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Surviving The Decline

A long way to fall

Jim Collins' latest research and findings, "How the Mighty Fall" (Jim Collins, 2009), could be seen as hindsight being the perfect science. To those cynics of management books, it is easy to brush this latest Collins work to one side, positioning his insights as making excuses for some of the Good to Great companies he promoted who have crashed and burned in the recent economic crisis.

 

The difference with Collins is that he doesn't predict what is going to happen, but looks at trends that might explain why some companies remain solid and even get stronger in times of turbulence, some stutter and regain their greatness later, and others fall headfirst into permanent decline. Collins and his research team provide an easy to understand Five Stage Process to Decline, highlighting how to spot the symptoms of decline earlier, as well as providing evidence proving any stage of decline can be turned around.

 

5 Stages of Decline

Here are the 5 stages in summary:

 

Hubris Born of Success – In the Middle East region particularly we have witnessed markets rapidly growing, the impossible seemed possible, and businesses and start ups were successful despite themselves. This lead to businesses becoming over confident and often arrogant – as growth became the focus, undisciplined execution became common practice. "Who cares look at the revenue growth", executives cried... the rest could be handled later!

 

Undisciplined Pursuit of More – As organisations start to make undisciplined leaps into new ventures, territories or even whole new industries, they believe they can succeed at anything. In the Middle East's tight talent markets of 2 years ago, this overreaching meant it was difficult to find the right people to manage the growth

 

Denial of Risk and Peril – Organisational cultures built on growth 'explain away' the statistics or evidence that there needs to be change, blame getting placed either internally or externally on the markets. It doesn't take a global crisis like the one we started experiencing towards the end of 2008 for companies to go into this denial stage – many of the international case studies show these stages of decline can happen in a totally buoyant market.

 

Grasping for Salvation – this is one of the most critical stages as it comes down to the Leadership reaction and resolve if a turnaround is going to take place. All too often CEO's and Boards, start lurching around for quick win solutions, grasping at ideas that 'will surely' get them back on track. What is needed is a calm, determined, back-to-basics approach that refocuses the whole organisation on what made them successful in the first place. It is agreed that a company might need to stop the bleeding of cash with some significant organisation changes: however, getting disciplined on the core is key.

 

Capitulation to Irrelevance or Death – the longer a company remains in Stage Four, the more it increases the finality of this stage.

 

Like in his previous book 'Good to Great', Collins continues to extol the virtues of the disciplined low key CEO over the brash, over-confident and vocal Chief Executive who tells the world how they will single handedly change performance and results. In summary, much of the slippery slope of decline through the five stages can be managed by returning to the core of your business, 'sticking to your knitting' as we would say in Yorkshire, and ensuring you have disciplined people, completing disciplined actions.

 

Surviving the decline

Having run a business for 16 years in Dubai, it was always easy to get caught in the 'Hubris Born of Success' of the entire country and believe anything you wanted to achieve could be done. Now, the first two stages of decline are challenging many of the fast-growth companies to get back to basics.

 

Wherever you find your business, it is encouraging to know there are great turnaround stories, such as IBM, HP and Xerox who have been through these stages and come out stronger and better as a result.

 
How to Clean Up a Company

It's 2013 and your company is paying the highest wages in your industry, affording you the ability to attract and retain the best talent. Yet you have the lowest cost structure, so you have huge flexibility in pricing your competitors out of the market.

 

Revenues have quadrupled while gross margins have increased almost 50 per cent, generating record profits as a reward for all your hard work and, by the way, you're now dominating your industry. This is precisely what Simon Lim, CEO of Kuala Lumpur-based Maclean Services, achieved in the past five years. And he did it in one of the toughest industries in the world - janitorial services. By focusing on improving productivity by almost 40 per cent, as measured by square feet cleaned in a nine hour shift; and raising overall wages by 25 per cent (15 per cent for frontline; almost 30 per cent for supervisors), he was able to become the number player in his industry in five years.

 

People

After attending a hiring workshop - Geoff Smart's Topgrading programme, Lim launched a series of investigations:

 

1. HR ran a background check on all their employees searching for a personality profile of their best performing operations staff.

2. Operations conducted a survey asking their staff two questions. "How do you wish to be rewarded?" and "What do you think you can contribute above your current role & responsibilities?"

3. Marketing and Operations determined the productivity of the operators and that of their competitors as measured by head count per area.

4. Management went down to the floor to chat with the operators on their well-being, problems and obstacles preventing them from getting their jobs done.

5. HR and Operations compared the roles and responsibilities of the janitors, team leaders, supervisors, and managers with the Job Description sheets in their respective appointment letters.

