Limit Your Business Risk & Prepare for the Unexpected

No matter the size of your business – sole proprietor, partnership, LLC, or corporation – you daily face decisions and opportunities that affect your business risk. Many of the choices due to these circumstances are obvious and you will make good decisions guiding your future business operation toward safe territory. However, other choices may appear to be innocuous in their affect on your business but under dynamic market and business conditions can have a significant impact on your business, increasing your risk to grow and perpetuate the business.

At the beginning of the recent recession I was amazed at the number of companies that did not have sufficient cash reserves or line of credit to last more than a few weeks when sales dropped. They did not have enough freeboard in their business to withstand the economic storm and take corrective action to survive. Do you have enough freeboard to deal with the unexpected in your business?

Here are some positive steps that you can take to reduce the impact and risk in dealing with the unexpected?

1. Managing Cash Reserves: Accruing cash to offset unexpected cash (either due to controllable events such as unplanned/ unforecasted expenditures or uncontrollable crisis) demand is difficult to do when you think you are in control. Putting cash on the sidelines may appear to be betting against yourself, that you have a good handle on the future, or that you are convinced that spending the money now versus putting it into an “idle” position is a better business decision. Remember once spent it is not easy to recreate cash when business tightens, squeezing your cash flow from positive to negative. Get counsel from your accountant or trusted advisors on what level of cash to keep in reserve. Rely on outside or objective perspective as your emotional commitment to the business may blur your objectivity.
2. Employee Competence: The competence of key employees or contractors may not be a glaring problem during boom times but can become a critical factor when you least expect or can afford it – particularly during a down market. This may be expressed in what you hear from customers that your employees are promising or how they are servicing the account, which may be retarding additional sales. Employee loyalty is a diminishing characteristic in the work force today, which can result in unexpected turnover, loss of an account relationship or worse loss of a customer if they go with the employee. Choose employees wisely and review their performance regularly to make sure their performance and attitude is consistent with the needs of your business. Owners can become so focused on the tasks of managing the company that they take relationships with key employees for granted and overlook their shortcomings and miss signals indicting their dissatisfaction and potential for leaving.
3. Customers: Customers are obviously important but what risk do they present to your business. Do you have good business agreements in force in case payments are stretched out? Does one customer have more than 10% of your business or margin? Do you have regular contact with customers to measure what is happening to their business and how it will affect your forecast? Good customers can adversely affect your business when you least expect it. Do you have the reserves to see through what ever interruption in normal business occurs, possibly even replacing them, until you are able to recover the loss? If you have customers that represent a significant part of your revenue or margin then you are well served to develop other clients to reduce the potential impact on your business by any unexpected loss of business from major accounts.
4. Key Suppliers: A supplier of critical components or services can also have an adverse impact on your business. Remember you are not just buying a product or service to a specification but you are also dependant upon the quality of the management process to perform sufficiently to protect your interests with timely delivery, at the contracted price, and meeting or exceeding quality expectations. Do you have a strategy to use alternate sources of supply to preserve your ability to deliver to your customers reliably?

Will I avoid all risk if I invest in the areas cited above? No! But it will set a tone for how you and your organization manage the business. It is not a matter of making a mistake but how you respond to those mistakes and reduce them over time, Developing sound business practices and a balanced business strategy that is not only focused at developing the business but also addressing those issues that will impair your ability to deal with the unexpected – and the unexpected will occur!

When to Say No to Business!

In a recent article on the Five Principles to Managing Cash Flow Successfully I received a number of comments on the third principle – Importance of No.  As business people we strive for the yes from the customer/account/client, which means an order or a commitment for an engagement.  However, in our drive toward closing the order we can overlook critical signals about the customer or become too aggressive in negotiating away our value that often results in business we wish we had said No to and walked away.

Why is it so hard to say “No?”  We have all been there –more than one, two or three times.  The experience is the same.  We make less money.  We regret the customer relationship.  We loose face or feel people will think less of us if we back away.  We are less motivated and we struggle to deliver a good quality experience despite the circumstances.  Our internal drive to win any and all business is a strong one and difficult to manage.  It becomes personal when we should be objective and recognize that we should let the opportunity pass to someone else who may be a better fit or willing to take the risk with this particular piece of business.

We need to manage and control the fear of loosing business or an account and stand firm on the success principles of our businesses. It doesn’t make sense to compromise your business principles only to put the customer relationship at risk.  If you roll over and walk away from your principles you will move from a position that you can defend to your customer to the slippery slope of compromise that once you start it is difficult to know where to stop.  Some customers (under the guise of good negotiating) will take advantage of you once you start down this path.

Here are key indicators that you should look for that will put you in a “No” position.

