Tag Archives: Decisions

Due Diligence Lip Service

“Culture isn’t just one aspect of the game. It is the game.”                          

 –   Lou Gerstner, former IBM chairman & CEO

Pritchett conducted a study of 135 executives from public and private companies and found that, on a 10 point scale, cultural due diligence rated a mean importance factor of  7.45. Privately held companies and private equity firms generally rated the importance higher than public companies. Yet, the same population rated their organizations’ success in blending cultures as only a 5.62. What does this mean? Have you ever heard the phrase “lip service?” It is one thing to acknowledge the importance, but something altogether difference to act in a way that supports that belief.

The study authors go on to note that, while culture is perceived as a key factor in merger success, there is not a consistent approach to measuring effectiveness, let alone the components that comprise it. Slightly less than half (49%) of organizations make an effort to measure. Privately held mid-cap companies and private equity companies set the pace in this arena. Non-profits and publicly-held large cap companies make far less effort to measure effectiveness post-merger or acquisition. 

Given, again, the relatively high value placed on the importance of culture to integrating two companies, it is dismaying that culture is not normally a part of the due diligence process. Of the executives surveyed, 4% say their teams ask specific questions about culture during vetting. Similarly, only 5% attempt to assess compatibility through some standardized means, with less than half of those administered by an objective outsider.  

It was observed that, when assessment is attempted, it tends towards subjective intuitions rather than a strategic metric. Furthermore, HR is excluded from the cultural discussion 94% of the time. On a high note, organizations that consider themselves savvy with regards to cultural due diligence perform assessments 70% of the time. 

While the results for pre-merger analysis and process are not good, those for post-merger are dismal by comparison. Only 21% of organizations surveyed have an established, repeatable process that is used consistently to facilitate seamless blending of organizations. 

The broad findings of the study were:

  1. Culture should be a more strategic consideration in the merger process. It deserves far more weight in the initial targeting of potential acquisitions or merger partners.
  2. Due diligence should scrutinize cultural aspects of the deal with the same discipline given to financial and legal issues. This simply cannot be done via a traditional culture gap analysis or compatibility survey. 
  3. Culture integration should be driven from the CEO/President level. This initiative cannot be delegated effectively. The architecture of culture strategy, plus the critical first steps of execution, belong to the leader.
  4. Organizations should be more astute in crafting their merger communications relating to cultural issues. Both the substance and timing of these messages are crucial. Management needs to be fine-tuned in managing people’s expectations, all the while shaping workforce behavior in the desired cultural direction.

 

Shark Tips For Second Career Entrepreneurs

“The best advice I would give to somebody is, don’t ever start a business that you are not incredibly and deeply passionate about,” said Robert Herjavec, one of the “sharks” on ABC’s hit TV show, Shark Tank. “It is hell, and you will spend more hours with your business than you will with your family and friends. You will have horrible days that will make you want to quit and question everything you have ever learned. Along that journey, if you don’t absolutely love what you do there is no way you will survive.”

Many people who are looking at starting a business as a second career are intrigued that, if it works out, they can create a new source of income in addition to the retirement income sources they’ve worked on for years. True entrepreneurs, however, don’t start businesses to produce money. What?

“The biggest mistake I see people do is they start a business to make money,” said Herjavec. “The problem with that is on those cold days, money doesn’t keep you warm at night. For me, it is impossible to expend the effort required to start a great business because you want to make more money.”

Passion is what is critical to successful entrepreneurship. Some would even label it fanaticism. When one is in the midst of a dogged pursuit of what is primal, success looms in the not too distant future. It is as though a deep seated conviction drives one to pursue what is the convergence of talent, inspiration, and motivation. Not everyone, though, even considers that starting a business is a possibility. Some were just not raised to think entrepreneurially.

“When I was younger, I didn’t know that people could start a business, and I always say now that if I knew what I know now, I would have dreamed bigger,” said , CEO of Canadian-based information technology company The Herjavec Group. “I don’t have an MBA, or a business degree, and I wasn’t very good at accounting. I remember when I wanted to start a business; everybody said to me, ‘you can’t do it.’ Fundamentally, I owe my success in business to the fact that I really love what I do.”

