Archive for July, 2009
Organizations-Playing Offense or Defense
Organizations in today’s economic times are either playing offense or defense, whether they know it or not. What determines which style of play? Cash or operating capital availability. With the credit markets shrinking, cash on hand has become a significant criteria for survival and the opportunity for growth. Those organizations that have lived from month-to-month off their line of credit are now in trouble. Those lines of credit are being reduced or foreclosed on due to a lack of payment. Organizations that have kept their on hand cash balances in proportion to their debt have a chance to survive the current slumping economy. The organization that maintained a healthy cash position now have a chance to take advantage of that strategy and take advantage of great bargains on asset purchases, merger/acquisitions with competitors, product development, etc. Everything is discounted, and if you have the cash you can make short term deals that will multiply in the long run and make your organization more successful.
The Importance of Cash Flows to Your Enterprise
It should be obvious, but unfortunately, it is not for many organizations- “Cash is King”. Especially in a downward business cycle or extended cycles called “recessions”. Cash levels will determine if your organization will operate offensively or defensively. Just because you have profits does not mean you have the cash needed for your operating capital needs. Profits look good on the Profit & Loss Statement, but are no true indication of the financial strength of the company. An organization can be “profit rich” and “cash poor”. Having cash provides many opportunities to make short term changes and purchases that will produce significant long term benefits. The influx of cash from debt or equity clearly come with strings attached, and in downward cycles, these actions may have severe consequences when there is a shortage of cash to repay loans or meet the terms of financing, which puts the organization on the defensive or unfortunately even “out of operation”. Leaders should always insure that cash collection is a priority to the organization no matter what business cycle you are experiencing. Resist the temptation to spend cash on activities that do not produce a positive ROI (Return on Investment) for either the short and long term, or both. Four “quick” strategies for increasing cash; reduce spending, accelerate the collection of account receivables, renegotiate or slow the outflow of accounts payable payments, and lastly, increase revenues. No magic there. What is usually forgotten is that the organization does not have a plan or processes to work these four strategies. Make sure everyone in your company understands the importance of cash flow to the ongoing operation of the enterprise, and spend quality time creating a cash flow plan during both growth and declining times; Having a plan, awareness and a commitment of the entire organization, and you have improved your chances for sustainability.
Layoffs-think before you act
During these times of the recession, most management start cost cutting by laying off employees. This may be a mistake, depending on the knowledge level needed for your product or service. Consider lowering payroll costs through eliminating or deferring bonuses, salary annual increases, reducing contract labor, reducing salaries across the board (management first, then other employees); if you have to let permanent employees go, consider restructuring the organization, eliminating management first, flatten the organization and reallocate employees to other areas of the company and establish a mentoring program to support those taking on new responsibilities. A JOB AT A LOWER SALARY IS USUALLY LOOKED UPON AS BETTER THAN NO JOB AT ALL.
The recession is short lived in comparison to the damage that management can do if they do not handle the down turn correctly
The ROI of Helping Your Competitors
Most organizations believe it is their objective to destroy their competition. Putting the competition out of business means more customers for them. Consider this, there may be a great ROI in helping your competition in time of crisis. I believe the more competition there is actually validates a market. If you’re the only organization in a market, you don’t have a valid market-yet! If you hear of a competitor having a process breakdown or strike that is not effecting you, consider approaching them and offering to help. In most cases, they will not accept, however, it will change the way they view your organization. If they do accept, then do your best to truly help them and the payback will come your way. Who knows, you may be acquiring them next year or visa versa.
The Influence of Cultures
Organizations are like societies, they each have their own culture that has developed over time due to the actions of their personnel (leaders and employees/volunteers). When working to bring about change within an organization, one of the biggest mistakes leaders make is that they discount the impact that the existing culture has on their efforts. I believe “culture clash” is the number one reason for change failure. Knowing how to build a culture that does not impede your organization’s plan for change, you should focus on seven areas. These seven areas are Hiring, Training, Goal Setting and Tracking, Communication, Responsibility, Accountability, and Advancement Opportunities. These areas must be addressed and taken seriously to create an organization and positive culture that is ready to support the organizations change plans.