1. Balanced agreement/contract – You should have a sound business contract/engagement agreement that protects you and looks out for the interests of the buyer.  Use legal counsel and an insurance professional to look it over to make sure it is sound.  The key terms of the agreement should be reinforced during the sales development process.  If the customer is hesitant to sign the agreement wanting to do a handshake or refers it to his attorney and it comes back with language that clearly favors the buyer – say “No!”
2. Moving goal posts – Too often a customer will want, or appear to want, infinite idea flexibility and each time you meet with them the story changes.  Your job is to contain scope creep and avoid pressure on what you have proposed and what will be agreed to in the beginning but seems to continue to evolve.  Another factor is vagueness or difficulty in agreeing to details that are critical to your performance.
3. Working relationship – If you do not have a reasonable working relationship – keeping scheduled meetings, providing necessary details, reasonable access (returns e-mails, phone calls, etc.), demonstrates appropriate follow up on activities they are responsible for – then you are witnessing what your under-contract working relationship will be like.
4. Outside your core competency – You get jazzed about a great opportunity and then realize that the scope of the work requires experience and competency that is too far from what you are capable of doing.  In this case the opportunity is not a good match for you and you should withdraw gracefully.  Most customers will respect your decision and will consider you for future opportunities due to your honesty.
5. Contact with the key decision maker – Where your success is dependant upon organization cooperation but you do not have access to the decision maker that is responsible to deliver that cooperation then you are at risk. You need to have access to the senior manager that can make things happen if they are not occurring on their own or you will find that you are working uphill, against the flow, and at risk.
6. Absence of commitment – If the customer is unwilling or finds it difficult to commit time or reasonable resources in the development of the project then, like 3 above, the customer is not engaged or committed to not only to their success but yours as well.

Saying “No” should occur as soon as you cross one of the thresholds above where you know it is not going to be a good deal.  Communicating your decision should be in person if possible and also in writing describing the important business factors that you feel need to be present for success.  Do not highlight what you feel are the customer’s shortcomings, as you will want to be considered for future work.  The “No” statement should be used to strengthen the customer’s impression of you and not a basis for breaking a relationship.

So what do I do if I am always saying No?  You will find yourself doing a better job of qualifying customers and investing in those that do not have the characteristics above.  They are out there and as you raise your standards you will find them.  Why are there so many “No” opportunities – possibly because the better companies and professionals have already turned them down! 

Make sure you invest in opportunities where there is a high probability you will want to say, “Yes!”

Style: Is it Important?

Is your professional style important? Style is defined as the way you make decisions or solve problems, resolve conflict and relate to others – peers, subordinates, superiors, customers, etc. Your style can be a make-or-break factor to your success. It is the primary factor that influences the experience someone has when they come in contact with you. In these days of customer experience awareness, style has never been more important.

During the late 80’s and into the ‘90’s through Y2K the technology industry was in high demand for technology professionals and in many cases a pulse was a primary condition of employment. This resulted in organizations with a diverse mix of individuals who expected everyone to accept them as they were – appearance, working habits, attitude, etc. Since the technology feeding frenzy was so great companies and customers overlooked the idiosyncrasies of many of these “professionals” as the price to achieve an objective in a crisis.

As the demand/supply curve came into balance it became necessary for technology professionals to consider how they influenced the customer experience by not just delivering a successful project on time and with in budget but to also successfully demonstrate interpersonal behavior that was harmonious with management and employees. We went so far as to publish a style guide for our on site consultants as to how to deal with key style factors. The following is a few of the more dramatic style factors:

• Improving appearance (including of all things personal hygiene).
• How they initiated proactive contact and communication with customer management and team members.
• Improving their listening skills to detect customer concern or misunderstandings.
• Resolve conflict in a timely manner without becoming personally involved.
• Taking responsibility for customer satisfaction.

The results of this effort were impressive as we saw increased customer satisfaction, trust and confidence in our consulting team, extended project work, engaging with more sophisticated and higher value accounts from referrals and most significantly, increased work satisfaction on the part of the technology consultants.

I have applied this experience in a number of companies that I have consulted with. One of the more significant examples of how style affected an organization was with a private school, which was concerned about the ability of the school to have a consistent interaction with parents – the customer – particularly by the younger generation teachers. The problem was more complex than just a couple of teachers as the communication to the parent that impacted their expectations of what was to happen in the classroom was affected by the formal literature provided the parent, the teacher manual for the teachers and daily communication – teacher-to-student, teacher-to-parent, admin-to-teacher and admin-to-parent.

It was easy for the parent to become confused over the “style” of the school particularly when it came to problem resolution whether it started with the teacher or admin. This was compounded when the teacher (often a younger generation teacher) would receive the parent concern in a defensive way, which escalated the attitude of the parent to a crisis level. The bottom line result was a poor customer experience for the parent, which reflected on the school reputation and brand.

The correction to this style conflict:

• School administration needed to reconcile the inconsistencies in the communication of expectations to parent, teacher and student.
• Administration and teachers needed to visit this subject on a regular basis so that all knew what to do when an incident occurred so that they could execute in a predictable and consistent manner.
• The teacher was often the first to receive the parent concern and they need to hear the parent out (listen) before coming (or jumping) to a conclusion as to what action to take to resolve the problem.
• The teachers needed to accept that resolving parent concern was part of their job and to not take it negatively or personally that the parent was complaining to them and to handle it as part of what they did as a teacher.

The results were reduced parental conflict and improved relations with their customer and improved teacher morale. The style of the organization and individuals was adjusted so that communication was consistent and problem resolution was dealt with in a low to no conflict manner.

Take a look at your style, the style of your organization to see if you have areas that can be improved to enhance customer experience, improve morale and lead you to higher value business. Style is important!

The Best Read: Reading Your Financials!

For many people the most boring aspect of running a business is reading their financials. For some it is so onerous they try to avoid the experience every month and only want to know the bottom number - profit or loss! However, your P/L, Balance Sheet and Cash Flow statements are the cardiogram of your business. To maintain our personal good health we get physicals on a regular basis and for many that means a cardiogram and even a stress test to make sure all pumps and valves are working properly. For good health and longevity we would not go without one.

