Monthly Archives: June 2012

Use a Telescope, Binoculars, and a Magnifying Glass

A telescope, binoculars, and a magnifying glass…all are a form of optics that each help the eyes of the viewer to zoom in on something hard to see. What is the key differentiation between each? How large is the object you want to see, and how far off? If, for instance, one wanted to look at a molecule, a microscope would be preferred to any of the three, even over the magnifying glass. However, if the intricacies of a solar system were of interest, a magnifying glass would be of no real use. 

Whether your company is in start-up mode, or you are trying to re-energize it for growth, one must know what is sought after, how to view it through the right lens, study it, and develop a plan as to how to do it. Boldly, I would say that any company in existence needs to approach its goal setting and performance measurement using tools that are scaled to the need appropriately. Peter Cohan, in an article published for Inc. online yesterday, advances this argument persuasively. He argues that the mission, long-term goal (BHAG in the vernacular of Jim Collins in Good to Great), and short-term goals that feed the other two are matters of scope and perspective, but that all are necessary and important:

1. Mission:What is the enduring purpose of the venture?

To answer this, ask yourself what problem matters most to your venture and why you are willing to go years with little pay or sleep to solve it.

Charlie Javice is co-founder and CEO of PoverUp, a social network for university students to get involved in social enterprises. As Javice told me, “One of the reasons I started PoverUp was that in the summer of 2008, I volunteered in a border refugee village in Thailand. That’s where I realized that a little money (I bought 50 donuts for $1) could go a long way to helping poor people start businesses that would lift them out of poverty.”

2. Long-term goal:What will this company look like in five years?

The answer to this question is of primary importance to a start-up’s investors who want a return on their capital– by getting acquired or going public.

Evernote CEO, Phil Libin, told me in earlier this year after raising $70 million to add to storage service provider that his goal was to build a 100-year-old public company.  As Libin said, “I think that Evernote as a publicly traded company could be worth $10 billion, $100 billion or more.” He guessed that the IPO would happen in 2013, when Evernote got big enough, but he wanted the IPO not to disrupt Evernote’s strategy or how the company works.

3. Short-term goal: What frugal experiments must we make to reach our long-term goal?

If the mission and the long-term goal are the 1% of the inspiration needed to build a successful venture, the short-term goals are the 99% perspiration. Create a series of real options. I mean that you should make small, inexpensive bets–a win means that the venture can go on to the next short-term goal; a loss means a chance to learn what went wrong and do it better the next time.

BrewDog’s co-founder James Watt set five short-term goals at his craft beer maker’s outset:

  1. Find something to do after the co-founders quit their corporate jobs.
  2. Decide whether that should be crafting beer.
  3. Create buzz among influential beer bloggers.
  4. Get a distributor in the country where they had created buzz.
  5. Convince a bank to loan money to build a facility to satisfy customer demand.

Learn from these innovative business owners and go create your own “optics” for success. Develop the ability to simultaneously think about what execution matters today, what you want the organization to become in the next few years, and how the world could be improved by your contribution over a lifetime. Manage based on these guiding objectives and you will increase your likelihood of success manifold!

Founders Overdose on “Sweets”

 

How can too much of a good thing be very very bad in management? Imbalance, for one, is a perfect example of “overdosing” on what, in isolation, is innocuous. In the Research Triangle Park area of North Carolina, like the Bay area of California, or a certain part of Massachusetts, technology companies abound and the media is in love with the fruits of the labors of the company founders. Certainly, without the contribution of needed jobs, tax revenues, and similar benefits, the local economies in these regions would suffer. But, on a far more local level–that of the management of a team of people–there can be an inherent problem that is both insidious and solvable.

The concentration of too much emphasis on software development skills, for instance, to the exclusion of other needful disciplines can become a company’s undoing in an imperceptible yet profound way. We must acknowledge that, as human beings, we are most comfortable surrounding ourselves with others who think similarly to us, have homogeneous backgrounds, and understand what we’re trying to communicate  quickly. The danger, though, is one of management myopia. Without a team of executives who bring complementary viewpoints–that are different yet legitimate in their own right–it becomes easy to suffer from the group-think phenomenon like a bunch of lemmings.

Organizations that allow themselves to be managed by cookie cutter leaders are often blindsided by development that Porter’s Five Forces, a SWOT analysis, or common sense in the eyes of an outsider could have anticipated. Market shifts–whether in the realm of sales, finance, operations, or a myriad of other subsets–when realized too late can lead to a company’s fall into a type of death spiral. Turnaround practitioners far and wide have witnessed the phenomenon more times than they’d like to admit and cringe upon encountering it because they know it could have been avoided.

