Small business owners wear a million different hats. From product development to customer service to order fulfillment to basic HR functions, you do it all in the course of a typical day. But how do you ensure the success of your business when you're focused so much on day-to-day survival? We talked to successful small business owners to see what advice they had to share, and we've pulled their best tips together right here.
10. Create systems that can run without you.
As a small business owner, you provide the heart, soul, mind, and muscle that keeps your business running, so the idea of your company running without you can be difficult to accept. But as hard as it is to relinquish control, it's essential if your business is to grow to the next level. There are only so many hours in the day, and one person (even one extremely dedicated person) can only do so much.
Be sure that the information and knowledge you possess exists somewhere besides your own brain. If there are critical skills that you alone possess, train your people to do them better than you do, and see how much faster your company can move when there are more hands to share the important work.
9. Hire great employees, then get out of their way.
It can be intimidating to hire and work with people who you're pretty sure are smarter than you are. But just as keeping key information to yourself restricts the growth of your business, so does burying yourself in the minutiae of day-to-day operations. Train your employees well, listen to their ideas, and give yourself the freedom to move on to strategic pursuits such as growth planning and business development that will ensure your company's long-term viability.
8. Set specific goals, then take time to review them.
You’re busy all day, every day, but are you moving in a positive direction, or simply spinning your wheels? Take some time every quarter, or at least once a year, to review the goals you’ve set for your business, measure your progress toward them, then adjust as necessary.
7. Create a culture that you would want to work in.
Small businesses are vital to our local communities and our national economy, but small and family-run businesses are also notorious for being difficult to work for, due in part to the complicated dynamic that often exists among company principles. If you have one or more business partners, hash out any differences behind closed doors and present a united front to your employees and customers. Even if you’re the only one in charge, think about the work climate in your office. Are your employees smiling and energetic, or tense and stressed out? If you don’t like what you see, ask for feedback, and be willing to act on it.
6. Invest in improving yourself.
If there’s a core area of your business that’s lacking, find ways to make it better. Work with a business coach to set and achieve realistic goals. Look for workshops or webinars on sales strategies or customer relationship management. Talk with others in your industry about tools and technologies that help them save time and money, then invest in training on those that might benefit you. Knowing when to call in the experts can help you move beyond your comfort zone to become a more well-rounded business manager.
5. Don’t waste your time on tasks that you can outsource.
If you’re still keeping your own books, doing your own taxes, and managing employee work schedules in a cumbersome Excel spreadsheet, you might not be using your time as efficiently as you could. Consider hiring a part-time bookkeeper, retaining an accountant, and using an online scheduling application to let employees create and maintain their own schedules. You can even outsource functions such as staffing, payroll processing, invoicing, and collections, as well as certain aspects of the sales cycle, like lead generation and appointment setting. Think about how much time these tasks consume over the course of a typical day, week, or month, then decide whether your energies would be better spent on more strategic projects.
4. Stick to your core business.
Develop a set of core business principles, then live by them. Begin by identifying your unique selling proposition (What product or service do you provide that differentiates your company from any other business?) and defining who your core customer is (and is not!). If you're having trouble committing to one core service or market, consider working with a business consultant until the path seems clear. This could very well be a situation where it pays to call in the experts!
3. Always know where you stand financially.
This one may seem obvious, but many a small business has failed because the owners, although experts in the service they provided, were novices at managing the money. Create a detailed profit and loss (P&L) statement that tracks your revenues and expenditures, and always keep current on loan payments, small business credit cards, and other accounts payable, as well as invoicing and receivables.
2. Find a partner.
While many entrepreneurs are autonomous by their very nature, there's a great deal of truth to the saying that two heads are better than one. A carefully selected business partner can be a source of ideas, a sounding board, another set of hands, and a counterpart to your own management strengths and weaknesses.
1. Do whatever it takes to achieve that elusive work-life balance.
Force yourself to take a day off, schedule a real vacation, and, above all, remember why it was you started your own business in the first place. Long hours come with the territory, but if you barely recognize your children and your work life has all but consumed any semblance of a personal life, it might be time to reevaluate your priorities. As a small business owner, you could probably find enough work to fill a 37-hour day, so it's important to make a conscious decision to step away from it frequently enough that you avoid burning out or damaging your personal relationships.
http://www.inkfromchase.com/business-tips/
Showing posts with label Consultant. Show all posts
Showing posts with label Consultant. Show all posts
3/13/11
5 Things You Should Never Say While Negotiating
If you're new to negotiating or find it difficult, here are some missteps to avoid.
Every entrepreneur spends some time haggling, whether it is with customers, suppliers, investors, or would-be employees. Most business owners are street smart, and seem to naturally perform well in negotiations. You probably have a trick or two—some magic phrases to say, perhaps—that can help you gain the upperhand. But, often, the moment you get into trouble in a negotiation is when something careless just slips out. If you are new to negotiation, or feel it is an area where you can improve, check out these tips on precisely what not to say.
1. The word "between." It often feels reasonable—and therefore like progress—to throw out a range. With a customer, that may mean saying "I can do this for between $10,000 and $15,000." With a potential hire, you could be tempted to say, "You can start between April 1 and April 15." But that word between tends to be tantamount to a concession, and any shrewd negotiator with whom you deal will swiftly zero-in on the cheaper price or the later deadline. In other words, you will find that by saying the word between you will automatically have conceded ground without extracting anything in return.
2. "I think we're close." We've all experienced deal fatigue: The moment when you want so badly to complete a deal that you signal to the other side that you are ready to settle on the details and move forward. The problem with arriving at this crossroads, and announcing you're there, is that you have just indicated that you value simply reaching an agreement over getting what you actually want. And a skilled negotiator on the other side may well use this moment as an opportunity to stall, and thus to negotiate further concessions. Unless you actually face extreme time pressure, you shouldn't be the party to point out that the clock is loudly ticking in the background. Create a situation in which your counterpart is as eager to finalize the negotiation (or, better yet: more eager!) than you are.
3. "Why don't you throw out a number?" There are differing schools of thought on this, and many people believe you should never be the first person in a negotiation to quote a price. Let the other side start the bidding, the thinking goes, and they will be forced to show their hands, which will provide you with an advantage. But some research has indicated that the result of a negotiation is often closer to what the first mover proposed than to the number the other party had in mind; the first number uttered in a negotiation (so long as it is not ridiculous) has the effect of "anchoring the conversation." And one's role in the negotiation can matter, too. In the book Negotiation, Adam D. Galinsky of Northwestern's Kellogg School of Management and Roderick I. Swaab of INSEAD in France write: "In our studies, we found that the final outcome of a negotiation is affected by whether the buyer or the seller makes the first offer. Specifically, when a seller makes the first offer, the final settlement price tends to be higher than when the buyer makes the first offer."
4. "I'm the final decision maker." At the beginning of many negotiations, someone will typically ask, "Who are the key stakeholders on your side, and is everyone needed to make the decision in the room?" For most entrepreneurs, the answer, of course, is yes. Who besides you is ever needed to make a decision? Isn't one of the joys of being an entrepreneur that you get to call the shots? Yet in negotiations, particularly with larger organizations, this can be a trap. You almost always want to establish at the beginning of a negotiation that there is some higher authority with whom you must speak prior to saying yes. In a business owner's case, that mysterious overlord could be a key investor, a partner, or the members of your advisory board. The point is, while you will almost certainly be making the decision yourself, you do not want the opposing negotiators to know that you are the final decision maker, just in case you get cornered as the conversation develops. Particularly in a high-stakes deal, you will almost certainly benefit from taking an extra 24 hours to think through the terms. For once, be (falsely) humble: pretend like you aren't the person who makes all of the decisions.
5. "Fuck you." The savviest negotiators take nothing personally; they are impervious to criticism and impossible to fluster. And because they seem unmoved by the whole situation and unimpressed with the stakes involved, they have a way of unnerving less-experienced counterparts. This can be an effective weapon when used against entrepreneurs, because entrepreneurs tend to take every aspect of their businesses very personally. Entrepreneurs often style themselves as frank, no-nonsense individuals, and they can at times have thin skin. But whenever you negotiate, remember that it pays to stay calm, to never show that a absurdly low counter-offer or an annoying stalling tactic has upset you. Use your equanimity to unnerve the person who is negotiating with you. And if he or she becomes angry or peeved, don't take the bait to strike back. Just take heart: You've grabbed the emotional advantage in the situation. Now go close that deal.
http://www.inc.com/guides/2011/01/five-things-to-never-say-while-negotiating.html
Every entrepreneur spends some time haggling, whether it is with customers, suppliers, investors, or would-be employees. Most business owners are street smart, and seem to naturally perform well in negotiations. You probably have a trick or two—some magic phrases to say, perhaps—that can help you gain the upperhand. But, often, the moment you get into trouble in a negotiation is when something careless just slips out. If you are new to negotiation, or feel it is an area where you can improve, check out these tips on precisely what not to say.
1. The word "between." It often feels reasonable—and therefore like progress—to throw out a range. With a customer, that may mean saying "I can do this for between $10,000 and $15,000." With a potential hire, you could be tempted to say, "You can start between April 1 and April 15." But that word between tends to be tantamount to a concession, and any shrewd negotiator with whom you deal will swiftly zero-in on the cheaper price or the later deadline. In other words, you will find that by saying the word between you will automatically have conceded ground without extracting anything in return.
2. "I think we're close." We've all experienced deal fatigue: The moment when you want so badly to complete a deal that you signal to the other side that you are ready to settle on the details and move forward. The problem with arriving at this crossroads, and announcing you're there, is that you have just indicated that you value simply reaching an agreement over getting what you actually want. And a skilled negotiator on the other side may well use this moment as an opportunity to stall, and thus to negotiate further concessions. Unless you actually face extreme time pressure, you shouldn't be the party to point out that the clock is loudly ticking in the background. Create a situation in which your counterpart is as eager to finalize the negotiation (or, better yet: more eager!) than you are.