Don’t Confuse Efforts with Results
Recently I heard a couple of client employees commenting on how hard they are working to be noticed. I could tell by their conversation that they were both trying to position themselves for a favorable performance review and consequently, a raise or promotion. I never once heard them talk about their accomplishments. Effective employees (leadership or workers)work to achieve desired results in the least amount of time. They fight through Murphy’s Law (problems will happen)and they recognize the benefits from knowing how to use Pareto’s Law (80/20 rule)by applying it to their efforts versus the results they achieve. Lets explore this further:
It is important to an individual to be the most effective person they can be, whether in relationships, parenting, associating with friends and co-workers, as a volunteer within a non-profit organization, being an employee, or being an entrepreneur. One very important principle should be kept in mind – “don’t confuse efforts with results”. This may sound like common sense, but it happens to be a situation that is very unfamiliar to many people striving to be more effective. There are many periodicals, articles and books written about time management, which normally comes to mind when a person is asked what they believe “don’t confuse effort with results” really means. Time management can be defined as “a process for making best use of the time available in order to use that time in a desired manner.” Being more effective with the time available often gets lost in the process of daily activities. In the past 50 years, the average work week in the United States has been declining from the previous 50-year period. The cause of this decline is brought about by governmental intervention over the number of hours one can work without receiving overtime, and the advancement of the industrial and technological ages. No longer are a majority of Americans working from dawn to dark to earn a wage. Evidence of this reduction in the work week is the growing industries that now cater to people’s spare time, such as hobbies, recreation, entertainment and hospitality.
Time is precious. What’s new about that and what does that have to do with “don’t confuse efforts with results”? It has little to do with the actual time available and more to do with what is done with the time available. “To be effective with the time available” implies that the time is used in a very productive way. Being more productive can mean there is more time for doing fun things: to finish a home improvement project faster, launching of a new company sooner or getting more done in the workplace.
Focusing on what is being accomplished rather than how much time is being spent is the key issue for being more effective. How can understanding this principle make a person more effective? People improve most when they decide to make a change, focus on what it takes to make that change, provide the discipline to follow the steps set before them and then take the necessary action. This assumes a person wants to be more effective!
The next time you encounter a co-worker complaining or (surprise) bragging about the extra hours they are putting into their job or project without increased measurable results, ask yourself, “why are they saying this?” If they are paid by the hour, that may be part of the answer. Parkinson’s Law seems to have evolved within many workplaces through less than motivated employees with no differentiation as to whether or not it is focused on staff or management. Parkinson’s Law states, “work expands to fill the time available.” An interpretation of this law is that a person will make sure that they fill the time allotted to the task even if they can complete it sooner. The person following Parkinson’s Law is not the person searching to be a more productive individual. There are clear signs of organizations that are infected with this Parkinson’s Law cultural disease and following are some of the disease’s symptoms:
- Projects are always completed on schedule, because schedules are always changed to meet the anticipated completion date.
- People work more than the normal work week to meet deadlines.
- People work more than the normal work week in order to impress their leadership that they are strong performers.
- Those performing tasks have a lack of accountability.
- Leadership that focuses more on how things are being done rather than on what is being done.
- Higher levels of headcount than necessary to perform the organization’s mission.
These symptoms reflect many of the attributes of less than productive people and organizations. Parkinson’s Law is able to infect people and organizations because they both respond to activity and not results. Ah ha! There is the code to unlock the secret to the phrase “don’t confuse efforts with results”. The key here is that “results” should drive the person or the organization and not the activities directed to achieve the results. In many situations, the biggest excuse used is that people or organizations are so busy trying to get things done that they cannot actually get things done.
This sounds a little like what comes first, the chicken or the egg? How do you get results without the activities? The answer is that you don’t. The important fact to understand here is that the results are the most important items here, not how hard or how long people are working to achieve those results. If people or organizations hold themselves accountable for getting results, they become more productive. That means getting the task done the first time and on schedule. No extensions, no excuses, no wasted time and no confusion about priorities.