Your financial statements, on a monthly basis (minimum), are the cardiogram of your company. Properly designed financial statements provide insight on how the key elements of your company are performing. While significant focus is put on how much profit (hopefully) you made. Profit will take care of itself if the key profit performance factors of your business are under control. Financial ratios help you quickly get the feel of where the pain might be if profit is less than expected. The value for each ratio may be measured against historical averages or market benchmarks. Obviously performance factors that have current values on the wrong side of the desired value deserve your first attention. There is always a story behind each number so it is necessary to uncover the facts that influenced the outcome in order to take effect give action. It is in this process that you can learn a lot about your company.

• Are unusual numbers the result of data collected incorrectly (wrong coding)?
• Is it a one-time anomaly which will correct itself in successive periods(3 versus 2 payroll periods)?
• Were all of the closing cutoffs made on time so that all revenue and all expenses for the period are included?
• Is your Cost of Goods sold - material, labor, contracted services - consistent for the revenue recorded?
• Are you absorbing too much labor that is nonproductive?
• Are you buying from the best price/quality/delivery source?
• Is there a mix shift in the products delivered that resulted in less margin than what was expected?
• Are your overhead expenses inline?
• Salaries are often fixed for the period but variable expenses such as marketing, expense accounts, travel, entertainment, etc. may get out of line.
• Are your commission payments consistent with revenue and discounts?
• Does your balance sheet show any surprises?
• Is your inventory level consistent with the production demand?
• Are customer deposits collected and in reserve for the product or service ordered and not consumed by other operations?
• Is debt service under control and do you have adequate operating reserves in the event of an unexpected change in business?
• How healthy is your cash-flow?
• Do you have sufficient cash to ride out the normal flow of high expenses and valleys of revenue?
• Do you have the cash to afford the capital improvements that you are planning?
• Using a conservative revenue forecast how strong is your cash position two to three months out?

These are just a few of the questions that need to be considered as you examine your financial feedback on your business. In too many cases I have observed owners/CEO's taking a complacent attitude toward their basic financial reports "since they were profitable." However, when an unprofitable period arrived they then had plenty of time to dive into the details only to find out that the "unprofitable" signals began several periods earlier. Timely action would have avoided the profit problem or reduced it significantly through proactive measures instead of reactively applying CPR to the business.

Experienced owners/CEO's take advantage of interim metrics that track key performance factors that influence their financials so that on a daily/weekly basis they get snapshots of what is going on without waiting until the next month to discover a problem. This serves as a pace maker to make sure that the pulse of the business is appropriate and if not - inject their attention and leadership to get things back on track.

Read your financials and develop a good feel for how your business operates so that you can enjoy good business health!

New Product Introduction (NPI): What is your target?

Businesses commit high-valued resources (people, cash and windows of opportunity) to develop and introduce new products to market. Unfortunately, in many cases, product development is well along before attention is applied to whether the NPI process is appropriate for the product and the targeted market. This is particularly true of products where the product definition was developed without broad based customer involvement known as the "Voice of the Customer (VOC)".

By not engaging sufficient customer or "market" input the NPI process is starved of critical information that is needed to determine what "acceptance" criteria the product will have to satisfy to be a success. This can be a critical problem for a company that has traditionally designed and developed products to an acceptance criteria defined by a narrow (often just one) set of customers and then decide to convert an existing product or technology for use in a larger market. The normal NPI process used for this new endeavor will fall short of what is needed. It needs to reflect the condition that many customers will determine the success of the product and not just a few or one.

In every case the NPI needs to recognize the unique constraints of the market (customer community) that the product is intended to serve - one customer or many. An NPI process designed to successfully guide development of a product to meet or exceed customer acceptance criteria is radically different than one that will need to measured by market acceptance. The precision of the effort to determine market acceptance into a design criteria by an anonymous customer is a critical and challenging task. The customers voice has to be represented (and defended) in the same way that a detail specification in a customer acceptance criteria is adhered to in order to deliver the product. Internal resistance to accepting external acceptance factors needs to be dealt with effectively or the success of the product will be compromised.

An extreme example of this problem involved a team of extremely talented engineers developing a software tool for a market unfamiliar to anyone on the development team. Developing the product was looked upon as solving a difficult problem. When the product was released the response was far short of what was expected.

I was asked to look into why the product was struggling and discovered that the product specifications were developed without any involvement from any users. I scheduled several meetings with "typical" customers and the feedback was valuable - but too late to save the product. The product did do what it was designed to do, it solved a critical problem, it was recognized by customers as a technical achievement but it did not integrate with the work flow of the user so that they could view it as an inline productive tool. The end result was that the product was withdrawn and the team dissolved.

Could this have been averted? Yes! Surveying customers ahead of time to determine how they would use such a tool would have revealed the critical work flow integration requirement that may have resulted in a successful product or possibly a decision to go in a different direction.

The moral to the story. Know your target audience. Make sure they are represented throughout the NPI process. Invest in a sold NPI process or spend more time (and money) later trying to get the product right, in front of the customer, once it is in the market.

Another Government Mandate To Take Care of You

A reaction to the east coast snow storm this weekend where there were several incidents of plane travelers strandede in planes for extended periods of time was for the Department of Transportation to order airlines to let passengers off stranded airplanes or face fines. The fine would be $27,500 for each violation over a three hour limit. This would total $1,375M for a commuter plane carrying 50 passengers or $5.5M for a larger plane carrying 200 passengers. Is this reasonable? What is our government doing to us in making this mandate?