3. "Why don't you throw out a number?" There are differing schools of thought on this, and many people believe you should never be the first person in a negotiation to quote a price. Let the other side start the bidding, the thinking goes, and they will be forced to show their hands, which will provide you with an advantage. But some research has indicated that the result of a negotiation is often closer to what the first mover proposed than to the number the other party had in mind; the first number uttered in a negotiation (so long as it is not ridiculous) has the effect of "anchoring the conversation." And one's role in the negotiation can matter, too. In the book Negotiation, Adam D. Galinsky of Northwestern's Kellogg School of Management and Roderick I. Swaab of INSEAD in France write: "In our studies, we found that the final outcome of a negotiation is affected by whether the buyer or the seller makes the first offer. Specifically, when a seller makes the first offer, the final settlement price tends to be higher than when the buyer makes the first offer."
4. "I'm the final decision maker." At the beginning of many negotiations, someone will typically ask, "Who are the key stakeholders on your side, and is everyone needed to make the decision in the room?" For most entrepreneurs, the answer, of course, is yes. Who besides you is ever needed to make a decision? Isn't one of the joys of being an entrepreneur that you get to call the shots? Yet in negotiations, particularly with larger organizations, this can be a trap. You almost always want to establish at the beginning of a negotiation that there is some higher authority with whom you must speak prior to saying yes. In a business owner's case, that mysterious overlord could be a key investor, a partner, or the members of your advisory board. The point is, while you will almost certainly be making the decision yourself, you do not want the opposing negotiators to know that you are the final decision maker, just in case you get cornered as the conversation develops. Particularly in a high-stakes deal, you will almost certainly benefit from taking an extra 24 hours to think through the terms. For once, be (falsely) humble: pretend like you aren't the person who makes all of the decisions.
5. "Fuck you." The savviest negotiators take nothing personally; they are impervious to criticism and impossible to fluster. And because they seem unmoved by the whole situation and unimpressed with the stakes involved, they have a way of unnerving less-experienced counterparts. This can be an effective weapon when used against entrepreneurs, because entrepreneurs tend to take every aspect of their businesses very personally. Entrepreneurs often style themselves as frank, no-nonsense individuals, and they can at times have thin skin. But whenever you negotiate, remember that it pays to stay calm, to never show that a absurdly low counter-offer or an annoying stalling tactic has upset you. Use your equanimity to unnerve the person who is negotiating with you. And if he or she becomes angry or peeved, don't take the bait to strike back. Just take heart: You've grabbed the emotional advantage in the situation. Now go close that deal.
http://www.inc.com/guides/2011/01/five-things-to-never-say-while-negotiating.html
3/1/11
How to Assemble a Team to Buy a Business
Sure, there are the obvious experts you need by your side when buying a business. But did you consider a technology analyst, who could help evaluate the state of the company's technology? It could create leverage in negotiations.
You've decided it's time to finally buy your own business. Now what? Obviously buying a business can be a risky proposition, not unlike buying a house. And just like when you go about a home for the first time, you'll want to make sure you're not going in blind. That means that you need to assemble a team of skilled advisers to help guide your decisions that might range from evaluating business plans to nailing down the financing needed to make the deal. "Anyone buying a business will always be at a disadvantage even when they're asking the right questions because there are things sellers would rather not tell you, like that 75 percent of their business comes from a single client," says Carol Roth, a Chicago-based business strategist with Intercap Merchant Partners and author of The Entrepreneur Equation. "That's why you need to build a sharp team that can help uncover as many skeletons as possible."
And what kinds of experienced professionals should you include on the team you assemble to buy a business? There are three key experts that you must have at the table with you and six others that are strongly recommended.
Assembling a Team to Buy a Business: The 3 Key Experts
1. The Accountant
One expert you can't afford not to have on your team is an accountant who has experience in performing due diligence and buying businesses. The rub is that many accountants or CPAs think they know what they're doing when it comes to crunching the numbers of a business involved in a sale. Not so, says Bill Watson, whose company, Advanced Business Group, in Nashville, Tennessee, helps buy, sell, and value businesses. "I'm a CPA, and I can tell you that the average CPA is not out buying and selling businesses every day so they don't understand deal structure," he says. "It's not like buying a car." There are nuances to buying a business that the accountant you hire needs to be aware of. For instance, if you were to look at the books of a small business, you need to understand where and how the owner used "chargebacks," those ambiguous tax deductions like insurance charges or vacation expenses that business owners have the habit of burying in their books. In other words, a skilled accountant can help you uncover many of those skeletons hiding in the business's closets in an effort to evaluate what you should or shouldn't pay for.
2. The Lawyer
Just as when you go about choosing a CPA to join your team, you should target an attorney who specializes in mergers and acquisitions to give you the best advice when it comes to buying a business, says Roth. "This is not a case where you want to save a few dollars by hiring your cousin who happens to be a lawyer, but specializes in divorce law," she says. The reason is that you want an expert who knows how to review documents, such as environmental variables, and the kinds of contracts that might be in place with the current business owner. One of the most common sticky situations that many business buyers get into involves change-of-control issues related to leases or vendors, says Roth, where, based on a sale of the business, those relationships are no longer transferable—something that could dramatically change your appetite in terms of buying the business. "A good transactional lawyer can help you understand what contracts are null and void when you buy a business," says Roth.
3. The Intermediary
While entrepreneurs tend to pride themselves on their ability to go it alone, there are many reasons why it makes sense to bring on an experienced intermediary such as a business broker or investment banker to help shepherd your way through the business-buying process. Not only can an experienced banker or broker show you the ropes when it comes to what to expect throughout the entire process, they can also play a key role when it comes to playing hard ball with the seller, says Roth. "It can be really beneficial to have someone to play the 'bad cop' during negotiations," she says. "That way the buyer can ask the tough questions but blame it on their intermediary while preserving the relationships with employees and key partners they will need to run the business moving forward." In many cases, intermediaries can also pay for themselves, Roth says, by negotiating special deal terms or by finding hidden skeletons in the business they sniff out.
Assembling a Team to Buy a Business: 6 Additional Experts That Are Highly Recommended
4. Business Valuation Specialist
While settling on a price for the business you want to buy is something that your investment banker or broker will help with, it can also be valuable to reach out to someone who specializes in valuing companies, not unlike what an appraiser does with homes. A good valuation will take the business's financial strengths and weaknesses into account relative to its assets and cash flow, among other metrics.
5. Financing Expert
Unless you're planning on buying your new business with cash, you'll also need to have someone on your team that will help you secure the financing you'll need to get the deal done. Ideally, you'll be able to rely on someone who can walk you through the options available—bank loans, credit, etc.—as well as which ones make the best sense for you.
6. Real Estate Adviser
On a general level, most every business will have some real estate or property component linked to it, such as a lease, a deed, or even an option to buy additional land to expand upon in the future. That means it's wise to bring on someone who can help you weigh the pros and cons when it comes to the real estate details of the business you're considering buying. One organization to consider contacting for advice is The Counselors of Real Estate, www.cre.org, a professional association of commercial real estate advisers.
7. Insurance Agent
As an owner of a business, you'll also need to understand what you need to insure it. Therefore, it would be wise to get good counsel from an insurance agent or expert who can help map out what kind of coverage you might need regarding fire, error and omission, etc., before pulling the trigger on the deal.
8. Industry Expert
If you are interested in buying a business you already know something about, perhaps because you've worked for or owned a similar one in the past, you might not need to rely on someone to explain how the business works. If you are making a leap into a new industry, however, it makes sense to find someone you trust who has deep experience in that industry and can help you evaluate where the business stands relative to its competition and its customers.
9. Technology Analyst
Few companies these days operate without computers, whether it's to market themselves or to take orders from customers. That means that when you buy a business, you're also buying the equipment and data that the company has accumulated in its history—all of which can be extremely valuable to you. But, if the business has not kept on top of its information technology, perhaps by not backing up key data or by not investing in the best technology, you might want to bring in an expert who can help evaluate the state of the company's information technology infrastructure. Plus, if the company's technology is subpar, it could create some leverage in negotiations.
You've decided it's time to finally buy your own business. Now what? Obviously buying a business can be a risky proposition, not unlike buying a house. And just like when you go about a home for the first time, you'll want to make sure you're not going in blind. That means that you need to assemble a team of skilled advisers to help guide your decisions that might range from evaluating business plans to nailing down the financing needed to make the deal. "Anyone buying a business will always be at a disadvantage even when they're asking the right questions because there are things sellers would rather not tell you, like that 75 percent of their business comes from a single client," says Carol Roth, a Chicago-based business strategist with Intercap Merchant Partners and author of The Entrepreneur Equation. "That's why you need to build a sharp team that can help uncover as many skeletons as possible."
And what kinds of experienced professionals should you include on the team you assemble to buy a business? There are three key experts that you must have at the table with you and six others that are strongly recommended.
Assembling a Team to Buy a Business: The 3 Key Experts
1. The Accountant
One expert you can't afford not to have on your team is an accountant who has experience in performing due diligence and buying businesses. The rub is that many accountants or CPAs think they know what they're doing when it comes to crunching the numbers of a business involved in a sale. Not so, says Bill Watson, whose company, Advanced Business Group, in Nashville, Tennessee, helps buy, sell, and value businesses. "I'm a CPA, and I can tell you that the average CPA is not out buying and selling businesses every day so they don't understand deal structure," he says. "It's not like buying a car." There are nuances to buying a business that the accountant you hire needs to be aware of. For instance, if you were to look at the books of a small business, you need to understand where and how the owner used "chargebacks," those ambiguous tax deductions like insurance charges or vacation expenses that business owners have the habit of burying in their books. In other words, a skilled accountant can help you uncover many of those skeletons hiding in the business's closets in an effort to evaluate what you should or shouldn't pay for.