Results-oriented people understand that they should and will be evaluated based on what they contribute to the project or the mission of the organization. In organizations that are infected with the Parkinson’s Law cultural disease, the leadership may not be astute enough to recognize that these results-oriented people even exist. Results-oriented people may even be challenged by peers to back off and quit making everyone else look bad because they are more productive. In some cases, leadership does recognize the results-oriented person and then wrongfully takes advantage of them by redistributing more work from the “infected” employees to the “immune” employees. As a result, the infected people then coast even more. This is not a healthy situation for either side. In this case, one of two things will happen to the results-oriented people. They will either find a way to extricate themselves from this situation by moving on or they will also become infected as a cultural casualty. That would be a shame.
What does one do to become a results-oriented person?
- Decide to make a change.
- Keep desired results in sight at all times.
- Set priorities for key factors that contribute most to desired result.
- Determine resources needed to support priorities.
- Stay focused on priorities.
- Manage activities required to support priorities.
- Strive to exceed results expectations, such as quality and time duration.
There are two other Laws that have an effect on how to become a results-oriented person. First, Finagle’s Law of Dynamic Negatives is usually recited as, “anything that can go wrong, will—at the worst possible moment” and is a corollary to Murphy’s Law, which states that ““if anything can go wrong, it will.”. This law is used by infected people as an excuse for not getting results.
When things go wrong, infected people often give up and decide they cannot get the results they want in the time frame originally planned. Either they either decide that the result was not important enough to pursue and move to a new project, if they are working for themselves; or, they go to leadership and leave the issue with them to resolve. On the other hand, results-oriented people realize that there are going to be problems and these issues have to be addressed. They know that problems are a part of the process of getting results. They do not become paralyzed by these issues. They work through the issues, because the desired results are more important than the effort it takes to achieve them.
Secondly, Pareto’s Law or Principle, also known as the 80-20 Rule, states “80% of the effects come from 20% of the causes” If applied properly in any given situation, Pareto’s Law may be one of the most effective tools for increasing a person’s productivity level and there are no technical gadgets required. Applying Pareto’s Law to any area of life means that time and resources used to generate results are used in a very productive manner. Always remember that the “results” are the target, not just how well we manage the activities. Let’s explore a few examples of applying Pareto’s Law:
- Meetings- 80% of the needed information comes from 20% of the meeting attendees. Shorten the meeting by inviting only the 20%.
- Sales- 80% of all sales come from 20% of the sales force. Redirect the efforts to higher quality hiring and training of the top 20% of the sales force and reduce headcount and expenses.
- Customer Care- 80% of complaints or calls come from 20% of the customers. Implement techniques to address the 20% with less labor-intensive means - email/voicemail, etc.
- Operations- 80% of the problem symptoms are caused by 20% of the actual problem issues. Search for the 20% causes and achieve a multiplier effect for reducing problem symptoms.
- Results- 80% of the results achieved are generated with 20% of the efforts and resources. Evaluate the remaining 80% of efforts and resources and scale back to reduce costs.
Results-oriented people are the stars of any group or organization. They are the leaders in their area of expertise. They are successful entrepreneurs. They are individuals who don’t confuse efforts with results.
Using Debt to Finance the Organization
Organizations can finance their missions in several ways, but the two most common methods are equity and debt. Equity means you sell a portion of the organization in the form of stock or units of ownership, and the buyer now owns part of your organization. The other way to finance your organization is by Debt. Many organizations use bank loans and lines-of-credit to support their working capital needs to finance the day-to-day operations. There are pros and cons to using debt, the biggest pro is that you are not selling a part of your organization, you are just borrowing the money. That is also the potential down fall. Borrowing the money means you have to have a plan to repay the principal and the interest that are due at a future date. The key factor for determining if you finance the operation with debt is whether or not the organization has adequate cash flow to repay the loan and interest.