It is true that there are a number of unusual stories where, in specific instances, mistakes were made and passengers were inconvenienced and kept for an unusually long time. However, for the number of trips per day that are taken by air travelers in this country these examples are few and far between. THis doesn't make it right but this new mandate will have significant ramifications to the relative low cost of air travel that the flying public has become used to.

Why will cost go up? Unfortunately the airlines are not omniscient and will have significant difficulty predicting when disastrous snow or weather conditions will create a situation where it will have a "stranded" passenger condition. This occurs when the planes themselves either cannot move on the ground (ice and snow) or cannot land at their destination such as when airplanes are grounded due to fog resulting in too many¨aircraft for the existing facilities to handle. The latter occurred to me flying from Denver to Seattle. Seattle closed while we were en-route and the decision was made to land in Portland and wait until landing conditions improved. We waited 6 hours on the ground partly due to waiting for conditions to improve and then for the few jetways to be available to land passengers. We were in a DC-10 at the time and Portland only had equipment and staff to handle three of jetways at a time and many aircraft were ahead of us.

Consequently we will have airlines faced with enormous fines if they cannot get passengers off the planes within three hours. How many extra staff will need to be on hand in the event of a weather or other incident that could "strand" passengers. What about baggage? Security is not too keen on passengers and baggage being separated particularly if when they re-board the plane the same passengers are not on the plane. What happens if the pane is at an airport where they do not have an office and use other facilities. Will the other airline or operation have liability if it does not have the crew and equipment to meet the need even if the primary carrier has the plane ready to let the passengers off? What an enormous problem and a great opportunity to finger point.

In this instance we have a government bureaucrat without any financial responsibility for the outcome making a decision so that we can all feel better. The traveling public used to be capable of letting an airline know when its service level was bad by avoiding it. The airline either corrected its ways or went out of business.

Who will absorb the cost of this mandate? You will! Will we still have isolated instances where conditions beyond the control of the airline result in inconvenience? Yes! But we will do it at a higher price because of mandates and fines imposed by an ever increasing governmental role in the lives of its citizens and free enterprise.

Do you feel better?

Are you Managing or Leading?

I am passionate about the four key elements that I feel are critical to running a successful company. These elements are Leadership, Process, Metrics and Organized Financials. The cornerstone of this four-step methodology is Leadership. Do not use confuse this with the term "management" or "managing". Leadership involves inspiring others with a clear vision of how things can be done better. Those who manage tend to implement someone else's vision or what they believe is the "corporate" vision and normally slow things down by limiting what their part of the organization can do to just what has been asked or expected - to play it safe and no more.

Leaders work between the lines and interact with their organization to test their vision and assumptions by getting feedback from those who actually work in the operations they are responsible for. Taking the time to understand what is holding people back from higher levels of job satisfaction and job performance. Leaders try to find out how the employee can be unleashed to higher levels of performance than they thought possible and then get out of the way. This is true for individual contributors and those in intermediate supervision positions as well.

Too often artificial ceilings trap employee performance because of misunderstandings, poor vision implementation and access to the facts that drive the business. The Leader looks for this condition and gets to the bottom of the problem. Few people intentionally perform poorly when provided with reasonable training, equipment, work environment and motivation. The leader is conscious of the whole picture and looks beyond the traditional boundaries to see that his business (or department) is successful and that their employees are excited about what they are doing and are onboard with the direction of the business.

Have you trapped yourself into a "manager" mindset? Are you excited about your business? Are you transferring that excitement to others in your business? Can you recognize that excitement in those who produce your products or deliver your services. Take a fresh look at your business, take a new look at your business plan (even better - develop one), identify what is necessary to energize not just your key people but all employees. Become a facilitator and less a controller. Celebrate the independent accomplishments of employees and supervision when they do well and lift the performance of the team(s).

Be a leader!

WWDD: What Would Deming Do?

"No one has to change. Survival is optional." W. Edwards Deming

Several lifetimes ago (1983) I attended a 3.5 day seminar in San Diego and joined over 300 people from various manufacturing and service companies to listen to W. Edwards Deming. Deming is attributed to be the father of the evolution of manufacturing in the use of statistical methods to manage business processes and the attitude of continuous improvement.

We all sat at narrow tables in a large ballroom with Deming on a raised dais. We were equipped with a full 3" binder that contained a Xeroxed volume containing his many lessons on how to apply statistical methods to solve business problems and improve product performance. Deming was not a gifted speaker but his stories and anecdotes were riveting and despite the size of the group few people left early.

Deming did carry a chip on his shoulder since he had not, by then, received recognition in America for what he had done in Japan. Others, American based statisticians, were claiming ownership of the movement but it was clear that Deming had fostered a miraculous change in post-war Japanese industry that resulted in significant inroads in American markets with lower cost and higher quality products. In the early 80's it was clear that American companies were waking up to what they had to do to just catch up let alone get back in the lead.

What Would Deming Do Today? American industries have gone a long ways in implementing the the following Deming philosophy into their business.

Deming would evoke disbelief in his management seminars when he insisted that 94 percent or more of all problems, defective goods or services came from the system, not from a careless worker or a defective machine. He would go on to say that to improve an organization’s goods or services, the system had to be improved rather than searching for the guilty worker or broken equipment.