2. The Lawyer
Just as when you go about choosing a CPA to join your team, you should target an attorney who specializes in mergers and acquisitions to give you the best advice when it comes to buying a business, says Roth. "This is not a case where you want to save a few dollars by hiring your cousin who happens to be a lawyer, but specializes in divorce law," she says. The reason is that you want an expert who knows how to review documents, such as environmental variables, and the kinds of contracts that might be in place with the current business owner. One of the most common sticky situations that many business buyers get into involves change-of-control issues related to leases or vendors, says Roth, where, based on a sale of the business, those relationships are no longer transferable—something that could dramatically change your appetite in terms of buying the business. "A good transactional lawyer can help you understand what contracts are null and void when you buy a business," says Roth.
3. The Intermediary
While entrepreneurs tend to pride themselves on their ability to go it alone, there are many reasons why it makes sense to bring on an experienced intermediary such as a business broker or investment banker to help shepherd your way through the business-buying process. Not only can an experienced banker or broker show you the ropes when it comes to what to expect throughout the entire process, they can also play a key role when it comes to playing hard ball with the seller, says Roth. "It can be really beneficial to have someone to play the 'bad cop' during negotiations," she says. "That way the buyer can ask the tough questions but blame it on their intermediary while preserving the relationships with employees and key partners they will need to run the business moving forward." In many cases, intermediaries can also pay for themselves, Roth says, by negotiating special deal terms or by finding hidden skeletons in the business they sniff out.
Assembling a Team to Buy a Business: 6 Additional Experts That Are Highly Recommended
4. Business Valuation Specialist
While settling on a price for the business you want to buy is something that your investment banker or broker will help with, it can also be valuable to reach out to someone who specializes in valuing companies, not unlike what an appraiser does with homes. A good valuation will take the business's financial strengths and weaknesses into account relative to its assets and cash flow, among other metrics.
5. Financing Expert
Unless you're planning on buying your new business with cash, you'll also need to have someone on your team that will help you secure the financing you'll need to get the deal done. Ideally, you'll be able to rely on someone who can walk you through the options available—bank loans, credit, etc.—as well as which ones make the best sense for you.
6. Real Estate Adviser
On a general level, most every business will have some real estate or property component linked to it, such as a lease, a deed, or even an option to buy additional land to expand upon in the future. That means it's wise to bring on someone who can help you weigh the pros and cons when it comes to the real estate details of the business you're considering buying. One organization to consider contacting for advice is The Counselors of Real Estate, www.cre.org, a professional association of commercial real estate advisers.
7. Insurance Agent
As an owner of a business, you'll also need to understand what you need to insure it. Therefore, it would be wise to get good counsel from an insurance agent or expert who can help map out what kind of coverage you might need regarding fire, error and omission, etc., before pulling the trigger on the deal.
8. Industry Expert
If you are interested in buying a business you already know something about, perhaps because you've worked for or owned a similar one in the past, you might not need to rely on someone to explain how the business works. If you are making a leap into a new industry, however, it makes sense to find someone you trust who has deep experience in that industry and can help you evaluate where the business stands relative to its competition and its customers.
9. Technology Analyst
Few companies these days operate without computers, whether it's to market themselves or to take orders from customers. That means that when you buy a business, you're also buying the equipment and data that the company has accumulated in its history—all of which can be extremely valuable to you. But, if the business has not kept on top of its information technology, perhaps by not backing up key data or by not investing in the best technology, you might want to bring in an expert who can help evaluate the state of the company's information technology infrastructure. Plus, if the company's technology is subpar, it could create some leverage in negotiations.
1/20/11
Reinvent Your Business Before It’s Too Late
Sooner or later, all businesses, even the most successful, run out of room to grow. Faced with this unpleasant reality, they are compelled to reinvent themselves periodically. The ability to pull off this difficult feat—to jump from the maturity stage of one business to the growth stage of the next—is what separates high performers from those whose time at the top is all too brief.
The potential consequences are dire for any organization that fails to reinvent itself in time. As Matthew S. Olson and Derek van Bever demonstrate in their book Stall Points, once a company runs up against a major stall in its growth, it has less than a 10% chance of ever fully recovering. Those odds are certainly daunting, and they do much to explain why two-thirds of stalled companies are later acquired, taken private, or forced into bankruptcy.
There’s no shortage of explanations for this stalling—from failure to stick with the core (or sticking with it for too long) to problems with execution, misreading of consumer tastes, or an unhealthy focus on scale for scale’s sake. What those theories have in common is the notion that stalling results from a failure to fix what is clearly broken in a company.
Having spent the better part of a decade researching the nature of high performance in business, we realized that those explanations missed something crucial. Companies fail to reinvent themselves not necessarily because they are bad at fixing what’s broken, but because they wait much too long before repairing the deteriorating bulwarks of the company. That is, they invest most of their energy managing to the contours of their existing operations—the financial S curve in which sales of a successful new offering build slowly, then ascend rapidly, and finally taper off—and not nearly enough energy creating the foundations of successful new businesses. Because of that, they are left scrambling when their core markets begin to stagnate.
In our research, we’ve found that the companies that successfully reinvent themselves have one trait in common. They tend to broaden their focus beyond the financial S curve and manage to three much shorter but vitally important hidden S curves—tracking the basis of competition in their industry, renewing their capabilities, and nurturing a ready supply of talent. In essence, they turn conventional wisdom on its head and learn to focus on fixing what doesn’t yet appear to be broken.
Thrown a Curve
Making a commitment to reinvention before the need is glaringly obvious doesn’t come naturally. Things often look rosiest just before a company heads into decline: Revenues from the current business model are surging, profits are robust, and the company stock commands a hefty premium. But that’s exactly when managers need to take action.
To position themselves to jump to the next business S curve, they need to focus on the following.
The hidden competition curve.
Long before a successful business hits its revenue peak, the basis of competition on which it was founded expires. Competition in the cell phone industry, for instance, has changed several times—for both manufacturers and service providers—from price to network coverage to the value of services to design, branding, and applications. The first hidden S curve tracks how competition in an industry is shifting. High performers see changes in customer needs and create the next basis of competition in their industry, even as they exploit existing businesses that have not yet peaked.
Netflix, for example, radically altered the basis of competition in DVD rentals by introducing a business model that used delivery by mail. At the same time, it almost immediately set out to reinvent itself by capturing the technology that would replace physical copies of films—digital streaming over the internet. Today Netflix is the largest provider of DVDs by mail and a major player in online streaming. In contrast, Blockbuster rode its successful superstore model all the way to the top, tweaking it along the way (no more late fees) but failing to respond quickly enough to changes in the basis of competition.
The hidden capabilities curve.
In building the offerings that enable them to climb the financial S curve, high performers invariably create distinctive capabilities. Prominent examples include Dell with its direct model of PC sales, Wal-Mart with its unique supply chain capabilities, and Toyota with not just its production method but also its engineering capabilities, which made possible Lexus’s luxury cars and the Prius. But distinctiveness in capabilities—like the basis of competition—is fleeting, so executives must invest in developing new ones in order to jump to the next capabilities S curve. All too often, though, the end of the capabilities curve does not become apparent to executives until time to develop a new one has run out.
Take the music industry. The major players concentrated on refining current operations; it was a PC maker that developed the capabilities needed to deliver digital music to millions of consumers at an acceptable price. High performers are continually looking for ways to reinvent themselves and their market. P&G long ago recognized the untapped customer market for disposable diapers. The company spent five years perfecting the capabilities that would allow diapers to be priced similarly to what customers were then paying services to launder and deliver cloth diapers. Amazon.com CEO Jeff Bezos notes that it takes five to seven years before the seeds his company plants—things like expanding beyond media products, working with third-party sellers, and going international—grow enough to have a meaningful impact on the economics of the business; this process requires foresight, early commitment, and tenacious faith in the power of R&D.
The hidden talent curve.
Companies often lose focus on developing and retaining enough of what we call serious talent—people with both the capabilities and the will to drive new business growth. This is especially true when the business is successfully humming along but has not yet peaked. In such circumstances, companies feel that operations can be leaner (they’ve moved far down the learning curve by then) and meaner, because they’re under pressures to boost margins. They reduce both head count and investments in talent, which has the perverse effect of driving away the very people they could rely on to help them reinvent the business.
The high performers in our study maintain a steady commitment to talent creation. The oil-field services provider Schlumberger is always searching for and developing serious talent, assigning “ambassadors” to dozens of top engineering schools around the world. These ambassadors include high-level executives who manage large budgets and can approve equipment donations and research funding at those universities. Close ties with the schools help Schlumberger get preference when it is recruiting. Not only does Schlumberger keep its talent pipeline flowing, but it’s a leader in employee development. In fact, it is a net producer of talent for its industry, a hallmark of high performers.
By managing to these hidden curves—as well as keeping focused on the revenue growth S curve, it must be emphasized—the high performers in our study had typically started the reinvention process well before their current businesses had begun to slow. So what are the management practices that prepare high performers for reinvention? Let’s look first at the response to the hidden competition curve.
Edge-Centric Strategy
Traditional strategic-planning methods are useful in stretching the revenue S curve of an existing business, but they can’t help companies detect how the basis for competition in a market will change.
To make reinvention possible, companies must supplement their traditional approaches with a parallel strategy process that brings the edges of the market and the edges of the organization to the center. In this “edge-centric” approach, strategy making becomes a permanent activity without permanent structures or processes.
Moving the edge of the market to the center.
An edge-centric strategy allows companies to continually scan the periphery of the market for untapped customer needs or unsolved problems. Consider how Novo Nordisk gets to the edge of the market to detect changes in the basis of competition as they’re occurring. For example, through one critical initiative the pharma giant came to understand that its future businesses would have to address much more than physical health. The initiative—Diabetes Attitudes, Wishes, and Needs (DAWN)—brings together thousands of primary care physicians, nurses, medical specialists, patients, and delegates from major associations like the World Health Organization to put the individual—rather than the disease—at the center of diabetes care.