 

 

What these investigations found were clear pattern of attributes that distinguished their best performing operations people from the rest of the team. These included being the sole bread winner in their family; a Mr or Mrs Fix-It at home; having a positive approach towards life; and having participated in some form of disciplinary group or team activity like boy scouts, cheerleading, football, or a police force - attributes any firm can discern about their own best performing people. In turn, they discovered from their operations people a desire for:

 

Higher income - over 80 per cent said that their current compensation system is not driving performance, and 100 per cent were not satisfied with the current income. Respect - they wished that the management team would step forward to protect them against unreasonably demanding or abusive customers. Appreciation - a simple thank you note or some recognition - for being the "hero". Training - work knowledge to understanding why certain processes are in place. Social Activities - company sponsored employee events, quarterly get-togethers and an annual family day.

 

The writer is author of Mastering the Rockefeller Habits, founder and CEO of Gazelles Inc, an outsourced corporate university with a faculty of top business experts.

 
How your CFO can help

Businesses often under invest on the accounting side of their business, seeing it as pure overhead meant to be kept to a minimum. And given a marginal dollar, most business owners will opt to either spend it on acquiring more resources or making more sales.

 

In fact, I’ve seen the best investment a company can make is bolstering the numbers side of the business. Hiring just one additional accounting clerk or a part-time CFO can double profitability and cash within twelve months. So how can they help the most immediately? Here are three ways:

 

Guidance on Pruning

Regular pruning is critical to the growth of plants; the same for your business. The key is knowing where to prune and how deep. And during turbulent times, it’s often advisable to prune deeper. But you need the hard data to help direct the shears. Have your accounting team give you a spreadsheet that shows gross margin dollar contribution (or just revenue) by product/service listed in descending order. Then walk down the list and draw a line when you reach 85% of your total revenue or gross margin dollars. Seriously consider eliminating the rest, taking the energy and focus you’ve placed on these underperforming activities and redirecting it to your top producers. This same exercise should be repeated with customers, raising prices on your least loyal to either make them more valuable or drive them to your competitors. Obviously, this needs to be handled delicately and an evaluation of future lifetime value needs to figure into the decisions. Your accounting department can be helpful in providing this additional analysis. Continue the exercise by location, opportunities, distribution channels, etc. What’s critical is that someone is handing you a piece of paper (best if it’s graphical) that is keeping you updated on the profitability/margin contribution by product, customer, office, channel, and/or sales person each week. Then you and your business unit leaders will have the data needed to make critical resource allocation decisions. In my business, a recent analysis found that 247 customers of the roughly 2000 with whom we do business (and 20,000 in our database) represent 85% of our revenue. We’ve doubled up our efforts to service these customers, protecting our base, while identifying an equal number of new prospects that look most like these “best buyers” as Chet Holmes calls them in his book The Ultimate Sales Machine. A similar analysis of our channel partners and products has resulted in similar pruning, leading us to a doubling in profit in 2009 over 2008 (so far)!

 

Daily Cash Balance

If you’ve ever come up short of cash, as I have, you never want to be in that place again. That’s why I’ve received a cash report each day for almost a decade. CEOs tend to focus more on the profit & loss statement and ignore their cash flow and balance sheet reports at their peril. To alleviate this weakness, the daily cash report summarizes the cash on hand in various bank accounts, details what has come in and gone out in the last 24 hours, and projects what’s expected to come in and out as far out as we have data. By “following the cash” on a daily basis, I’ve learned more about the flow of my business than almost any other business tool.   And by considering the impact on cash in making various decisions, we’ve been able to structure contracts, business arrangements, and/or avoid cash draining activities so we’ve had the cash needed to push through this current downturn. So far, so good.

 

Cash Conversion Cycle

Have your CFO download a copy of Dr. Neil Churchill’s famous Harvard Business Review article “How Fast Can Your Company Afford to Grow?” In the article is a formula for calculating your cash conversion cycle, which is the length of time it takes from when you spend a dollar (rent, payroll, marketing, R&D, etc) to when it makes its way back into your pocket. This is key performance indicator (KPI) every business owner should know and monitor. From this you can determine how fast you can grow on your own internally generated cash. Now that many traditional funding sources have dried up, companies that can generate their own cash to fuel growth will have a huge edge over those that have to spend precious time and resources raising more. What the calculations also demonstrate is that you only have to make minor tweaks in getting invoices out a little faster or more often; collecting a little faster; receiving slightly larger upfront payments; and reducing your sales or delivery cycles by a few days and you can support a much greater growth rate. And if you don’t need the cash for growth, you can take it out of the business to reward your sweat equity or save it for more rainy days. Having your CFO focus weekly on how to continually improve this key metric will lead to important improvements in various parts of the business.

 

Additional Support

The suggestions above are going to require more accounting expense. In fact, some of the cash conversion cycle challenges are due to an under-resourced accounting department. In turn, these initiatives should pay for themselves in a matter of months, so spend an extra $50,000 initially on the one additional accounting clerk or a one-day-per-week CFO and take part of their results and continue to invest in the accounting side of your business. It will pay dividends for years.