One of the great turnaround consultants I studied in performing research that led to the establishment of the Turnaround Management Association was Donald Bibeault. Bibeault wrote that, “A special case of imbalance in the top team–particularly at the board level–is a weak finance function. This may appear through the company as a general phenomenon, resulting in inadequate financial and accounting controls. But even when these systems are perfectly adequate, their message may not be heard at board level because the finance function is not strongly represented there.”

What should we make of such an observation, then, in our own companies? Firstly, that true outside boards of directors with balance can be a great asset to an organization. These veterans have “been there, done that!” Secondly, as one goes about building a team, become more self-aware of the temptation to populate the organization with a clique of robots, who while very intelligent in their domain, are ignorant on many other topics. Thirdly, consider the value of co-founders and mentors whose life experience is very different than one’s own–albeit they should have been successful in whatever they have previously pursued.

Don’t overdose on what is sweet–do what is nutritional for your organization!

What Can EQ Do For You?

Whether your executive team is trying to evaluate cultural fit, develop a post-merger integration strategy, or simply run a business, emotional intelligence is the key to decision making.  Some proof of the benefits of superior emotional intelligence:

1. The US Air Force used the EQ-I to select recruiters (the Air Force’s front-line HR
personnel) and found that the most successful recruiters scored significantly higher in
the emotional intelligence competencies of Assertiveness, Empathy, Happiness, and
Emotional Self Awareness. The Air Force also found that by using emotional
intelligence to select recruiters, they increased their ability to predict successful
recruiters by nearly three-fold. The immediate gain was a saving of $3 million
annually. These gains resulted in the Government Accounting Office submitting a
report to Congress, which led to a request that the Secretary of Defense order all
branches of the armed forces to adopt this procedure in recruitment and selection.
(The GAO report is titled, “Military Recruiting: The Department of Defense Could
Improve Its Recruiter Selection and Incentive Systems,” and it was submitted to
Congress January 30, 1998. Richard Handley and Reuven Bar-On provided this
information.)
2. Experienced partners in a multinational consulting firm were assessed on the EI
competencies plus three others. Partners who scored above the median on 9 or more
of the 20 competencies delivered $1.2 million more profit from their accounts than
did other partners – a 139 percent incremental gain (Boyatzis, 1999).
3. An analysis of more than 300 top-level executives from fifteen global companies
showed that six emotional competencies distinguished stars from the average:
Influence, Team Leadership, Organizational Awareness, self-confidence,
Achievement Drive, and Leadership (Spencer, L. M., Jr., 1997).
4. In jobs of medium complexity (sales clerks, mechanics), a top performer is 12 times
more productive than those at the bottom and 85 percent more productive than an
average performer. In the most complex jobs (insurance salespeople, account
managers), a top performer is 127 percent more productive than an average performer
(Hunter, Schmidt, & Judiesch, 1990). Competency research in over 200 companies
and organizations worldwide suggests that about one-third of this difference is due to
technical skill and cognitive ability while two-thirds is due to emotional competence
(Goleman, 1998). (In top leadership positions, over four-fifths of the difference is
due to emotional competence.)
5. At L’Oreal, sales agents selected on the basis of certain emotional competencies
significantly outsold salespeople selected using the company’s old selection
procedure. On an annual basis, salespeople selected on the basis of emotional
competence sold $91,370 more than other salespeople did, for a net revenue increase
of $2,558,360. Salespeople selected on the basis of emotional competence also had
63% less turnover during the first year than those selected in the typical way (Spencer
& Spencer, 1993; Spencer, McClelland, & Kelner, 1997).
6. In a national insurance company, insurance sales agents who were weak in emotional
competencies such as self-confidence, initiative, and empathy sold policies with an
average premium of $54,000. Those who were very strong in at least 5 of 8 key
emotional competencies sold policies worth $114,000 (Hay/McBer Research and
Innovation Group, 1997).
7. In a large beverage firm, using standard methods to hire division presidents, 50% left
within two years, mostly because of poor performance. When they started selecting
based on emotional competencies such as initiative, self-confidence, and leadership,
only 6% left in two years. Furthermore, the executives selected based on emotional
competence were far more likely to perform in the top third based on salary bonuses
for performance of the divisions they led: 87% were in the top third. In addition,
division leaders with these competencies outperformed their targets by 15 to 20
percent. Those who lacked them under-performed by almost 20% (McClelland,
1999).
8. Research by the Center for Creative Leadership has found that the primary causes of
derailment in executives involve deficits in emotional competence. The three primary
ones are difficulty in handling change, not being able to work well in a team, and
poor interpersonal relations.
9. After supervisors in a manufacturing plant received training in emotional
competencies such as how to listen better and help employees resolve problems on
their own, lost-time accidents were reduced by 50 percent, formal grievances were
reduced from an average of 15 per year to 3 per year, and the plant exceeded
productivity goals by $250,000 (Pesuric & Byham, 1996). In another manufacturing
plant where supervisors received similar training, production increased 17 percent.
There was no such increase in production for a group of matched supervisors who
were not trained (Porras & Anderson, 1981).
10. One of the foundations of emotional competence — accurate self-assessment — was
associated with superior performance among several hundred managers from 12
different organizations (Boyatzis, 1982).
11. Another emotional competence, the ability to handle stress, was linked to success as a
store manager in a retail chain. The most successful store managers were those best
able to handle stress. Success was based on net profits, sales per square foot, sales
per employee, and per dollar inventory investment (Lusch & Serpkeuci, 1990).
12. Optimism is another emotional competence that leads to increased productivity. New
salesmen at Met Life who scored high on a test of “learned optimism” sold 37 percent
more life insurance in their first two years than pessimists (Seligman, 1990).
13. A study of 130 executives found that how well people handled their own emotions
determined how much people around them preferred to deal with them (Walter V.
Clarke Associates, 1997).
14. For sales reps at a computer company, those hired based on their emotional
competence were 90% more likely to finish their training than those hired on other
criteria (Hay/McBer Research and Innovation Group, 1997).
15. At a national furniture retailer, sales people hired based on emotional competence had
half the dropout rate during their first year (Hay/McBer Research and Innovation
Group, 1997).
16. For 515 senior executives analyzed by the search firm Egon Zehnder International,
those who were primarily strong in emotional intelligence were more likely to
succeed than those who were strongest in either relevant previous experience or IQ.
In other words, emotional intelligence was a better predictor of success than either
relevant previous experience or high IQ. More specifically, the executive was high in
emotional intelligence in 74 percent of the successes and only in 24 percent of the
failures. The study included executives in Latin America, Germany, and Japan, and
the results were almost identical in all three cultures.
17. The following description of a “star” performer reveals how several emotional
competencies (noted in italics) were critical in his success: Michael Iem worked at
Tandem Computers. Shortly after joining the company as a junior staff analyst, he
became aware of the market trend away from mainframe computers to networks that
linked workstations and personal computers (Service Orientation). Iem realized that
unless Tandem responded to the trend, its products would become obsolete (Initiative
and Innovation). He had to convince Tandem’s managers that their old emphasis on
mainframes was no longer appropriate (Influence) and then develop a system using
new technology (Leadership, Change Catalyst). He spent four years showing off his
new system to customers and company sales personnel before the new network
applications were fully accepted (Self-confidence, Self-Control, Achievement Drive)
(from Richman, L. S., “How to get ahead in America,” Fortune, May 16, 1994, pp.
46-54).
18. Financial advisors at American Express whose managers completed the Emotional
Competence training program were compared to an equal number whose managers
had not. During the year following training, the advisors of trained managers grew
their businesses by 18.1% compared to 16.2% for those whose managers were
untrained.
19. The most successful debt collectors in a large collection agency had an average goal
attainment of 163 percent over a three-month period. They were compared with a
group of collectors who achieved an average of only 80 percent over the same time
period. The most successful collectors scored significantly higher in the emotional
intelligence competencies of self-actualization, independence, and optimism. (Selfactualization
refers to a well-developed, inner knowledge of one’s own goals and a
sense of pride in one’s work.) (Bachman et al., 2000).