Research conducted through DAWN has opened Novo’s eyes to the psychological and sociological needs of patients. For example, the company learned that more than 40% of people with diabetes also have psychological issues, and about 15% suffer from depression. Because of such insights, the company has begun to reinvent itself early; it focuses less on drug development and manufacturing and more on disease prevention and treatment, betting that the future of the company lies in concentrating on the person as well as the disease.
Moving the edge of the organization to the center.
Frontline employees, far-flung research teams, line managers—all these individuals have a vital role to play in detecting important shifts in the market. High performers find ways to bring these voices into the strategy-making process. Best Buy listens to store managers far from corporate headquarters, such as the New York City manager who created a magnet store for Portuguese visitors coming off cruise ships. Reckitt Benckiser got one of its most successful product ideas, Air Wick Freshmatic, from a brand manager in Korea. The idea was initially met with considerable internal skepticism because it would require the company to incorporate electronics for the first time—but CEO Bart Becht is more impressed by passion than by consensus.
If strategy making is to remain on the edge, it cannot be formalized. We found that although low and average performers tend to make strategy according to the calendar, high performers use many methods and keep the timing dynamic to avoid predictability and to prevent the system from being gamed.
As quickly as competition shifts, the distinctiveness of capabilities may evaporate even faster. By the time a business really takes off, imitators have usually had time to plan and begin their attack, and others, attracted to marketplace success, are sure to follow. How, then, do companies build the capabilities necessary to jump to a new financial S curve?
Change at the Top
Some executives excel at running a business—ramping up manufacturing, expanding into different geographies, or extending a product line. Others are entrepreneurial—their strength is in creating new markets. Neither is inherently better; what matters is that the capabilities of the top team match the firm’s organizational needs on the capabilities S curve. Companies run into trouble when their top teams stay in place to manage the financial S curve rather than evolve to build the next set of distinctive capabilities.
Avoiding that trap runs counter to human nature, of course. What member of a top team wants to leave when business is good? High performers recognize that a key to building the capabilities necessary to jump to a new financial S curve is the early injection of new leadership blood and a continual shake-up of the top team.
Early top-team renewal.
Consider how the top team at Intel has evolved. Throughout its history, the semiconductor manufacturer has seen its CEO mantle rest on five executives: Robert Noyce, Gordon Moore, Andy Grove, Craig Barrett, and current CEO Paul Otellini. Not once has the company had to look outside to find this talent, and the transitions have typically been orderly and well orchestrated. “We discuss executive changes 10 years out to identify gaps,” explains David Yoffie, who has served on the Intel board since 1989.
Simple continuity is not Intel’s goal in making changes at the top, however; evolving the business is. For instance, when Grove stepped down from the top spot, in 1998, he was still a highly effective leader. If continuity had been Intel’s overwhelming concern, Grove might have stayed for another three years, until he reached the mandatory retirement age of 65. But instead, he handed the baton to Barrett, who then implemented a strategy for growing Intel’s business through product extensions.
Indeed, each of Intel’s CEOs has left his mark in a different way. Grove made the bold decision to move Intel away from memory chips in order to focus on microprocessors, a transition that established the company as a global high-tech leader. Since he took the helm, in 2005, Otellini has focused on the Atom mobile chip, which is being developed for use in just about any device that might need to connect to the web, including cell phones, navigation systems, and even sewing machines (for downloading patterns).
Through structured succession planning, Intel ensures that it chooses the CEO who is right for the challenges the company is facing, not simply the person next in line. And by changing CEOs early, the company gives its new leadership time to produce the reinvention needed, well before deteriorating revenues and dwindling options become a crisis.
Balance short-term and long-term thinking.
Ensuring that the team is balanced with a focus on both the present and the future is another critical step in developing a new capabilities curve. When Adobe bought Macromedia in 2005, then-CEO Bruce Chizen took a hard look at his senior managers to determine which of them had what it took to grow the company to annual revenues of $10 billion. What he found was a number of executives who lacked either the skills or the motivation to do what was necessary. Consequently, Chizen tapped more executives from Macromedia than from Adobe for key roles in the new organization. Those choices were based on Adobe’s future needs, not on which executives were the most capable at the time.
Chizen wasn’t tough-minded just with others. At the relatively young age of 52, and only seven years into his successful tenure, he handed over the reins to Shantanu Narayen, his longtime deputy. The timing might have seemed odd, but it made good sense for Adobe: The company faced a new set of challenges—and the need for new capabilities—as it anticipated going head-to-head against larger competitors like Microsoft.
In other cases, the executive team might need to gather fresh viewpoints from within the organization to balance long-established management thinking. Before Ratan Tata took over at India’s Tata Group, in 1991, executives had comfortably ruled their fiefdoms for ages and rarely retired. But the new chairman began easing out those complacent executives (not surprisingly, some of their departures were acrimonious) and instituted a compulsory retirement age to help prevent the future stagnation of his senior leadership. The dramatic change opened dozens of opportunities for rising in-house talent who have helped Tata become India’s largest private corporate group.
Organize to avoid overload.
Finally, high performers organize their top teams so that responsibilities are more effectively divided and conquered. Three critical tasks of senior leadership are information sharing, consulting on important decisions, and making those decisions. Although many companies have one group that performs all three functions, this can easily become unwieldy.
An alternative approach, which we observed in many high performers, is to split those tasks—in effect, creating teams nested within teams. At the very top are the primary decision makers—a group of perhaps three to seven people. This group then receives advice from other teams, so hundreds of people may be providing important input.
Surplus Talent
Business reinvention requires not just nimble top teams but also large numbers of people ready to take on the considerable challenge of getting new businesses off the ground and making them thrive. High performers take an approach that is, in its way, as difficult as changing out top leadership before the company’s main business has crested: They create much more talent than they need to run the current business effectively—particularly talent of the kind that can start and grow a business, not just manage one. This can be a hard sell in the best of times, which is probably why so many avoid it.
One of the signs that a company has surplus talent is that employees have time to think on the job. Many of our high performers make time to explore a regular component of their employees’ workweek. (Think Google and 3M.) Another is a deep bench—one that allows promising managers to take on developmental assignments and not just get plugged in where there is an urgent need. High performance companies aggressively search out the right type of candidate and then take action to strengthen individuals for the challenges ahead.
Hire for cultural fit.
High performance companies begin with the expectation that they are hiring people for the long term—a perspective that fundamentally alters the nature of their hiring and development practices. They don’t just look for the best people for the current openings; they recognize that cultural fit is what helps ensure that someone will perform exceptionally well over time.
One company that gets this right is the Four Seasons Hotels and Resorts. It specifically looks for people who will thrive in a business that treats customers like kings—because, quite literally, some guests could be. “I can teach anyone to be a waiter,” says Isadore Sharp, CEO of the luxury hotel chain in his book Four Seasons: The Story of a Business Philosophy. “But you can’t change an ingrained poor attitude. We look for people who say, ‘I’d be proud to be a doorman.’”
Reckitt Benckiser also puts cultural fit at the top of its hiring priorities. Before candidates begin the application process, they can complete an online simulation that determines whether they are likely to be a good match with the firm’s exceptionally driven culture. The candidates are presented with business scenarios and asked how they would respond. After reviewing their “fit” score, they can decide for themselves whether they want to continue pursuing employment with the company.
Prepare for challenges ahead.
Making sure that new employees are fit to successfully navigate the tough stretches in a long career requires something we call stressing for strength. At low-performer companies, employees may find themselves wilting when faced with unexpected or harsh terrain. High performers create environments—often challenging ones—in which employees acquire the skills and experience they will need to start the company’s next S curve. The goal is partly to create what our Accenture colleague Bob Thomas, in his book on the topic, calls “crucible” experiences. These are life-changing events, whether on the job or not, whose lessons help transform someone into a leader.
Crucible experiences can—and should—be created intentionally. When Jeff Immelt was still in his early 30s and relatively new in his career at GE, he was tapped by then-CEO Jack Welch and HR chief Bill Conaty to deal with the problem of millions of faulty refrigerator compressors—despite his lack of familiarity with appliances or recalls. Immelt later said he would never have become CEO without that trial-by-fire experience.
Give employees room to grow.
After choosing and testing the right employees, companies must give them a chance to develop. To truly enable them to excel in their work, companies should take a hard look at exactly what people are required to do day by day.
UPS has long known that its truck drivers are crucial to its success. Experienced drivers know the fastest routes, taking into account the time of day, the weather, and various other factors. But the turnover rate for drivers was high, partly because of the hard physical labor required to load packages onto the trucks. So UPS separated out that task and gave it to part-time workers, who were more affordable and easier to find, allowing a valuable group of employees to concentrate on their capabilities and excel at their jobs.
Companies can also use organizational structure to provide employees with ample opportunities to grow. Illinois Tool Works, a global manufacturer of industrial products and equipment, is organized into more than 800 business units. Whenever one of those units becomes too large (the maximum size is around $50 million in sales), ITW splits that business, thus opening up managerial positions for young talent. In fact, it’s not uncommon for ITW managers to start running a business while they’re still in their 20s.
And high performance businesses aren’t afraid to leapfrog talented employees over those with longer tenure. After A.G. Lafley took over at P&G, for example, he needed someone to run the North American baby-care division, which was struggling. Instead of choosing one of the 78 general managers with seniority, he reached lower in the organization and tapped Deborah Henretta. Lafley’s move paid off. Henretta reversed 20 years’ worth of losses in the division and was later promoted to group president of Asia, overseeing a $4 billion-plus operation.
Breaking the mold in one way or another—as leaders have done at UPS, ITW, and P&G—is critical to building surplus talent in the organization. It not only keeps key individuals (or groups, in the case of UPS’s drivers) on board; it also signals to the organization as a whole that no compromises on talent will be made in order to achieve short-sighted cost savings.
