.
There are many options for revamping processes that are not efficient. For example, you can change which employees handle the process if the task is not appropriate for the department. Also, in some situations, you may have the option of automating the process. Automating does not just make the process faster, it frees up employee time to focus on other projects.
Another option to consider is outsourcing functions that can be achieved more efficiency than handling in-house. This can include support functions that need to be more flexible to accommodate the organization’s growth.
Balance Cost-Cutting with Growth
Cutting costs should be balanced with investing in the company’s future growth. That is because cutting costs too deeply can paralyze a company’s ability to plan for growth; jeopardizing their market position. To accomplish this, focus heavily on efficiency while simultaneously planning for future growth.
Creating Customized Solutions
Using a one-size-fits-all approach to cutting costs can hamper your company’s ability to succeed. That is because each product you produce has a unique set of customers, with individual needs.
Implement effective cost-cutting strategies by examining your customer’s priorities. If price is a priority, you will need to examine options that will drive the price down without compromising quality. If value is a factor, consider offering special discounts to loyal customers. And if quality or brand image is an issue, make sure to avoid cuts that will affect these factors.
Customizing cuts based on the customer’s needs will preserve your profits and boost productivity.
Cut Duplicate Services
As an organization grows, sometimes functions are duplicated. Identifying these areas is an important opportunity for cutting costs.
For example, you might examine back office functions to determine if two employees or business units are doing the same thing. And if so, determine how those processes can be consolidated to maximize efficiency.
And remember to always consider technology solutions when cutting duplicate services. For example, if two business units are collecting the exact same information, it would make sense to create a centralized system; minimizing the duplication of work and increasing efficiency.
Connect with Front Line Employees
Since front line employees are in direct contact with customers, it is important to carefully analyze their activities. This is because these employees have a huge impact on your company’s ability to produce revenue.
Examine how much of their time is spent selling versus completing paperwork or administrative functions. Brainstorm ways to shift more of their time to sales and less time on paperwork. This could include delegating paperwork tasks to a support person, or streamlining processes to require less paperwork.
Also, it is important to motivate employees to connect with the customer. This can be achieved with incentive programs or special recognition for a job well done.
Look for Opportunities to Increase Sales
Saving your organization money is important. But it is just one strategy in a muti-faceted approach to success. It is important to understand other opportunities for success – like making contact with customers more effective.
For example, if a customer contacts a bank call center to order checks, what other opportunities exist for that customer? You might train call center employees to discuss the benefits of receiving online statements; which saves paper and is better for the environment. This cuts the organization’s mailing costs and improves efficiency. Analyze how to make points of contact more effective and entice employees to grow business.
Even in financially difficult times, it is important to look deeper when cutting costs. Take the time to create strategies for maximizing efficiency without tabling plans for future growth. This will allow your company to save money while maximizing market share.
Resource:
Hernan Saenz and Darrell Rigbyi. “Winning in Turbulence, Streamline G&A.”
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 email him.
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