 

- Verne Harnish

Last Updated on Wednesday, 01 February 2012 10:55
 
Rewards of Aiding Staff to Dream On

Twenty times return on investment in less than a year; record retention of customers in a commodity business during a severe downturn; highest morale in the history of the company; and the best two quarters, ever, in terms of profitability. The key? An initiative called "Dream On."

 

"You're either a giver or taker," explains John Ratliff, founder and CEO AppleTree Answering Service, a 350 employee inbound call centre company based in Wilmington, Delaware with call centres in 12 locations throughout the US and Puerto Rico. The transformation of Ratliff's 13 year-old firm began during a quarterly offsite as the company prepared its plan for the coming third quarter of 2008.

 

"Employee attrition was the 'critical number' we chose to focus on," recalls Ratliff. "We were running an industry average 95 per cent turnover of our frontline employees while our non-exempt turnover was just 3 per cent - clearly we were doing something right for one group but not the other - and just being average has never been our goal." Ratliff knew that the company's growth, through 13 acquisitions in six years, had made it impossible to create a cohesive culture. And he had a nagging feeling that Appletree needed to be more than just a place for his employees to come to work. "We were in our planning session brainstorming ways to create a better experience for our employees when Lisa Phillips, our director of operations, asked how we could become more like 'Make a Wish' for our employees," notes Ratliff.

 

Over the years, Appletree has generously donated to charities and the "Make a Wish" foundation had always been their favorite. So they put together a small team of people to flesh out the idea and decided it wasn't about identifying their hard luck employees. Instead they simply wanted to know one thing, in a perfect world, that each of their employees would like to have happen in their personal lives. Titled "Dream On", they announced it on their intranet and supported it with printed collateral and posters in all of their offices. "It was nothing short of shocking to discover the situation of our frontline employees," remembers Ratliff.

 

Health was a staggering shocker for the executive team as well as challenges caring for an el derly parent or grandparent. Helping eight people with living situations like bills and rent; sending two employees on their first honeymoons leveraging Amex points; flying a mom over Christmas to see her daughter in the Navy; providing four employees with personal computers at home; and fulfilling the dream of a 90-year-old employee to take her first family vacation with her mentally challenged daughter are just some of the dreams they've made come true.

 

In turn, the company has had its best six months ever. First, turnover dropped instantly once "Dream On" was launched.

 

Verne Harnish is author of 'Mastering the Rockefeller Habits' and founder and CEO of Gazelles Inc, represented in the Middle East by Dubai-based Biz-ability.

 
Tap Collective Wisdom to Grow

What do Google, Facebook, MySpace, YouTube, eBay and Wikipedia have in common?

 

Besides being six of the fastest growing organisations in history and making several of their founders billionaires in less than a decade, they all utilise a new reality of the information age - whoever leverages the most brains wins! Figure out how to do this better than your competition and you win big. The subtitle of James Surowiecki's best-selling book The Wisdom of Crowds: Why the Many are Smarter Than the Few and How Collective Wisdom Shapes Business, Economics, Societies, and Nations is another take on this new strategic weapon. It's no longer sufficient to have just a smart executive team. You need to launch initiatives to access the collective wisdom of your employees, customers, and the broader world around you. You not only have to understand and apply this theory to your business, you need to start doing it immediately.

 

Tap intelligence

In past columns I've touched on several approaches to tap into the collective intelligence of your marketplace including the systematic gathering of customer and employee feedback and the use of wikis to capture and organise this information. There is also some innovative new "community" or "networking" technologies that aid in helping your customers connect with and help each other and in the process, help you. My company recently launched a public wiki devoted to collecting examples of quarterly themes. Within a few days of announcing the website, many of our long standing clients took the time to populate the wiki with past quarterly theme ideas, photos, and detailed write-ups. This, in turn, is now a valuable resource to the rest of our clients which strengthens our market position as a source of tools and ideas for helping executives grow their businesses.

 

We decided to house our wiki on a large public site called AboutUs.org. We've also ventured into the community building aspect of our business. Where as I can see teenagers spending a great deal of time on community websites like Facebook and MySpace, it's been hard for me to imagine our network of 15,000 executives of growth firms taking the time to visit and benefit from a networking site.

 

In turn, I know there is a tremendous amount of shared experience and talent among these executives if only they could efficiently tap into this reservoir of knowledge. Spending $15,000, we licensed a system called IntroNetworks - the same system the famous TED conference uses to network their attendees. What their system does is help the people in your network build specific profiles and through the magic of various algorithms, determines who should talk to whom. Within a week of our IntroNetwork's-supported community, one of the 15,000 executives in our network contacted me to say he might be able to help with a business challenge I personally posted on the network site. And it was someone I didn't even realise was in the network! We did connect and he was able to help me determine two concrete courses of action.

 

Verne Harnish is author of Mastering the Rockefeller Habits and founder and CEO of Gazelles Inc which serves as an outsourced corporate university boasting a faculty of well-known business experts. Gazelles is represented in the Middle East by Dubai-based biz-ability.

 

Source: Gulf News

 
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