Even top organizations are vulnerable to slowdowns. In fact, an economic downturn can exacerbate problems for companies already nearing the end of their financial S curve. (See the sidebar “Why Now?”) Even in the best of times, business crises—whether they are caused by hungry new competitors, transformational technology, or simply the aging of an industry or a company—come with regularity. Companies in other industries may be feeling great, while your business (or industry) faces its own great depression.
In the face of all these challenges, companies that manage themselves according to the three hidden S curves—the basis of competition, the distinctiveness of their capabilities, and a ready supply of talent—will be in a much better position to reinvent themselves, jumping to the next S curve with relative ease. Those that do not are likely to respond to a stall in growth by creating an urgent and drastic reinvention program—with little likelihood of success.
About the Research
At Accenture, we have been conducting the High Performance Business research program since 2003. Starting from the premise that all performance is relative, we examined sets of peer companies. Previous research on high performance had compared companies head-to-head across industries, but that approach ignored the differences in average profitability, maturity, and risk from one industry to another, making it a contest among industries rather than among companies.
We settled on 31 peer sets for our initial study, encompassing more than 800 companies and representing more than 80% of the market capitalization of the Russell 3000 Index at the time. We analyzed performance in terms of 13 financial metrics to assess growth, profitability, consistency, longevity, and positioning for the future. In most cases, we applied the metrics over a 10-year span.
The businesses that performed extraordinarily well over the long term had all made regular transitions from maturing markets to new, vibrant ones. To find out how these organizations were able to maintain a high level of performance, we conducted years of follow-on investigation, creating special teams from our industry and business-function practice areas. Team members’ expertise and experience was supplemented by contributions from independent researchers and scholars.
Today, the program includes regional and global studies of high performance, to take into account the explosive success of many emerging-market companies.
Jumping the S Curve
High performers are well on their way to new-business success by the time their existing businesses start to stall.
The Hidden S Curves of High Performance
Three aspects of a business mature—and start to decline—much faster than financial performance does. They need to be reinvented before you can grow a new business.
Why Now?
Why do economic slowdowns call for innovation and reinvention? Reduced sales and increased discounting tend to squash companies’ revenue S curves. Worse, the S curves do not stretch back out as conditions improve. Companies lose ground in four key areas:
Intellectual Property
Patent offices don’t put years back on the clock just because a company’s sales tapered off in a bad economy. This can have a devastating effect on, for instance, pharmaceuticals, where generics constantly challenge proprietary drugs as patents expire.
Technology
Economic downturns can slow the introduction of new technologies, but not for long. Witness the fate of some manufacturers of plasma televisions, which have been forced to exit the business under the double whammy of the downturn and steady improvements in LCD and LED sets.
Competition
Companies looking to grow sales in a recession must take market share from competitors. As they press advantage, already weakened companies face possible extinction. In the movie-viewing market, for instance, companies that dominate newer channels have driven bricks-and-mortar retailers into bankruptcy.
Consumer Tastes
Novelty wears off, regardless of the economy. Even though they’ve bought less during the downturn, consumers accustomed to the idea of “fast fashion,” for example, will not be interested in last year’s styles.
http://hbr.org/2011/01/reinvent-your-business-before-its-too-late
The potential consequences are dire for any organization that fails to reinvent itself in time. As Matthew S. Olson and Derek van Bever demonstrate in their book Stall Points, once a company runs up against a major stall in its growth, it has less than a 10% chance of ever fully recovering. Those odds are certainly daunting, and they do much to explain why two-thirds of stalled companies are later acquired, taken private, or forced into bankruptcy.
There’s no shortage of explanations for this stalling—from failure to stick with the core (or sticking with it for too long) to problems with execution, misreading of consumer tastes, or an unhealthy focus on scale for scale’s sake. What those theories have in common is the notion that stalling results from a failure to fix what is clearly broken in a company.
Having spent the better part of a decade researching the nature of high performance in business, we realized that those explanations missed something crucial. Companies fail to reinvent themselves not necessarily because they are bad at fixing what’s broken, but because they wait much too long before repairing the deteriorating bulwarks of the company. That is, they invest most of their energy managing to the contours of their existing operations—the financial S curve in which sales of a successful new offering build slowly, then ascend rapidly, and finally taper off—and not nearly enough energy creating the foundations of successful new businesses. Because of that, they are left scrambling when their core markets begin to stagnate.
In our research, we’ve found that the companies that successfully reinvent themselves have one trait in common. They tend to broaden their focus beyond the financial S curve and manage to three much shorter but vitally important hidden S curves—tracking the basis of competition in their industry, renewing their capabilities, and nurturing a ready supply of talent. In essence, they turn conventional wisdom on its head and learn to focus on fixing what doesn’t yet appear to be broken.
Thrown a Curve
Making a commitment to reinvention before the need is glaringly obvious doesn’t come naturally. Things often look rosiest just before a company heads into decline: Revenues from the current business model are surging, profits are robust, and the company stock commands a hefty premium. But that’s exactly when managers need to take action.
To position themselves to jump to the next business S curve, they need to focus on the following.
The hidden competition curve.
Long before a successful business hits its revenue peak, the basis of competition on which it was founded expires. Competition in the cell phone industry, for instance, has changed several times—for both manufacturers and service providers—from price to network coverage to the value of services to design, branding, and applications. The first hidden S curve tracks how competition in an industry is shifting. High performers see changes in customer needs and create the next basis of competition in their industry, even as they exploit existing businesses that have not yet peaked.
Netflix, for example, radically altered the basis of competition in DVD rentals by introducing a business model that used delivery by mail. At the same time, it almost immediately set out to reinvent itself by capturing the technology that would replace physical copies of films—digital streaming over the internet. Today Netflix is the largest provider of DVDs by mail and a major player in online streaming. In contrast, Blockbuster rode its successful superstore model all the way to the top, tweaking it along the way (no more late fees) but failing to respond quickly enough to changes in the basis of competition.
The hidden capabilities curve.
In building the offerings that enable them to climb the financial S curve, high performers invariably create distinctive capabilities. Prominent examples include Dell with its direct model of PC sales, Wal-Mart with its unique supply chain capabilities, and Toyota with not just its production method but also its engineering capabilities, which made possible Lexus’s luxury cars and the Prius. But distinctiveness in capabilities—like the basis of competition—is fleeting, so executives must invest in developing new ones in order to jump to the next capabilities S curve. All too often, though, the end of the capabilities curve does not become apparent to executives until time to develop a new one has run out.
Take the music industry. The major players concentrated on refining current operations; it was a PC maker that developed the capabilities needed to deliver digital music to millions of consumers at an acceptable price. High performers are continually looking for ways to reinvent themselves and their market. P&G long ago recognized the untapped customer market for disposable diapers. The company spent five years perfecting the capabilities that would allow diapers to be priced similarly to what customers were then paying services to launder and deliver cloth diapers. Amazon.com CEO Jeff Bezos notes that it takes five to seven years before the seeds his company plants—things like expanding beyond media products, working with third-party sellers, and going international—grow enough to have a meaningful impact on the economics of the business; this process requires foresight, early commitment, and tenacious faith in the power of R&D.
The hidden talent curve.
Companies often lose focus on developing and retaining enough of what we call serious talent—people with both the capabilities and the will to drive new business growth. This is especially true when the business is successfully humming along but has not yet peaked. In such circumstances, companies feel that operations can be leaner (they’ve moved far down the learning curve by then) and meaner, because they’re under pressures to boost margins. They reduce both head count and investments in talent, which has the perverse effect of driving away the very people they could rely on to help them reinvent the business.
The high performers in our study maintain a steady commitment to talent creation. The oil-field services provider Schlumberger is always searching for and developing serious talent, assigning “ambassadors” to dozens of top engineering schools around the world. These ambassadors include high-level executives who manage large budgets and can approve equipment donations and research funding at those universities. Close ties with the schools help Schlumberger get preference when it is recruiting. Not only does Schlumberger keep its talent pipeline flowing, but it’s a leader in employee development. In fact, it is a net producer of talent for its industry, a hallmark of high performers.
By managing to these hidden curves—as well as keeping focused on the revenue growth S curve, it must be emphasized—the high performers in our study had typically started the reinvention process well before their current businesses had begun to slow. So what are the management practices that prepare high performers for reinvention? Let’s look first at the response to the hidden competition curve.
Edge-Centric Strategy
Traditional strategic-planning methods are useful in stretching the revenue S curve of an existing business, but they can’t help companies detect how the basis for competition in a market will change.
To make reinvention possible, companies must supplement their traditional approaches with a parallel strategy process that brings the edges of the market and the edges of the organization to the center. In this “edge-centric” approach, strategy making becomes a permanent activity without permanent structures or processes.
Moving the edge of the market to the center.
An edge-centric strategy allows companies to continually scan the periphery of the market for untapped customer needs or unsolved problems. Consider how Novo Nordisk gets to the edge of the market to detect changes in the basis of competition as they’re occurring. For example, through one critical initiative the pharma giant came to understand that its future businesses would have to address much more than physical health. The initiative—Diabetes Attitudes, Wishes, and Needs (DAWN)—brings together thousands of primary care physicians, nurses, medical specialists, patients, and delegates from major associations like the World Health Organization to put the individual—rather than the disease—at the center of diabetes care.
Research conducted through DAWN has opened Novo’s eyes to the psychological and sociological needs of patients. For example, the company learned that more than 40% of people with diabetes also have psychological issues, and about 15% suffer from depression. Because of such insights, the company has begun to reinvent itself early; it focuses less on drug development and manufacturing and more on disease prevention and treatment, betting that the future of the company lies in concentrating on the person as well as the disease.
Moving the edge of the organization to the center.