A New Organizational Model
There is a new model that organizations need to consider in order to function successfully for the future; The model is summed up in two words- “Relationships” and “Collaboration”.
Relationships are key for your success, whether a supply chain or wholesale, retail or services organization. The “relationship” you have with the stakeholders of your organization will determine the difference between success, mediocrity or failure. Your stakeholders are your customers, employees,vendor/suppliers, support resources (accountants, lawyers, consultants, banker) and owners.
The three “C’s” of collaboration are Cooperation, Communication and Commitment. Cooperation is the willingness to work closely with others to the benefit of both you and them. Communication is the willingness to share sensitive information needed to streamline both organizations to increase effectiveness. Commitment to the stakeholders means that you genuinely want your supporters to be successful and you are willing to do your part to make it happen. They may be vendors/suppliers, they may be your banker, they may be a competitor if you or they need assistance and one of you can help.
The new organizational model requires a focus on lasting relationships, cooperation, communication and a commitment to their stakeholders. I call that new organizational model, the start of becoming a “Collaborative Enterprise”. More to follow on that topic.
Traning-Investment or Expense
Hibernate or Renovate
A recession is not a time to hibernate and wait for inevitable upturn of the business cycle. A recession is an ideal time to renovate your organization-addressing the current economic climate with a new operating strategy that positions you to perform more effectively in either an up or down business cycle.
Create a Plan
If the organization decides to renovate its operating environment to either expand or contract specific functions in preparation of growth opportunities or efficiencies, then create a plan. An effective renovation plan should include the following:
- Identify and communicate your vision and rationale for the planned activities,
- Describe in detail the desired outcome for each planned activities,
- Review and assess all risks of taking the desired actions,
- Establish reasonable estimates, in detail, of resources and timing required to complete the planned activities,
- Define the key milestones or events for monitoring and tracking of progress toward your desired outcome,
- Assign responsibilities and accountability to all stakeholders, and
- Establish change and risk management feedback procedures to handle change
An effective plan will aid in communication and managing of a renovation effort, but there needs to be a solid execution effort to accompany the plan to insure success.
Cash is King
We often find opportunities to renovate an organization during a recession by expanding functions and/or markets, or becoming more efficient. These changes are possible because we have adequate levels of a critical asset-“cash.” These opportunities may be at the expense of others in the industry that are less financially healthy. “Cash is king” and it will be always. When credit is not readily available, those organizations with adequate levels of cash should seize the opportunity to acquire inventory, equipment, facilities, new product development, and market penetration. Spending cash in this way leverages lower prices, better terms and much faster implementation schedules. You may also uncover opportunities to merge with (or acquire) competitors or competitor functions that still have value because they have to shed these functions to raise cash for themselves. In any case, the organization with the best cash position, is usually in the best position to negotiate favorable prices and terms.
If your organization is not in a solid cash position during this economic downturn, then let it be a lesson learned and work toward a new cash management strategy to be in a better position, for the next down cycle. It will come!
Workforce Assets
Organizations often declare “Our workforce is their greatest asset.” Why is it that when a significant downturn occurs, the first action many of these same organizations take is to reduce their workforce. The duration of the downturn is a key factor in determining if a Reduction In Force (RIF) will really generate savings for the organization in the mid-long term. Organizations may hurt themselves if they reduce knowledge and productive workers that will be needed if the work load returns within six-twelve months. The cost of hiring replacements, training, and ramping up production may actually out weigh the cost savings of letting the employee go in the first place. Organizations also use the downturn as a reason to weed out the unproductive members of the workforce, but that seems to reflect a flaw in management practices. Unproductive employees should be coached, retrained and if they do not respond, then they should be relocated to a position where they can be productive before being removed. You shouldn’t wait for a downturn to have an excuse for these unproductive workers to be removed. During a downturn, your workforce can be further trained to increase their skills, they can be cross trained to be more flexible and they can be mentored to become more productive. Almost always, savings from a reduction in the workforce is often over estimated, and can hurt an organization if they cannot take advantage of the early stages of the upturn.