In almost all cases, when top managers implemented his ideas, they were surprised to find that they agreed with him: The management and the system they were managing were the true source of both problems and improvements.

However, in today's economy we find an increasing presence of government in business in terms of regulation, company ownership and increasingly complex taxation and fee structures. What role should government take in adopting the Deming philosophy as it becomes inextricably involved with the ability of business to operate in the free-enterprise marketplace. Can government, a body that sees some form of leadership change every two years, plagued by lack of accountability, has many political appointees that are not carefully recruited and placed because of their ability to perform in their jobs, has extreme difficulty in managing itself (post office, budget deficits, perks) let alone managing profit based organizations?

Successful adoption of the Deming principles begins at the top of the organization. It requires a constancy of purpose, breaking barriers between functions, driving out fear as the common denominator for change or performance, elimination of slogans, exhortations and targets and a solid understanding of the processes that they are managing. This is a tall order for a government process that consistently demonstrates an inability to be accountable to its citizens and other stakeholders for the management of basic services.

What would Deming do? He would get government out of the business of managing business.

Sailing with Martin: A Management Example

I recently had the pleasure of sailing in a sail boat race on Puget Sound at the invitation of Martin who runs a local high tech manufacturing company. It was a beautiful fall day with sun and plenty of wind for sailing. As a precaution I dressed for rain - the normal weather for this time of year. The boat was 42' long so it easily accommodated the onboard crew of 5. To be competitive in a race, the crew has to efficiently respond to changing conditions such as weather, water (current, depth, tide), proximity to other "vessels" and to effectively execute ship board maneuvers necessary to keep the boat tuned (trimmed) to the optimize its sailing characteristics.

Martin, who has extensive competitive sailing experience, was the captain. Sailing is a passion for Martin and the boat is his love. What makes Martin different from other experienced sailors is his ability to manage the multiple activities of processing the external factors affecting the boat - wind, current, etc. - and the onboard operations - steering, lines, sails, etc. and then effectively communicate what he needs to his "experienced" crew to perform. Of course this is all done in a foreign language that relies upon unusual words: leeward, sheets and stays, spar, weather, tack, jibe, luff, halyard, helm, guy, pinch, reach, backstay, about - to name a few key words. It is one thing to watch "Master and Commander" on TV and hear these terms and watch others understand what to do but another when you hear them thrown at you assuming you know what to do when the boat is under way, healed over, rail in the water, and everyone is moving fast toward their assigned job. As a novice I found myself often saying "Huh?"

Martin is in his element when the boat is under sail. He is constantly checking the trim of the boat to optimize its speed under the current heading. Is the mainsail right, could the foresail be tighter, is the helmsman falling off the wind or pinching too much, are the lines set for the next planned maneuver, what is happening to the boats ahead and what does that suggest will happen to him, what is the current depth, how fast is the current adding to or taking away hull speed, are we on course for the next turn? Martin is constantly in motion "managing" the boat to be as successful as possible under the prevailing conditions. His boat is not the youngest in the race and does not have a lot of the hot-technology equipment that many of the other boats have but Martin makes up for reasonable handicaps using his sailing savvy and tenacious sailing skills to be competitive.

How does this experience apply to business management? The similarities with running a business are striking. We are constantly buffeted by either known or unknown market factors that can affect your ability to navigate your business through uncertain business conditions. While you cannot control the unknowns you can address the "knowns" of your business to improve your ability to "weather" the storm successfully. In order to do your job well you find a way to constantly get a "bearing" on where you are in terms of your sales pipeline, your ability to keep your operations "trimmed" to operate at optimum profitability, how effectively you are communicating within your organization so that all know what to do and when to do it, be aware of market conditions and familiar with how the rest of the market is performing and what changes you need to make to perform better.

I have known Martin for many years and while I do not have a detail knowledge of his business management skills I do know that his industry has undergone stress and he has successfully "navigated" his company through troubled waters to profitable performance. I am sure his sailing talents are at work in his business office.

There is a lot we can learn by observing others in personal pursuits such as sailing and how we can apply those lessons or impressions to our business practices. While there may be obvious differences between businesses and industries it is amazing how common the skills and strategies are to managing successfully.

Apple Support: A Life Saver

I recently did a no-no on my quad processor Mac Pro that I spent weeks adding software and configuring. I will not bore you with the details leading to the incident or complexity of the mess that I created. To say the least I thought all was lost. I looked toward a discussion forum that in the past had provided good advice and direction in dealing with much smaller issues. But this time no cigar!

I happened to notice a new feature on the Apple Support page which promised that you could speak to an expert. My first impression was how much that would cost but I was desperate by this time as deadlines were beginning to press in on me. I clicked on the link and within a few pages, which collected information on my circumstances, I was at a button which said that talking to an expert was just one click away and that they would call me in one minute - right! I was game. I had not been asked for my first born yet (she is now 36 and a lawyer so they would have had a real problem) so I clicked . . . and in approximately one minute my phone rang. An auto dialer then asked me to wait while it connected me and I expected to then enjoy the traditional, too loud, music typical of support calls. Seconds later I was talking to a very competent and professional technical guy who handled the knowledge of what I had done to my machine in a non-condescending manner. Between the two of us (more him than me) my machine was brought back to life. I was able to discover that I had not completely shot myself in the foot and I was able to get back to 99% of where I was before my incident.