Frontline employees, far-flung research teams, line managers—all these individuals have a vital role to play in detecting important shifts in the market. High performers find ways to bring these voices into the strategy-making process. Best Buy listens to store managers far from corporate headquarters, such as the New York City manager who created a magnet store for Portuguese visitors coming off cruise ships. Reckitt Benckiser got one of its most successful product ideas, Air Wick Freshmatic, from a brand manager in Korea. The idea was initially met with considerable internal skepticism because it would require the company to incorporate electronics for the first time—but CEO Bart Becht is more impressed by passion than by consensus.
If strategy making is to remain on the edge, it cannot be formalized. We found that although low and average performers tend to make strategy according to the calendar, high performers use many methods and keep the timing dynamic to avoid predictability and to prevent the system from being gamed.
As quickly as competition shifts, the distinctiveness of capabilities may evaporate even faster. By the time a business really takes off, imitators have usually had time to plan and begin their attack, and others, attracted to marketplace success, are sure to follow. How, then, do companies build the capabilities necessary to jump to a new financial S curve?
Change at the Top
Some executives excel at running a business—ramping up manufacturing, expanding into different geographies, or extending a product line. Others are entrepreneurial—their strength is in creating new markets. Neither is inherently better; what matters is that the capabilities of the top team match the firm’s organizational needs on the capabilities S curve. Companies run into trouble when their top teams stay in place to manage the financial S curve rather than evolve to build the next set of distinctive capabilities.
Avoiding that trap runs counter to human nature, of course. What member of a top team wants to leave when business is good? High performers recognize that a key to building the capabilities necessary to jump to a new financial S curve is the early injection of new leadership blood and a continual shake-up of the top team.
Early top-team renewal.
Consider how the top team at Intel has evolved. Throughout its history, the semiconductor manufacturer has seen its CEO mantle rest on five executives: Robert Noyce, Gordon Moore, Andy Grove, Craig Barrett, and current CEO Paul Otellini. Not once has the company had to look outside to find this talent, and the transitions have typically been orderly and well orchestrated. “We discuss executive changes 10 years out to identify gaps,” explains David Yoffie, who has served on the Intel board since 1989.
Simple continuity is not Intel’s goal in making changes at the top, however; evolving the business is. For instance, when Grove stepped down from the top spot, in 1998, he was still a highly effective leader. If continuity had been Intel’s overwhelming concern, Grove might have stayed for another three years, until he reached the mandatory retirement age of 65. But instead, he handed the baton to Barrett, who then implemented a strategy for growing Intel’s business through product extensions.
Indeed, each of Intel’s CEOs has left his mark in a different way. Grove made the bold decision to move Intel away from memory chips in order to focus on microprocessors, a transition that established the company as a global high-tech leader. Since he took the helm, in 2005, Otellini has focused on the Atom mobile chip, which is being developed for use in just about any device that might need to connect to the web, including cell phones, navigation systems, and even sewing machines (for downloading patterns).
Through structured succession planning, Intel ensures that it chooses the CEO who is right for the challenges the company is facing, not simply the person next in line. And by changing CEOs early, the company gives its new leadership time to produce the reinvention needed, well before deteriorating revenues and dwindling options become a crisis.
Balance short-term and long-term thinking.
Ensuring that the team is balanced with a focus on both the present and the future is another critical step in developing a new capabilities curve. When Adobe bought Macromedia in 2005, then-CEO Bruce Chizen took a hard look at his senior managers to determine which of them had what it took to grow the company to annual revenues of $10 billion. What he found was a number of executives who lacked either the skills or the motivation to do what was necessary. Consequently, Chizen tapped more executives from Macromedia than from Adobe for key roles in the new organization. Those choices were based on Adobe’s future needs, not on which executives were the most capable at the time.
Chizen wasn’t tough-minded just with others. At the relatively young age of 52, and only seven years into his successful tenure, he handed over the reins to Shantanu Narayen, his longtime deputy. The timing might have seemed odd, but it made good sense for Adobe: The company faced a new set of challenges—and the need for new capabilities—as it anticipated going head-to-head against larger competitors like Microsoft.
In other cases, the executive team might need to gather fresh viewpoints from within the organization to balance long-established management thinking. Before Ratan Tata took over at India’s Tata Group, in 1991, executives had comfortably ruled their fiefdoms for ages and rarely retired. But the new chairman began easing out those complacent executives (not surprisingly, some of their departures were acrimonious) and instituted a compulsory retirement age to help prevent the future stagnation of his senior leadership. The dramatic change opened dozens of opportunities for rising in-house talent who have helped Tata become India’s largest private corporate group.
Organize to avoid overload.
Finally, high performers organize their top teams so that responsibilities are more effectively divided and conquered. Three critical tasks of senior leadership are information sharing, consulting on important decisions, and making those decisions. Although many companies have one group that performs all three functions, this can easily become unwieldy.
An alternative approach, which we observed in many high performers, is to split those tasks—in effect, creating teams nested within teams. At the very top are the primary decision makers—a group of perhaps three to seven people. This group then receives advice from other teams, so hundreds of people may be providing important input.
Surplus Talent
Business reinvention requires not just nimble top teams but also large numbers of people ready to take on the considerable challenge of getting new businesses off the ground and making them thrive. High performers take an approach that is, in its way, as difficult as changing out top leadership before the company’s main business has crested: They create much more talent than they need to run the current business effectively—particularly talent of the kind that can start and grow a business, not just manage one. This can be a hard sell in the best of times, which is probably why so many avoid it.
One of the signs that a company has surplus talent is that employees have time to think on the job. Many of our high performers make time to explore a regular component of their employees’ workweek. (Think Google and 3M.) Another is a deep bench—one that allows promising managers to take on developmental assignments and not just get plugged in where there is an urgent need. High performance companies aggressively search out the right type of candidate and then take action to strengthen individuals for the challenges ahead.
Hire for cultural fit.
High performance companies begin with the expectation that they are hiring people for the long term—a perspective that fundamentally alters the nature of their hiring and development practices. They don’t just look for the best people for the current openings; they recognize that cultural fit is what helps ensure that someone will perform exceptionally well over time.
One company that gets this right is the Four Seasons Hotels and Resorts. It specifically looks for people who will thrive in a business that treats customers like kings—because, quite literally, some guests could be. “I can teach anyone to be a waiter,” says Isadore Sharp, CEO of the luxury hotel chain in his book Four Seasons: The Story of a Business Philosophy. “But you can’t change an ingrained poor attitude. We look for people who say, ‘I’d be proud to be a doorman.’”
Reckitt Benckiser also puts cultural fit at the top of its hiring priorities. Before candidates begin the application process, they can complete an online simulation that determines whether they are likely to be a good match with the firm’s exceptionally driven culture. The candidates are presented with business scenarios and asked how they would respond. After reviewing their “fit” score, they can decide for themselves whether they want to continue pursuing employment with the company.
Prepare for challenges ahead.
Making sure that new employees are fit to successfully navigate the tough stretches in a long career requires something we call stressing for strength. At low-performer companies, employees may find themselves wilting when faced with unexpected or harsh terrain. High performers create environments—often challenging ones—in which employees acquire the skills and experience they will need to start the company’s next S curve. The goal is partly to create what our Accenture colleague Bob Thomas, in his book on the topic, calls “crucible” experiences. These are life-changing events, whether on the job or not, whose lessons help transform someone into a leader.
Crucible experiences can—and should—be created intentionally. When Jeff Immelt was still in his early 30s and relatively new in his career at GE, he was tapped by then-CEO Jack Welch and HR chief Bill Conaty to deal with the problem of millions of faulty refrigerator compressors—despite his lack of familiarity with appliances or recalls. Immelt later said he would never have become CEO without that trial-by-fire experience.
Give employees room to grow.
After choosing and testing the right employees, companies must give them a chance to develop. To truly enable them to excel in their work, companies should take a hard look at exactly what people are required to do day by day.
UPS has long known that its truck drivers are crucial to its success. Experienced drivers know the fastest routes, taking into account the time of day, the weather, and various other factors. But the turnover rate for drivers was high, partly because of the hard physical labor required to load packages onto the trucks. So UPS separated out that task and gave it to part-time workers, who were more affordable and easier to find, allowing a valuable group of employees to concentrate on their capabilities and excel at their jobs.
Companies can also use organizational structure to provide employees with ample opportunities to grow. Illinois Tool Works, a global manufacturer of industrial products and equipment, is organized into more than 800 business units. Whenever one of those units becomes too large (the maximum size is around $50 million in sales), ITW splits that business, thus opening up managerial positions for young talent. In fact, it’s not uncommon for ITW managers to start running a business while they’re still in their 20s.
And high performance businesses aren’t afraid to leapfrog talented employees over those with longer tenure. After A.G. Lafley took over at P&G, for example, he needed someone to run the North American baby-care division, which was struggling. Instead of choosing one of the 78 general managers with seniority, he reached lower in the organization and tapped Deborah Henretta. Lafley’s move paid off. Henretta reversed 20 years’ worth of losses in the division and was later promoted to group president of Asia, overseeing a $4 billion-plus operation.
Breaking the mold in one way or another—as leaders have done at UPS, ITW, and P&G—is critical to building surplus talent in the organization. It not only keeps key individuals (or groups, in the case of UPS’s drivers) on board; it also signals to the organization as a whole that no compromises on talent will be made in order to achieve short-sighted cost savings.
Even top organizations are vulnerable to slowdowns. In fact, an economic downturn can exacerbate problems for companies already nearing the end of their financial S curve. (See the sidebar “Why Now?”) Even in the best of times, business crises—whether they are caused by hungry new competitors, transformational technology, or simply the aging of an industry or a company—come with regularity. Companies in other industries may be feeling great, while your business (or industry) faces its own great depression.
In the face of all these challenges, companies that manage themselves according to the three hidden S curves—the basis of competition, the distinctiveness of their capabilities, and a ready supply of talent—will be in a much better position to reinvent themselves, jumping to the next S curve with relative ease. Those that do not are likely to respond to a stall in growth by creating an urgent and drastic reinvention program—with little likelihood of success.
