Bold Exec

This Blog is All About You...the Aspiring Bold Exec

Become an efficient manager and an effective leader. All of the concepts presented here have been tried and tested many times in the real world by Tom Epley, likely America's most successful Turnaround CEO. With Tom's guidance, you'll gain the courage and conviction to accept risk, embrace change, make meaningful decisions, and significantly change your company's performance culture. 

Remember, it's not what you intend to do, it's not even what you do, it's how you do it!! Who's Tom Epley? » | What does it take to be a Bold Exec? »

Crisis Lessons

Does a crisis represent danger or opportunity? I have written that one must take full advantage of a business crisis, even amplifying it, by some modest amount, via clear and unvarnished communication to all constituent groups. When all members of a community, an organization, a business enterprise fully recognize that there is a crisis and that their lives will be significantly impacted by the effects of that crisis, previously rather unchangeable attitudes can be significantly changed. The reigning guru of human behavior theory, Bandura, in his acclaimed book "Social Learning Theory" states "Behavior is, in fact, extensively regulated by its consequences."

Rahm Emmanuel this week announced a parallel thought."Rule One: never let a crisis go to waste. They represent an opportunity to do big things."

There's a clear message here--one that i have discussed--and used--extensively. When your business is in trouble, don't do what many CEO's do and underplay it to your employees, directors, and all other constituencies (perhaps with an exception for customers). Don't mask it with feel-good proclamations in the fear that your employees will stampede out the doors. When you do, not only are you being a chicken, but you're thwarting one of the greatest elements of change available--necessary behavioral changes in your employees as they recognize the consequences of their normal attitudinal tendencies--maintaining status quo.

Lessons from the Presidential Race

Previously I wrote about my "Northwest Strategy" philosophy. The idea is that any organization is better off when a CEO or other type of leader clearly decides on a course, one that is directionally correct while perhaps not perfect (hence the term Northwest), and then relentlessly pursues that direction, communicating it clearly, effectively, and repetitiously so that his followers have clarity, line up appropriately, and make consistent decisions on their own. This organization can achieve a tremendous amount. If the final targeted destination requires a mild correction when the goal is near, that can be done--again with clarity and repeated communications.

The antithesis is the leader who continues to try new ideas, has new and different thoughts, throws out trial balloons, changes his mind: always searching for the perfection of a true North strategy. While it may seem to him that striving for this perfection is totally appropriate and a worthy goal, along the way his followers lose confidence, get frozen, react differently to these mixed signals, typically initiate infighting, and stand around with confused looks on their faces. Few are willing to make any decisions because they don't know if today's grand strategy will be the same as yesterdays.

So this week we have another clear, this-time-public example of the benefits of a Northwest Strategy and all it's accountrements; and an equally clear demonstration of the problems resulting from a constantly changing message. Obama's campaign epitomized the consistency of purpose, clarity and continuity of communications, and steadfastness of direction. McCain's did not. Obama inspired many and grew in presidential stature by the approach he took, McCain created confusion in his ranks and among his followers, confusion which continues to this day. Some people voted for Obama even though they didn't agree with his policies, viewing his presence and consistency as unassailable virtues.

You can learn many aspects of leadership from this campaign, and from many other daily life events. Apply the same principles you would wish to have applied to you.

Run in a Way that Optimizes Your Governance

The positioning a presidential candidate makes concerning his arguments, his treatment of the truth, his composure, and his leadership persona will impact on his ability to lead. In the political world, most people view that a composed, level-headed, positive presentation will be an enabling element in constructing coalitions to govern.

A new CEO experiences a different, but in some ways parallel, path. He or she presents to the recruiter and then to the hiring committee their accomplishments and skills: modest embellishment is inevitable and expected--more, not. The next presentation is to the operating constituencies (employees, suppliers, customers), concerning the individual but more so his views on the state of the business, the degree of difficulty, the degree that significant change that will be required, and the resulting effects to those parties. Clarity, honesty, a degree of humility, and candor set the stage for growth of your leadership persona from a constructive base.

When you are positioning yourself for that new or next CEO position, remember that your initial positioning will be remembered by all the constituencies. Don't feel impelled to unnaturally embellish your credentials and the business prospects--there's a long term price to pay for the short term ego gratification.