I still have some cleanup to do but it looks like the overall integrity of the machine is sound, I thanked the professional voice profusely and my day improved dramatically.

Thanks Apple Support!

Are You Roadkill?

A recent article by Joseph White, Senior Editor , The Wall Street Journal, titled “How Detroit’s Automakers Went from Kings of the Road to Roadkill” caught my eye. In his article Mr. White points out a number of issues that led GM into the “bankruptcy” condition it now finds itself and compounded further by government ownership. What amazed me is that over the last 30 years GM had two early warning events that illustrated their “distance” from the needs of the market and unwillingness to change caused their fall from auto leadership.

The first example was ignoring presentations from one of its own executives, Alex Mair, that detailed methods that their off-shore competitors were using to produce lighter, more fuel efficient and less costly cars. He compared a GM connecting rod with one from Japan. The GM connecting rod needed costly post forging operations to make it fit into the GM product resulting in inconsistent balancing of the weight of the piston and rod assembly. By contrast the Japanese rod came out of the forge properly balanced and ready to install without further labor operations resulting in a consistently balanced assembly. His point was that if you design in the installation and performance objectives into the process a lighter, consistently built, fuel efficient and lower cost product could be produced.

The other example is even more illustrative of the executive mind set at GM. Jim Harbour warned GM executive management early of the Japanese challenge to their domination. He showed them how the Japanese were able to use fewer hours (not just cheaper labor) to build and assemble their cars. In addition to using fewer labor hours they were able to produce a comparable volume of cars on a factory footprint half the size (labor force and physical plant) of a GM plant. GM’s President at the time responded by barring Jim Harbour from company property.

The remarkable lesson from this example, besides the NIH (Not Invented Here) mind set of GM executive management, is that the GM process was out of line with the needs of the customer. Japanese cars at the time were not just cheaper because the workers were paid less but due to a more effective process were able to ultimately move their production to the US, use American workers to produce a more cost effective and competitive car.

Is your process cost effective? Have you designed in inefficiencies and living with unnecessary non-value add operations that extend the time to produce, deliver and ultimately produces a product that has more cost (and lower profit margin) than it should?

Know your process – is it a strategic and competitive asset contributing to your bottom line!

Managing Business Crisis: The New “Normal”

The ’09 recession economy has rippled change through almost every commercial market. Customer confidence is shattered, consumption habits have radically changed, credit is tight or non-existent and anxiety on the job or at home is at an all time high. Owners and managers are in the thick of this melee trying to find firm ground to operate from. Business conditions are not like they normally were in good times and the question is where is the new “Normal”?

Many of today’s managers have not experienced a strong contraction in the economy or were not in mid-level management to experience the last major contraction, which, depending upon your industry, may have been the early 90’ or mid 80’s or back into the 70’s. Consequently many of the norms that were developed during growth or stable times do not necessarily apply in a contraction economy.

Growth and business success often allow companies to perpetuate and survive despite major weaknesses in their business model which become significant obstacles in a contraction economy. I have observed in many companies the following business “sins” that become critical in a contracting economy:

• Stable or growing business volume creates slack that covers up or absorb inefficiencies.
• Consistent business volume disguises lost opportunities or disgruntled customers experiencing poor customer service.
• Processing cycles (quotes, orders, change notices, project reviews, financial and operating performance reviews, etc.) were not monitored or optimized due to busyness.
• Granular accounting of product and Line of Business (LOB) profit performance was not developed as there was adequate profit to meet shareholder expectations.
• ROI of investments are not analyzed or tracked to understand the impact on the company’s ability to invest wisely.
• Cash flow and line of credit (LOC) were not taken seriously as there was always a way out of a tight cash situation.

Consequently what worked in a good or stable economy becomes very chaotic in an economy with a continuously contracting economy. What worked before fails to provide the confidence and corrective action that was effective in the past. Ultimately owners and managers turn from denial to the reality of “How do I manage this business crisis?” and find the new “Normal” that will allow their business to survive?
The answer lies in facing and dealing with reality and getting familiar with how their businesses are operating on a detail level. You cannot take for granted what worked before in good times will also work in to today’s economy. Everything method or practice should be questioned.

The business needs to have a sharp focus that is inline with the current needs of the business. Top management is responsible for setting and maintaining this focus. The effectiveness of a sharp focus is dependant upon accurate and timely information on how the business is operating. Reporting cycles, for example, need to be improved:

• For Executive management from weeks (or monthly) every week or daily.
• Middle management from weekly to daily.
• For line people from weekly and daily to daily and hourly.

Faster and shorter cycles looking at critical business metrics bring the good and bad to your desk keeping you in close contact with successes and short comings. Taking action sooner rather than later to a short coming will allow the business to avoid an incident of some type that reaching the bottom line or affecting the experience of the customer.

Metrics designed to report and measure the effectiveness of the business model will provide early warning indicators on where the next problem will occur. Instituting a conscious process of monitoring the business at this level will make people at all levels aware of the areas that need to be watched and attended to at their level for the business to operate effectively.

As the senior leader you are responsible for the attitude toward adopting this level of granularity in monitoring the business. You will need to be visible and available to provide encouragement and where necessary instruction on why this level of attention to detail is important.

Employees who are going above the mark in responding and solving issues that ultimately serve customer needs should be publicly recognized and complimented for their action, initiative and meeting or exceeding their goals. The new organizational climate will create tension and interpersonal friction will occur where you (or your lower level managers) will need to intervene in a constructive manner before team work performance is affected.