About the Research
At Accenture, we have been conducting the High Performance Business research program since 2003. Starting from the premise that all performance is relative, we examined sets of peer companies. Previous research on high performance had compared companies head-to-head across industries, but that approach ignored the differences in average profitability, maturity, and risk from one industry to another, making it a contest among industries rather than among companies.
We settled on 31 peer sets for our initial study, encompassing more than 800 companies and representing more than 80% of the market capitalization of the Russell 3000 Index at the time. We analyzed performance in terms of 13 financial metrics to assess growth, profitability, consistency, longevity, and positioning for the future. In most cases, we applied the metrics over a 10-year span.
The businesses that performed extraordinarily well over the long term had all made regular transitions from maturing markets to new, vibrant ones. To find out how these organizations were able to maintain a high level of performance, we conducted years of follow-on investigation, creating special teams from our industry and business-function practice areas. Team members’ expertise and experience was supplemented by contributions from independent researchers and scholars.
Today, the program includes regional and global studies of high performance, to take into account the explosive success of many emerging-market companies.
Jumping the S Curve
High performers are well on their way to new-business success by the time their existing businesses start to stall.
The Hidden S Curves of High Performance
Three aspects of a business mature—and start to decline—much faster than financial performance does. They need to be reinvented before you can grow a new business.
Why Now?
Why do economic slowdowns call for innovation and reinvention? Reduced sales and increased discounting tend to squash companies’ revenue S curves. Worse, the S curves do not stretch back out as conditions improve. Companies lose ground in four key areas:
Intellectual Property
Patent offices don’t put years back on the clock just because a company’s sales tapered off in a bad economy. This can have a devastating effect on, for instance, pharmaceuticals, where generics constantly challenge proprietary drugs as patents expire.
Technology
Economic downturns can slow the introduction of new technologies, but not for long. Witness the fate of some manufacturers of plasma televisions, which have been forced to exit the business under the double whammy of the downturn and steady improvements in LCD and LED sets.
Competition
Companies looking to grow sales in a recession must take market share from competitors. As they press advantage, already weakened companies face possible extinction. In the movie-viewing market, for instance, companies that dominate newer channels have driven bricks-and-mortar retailers into bankruptcy.
Consumer Tastes
Novelty wears off, regardless of the economy. Even though they’ve bought less during the downturn, consumers accustomed to the idea of “fast fashion,” for example, will not be interested in last year’s styles.
http://hbr.org/2011/01/reinvent-your-business-before-its-too-late
10/5/10
How to Find Out What Your Business Is Really Worth
Whether you want to sell or not, it’s natural to wonder what your business could fetch on the market. Entrepreneur John Warrillow offers up some resources.
Years ago I owned a little marketing and design agency and would rely on the multiples the big advertising agency holding companies got on the stock exchange to figure out its value. I’d assumed that, because Omnicom was trading at 22 times earnings, my little agency with $150,000 in profit was worth around $3 million.
I got a wake up call at an industry event when I found out that, in actuality, small ad agencies with less than $5 million in revenue were lucky to get three or four times pre-tax profit—much of which was tied to achieving goals in the future.
Since then, I have started a couple of other businesses and gotten a bit better at estimating their value. It’s still tricky and ultimately a business is only worth what someone will pay for it. But I found I could cobble together a decent estimate through a few resources:
A fancy lunch with a professional
When I went to sell my research company, I bought lunch for three mergers and acquisitions professionals. Each had experience selling research companies similar in size to mine. Their back-of-the-napkin estimates all ended up being plus or minus 25 percent of the actual selling price.
Business Valuation Resources
Business Valuation Resources (BVR) gathers historical information about businesses that have sold recently and comes up with some industry norms.
I found BVR to be a good start, but oftentimes its descriptions of industries were too generic to make for good apples-to-apples comparisons.
M&A firm newsletters
Some mergers and acquisitions firms publish newsletters that will describe the kind of multiples being paid on deals they have done. For example, when I was preparing to sell my conference business, I looked at the newsletter from the Jordan Edmiston Group, one of the top M&A firms in the conference business.
I found that the problem with the M&A firms as a source for valuation data is that they tend to overemphasize their biggest deals. M&A firms get paid on deal size and spend a lot of their time trying to convince the world (and prospective sellers) they do big deals. It’s also the way they measure themselves and earn bragging rights over cocktails. Unfortunately, it ensures they (and their newsletters) boast about the one deal they did with a valuation of $100 million instead of the 15 deals they did for businesses worth less than $20 million.
Bizbuysell.com
Bizbuysell.com is the largest online marketplace for businesses for sale. I think of it as an eBay for businesses. If you own a dry cleaning shop in Seattle, you can advertise it on bizbuysell.com. Likewise, if you want to buy a retail business in Nashville, you can query bizbuysell.com by industry and identify businesses that meet your specs.
The downside of bizbuysell.com is that it tends to attract smaller, main street businesses—which is great if you own a coffee shop or lawn maintenance business, not as helpful if you own a larger, unique business.
In the end, I have found using all four of these sources usually enables me to estimate a company’s value within 20 percent of the final selling price. Not perfect, but a lot more accurate than looking at what billion dollar public companies trade for on the stock exchange.
http://www.inc.com/guides/2010/10/how-to-value-your-business.html
9/14/10
10 Mistakes That Start-Up Entrepreneurs Make
When it comes to starting a successful business, there's no surefire playbook that contains the winning game plan.
On the other hand, there are about as many mistakes to be made as there are entrepreneurs to make them.
Recently, after a work-out at the gym with my trainer -- an attractive young woman who's also a dancer/actor -- she told me about a web series that she's producing and starring in together with a few friends. While the series has gained a large following online, she and her friends have not yet incorporated their venture, drafted an operating agreement, trademarked the show's name or done any of the other things that businesses typically do to protect their intellectual property and divvy up the owners' share of the company. While none of this may be a problem now, I told her, just wait until the show hits it big and everybody hires a lawyer.
Here, in my experience, are the top 10 mistakes that entrepreneurs make when starting a company:
1. Going it alone. It's difficult to build a scalable business if you're the only person involved. True, a solo public relations, web design or consulting firm may require little capital to start, and the price of hiring even one administrative assistant, sales representative or entry-level employee can eat up a big chunk of your profits. The solution: Make sure there's enough margin in your pricing to enable you to bring in other people. Clients generally don't mind outsourcing as long as they can still get face time with you, the skilled professional who's managing the project.
2. Asking too many people for advice. It's always good to get input from experts, especially experienced entrepreneurs who've built and sold successful companies in your industry. But getting too many people's opinions can delay your decision so long that your company never gets out of the starting gate. The answer: Assemble a solid advisory board that you can tap on a regular basis but run the day-to-day yourself. Says Elyissia Wassung, chief executive of 2 Chicks With Chocolate Inc., a Matawan, N.J., chocolate company, "Pull in your [advisory] team for bi-weekly or, at the very least, monthly conference calls. You'll wish you did it sooner!"
3. Spending too much time on product development, not enough on sales. While it's hard to build a great company without a great product, entrepreneurs who spend too much time tinkering may lose customers to a competitor with a stronger sales organization. "I call [this misstep] the 'Field of Dreams' of entrepreneurship. If you build it, they will buy it," says Sanjyot Dunung, CEO of Atma Global, Inc., a New York software publisher, who has made this mistake in her own business. "If you don't keep one eye firmly focused on sales, you'll likely run out of money and energy before you can successfully get your product to market."
4. Targeting too small a market. It's tempting to try to corner a niche, but your company's growth will quickly hit a wall if the market you're targeting is too tiny. Think about all the high school basketball stars who dream of playing in the NBA. Because there are only 30 teams and each team employs only a handful of players, the chances that your son will become the next Michael Jordan are pretty slim. The solution: Pick a bigger market that gives you the chance to grab a slice of the pie even if your company remains a smaller player.
5. Entering a market with no distribution partner. It's easier to break into a market if there's already a network of agents, brokers, manufacturers' reps and other third-party resellers ready, willing and able to sell your product into existing distribution channels. Fashion, food, media and other major industries work this way; others are not so lucky. That's why service businesses like public relations firms, yoga studios and pet-grooming companies often struggle to survive, alternating between feast and famine. The solution: Make a list of potential referral sources before you start your business and ask them if they'd be willing to send business your way.
6. Overpaying for customers. Spending big on advertising may bring in lots of customers, but it's a money-losing strategy if your company can't turn those dollars into lifetime customer value. A magazine or website that spends $500 worth of advertising to acquire a customer who pays $20 a month and cancels his or her subscription at the end of the year is simply pouring money down the drain. The solution: Test, measure, then test again. Once you've done enough testing to figure out how to make more money selling products and services to your customers than you spend acquiring those customers in the first place, roll out a major marketing campaign.
7. Raising too little capital. Many start-ups assume that all they need is enough money to rent space, buy equipment, stock inventory and drive customers through the door. What they often forget is that they also need capital to pay for salaries, utilities, insurance and other overhead expenses until their company starts turning a profit. Unless you're running the kind of business where everybody's working for sweat equity and deferring compensation, you'll need to raise enough money to tide you over until your revenues can cover your expenses and generate positive cash flow. The solution: Calculate your start-up costs before you open your doors, not afterwards.
8. Raising too much capital. Believe it or not, raising too much money can be a problem, too. Over-funded companies tend to get big and bloated, hiring too many people too soon and wasting valuable resources on trade show booths, parties, image ads and other frills. When the money runs out and investors lose patience (which is what happened 10 years ago when the dot-com market melted down), start-ups that frittered away their cash will have to close their doors. No matter how much money you raise at the outset, remember to bank some for a rainy day.