-Cary Cherniss, Ph.D., Rutgers University

What role does emotional intelligence (EQ) play in your organization’s management? How can it become more integral?

Successful Acquisitions Focus on Integration

Acquisitions are more prevalent when economies are tough. Companies hope that they will be able to achieve economies of scale by combining functions that require repetitive tasks. What is often underestimated is the work that must be done post-merger to actually experience the desired results. Yesterday, we examined the role of cultural due diligence in assessing the promise of combining efforts with another company. We assume that that assessment has been done and the decision was made to proceed. What is at issue is how to proceed!

Price Waterhouse Coopers conducted research that indicates that approximately 85% of acquisitions are seen as failures after the fact. In the UK, Cass Business School at City University of London studied 12,339 deals between 1984 and 2008. The findings were that price was not the best predictor of success, but that integration of the two companies was. The CEO Rountable recommends the following process and checklist for better integration:

Create a master to-do list broken down into themes including key items that arose in due diligence.

  • Allocate a manager, for each theme.
  • Be realistic with timetables.
  • Break items down into actions within 30, 60 and 90 days.

Checklist:

Finance/Costs

1. Get control of the bank accounts. Ensure all accounts are receiving the best group interest rate.
2. Establish operating budgets including capex with authorization guidelines.
3. Establish a new management information timetable. Metrics will be key.
4. Review balance sheets for adequacy of provisions.
5. Drive through planned cost savings quickly and effectively with clear communication.