This new management climate is like putting on a new pair of new shoes. They are initially uncomfortable! But this is where your need to be to make sure your organization is positioned to succeed on any given day. Is it where you were – most likely not. You are now more accessible to your organization. Your presence will allow you to check performance on a much tighter loop than before and where necessary be able to provide corrective action in a timely manner.

You are now operating in your new “Normal”!

Are you a Change Agent?

The business climate of today places extreme demands upon executive leadership to constantly adjust the business model to meet a rapidly changing business horizon. New technologies entering the market that obsolete current products and services, global competitors able to offer products with lower prices produced in less regulated and lower labor cost regions, changing preferences of the customer that reduce the product window of opportunity which increases the need for rapid returns on investment represent a few of the issues that keep executive awake at night.

Those that sleep easier are most likely recognized as change agents. Change agents are those who are equipped with extraordinary skills that allow them to anticipate and “lead” an organization through troubled and often chaotic business conditions. Many business organization experts will list the following as success characteristics of change agents:

Analytical
Change agents need to be able to quickly asses the data provided to them and to also recognize that additional data needs to be collected to understand trends and reveal unexpected events. This is someone who can read between the lines and determine if the analysis or numbers “smell right” or not.

Listener
An effective change manager is one who listens well. They cultivate listening opportunities and create an environment that invites information flow in their direction. They have the ability to hear critical comments about the company (even themselves) without shooting the messenger and process the input into timely action and change. Managers who listen and do nothing soon loose the interest of those best positioned to give valid feedback and help the company.

Mediator
Positive conflict resolution is the result of effective mediation where the parties involved are able to return to their respective responsibilities having reached a mutually acceptable agreement. Proactively seeking out and resolving conflict eases organization tension, significantly improves productivity and the adoption of new methods and practices.

Architect
The business model needs to be tailored to strategically meet various business conditions. Business models can quickly age and move from strategic to tactical and from offering differentiated high-value products and services to lower-value price-sensitive commodity products and services. An effective change agent will adjust the design of the business model to achieve and retain a high-value market position.

Teacher and Coach
Change is not adopted easily by most organizations. Change threatens people as it often represents moving into the unknown. An effective change agent will use good communication methods to explain the objectives of the change, teach key performers on what needs to be changed, how to do it and then coach them through the process. Using good feedback techniques the change agent manager will know where to look for problems and obstructions to change and work with individuals to resolve misunderstanding and encourage confidence to perform uncomfortable practices until they experience success.

How do you score as a change agent?
These are just a few of the characteristics and you may not be required to excel in all of them at the same time but you need to be ready to step up and apply the right ones when challenging business conditions occur. Seek others to help you determine where you score. Subordinates may not be the best source of feedback for this purpose. Uses business associates, an organized group of peer executives or an outside consultant to help give you perspective in this important part of your executive development and performance.

Goal Exercise

As the economic climate changes and as the business climate becomes uncertain it is imperative that you and your leadership team have a clear understanding of the mutual goals you are working toward. When business is going “good” this understanding is not regularly clarified and it can be very surprising to learn how your key managers interpret and prioritize their goals. Consequently they do not readily line up with the changing goal set necessary to weather a major shift in business climate.

Making quarterly numbers and meeting or exceeding forecast is not necessarily a sign that your managers are in tune with the goals of the company. Some times numbers can be made in spite of ourselves and yet we tend to believe that it is because everyone is operating as you want them to in every situation. However, success (just making numbers) can cover a multitude of sins.

A tight market, rapid arrival of a competitor, loss of a major customer can stress “reliable” business functions. Previously well-performing groups can begin to struggle or go into denial that a change is upon them. When you peel back the layers that distant us from the inner workings of these groups and take a closer look it becomes obvious that what we assumed were groups running on sound business rules and practices were running on auto-pilot driven by the market and not business discipline. Too often this is not discovered until it is discovered how it is impacting the bottom line.

We are less inclined to audit or challenge performing groups. There are always other more important issues that take up our time and why spend time “fixing something that is not broken”. However, you don’t just get up and run a marathon. You train for it. If you are going out for a run you stretch to make sure you don’t pull something. Do we do this to our businesses?

Take the time to “test” or “measure” your management team and business plan. Conduct a disaster drill that exercises practices and strategies that are rarely used to measure how well you are able to respond.

• What attitudes do you witness during the exercise?
• Was everyone on the same page?
• Did they all recognize the “urgency” of the situation and take appropriate measures?
• What groups already had early warning practices in place that helped them anticipate a change?
• Who were the leaders and who followed? Is this what you expected?
• Who recognized what tough decisions needed to be made and developed an implementation plan to make them?
• Did you discover a consistent understanding of the company goals or do you need to work on refining them, improving communication and execution?

This is a tough business practice to implement on top of everything else that you are asking your management team to do. However, when you regularly exercise under practice situations you will find that you can always respond faster, go farther and last longer when the real thing happens. The boundaries of your goals are sharper and better understood by the key people that are in key positions. Your company will be better prepared and have a good understanding of your strengths and weaknesses to develop a competitive response to unexpected circumstances.

Get the Facts!

Our new innovative product on the new 747-400 was experiencing a high failure rate during installation. Boeing engineering pointed the finger back to us as producing a failure prone product. However, due to our recent adoption of SPC tools and processes the failure modes were not indicative of a manufacturing related defect or failure.