Fire Everyone--sorta

In just two weeks the U.S. will have a new President. Each time this occurs, the government has the opportunity to do what i have done many times in a business turnaround. Fire everyone. Hire all anew. The cleansing action is powerful. When the staffing decisions going forward are made with prime consideration given to merit and capability (not always the case and quite clearly not the case in the last change) the resurgence and capability growth can be extremely powerful.

This same powerful tool can work for you when your business is in trouble. I've fired everyone in in such circumstances--when the organization needed a new direction--however in these cases virtually and temporarily and privately. All organizations need an occasional re-shuffle; over time they get tired. Years of band aids and patches mask bureaucracy, non-performing people, bloated departments, and too many layers. Organizational lethargy results from everyone doing the same thing over and over.  Fresh thinking is stifled. This needs a fix. Create a war room (a room with white board or blank walls); Gather several of your best managers; Dedicate the time it takes to fully go through the process. Put the current organization chart on one wall including all the individuals. Then announce that everyone is fired and all departments are dismantled.  Rebuild the organization chart on the blank walls, thinking through the most critical issues that need to be addressed as your guide. Minimize the layers (difficulties from a large number of direct reports - span of control - is over-rated; difficulties of communicating through layers is under-rated). “Rehire” only those individuals that each of the managers is willing to take on (nobody is inherited; these are fresh “rehire” decisions). Re-create a brand new, re-vitalized, leaner, more effective organization. You’ve created a positive crisis atmosphere.

The Credit Crises

The current credit situation clearly qualifies as a crises. Many corporations will fail due to a direct lack of credit--others due to an inability to meet loan covenants caused by sharply falling revenues or equity values or profit margins; with the same lack-of-credit-based-failure end result.

The word crises connotes negativity (instability, danger, stressful) but there can be a silver lining. An obvious crises tunes prime constituencies (employees, suppliers, partners) to the necesity for major change. The crises may allow management to take actions that it might otherwise neither have the courage, nor the environment, to effectively implement.

A sound and straightforward set of communication policies and actions to these constituencies is one key to success. When they fully understand the severity, when they see your recognition of the problems, when your pronouncements make sense; the acceptance of tough actions will be significantly improved. (A second key to success is to "step outside yourself"--next week's topic.)

When a crises is upon you, don't hide your head in the sand as has been recently practiced by some of our financial institution CEO's--get out in front and be a leader. Enlist the inputs and support of these same constituencies even if you might have to take actions they'd rather you wouldn't--like reductions in salaries, employment, bonuses, prices. You wonder at the recent, publicized management decisions at AIG: some of my business-experienced associates have said "sound management--they had to do these events to keep up morale". I couldn't disagree more. Morale is kept up when employees (and the other relevent constituencies) recognize their management has sound thinking and policies; when they believe in their leaders. Morale is diminished when employees (and the other relevent constituencies) think their management is out of touch. Most of those employees at AIG's celebratory and relaxation events and  throughout the company, were highly embarassed--in my opinion.

See more thoughts concerning crisis issues posted in A. Positive Crises: Danger or Opportunity addressable in the upper right segment of this page.

CEO Greed: the downfall of our entrepreneurial society

It seemed to work so well, our system, until it didn't. But then--without controls, regulations, boundaries, and especially without any self-discipline and balance from self-serving CEO's, the system came totally off the tracks. The excesses, corruption, greed, mis-leading positions, posturing, and general political and politicizing bullshit, have led to a condition that crushes people's lives--all generated by an environment that says "anything goes", until it doesn't.

Hey, to some degree i'm theoretically a member of the group that caused this immaculate crises; a CEO who benefitted when companies that i operated did well. But not! Fixing companies to actually perform, to make better products, to have better margins, to provide excellent customer service, to contribute to the economic welfare of their customer community, to increase share holder value in a meaningful and lasting way: that's the American (old) way.

Getting extraordinary bonuses even when performance doesn't merit, taking undue risks in leverage and asset-protection, taking giant fees for financial maneuvering, creating artificial short-term performance at the (and knowing you're doing it) expense of long term performance, negotiating golden parachutes and receiving giant payoffs even when fired for mangling a company: man what are these boards thinking about??????

I've just published a book called "The Plague of Good Intentions" (check out www.plagueofgoodintentions.com) which dissects the problems the western world has imposed upon and into the countries of sub Saharan Africa. One tiny element of that book discusses the corruption of African leaders. Yes it exists; in bountiful amounts. But (a) we caused it, (b) our corporate executives--especially in the banking and insurance industries--have just as much corruption and greed, (c) the arrangement between political individuals and donations (bribes) is a principal ingredient, and (d) in my humble opinion, without all the corporate governance rules in place, our greedy CEO's would prevail and we would have a worse corruption history than these countries of Africa (maybe we already do even despite our "rules").