“It was really interesting because, where I came from, we lived on a farm and my grandmother raised me and everybody lived like us,” said Herjavec. “Then, we came to North America and it was my first impression of not being well off. I realized that compared to everybody else, we were really poor.”

To make a living, Herjavec began working as a newspaper deliveryman and waiter in the early 1990s.  He was able to make ends meet and learn important business lessons at the same time.  The biggest, perhaps of all, was noticing what was on the mind of his customers.

“The most important relationship in business is the one between you and your customers. All my experience is customer-related. When I was delivering newspapers, you used to have to collect the money,” Herjavec said. “When I was a waiter, it was all about maximizing a tip and ensuring enough turnover. All these odd jobs always related in different ways to customers.” 

Knowing what customers want and creating a strategy to meet their needs is critical path stuff. What else is desirable in terms of an entrepreneur’s worldview? Flexibility and good analytical skills rate highly for Herjavec.

“People ask me if there is a quality or characteristic for entrepreneurs, are they born or made?” he says. “The one characteristic that I find in most people who start a business is, they are very comfortable and adaptable to change. I always say my greatest skill is if you throw me in the middle of the forest, I’ll figure out the game.”

Finally, it is crucial that a business founder have a distinct competitive advantage. Whether taking on the 100 ton gorilla (market leader) or a local competitor, it is key to know how you are differentiated from the others. One of the best ways to stake your claim is through unique knowledge or processes.

“The other thing I notice is that lots of other entrepreneurs make the mistake of changing fields all the time and start businesses where their knowledge level isn’t very high,” said Herjavec. “I always say to my kids, become an expert at something and become such an expert at it that you can walk into a room and people will pay you for your knowledge.”

In summary, here are lessons we can learn from Robert Herjavec, aka the Shark:

  • Be extaordinarily passionate
  • Start a business because you believe you were meant to, not for income only
  • Know what the customer wants and deliver
  • Be flexible 
  • Hone your analytical skills
  • Be a lifelong learner and master of a unique subject matter

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?

Innovation vs Distraction: Got a System?

Last night, I attended an IdeaSlam at the Cary Innovation Center. Several different entrepreneurs–some with companies already and others with only ideas so far–each gave their two to three minute spiel before receiving feedback from the crowd and EntreDot staff. The variety of thoughts was impressive. So, too, was the passionate advocacy of what the presenters felt inspired to do. I wondered, though, what happens when passion wanes due to setbacks…

It’s not enough to have a good (or even great) initial idea…the best predictor of success is how the idea is nurtured, problems solved, and opportunities explored.  In order to become successful, the entrepreneur must continue to be curious. Reading extensively, attending events where nuggets of wisdom can be received, and simply taking time to think are all ways to keep the idea alive.

While a commitment to pursue a free flow of learned information is admirable, what is most desirable is learning how to discern between them and hone in on the best ones. Best practice is to develop a process to vet new ideas (not a totally new business idea mind you, but rather a “how to,” “when to,” why to” pursue your original one. With a process in place, distinctions can be made between new opportunities and new tactics or ways of doing what you do. A value judgment must be placed on whether giving the new thought earnest heed and an investment of time and effort will move the organization closer to accomplishing its mission or become a diversion.

In addition to evaluating new thoughts on the diversion–>mission scale, it can be helpful to analyze them based on internal and external impact. Does pursuit of the thought give the company a chance to accentuate something it’s good at? Or, overcome something at which it is weak? Does the thought have the potential to help the company thwart a market move by a competitor, or pioneer a new “blue ocean?” 

Thirdly, what other ideas have to be set aside to pursue the new one(s)? Resources are in high demand in a start-up company. If talent and time and “treasure” are invested in something new, what might suffer by comparison? Perhaps your “back of the napkin” cost vs. benefit analysis indicates that the new thought is worthy. Then what?

The new thought must “grow legs!” In order for it to have its intended effect, planning must occur. Figuring out what steps need to be pursued includes breaking a big idea down into smaller ones and devising a custom approach for each one. Within approaches, strategies and tactics, with actionable due dates, become the blueprint to build a better mousetrap.