Bold Exec

IT DOESN'T TAKE HINDSIGHT

Here's a short business test. Try it, it's not difficult. Suppose you have an extremely large revenue and profit project:; I mean extremely large. It's success will be of overwhelming importance to your company.  It utilizes really complicated technology in an extremely harsh environment, but others have done it and had no failures. Failure is seen to be of extremely, extremely low probability. However, a failure would be unprecedented in scope, and not only create a problem which threatens your entire company but the lives and fortunes of thousands of others as well. And you have no idea how to cope with such a failure. You face three choices (sorry, you'll have to click through to see those choices):

Unions and Government: Oil and Water

We must decide that organizing government employees is illegal, and that public labor unions must be abolished. Why? Because balance of power, or balance of will, does not exist. In a corporation, if management gives in too often over an extended period and resulting work rules, wages, pensions, and benefits choke the company, there are several potential outcomes to adjust and correct. Management, recognizing the company's financial limits, convinces the union that there have to be changes and an accord is reached to keep all entities alive. Or a bankruptcy court mandates a diminishment of some provisions of the labor contracts, as well as hacking into the rights of secured debt, unsecured debt, and equity holders. Or the company fails and everyone loses.

In government there is no balance of power or of will. The unions are permanent, they persevere, they wear down any elected opposition. Their counter-parties--elected mayors, governors, commissioners--know that they will be skewered in the media and within the electorate if they try to rein in the negotiated contract provisions on seniority, work rules, pay, and pensions. No benefit accrues to the elected officials for taking them on: au contraire any such action results in creating a vocal, loud and powerful enemy. Here are some examples:

Pavlov's Dog

  Pavlov's experiments related a single event, a stimuli, to a dog's reactions. The ringing bell, when implemented during feeding events, eventually was of itself sufficient to initiate the dog's salivary reactions.

Humans are a little more complex and can process multiple incentives, multiple stimuli, and multiple reactions. But sometimes we're not more intelligent. I hate to keep picking on yesterday's General Motors: I wouldn't if their atrocious management practices were isolated rather than just being more-publicized examples of broad practice.

The General Motors of States--California

Many people have railed about General Motors management over the years, including me. Their management sins,however, pale beside those of the state of California. Try these on:

• __________________________________________________

• What if the UAW contributed millions of dollars each year to the personal account of the GM CEO, and/or to the personal accounts of the CEO candidates, right before contract negotiation season? (jail time) Yet the California prison guards union does exactly that. They contribute--to candidates for Governor--millions of dollars per campaign, and then that Governor negotiates their labor contract. Wonder why the pay and pensions for prison guards are double (triple?) what they should be? Wonder why the cost of the prison system in California is one of the many budget breakers?
• There's more; read on:

Nits for "Nots"

Cost cutting is an art, not a science. Anyone can reduce costs, what brainpower does it take to fire a lot of people. Those, however, who recognize this as an art do it in artful ways, looking at systematic improvements, creating systemic thrusts, re-thinking how the organization works, assessing that is really required.

Those who think they need to reduce costs but have no idea how to go about it, issue press releases about the most inane, ridiculous, and meaningless cost controlling ideas. I label these "nits", meaning they are irrelevant as a cost reducing item, for "nots", meaning those that proclaim these are useful and meaningful have not any idea, about anything. Don't buy their stock, or their story. Here are some examples:

Bernie Ebbers, as WorldCom was imploding all around him and who was billions short of avoiding bankruptcy, stopped watering the plants in their corporate headquarters building.

Monster CEO Iannuzzi proclaimed he was eliminating paper cups in the break rooms.

And South Carolina governor Mark Sanford instructed his staff to use both sides of post-it notes.

How Does It Know?

Peters and Waterman's best seller, In Search of Excellence, proclaimed to determine which companies were truly great and what made them great. Collins' best-seller Good to Great made the same claims. Both authors did a tremendous amount of research and created some interesting and useful observations. But the arguments in both cases had a fatal flaw, almost exactly the same flaw in each case.

"The Change Will Come From Me"

Individuals who have no experience in leadership or management-- reporters, tv and radio analysts, commentators, pundits of all stripes--should be more savvy than to openly express their naivete by stating: "Many of Obama's appointees have been in government before, and in the Clinton administration: where is the change coming from?"