People

1. Establish a reporting structure to ensure continuing trading is seamless.
2. Review reward structures to ensure continuity of management.
3. Anomalies between acquirer and target sales commissions will require urgent action as sales teams talk.
4. Quickly review of problem employment contracts and put resolutions in place to minimize exposure.
5. Organize immediate sales & customer service training.
6. Establish a key meetings schedule to allow free and timely flow of information.
7. Establish a clear understanding of the authority levels of the target’s leadership team.

Systems

1. Deal with exposures revealed by due diligence, prioritizing those related to keeping the trains running!
2. Plan for merging disparate systems or at least to allow them to “talk” to each other.
3. Lock down the security around customer databases.
Sales & Customers 

1. Ensure live deals under negotiation are not disrupted by the acquisition.
2. Cleanse all sales forecasts ASAP and integrate the revised version into the group cash forecasting system.
3. Review cross selling opportunities between key customers of buyer and seller.

PR

1. Communicate often and clearly with staff and key stakeholders externally, especially key customers.
2. Visit key customers to share the strategy of the merged group and why it’s good news for them.
3. Use the joint press release on the deal to motivate staff and impress existing customers.
Marketing

1. Set a timetable for all web site changes and allocate a webmaster to drive the project.
2. Collateral may need to change to reflect the new products of the merged entity.
3. Emphasize the benefits of the merger for the customers.

Legal

1. Draw up a detailed checklist of contingent liabilities.
2. Note earn-out implications for company management. Factor into the integration plan.
3. Insurance and risk exposure reviews should be conducted as a high priority.
4. Tax and accounting matters related to regulatory compliance may require urgent action.

Obviously, this list is by no means exhaustive, but illustrative of how one would go about dissecting potential problem areas and making adequate preparation. If your team will make a commitment to be thorough and anticipate things that could go wrong, you will know what questions to ask and what systems to take apart and reassemble. Integration is hard, but the effort is critical to successfully meeting the goals of the transaction.

 

Due Diligence Must Include Culture

60% of mergers, acquisitions, and joint ventures fail to perform up to expectations in their first year, often because of cultural incompatibilities between the two prospective partners. The losses in shareholder value are in the hundreds of millions of dollars in many of these star-crossed liaisons. Cultural Due Diligence is a technique for keeping both eyes wide open when approaching an attractive prospect, whether for a merger, joint venture, or offshore vendor.

-Wayne State University, Institute for Information Technology and Culture

When two companies agree to join forces in some type of agreement, cultural fit is usually the last factor considered-if at all! Instead, many numbers are crunched, recrunched, and analyzed ad nauseum. Market impact, anticipated back office savings, etc receive the lion’s share of the secondary consideration after financial statement items. “Culture” is perceived as too soft an issue to justify the time and attention of high-powered executives. Big mistake!

At the very minimum, the operating environment and organizational structure of each entity needs to be explored. When we are working with a client, we use the following two charts to help us ask solid questions about these two components of culture. From the answers received, we make value judgments and recommendations as to the degree of “fit” between organizations and what to do about it.

In considering the operating environment, we look at whether the company has a long-range or short-term approach to management. We ask questions to determine whether the organization is more entrepreneurial or bureaucratic. Quality initiatives are a good indicator of what aspects of performance are most important to management. The degree an strength of market competition for each party is important. How decisions are made is another leading indicator of what it may be like to work alongside the other team.

How management handles relationships with employees, (unions), and contractors is important to search out. Is giving back to the community and having respect for the environment a value of the other organization? Do meaningful tasks get delegated effectively, or are there barriers to professional development , shared responsibility, and growth through the contributions of many? Discovering how the other party perceives risk and builds strategy accordingly is a key conversation. When one’s competitive advantages are articulated, it is vital to verify how strong they are in the eyes of the buyers.

In addition to the operating environment, it is critical to understand the organizational structures that represent the philosophy of your intended. Do employees have direct access to top executives, or must they work through a layered management team? Understand whether the employees feel that they are protected to the point of not being allowed to make any mistakes. Examine whether generalist skills are valued versus everyone having a narrow scope. Look at the board of directors to see whether it is comprised of objective, strong leaders. Pay attention to the diversity of the employees and management team.

If the other company has a multi-office system, is it managed out of corporate, or are those in the field given autonomy? Notice whether task or relationships seem to carry more weight. Analyze the turnover rate among management and key positions. Is the human resources department deep enough to undertake complex issues like training and development, talent management, succession planning, coaching and the like, or compliance focused? Ask for examples of how technology is used to solve problems and enhance work flow.

The careful review of these “soft” factors can save you some headaches and hardships–do it! (We would love to help.)