Our Government in Action

This week our government enacted legislation (the so called Bailout Plan) via a process that comports totally with two of my main points of management philosophy:

A. Positive Crises, Danger or Opportunity: obviously we have/had a crises--as credit liquidity was screeching to a halt. This crises presented the need, or the opportunity, or both to at least partially remove the draconian overhang of securitized and individual non-performing mortgages. Had this issue not developed into these macro-crises proportions, this overhang may have had great and long-lasting effects. The government took the opportunity of the crises to make a one-time change in our nation's balance sheet. Take advantage of a crises in your business by making and implementing tough decisions that you would otherwise find difficult to do.

C. Decisive Action Trumps Perfection: most everyone agrees something had to be done, hardly anyone agrees with the exact structure of the legislation. Most importantly, hardly anyone believes that we would have been better off to spend several months coming up with a theoretically perfect plan. Execution is the key to any business strategy; decisive execution of a reasonably good plan.

Double Your Results by Isolation: Part II

The technique of Isolation works wonders to double-up on improved results. When we acquired Paradyne, among many, many issues to deal with were two that benefitted from isolation. We previously discussed the aged accounts receivable; the second is this resale product.

The only growth within Paradyne over the previous several years came from a product (call it X) manufactured by another company and resold by Paradyne through the Lucent (another separate company) sales force. Although this situation was locked in via long term contracts, the value added by Paradyne was virtually non-existent. Regardless, this had been the only growth area and so every department and most individuals found a way to attach themselves to it. Everyone talked about product X, how they were helping, what they were contributing. It was like a cancer, preventing everyone from putting their energies and efforts into the current and developing products of the company. So we isolated. All functions of product X, including order placement, supplier and channel interface, scheduling, the little development there was, billing, and collections were isolated into one teeny department of about 8 people: and that was their only and full time job. The other 792 people in the 800 person organization lost their product X distraction.

The isolation of the aged accounts receivable, described in a previous posting, plus the isolation of product X allowed the full energy of the remaining organization to go where it was needed; two years later we had a successful IPO.

Not Your Founding Father's MBO's

Summarizing "Not Your Founding Fathers' MBO's":
Original management by objective techniques are out of date; they miss the mark on many fronts; entrenched, manipulated, a longer time frame than business allows.
So instead use these Living Breathing Bible techniques:                                         Create concept type priorities, those with some wishful thinking but which also that clearly represent the changes required for your organization or survive and then prosper.
Lace each with as many specifics are you imagination can create, using both knowledge and intuition to create them.
Go through the difficult process of stack ranking each priority, make your management team recognize that the initiatives or investments outlined in item #4, for example, will not be funded until the specifics in item #2 are achieved.
Learn more about your organization and gain fresh thinking by assigning the priorities to others than the obvious functionaries.
Learn more about your business by thrashing through many mid-course learning-based corrections to your initial specifics.
Learn more about your progress by reassessing the specifics and prioritization as new information develops on your path to excellent performance.                                  Learn, learn, learn.....

Double Your Results via Isolation

The technique of Isolation works wonders to double-up on improved results. When we acquired Paradyne, among many, many issues to deal with were these two; both of which were optimized by the technique of isolation. The first was a portfolio of aged accounts receivable from equipment previously sold on perpetual leases. The second was the resale of a product to Lucent; that product developed and produced by a third party. This week we'll discuss the lease issue; next week the resale product.

The collection procedures for these aged leases was co-mingled within the company's accounts receivable department. While the normal accounts receivables from current product sales and these lease receivables for aged leases technically fell under the same organizational category of accounts receivable; the techniques, considerations, servicing, and attitudes required to optimize both were very different. And results for each category were sub-optimal. So we created a separate subsidiary for the collection of these lease receivables with its own management, objectives, and performance criteria. Results for the standard new product accounts receivables radically improved: results for the aged lease receivables radically improved. Isolation of issues that, while on the surface seeming to be categorically linked, have in fact sufficiently differentiating characteristics, can achieve dramatic results.

Living, Breathing Bible Part III

We’ve been through (a) concept-type priorities, (b) specifics, (c) tough-minded initial stack-‘em prioritization, and (d) scrambled assignments; To conclude this topic today I’ll address (e) many mid-course learning-based corrections, and (f) event or decision driven reprioritization.