Their view is, of course, supported by their experience of the last 8 years where the President was, more or less, simply following the dictates of his cabinet and party leaders and other cohorts. This leadership vacuum had exactly the same results for our government that it has in companies; failure. When I come into a company that has failed as a "turnaround CEO" I have no empathy for the CEO who led it there and remove him or her immediately; but I don't necessarily fault the direct reporting staff for all the prior mistakes. Some obviously have attitudes or capability deficits that demand their immediate release, but for the others I say "History is history--your actions today and tomorrow will be the basis of my evaluation."

So to all those pundits: ease up! A true leader has the vision, puts strong people around him, listens, makes clear decisions, communicates them effectively, sets the tone,  solicits constructive even if contradictory feedback, and then expects results. We'll have a good look at the scorecard in a year or two, but for now Obama is doing everything right.

Check out more on leadership in Category L. Leadership.

Leadership via 4th Generation Objectives: Part IV

Last in the Leadership-via-4th-generation-objectives series are two items; (e) mid-course learning corrections and (f) event or decision driven reprioritization. Both of these help create a living, breathing business Bible. You and your organization will become better informed about your business, your decisions will become more intelligent and correct, and your organization will recognize that you are a leader crisply dedicated to making the organization's performance improve.

Regarding (e) a simple example: If the initial judgment in the cash-by-working-capital objective was that $3M could be achieved by changing payment terms, but 60 days later the new judgment is a bona fide but only $2M, change it.
If the initial judgment that $4M could be achieved by better collection procedures and the current judgment is $5M, change it.

Rearding (f) another simple example: If creating a certain cash balance had been the #1 priority but through cash collections, good operating performance, and bank leniency it is still important but not as critical, reassess. Maybe its time to reprioritize, put investments into the European market ahead of cash collection in the priority stack.

When these types of decisions are made with your team, they clearly all share in the decision process and they'll be buying into these substantially better informed objectives and the amended results on their bonus calculations. At bonus time your payout calculations will be both consistent with their expectations and most importantly with the current (not 15 months' ago) view of what is important.

Leadership via 4th Generation Objectives: Part III

Remember, these 4th generation objectives are not a tool simply for the purpose of calculating bonuses.The primary is to have your organization grow smarter, in an exponential way, about your markets, your business, your company, your capabilities and yourselves. Last week I discussed (a) concept-type priorities, and (b) specifics for each even though your knowledge base is currently insufficient. This week (c) tough-minded initial stack-‘em prioritization, and (d) scrambled assignments. Next week I'll finish with (e) many mid-course learning-based corrections, and (f) event or decision driven reprioritization.

The priorities you develop represent the core goals of your corporation. For illustration, say you have finalized on four priorities; #1 cash creation, #2 establishing a market presence in China, #3 re-establishing our market place product quality image, and #4 reduction of expenses to fit with 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 real learning starts. Your team must force rank these four priorities. Stack ranking is an old idea applied to various lists, such as personnel. Don’t be lazy and do the hard work, getting 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.

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?

This is hard work, but the bang for the buck is high!

Leadership via 4th Generation Objectives: Part II

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. You polish your credentials as a leader when you display the courage, conviction, and effort to implement this effectively. 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 currently 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-type 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 not 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 know 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.

Leadership via 4th Generation Objectives: Part I

Leaders don't put up with old practices; with methods which allow game playing; with procedures that are geared to artificially inflated yearly bonuses without accompanying real performance. Yet the typical application of Management by Objectives (MBO), which permeates decades of management literature and practice, fits those negative characteristics like a glove.

Determining specific objectives, managing by those objectives, identifying specific stated goals, and holding individuals responsible for and grading them on their performance toward those objectives is a great concept.  Managing any organization without written, specific and measurable objectives would be difficult. I doubt that it is done often; and when it is, I doubt it is done for long. However, while fundamentally correct, it is also well out of date.

First, the process has become so entrenched most everyone with any savvy knows how to play the game. Managers can structure objectives to optimize their own bonuses or payouts rather than the organization’s performance goals. 

Second, MBOs hardly ever precisely target a company’s true priorities. Accurately setting a stretch but achievable target which is sufficiently difficult so that it takes over a year to accomplish implies the ownership of a really powerful crystal ball. The pace of business today is way too rapid to lock in a program with your CFO, let's say, in October and calculate his reward fourteen or so months later.

Third, defining objectives is a labor-laden process, so it’s performed only once a year, and as a result no further learning occurs during the course of the year. Typcial objective programs lack any real-time feedback, recalibration, and all those things you do in the normal course of management.