9. Not having a business plan. While not every company needs a formal business plan, a start-up that requires significant capital to grow and more than a year to turn a profit should map out how much time and money it's going to take to get to its destination. This means thinking through the key metrics that make your business tick and building a model to spin off three years of sales, profits and cash-flow projections. "I wasted 10 years [fooling around] thinking like an artist and not a business person," says Louis Piscione, president of Avanti Media Group, a New Jersey company that produces videos for corporate and private events. "I learned that you have to put some of your creative genius toward a business plan that forecasts and sets goals for growth and success."
10. Over-thinking your business plan. While many entrepreneurs I've met engage in seat-of-the-pants decision-making and fail to do their homework, other entrepreneurs are afraid to pull the trigger until they're 100% certain that their plan will succeed. One lawyer I worked with several years ago was so skittish about leaving his six-figure job to launch his business that he never met with a single bank or investor who might have funded his company. The truth is that a business plan is not a crystal ball that can predict the future. At a certain point, you have to close your eyes and take the leap of faith.
Despite the many books and articles that have been written about entrepreneurship, it's just not possible to start a company without making a few mistakes along the way. Just try to avoid making any mistake so large that your company can't get back on its feet to fight another day.
5/17/10
How to Hammer Out Deal Terms Like Warren Buffett
In the early stages of selling your business, you're better off taking cues from the Oracle of Omaha and keeping the lawyers away from the negotiations.
I once went to a Broadway play starring James Belushi. I had good seats, so Belushi was only a few feet in front of me. I remember how captivating it was to be that close to someone famous. I became engrossed in the show and felt as though Belushi was talking directly to me. I lost touch with time and my surroundings. I forgot about all of the work behind the scenes—the lighting, staging, music—and just sat there and enjoyed Belushi’s performance.
Selling your business should work like a good play: You should put your best, most engaging actors onstage and keep the people handling the messier details of the deal behind the curtain. In my opinion, the lawyers should remain offstage until you agree to a set of business terms with the acquirer.
It's tempting to let your lawyer be the “bad cop” in the early stages of negotiations, pounding on the table, demanding better terms. However, coming to an agreement on the core business terms before the lawyers get involved will ensure a positive foundation that will serve you well when the legal teams inevitably reach loggerheads on some of the finer details.
One of the biggest hurdles in coming to an agreement on the core business terms is drafting a simple letter that outlines the deal in language both parties understand. It's hard not to get mired in the details and document every conceivable possibility. If you get bogged down, take inspiration from Warren Buffett.
Buffett is the master of writing about business in plain English. When Buffett tries to buy a company, he approaches the CEO with a short, plain-spoken letter before any of the deal-makers get involved. Read Buffett’s annual letter to Berkshire Hathaway shareholders if you find your correspondence with a potential acquirer becoming too technical.
Here are a few things to work out with an acquirer (in plain English) before you get the lawyers involved:
- The cash on closing (what you get the day the deal closes)
- The earn-out (or vendor take-back) you are agreeing to, along with a clear understanding of what budget and resources you have at your disposal to meet the goals you’re signing up for
- What happens if you decide to leave or the buyer asks you to leave before the earn-out or transition period is over
- The working capital in the business at closing (how much money needs to be left in the company the day it changes hands)
- Your salary and benefits when you become an employee of the acquirer
- The degree of decision-making autonomy you’ll have as an employee during the earn-out or transition period (e.g., Do you get to decide what technology platform to use? Do you control decisions around marketing and selling? How about hiring and firing?)
If you can agree to a set of business terms, you’ll be building a good working relationship with your acquirer, which will be important once you become a division of their business. Besides, if you can’t come to an agreement on the basic business terms with a buyer, no two lawyers will be able to agree to the legal terms, which are infinitely more complex.
So follow Buffett’s lead and get the basics down in plain English before you invite the lawyers onto the stage.
8/6/09
VAR versus Partner for Dynamics GP
In the software community the terms VAR (Value-Added Reseller) and Partner are often used interchangeably. I.E. "Who's your VAR". "My Partner is...."
When I describe both I don't think the terms should be used interchangeably. Here's a few distinctions between the two.
VAR
When I describe both I don't think the terms should be used interchangeably. Here's a few distinctions between the two.
VAR
- Sells software. (no matter what is best for the client.) This is how a VAR is compensated thus the need to sell whenever possible.
- Adds value to the product by adding features or service. Services provided by a VAR often includes integrating, customizing, consulting, training and implementation. There's been a lot of blogs posted recently on why or why not you should customize. In the VAR mindset, the more done from these activities the greater the income from that client.
- Trusted advisor. Partners are more then resellers, implementers, etc. Partners advise clients on what the software will do and what it won't do. When a Partner recommends a third party software or customization it is because of experience and knowledge that the addition will be in the best interest of the client.
- Business Consultant. Not only used to implement software, used as a business/management consultant. I really believe the Dynamics software is only a small part of a successful implementation. We've all seen installations where you wonder "what in the world was that VAR/implementer thinking" and the software is a hindrance rather than a help. A partner will consult with the client and sometimes hold firm when a client is trying to do something with the software that will cause pain and heartache down the road. (I.E. Fixing something in the back end instead of through the user interface. I was asked to fix 100 transactions from SOP that had something wrong with them. I said no as the tables involved included GL, SOP, RM, CM (bank rec). I supposed I could have done it with enough time and effort but recommended simply fixing through the front end even with the large amount of transactions effected.)
- Colleague - It sounds kind of hokey, I know, but clients are way more than just business transactions. I wouldn't go so far as to say that partners/clients should be friends (certainly some are) but I would say in the Partner/client relationship the word colleague (Stolen from LinkedIn) certainly fits the bill. A partner would not do anything to take advantage of a colleague and certainly always has their best interest in mind.
Every once in a while we have a customer leave our "flock." It always makes me stop and think how the relationship we had with the former customer went from being a Partner to just another VAR. Consider doing the following to protect the relationship between Partners and customers:
- Consistent contact. Doesn't have to be daily or weekly in all cases. Certainly not if a project in not underway. I'd suggest at frequent contact by newsletter, email update on both company happenings and Dynamics news, phone call, Blog posting, customer lunch and learn, LinkedIn etc. Anything that can keep communication open between partners. We try to contact customers (depending on situation) by phone once a quarter and in person semi-annually.
- Continual improvement - This includes improving the client/partner relationship, partner knowledge, implementation process, follow-up. If you are not getting better you are getting worse. There is no staying the same. So if you think your relationship is about the same as last year with your partner/client, I'd suggest looking at ways to improve as most likely things are getting worse and it's just not apparent.
- Partner support desk - Personnel that are reachable and responsive. I think it's critical to have a support desk for partners to get a sense of their clients needs. I may be biased as I work in the support area of our company but whenever anyone needs to know about a certain client the first place consultants, sales people, and management turn to is the support people. Support is in constant contact clients. The support team's whole purpose is to help the client thus making a bond between client and Partner stronger.
Anything else you would consider important to building, maintaining or improving the Partner relationship?
Articles to consider:
- http://community.dynamics.com/blogs/satha/archive/2007/09/15/the-var-value-added-reseller-partner-the-value-they-add-to-your-business.aspx
- http://www.microsoft.com/midsizebusiness/business-goals/build-business-relationships/value-added-reseller.mspx
- http://www.microsoft.com/dynamics/partners/default.mspx
- http://en.wikipedia.org/wiki/Management_consulting
7/13/09
Evaluation of Consulting Staff
The cornerstone of consulting excellence is the quality of the consulting staff. So how do you make the decision on who is high quality and who isn’t?
Two factors come into play: performance and cultural fit.
Performance is easily measured by utilization, realization, client satisfaction and revenue generation. If you don’t already objectively target and measure the above, start. More postings on this later. A high performer will be at 100% of targets in almost any give 12 month rolling period.
Cultural fit assumes you have a culture to which being a fit is rewarding. If you don’t place any effort on cultural excellence inside your firm, you should – see my previous post on mission as a foundation to culture. I’ll write more on cultural excellence in later posts. In the meantime, use observed teamwork, client sat and general “does this person get along well with others” as a proxy.
Using the above, everyone will fall into one of four categories, listed below by ease of corrective action.
High Performer, Gets the Culture
This is the easy one. Do what you must to keep these people on the team and pay them plenty of attention. The majority of your personnel management time should be focused on this group of people.
Low Performer, Doesn’t Get the Culture
Fire them. They may have room for improvement, but you don’t have time to do it. After you are done, review your hiring procedures to find out why they even got a job with you in the first place.
Low Performer, Gets the Culture
This is a little harder. This person will fit in extremely well with their teammates, do well with clients (at least in terms of personality) and be generally a good fit for all the cultural elements of the firm. However, period over period, their performance will be below their peer group, their work will be substandard and you’ll find yourself always accepting or making up making up reasons for their poor performance.
Get them on a 90 day plan that specifically addresses the performance shortcomings. Invest the time to make sure they have a more than fair chance. The extra effort you invest, if they improve, will be more than paid off in loyalty, a strengthened corporate culture and improved performance. If they don’t improve, you must fire them. A consultancy is a meritocracy, not a remedial education program – consistent low performers have no long term role on the team.
High Performer, Doesn’t Get the Culture
This is the hardest category to manage. Top performance on a consistent basis makes these people very valuable to the firm. Poor cultural fit makes them very hard to work with. So, you’ll find them to be top revenue producers, but will often find they work poorly on project teams, care little about the impact of their behaviors on those around them and on occasion will cause client satisfaction issues.
What to do? Counsel, counsel and more counsel – this is the group that should consume the second biggest amount of your personnel management time. During performance management reviews, you’ll have to spend your time consistently coaching them on better behavior and matters of emotional intelligence. Change will be slow – their cultural fit will only improve to the extent you can show them how it will make their lives easier or increase their personal performance. Ultimately, this group is like Dennis Rodman – a top performer whose high-maintenance personality only makes them employable as long as the performance stays high. When the performance slips, they give you no reason to continue their maintenance.
http://thedeathofreason.wordpress.com/2009/07/13/evaluation-of-consulting-staff/
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