Boeing was new to the SPC process and even though they were dictating that many of their suppliers adopt it they put aside our SPC evidence and remained firm in their belief with non-SPC data as their basis. We made repeated requests for Boeing engineering to go out onto the assembly line and talk to the installers to get a first hand understanding of we configuration in which the units were failing. These requests went nowhere and were denied. They were hesitant to do their own due diligence and have engineering talk the installers to get further details – a classic engineering/manufacturing silo effect.

Coincidentally British Aerospace was also putting our product, same design different package, on their new regional commuter jet the BAE 146. I made a courtesy visit to their factory and they greeted me with the news of our product “failing on the line”. I took the opportunity to ask if I could go into an aircraft where the product was installed and talk to the installation team. They immediately complied in an interest to get to the bottom of the problem.

While I did not have any detail failure analysis of these units I suspected that the failures they were having were of the same order as those at Boeing. I was escorted into a selected aircraft that was in the stage of assembly where our product was installed. I was introduced to the supervisor who quickly confirmed that the units were failing at a high rate. I asked to talk to the actual person who installed the units. He was nearby and said that yes, the units were failing but that was not the whole story. When the installed unit failed he would install a second unit and if it failed he then tested the wiring harness and almost in every instance he discovered a short in the wiring harness that was damaging our product. Our product was in fact testing their wiring harness to see if it was defective or not – an expensive proposition.

I asked if the wiring harnesses were high pot tested and they did not know. The engineering manager that I was with took me over to the wiring assembly area where the harnesses were assembled on large tables. The supervisor there said that at that time the harnesses were not high pot tested but they had a request into management to purchase the test adapters and equipment for the test but it had not been approved.

I returned to Seattle and immediately called for a meeting with Boeing where I presented my findings from my visit to British Aerospace. They were somewhat skeptical that what happened at BAE would occur at Boeing. I requested that they provide evidence that the 747-400 harnesses were high pot tested. A week late Boeing engineering reported that in fact the cause of the failures of our product was resolved. An immediate change had been made in their wiring harness process to high pot test them before they were put on the aircraft. Boeing accepted responsibility for all of the return units the “failed” and further failures dropped to a near zero level.

When failure modes don’t add up, trace the problem to its root cause and understand the failure environment. Go to the source and “get the facts” to make sure you are getting the real story. Too often organizational barriers filter information which is further distorted as it is passed through multiple people on its way to you and even within your company. It is amazing how quickly problems can be solved when you have the complete information.

Get the facts!

Use Your Brain Trust!

Late one afternoon the call came in that Boeing was putting a hold on receiving any further of our highest volume and most profitable product. They said the incoming rejection rate was too high and until this was resolved we were on hold. I had only been with the company a few months and I already had a number of fires I was dealing with and did not need another one, particularly with our biggest customer and one that had such immediate economic impact.

This was obviously a concern to everyone involved with the product line. How could this happen overnight? Well it didn’t! Boeing was under pressure to ramp up their production line and the quality problems with this product had been there for some time but were not high on their priority list but when it did percolate to the top they took immediate action.

I convened a meeting of manufacturing, engineering and test engineering to understand why the product was having such a poor incoming inspection quality. No one had an immediate answer for, in their minds, everything was “normal”. I asked everyone to work together and diagram how the product was currently manufactured, tested and environmentally stressed. We consumed several white boards with functional blocks and arrows. As we stood back we started asking questions about why it was manufactured and tested in this way and were these procedures the best way to do it to get the highest quality unit to the customer.

Quickly we identified a major flaw in the process. Two critical steps in the process were reversed and it apparently had been that way for some time. How did this happen? No one knew specifically, or own up to it, but it appeared to be the result of a “patch” applied to the manufacturing process to solve one problem that was now causing an even greater problem that was not reviewed to make sure it was compatible with the total process to produce a quality product.

The error in the process was corrected and all units currently in house were retested under the new process and within a matter of a few weeks the quality matter was resolved, units were exceeded incoming inspection standards, Boeing removed the product hold and paid invoices – life was good!

Taking advantage of the collective knowledge and expertise of those closest to the product, “the brain trust”, was the key to a quick resolution of this problem. As individuals they did not recognize the source of the problem as their perspective was affected by their bias of what they felt should be the right process. Fortunately as a group they were able to admit that the old process was flawed and could not produce a quality product, identify what changes needed to be made and establish a corrective action plan to implement to get all in house units, and eventually those at Boeing, retested, certified and accepted by Boeing.

Could this problem have been solved another way? Possibly but it would have taken longer, the outcome may not have changed the process, leaving a process in a condiiton that might create the same problem again and the response to Boeing would have been unreasonably delayed.

This incident raises a number of questions from our experience that you might want to consider for your company:

• What problem resolution process do you use in your company?
• Does it take a “stop shipment order” of this magnitude to get the right people in the room?
• Do your employees have the freedom to critically question the process without fear of retribution from those in power positions?
• Is your brain trust available to solve problems that need resolution fast or are the problems relegated to employees who are not in positions to get action within the company?
• Do not assume that just because you have a process that has been in existence for some time that it cannot become “corrupted” even under the best circumstances?

Make sure that your “brain trust” is applied to isolate and correct dysfunctional business processes and serve the best interests of the company and customer.