So throw out your existing MBO program. You need a specific process that targets your corporation’s top priorities in detail and lives and breathes and grows as circumstances and markets change. The process must be straight-forward, it must generate intelligence and improvements through constant review, and the execution must challenge the organization.  I’ve developed a fourth generation MBO process that meets all these criteria.

Take this week to think about the problems in your existing MBO or objectives or bonus-criteria program.  Next week we'll lay out the "how to" concerning this 4th generation approach.

Leadership via Harvesting Community Wisdom

If you isolate yourself from the organization and its inputs and inherent wisdom, that same culture will contribute little to and rather significantly hinder any progressive change. To significantly improve your chances of success, you must break through the barriers and enlist your employees and their ideas in the cause.

When you deliver honest, meaningful and straightforward messages on the issues important to your business directly to all principal constituencies, you instill an immediate one-on-one sense of sincerity, turn on your employees' brains, and by subsequent listening reap their group wisdom.

James Surowiecki’s highly acclaimed The Wisdom of Crowds: Why the Many are Smarter than the Few and How Collective Wisdom Shapes Business, Economies, Societies, and Nations provides research-based confirmation:

“under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them.  Groups do not need to be dominated by exceptionally intelligent people in order to be smart.  Even if most of the people within a group are not especially well-informed or rational, it can still reach a collectively wise decision”

When all individuals have some information about the state of the company, its priorities and its general direction, good ideas and effective implementation come out of the woodwork. You empower the entire organization and:

• Capture the good ideas and business intelligence inherent within the organization.
• Create an overall environment that will be more receptive to change.
• Enable middle-management to make more confident decisions.
• Solidify your leadership credentials.

So why be smart and stupid simultaneously. Recognize that you don’t have all the great ideas. Open up the lines of communication. Interact with your employees. Learn about and utilize the subtleties of your own corporate culture. Then select the cream of the wisdom you’ve gathered to steer the company on the best path.

Leadership via making followship effective

Leadership is of course epitomied by the act of leading. To lead one must have followers, and followers are the most effective and efficient when they know the course, the direction, the strategy. The classic example is the captain of a ship; if he decides on a course and sticks with it, everyone knows their roles. If he constantly changes, then all the followers get confused as to what their next action should be.

Creating a sound but not necessarily brilliant strategy that is relentlessly executed beats a constantly changing (and therefore doomed to poor execution) search for perfection. We'll call that perfect strategy true North. There’s not an executive in the free world who doesn’t at least say he has a strategy. Most of them actually have one, of sorts. It may even be a good one. After all, what is a strategy but a description of a company’s problems and opportunities along with what it takes to solve them?  But the creation of a strategy, whether brilliant or not, is only one small step.

So after considering all the necessary factors, determining a sound strategy and getting it to the “good enough” stage. get on with it. Don’t get bogged down by the worries of this or that issue; work them out as you go. This is your Northwest Strategy.  Everyone (management, directors, owners and security analysts) knows it’s not perfect. Hopefully everyone also knows it’s virtually impossible to have a perfect strategy. But if the course is sound, it makes sense, it contains no non-starters, it fits with the communal knowledge of the various stakeholders, it is describable and communicable, and it creates purpose and eliminates distractions, you and your business will be a winner.

See more on this facet of leadership at http://www.boldexec.com/boldexec/decisive_action_trumps_perfection/index.html

Leadership via Clarity of Purpose

A leader finds a way to understand what's important; those topics that are critical to implement--or change--by the use of leadership techniques. He or she listens carefully to all his constituencies, sifts through this pile of inputs to find the ponies, carefully defines those that are the most important or critical, and then corrals the energy, communications and execution plans necessary to create success. Your success as a leader, and the success of the enterprise, depends on doing this well. Two componenents of this approach merit emphasis.

“Critical Topics”  means just that. Any business will face a laundry list, such as product costs, expense levels, product line proliferation, too many facilities, inadequate management, estranged customers, or employee morale. You can’t fix everything at once. Do the tough work of determining those several that are critical, testing against these three factors: (a) “do or die”, gotta fix this one, (b) fixability, don’t tilt at windmills, and (c) impact—including solving multiple problems with one action. Those problems can be multidimensional, and usually are. They can be somewhat complicated, and usually are.  If not, they would’ve likely been fixed by now.

“Carefully Define” also means just that, thinking beyond the obvious so you attack the cause not the effect. High admin expenses may not be simply due to a bloated staff, but rather too many sku’s.  High manufacturing costs may not be a design or operational problem, but rather caused by marketing promises such as lead times that are inefficiently short or catering to customers’ every possible whim. An example of both is the 2007 Dodge Nitro, available in 167,000 different combinations (color, trim, etc.) while selling about 37,000 units.