 

(e) By launching priorities with very un-proven yet specific goals, making the list of specific possibilities extensive, and continuously challenging the team via review of those specifics, you will face many mid-course learning-based corrections. I previously laid out the specifics for the “get our balance sheet credit-worthy within 6 months” priority. Remember we created this conceptual priority, and then laced it with specifics; specifics created partially by judgment and partially by intuition. So now we’ve been underway for a while, and the team assigned to this priority creates an interim report: “we’ve discovered that we have been billing 5 days after shipping so are losing 5 days on our collections; by billing on the day of shipment we should save $3M not the $1M we estimated”, “collection procedures, originally targeted at $4M, is not achievable, customers are only 2 days late on average so practically no savings are available”, “customer terms are longer than competition by 10 days and gives us no competitive advantage; by correcting to market we can achieve $5M vs. the $2M projected”, “in addition, via this exploration, we found a new opportunity--payments are mostly coming in by mail vs. electronically so by educating and facilitating we can save 2 days, $1.5M” . The result is that the new target for the A/R portion of this objective is now $9.5M vs. the original $7M target. It goes on and on.

 

(f) When you face real-time decisions, your initial prioritization gets put to the stress test. Two of our initial priorities were #1 cash creation, and #3 re-establishing our market place product quality image. We know that all four of our priorities we considered to be mandatory, but we initially determined that #1 cash creation just had to be ranked higher than #3 product quality image because, without meeting bank covenants on cash, the company will be out of business. So, because of that, initially an investment to re-tool several products and to market those improvements was put on hold. However today we’re now assessing new inputs. First, the cash collection actual results have been above target, and those targets have been increased; second our largest customer has made warning threats to remove us from the bidders list if there was not a quality improvement program in place. Time for a reassessment based on new realities! We now decide that #3 product quality is ahead of #1 cash creation; and therefore the priorities will be  reprioritized. 

 

By following steps (a) through (f) your organization is highly engaged in gaining breakthrough results, and you and they are learning rapidly concerning the inner workings of your business and those entrusted to gain further results. [TE1] 

---

 [TE1]Published 06/22

Living, Breathing, Growing Business Bible: Part II

Remember last weeks’ (a) concept-type priorities, and (b) specifics, out of a total (a) through (f) list? Those two components represent the “boring”, “everyone can do them”, “there’s no break-through here”, part of this Living, Breathing, Growing Business Bible idea. From here on it gets a bit more interesting, and powerful. Next on the list is (c) tough-minded initial stack-‘em prioritization and (d) scrambled assignments. Here we go on these:

(c) The priorities you develop represent the core goals of your corporation. For illustration, let’s say you have finalized on four priorities; #1 cash creation (as illustrated last week), #2 establishing a market presence in China, #3 re-establishing our market place product quality image, and #4 reduction of expenses to match revenue projections. You say “it is imperative to do all of these to survive”. But there are many conflicts:
• #1 will require tightening customer payment terms and reducing inventories for rapid-to-market sales opportunities; in conflict with #2
• #4 will require a reduction in field personnel and technical support, in conflict with #3
• And on and on as additional uses of cash clash with the need to increase cash; if you’ve written these priorities with sufficient specificity and detail, there will be many conflicts
So here’s where the fun and the real learning starts. Your team must force rank these four priorities. Stack ranking is an old idea applied to various lists, such as personnel. In this case, if done in a lazy, idle way, it will be easy: oh it’s 1,3,2,4 in that order. But don’t be lazy, get into real specifics and tough tradeoffs. You may have a half-day debate on the merits of gaining cash by reducing inventories vs. gaining a market presence in China via placing inventories on location. Force ranking done correctly is tough, hard work; especially if you conclude that your company cannot survive without both these priorities being implemented successfully. But the result will be astounding, measured in learning about your business’s dynamics, learning about the abilities of individual mangers to find solutions, gaining creation of new ideas, and making big jumps in the very specific clarity of your overall direction. These outcome products make your organization smarter, faster, and more together.

(d) Scrambled assignments is another breakthrough. 99.9% of CEO’s would select the person on their staff most closely aligned with a given priority to be one in charge of it: #1, cash creation, would always go to the CFO. Change the paradigm. Learn many things simultaneously. Put the Operations managers in charge: what does that accomplish? How well can the manufacturing manager run a project when he doesn’t have direct authority (will need inputs and insights from all disciplines)? What insights might result from a completely different perspective? How well do other functional managers (like the CFO) deal with reporting (on this priority) to someone else?