Leadership via Going Deep

CEOs must be broad in their approach: manage every functional area, integrate multifunctional decisions, and cover the waterfront. Even if done reasonably well, those actions are insufficient. Relying on someone else’s (your management team's) word isn’t good enough. To significantly amplify your impact in many ways, don’t just be horizontal; add in an occasional vertical slice and: Go Deep.

On one or a few chosen pending decisions, after you have received the usual inputs and recommendations in the traditional 'info-flows-upward" way; utilizing whatever excuse you want dive down into the organization and interact with all the involved front-line individuals--mid-line managers, administrators, production staff, operators, programmers, customers and sales individuals. Go into your retail outlets in disguise, call in to customer service anonymously: dive in, Go Deep.

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No technique has greater potential for a profound impact. Going Deep obviously increases your short-term workload but in the end you’ll be smarter, your organization will become more effective, and as a result your job will get easier. The permanent benefits from this one-time (or a couple times) extra work are extraordinary:

• Achieving the best decision you can make on this particular subject, but that's not as important as:
• making the information flow and judgments on all future projects much tighter and more carefully done, but that's not as important as:
• Establishing your credentials as a no-nonsense, involved, leader

There's more detail at:

http://www.boldexec.com/boldexec/real_world_decision_making/index.html

Leadership via personnel decisions

Leadership is really rather simple to describe. A leader is a person who gains the confidence and support of his or her troops, employees, or followers by: determining and engaging in a rational plan, caring for and nurturing his followers, demonstrating a willingness to make good although tough decisions, rewarding those who perform and penalizing those who do not with minimal interference of politics or personal relationships, provides an excellent example of character, communicates in a straightforward and open way, exudes reality-based optimism, and on and on.  Everyone has their “list” of 7 habits or 10 principles or x whatevers.

Any list of leadership traits is like a list of “good intentions”. As Peter Drucker says “good intentions are no excuse for incompetence”. And likewise, having a handy list of leadership traits is also no excuse for not being one. As I have pounded through this series, execution--what you actually do, not happy-sounding slogans, banners, or lists--is what makes you a leader; what enables your organization to realize the kind of success potential its business idea deserves. So here goes. For the next several weeks I’ll re-present special items from 2007 blogs packaged in a leadership light.

The first is making decisions about people. Possibly no one decision making task is as important. Your organization has a pretty good idea of who deserves to be exalted, demoted, fired, promoted, rewarded, punished. They see their everyday actions and results unpackaged and unvarnished. Make those tough decisions on personnel. Don’t be swayed by personalities or relationships. Get inputs from within the organization. And use the personality matrix to provide clarity. You can find more detail on the personality matrix in Category B. The Personnel Matrix: Smart and Fast, listed to the right. But here’s a quick summary.

On the chart, heart means “good attitude, loyal, heart in the right place”, the plus sign means “can do their job well”, the other two signs are the antitheses and obvious. Separating these two usually co-mingled chracteristics can give you tremendous insight into the decisions required. People in the:

o        UL quadrant are “Don’t Lose ‘Em” Performers; keep them fully motivated and fully compensated. Don’t ever lose one!
o        UR quadrant are “Mercenaries”. Never trust a Mercenary. Reap the benefits while they’re there and pull the plug on your own time frame.
o        LL quadrant are “Still Valuable” employees, demote them back to their ability level and create a “Don’t Lose ‘Em” employee.
o        LR quadrant are “Poisons”: Fire Poisons faster than you can sign the pink slip, even if you temporarily have to do that job yourself.

Leadership; What Is It?

αρχηγία, ηγεσία

That's Greek for leadership, and probably appropriate as the introductory comment to this section. Look in any dictionary, all the definitions tell you nothing: "the function of a leader", "displaying leadership potential", "the leaders of a group", "the position of a leader", "a person or thing that leads". Okay, armed with those definitions you're prepared to be one! What is leadership? We all talk about it, but it's tremendously difficult to define. We all know it when we see it, but how do you get there?

This section of about 8 blogs extracts management concepts laid out in last year (2007's) blogs and wraps them in a leadership cloak. The concept of leadership is an important ingredient to you and your organization's progress--it comes from how you do your management job. You can manage without leadership qualities; and you can lead without managerial qualities; the combination however is powerful.