Living, Growing, Breathing Business Bible: Part 1

Rather than a tool to calculate bonuses, the primary purpose of this 4th generation MBO tool is to have your organization grow smarter, in an exponential way, about your markets, your business, your company, your capabilities and yourselves. This approach is the most powerful management technique I have ever utilized; the structure and specifics become the underlying agenda for your management team and its decisions. You create this living, breathing, growing business bible by combining (a) concept-type priorities (b) specifics for each even though your knowledge base is insufficient, (c) tough-minded initial stack-‘em prioritization, (d) scrambled assignments, (e) many mid-course learning-based corrections, and (f) event or decision driven reprioritization. I’ll discuss (a) and (b) today:

Step back, stretch your thinking, to create your concept priorities, such as: get our balance sheet credit-worthy within 6 months (or our primary lender will foreclose), re-establish our market place product quality image within 9 months (or our distributors will abandon ship), match our expenses with projected revenues and simultaneously create a revitalized organization within 6 months (we must have personnel reductions, but the resulting smaller organization has to improve performance), create three new products and successfully launch into the market place within 12 months (to replace dying products), establish a bona-fide market presence in China within 12 months (as our European market is collapsing). These are priorities that are created by you and your team, priorities whose achievement is necessary to make a significant step-change in your company’s performance and ongoing prospects. At this point, you may now know how to get there: in fact it’s better to not encumber your thinking with too much reality on specifics. These goals answer the question: “What must we do do, not only to survive but to also begin a positive surge, and how fast?” These goals result from brainstorming, from director input, from board or bank or creditor pressures, and from just plain common sense.

Now its time for specifics. For an example, I’ll use the first, “get our balance sheet credit-worthy within 6 months”. In our case this means create cash, and although I have no idea how to do it we’ll need $25M more in 6 months than we have now. There are a finite number of ways to generate cash in relatively short order, all relating to the balance sheet. P&L items such as pricing, product cost, margins, and purchased materials will help in the long term, but not in our critical 6 month window. So we look where we can, and with insufficient data but some judgment, pick every possible area of improvement and create individual targets: Accounts receivable is area #1 [customer terms $2M, collection procedures $4M, billing timing (when do the 30 days actually start) $1M]; Capital projects #2 [reduction, even stopping projects underway, $3M]; Accounts payable #3 [supplier terms $1.5M, payment policies $1M]; Inventories [work in process $3M, obsolete (sell don’t keep) $1M, finished goods (run specials, discounts to distributors to purchase) $3M], Raw materials [run down to tight levels $1M]; get repayment on loans to distributors $1.5; sale of excess assets like patents, equipment $3M. Whew! There are lots of ways to skin a cat, and we need to use them all. Now we have one of our priorities both “in concept” and with specifics. Next week we’ll take step #3 and show how to create stack-‘em prioritization and the benefits of scrambled assignments.

Hard Targets With Soft Data

Albert Bandura, in Principles of Behavior Modification, stated: "One of the major obstacles to the development of effective change programs arises from the failure to specify precisely what is to be accomplished.  When the aims remain ambiguous, learning experiences are haphazard."

Creating objectives or priorities is hard work if you do it right; you might as well get as much benefit from the process as you can. Create a learning processvia a living-growing set of objectives: your business bible.

Here's a real example. You have determined your number one priority is to create $21M net in cash by October 1. You know some of the obvious categories from which cash can be obtained, but not all of them and not by how much in each. Create hard targets using soft data, a combination of intuition, outside-the-box thinking, judgment, data, opinions and guesses and create an embryonic plan--determining targets such as these:

Working capital $10M
     -collection policy 3
     -w.i.p. inventory 2.5
     -finished good inventory 5
     -raw material inventories 5
Capital expenditures reductions $7M
Sale of non critical assets $4M
New expense reductions $3M
Total $29.5

Each month your team meets to go over progress. Some targets will be attainable, some new target opportunities may appear, some will have shortfalls. It's up to you to determine when sufficient creative juices and energies are being applied. At each month you can then amend this plan accordingly. Your knowledge of where the cash is buried is being enhanced, your awareness of the capability of your individual managers is going up, and your cash balances are growing. The key is to set these individual categorical targets, breaking it down to the smallest level of detail measureable, and have your team go at it.