Posts Tagged 'MANAGEMENT THEORY'

Day/Month/Quarter at a time!

Catching up on the ever-growing pile of reading to do,  I was struck by the number of articles across publications which point to the need for flexibility, the need to be nimble and the great deal of uncertainty which still exists in the US economy and across the globe.

Yesterday I received a periodic e-mail blast from Kraig Kramers, author of CEO Tools – a great book by which to manage – who said [I quote the article in its entirety]:

“Twelve Seasons at mid-year:  it’s a good time to re-evaluate economic trends and what they mean for our businesses.

“What many are seeing is the downturn slowing; some are citing hope as the harbinger.  My own view is that some economic indicators are degrading more slowly, yet there are still so many indicators that overwhelmingly say we’re still sliding into this recession headlong.  And, “hope” is not a good business strategy, so please don’t heed the “hopeful” rhetoric from Government and the parroting by media as hope tries to lull you into running your business as if things are on the mend.  They aren’t (yet), except in a few very rare sectors, geographies and industries.

“Unemployment has become the leading key indicator since it has consumers scared to death and continues to cause curtailment of their spending severely.  Many people who were not going to lose their homes now are, and the commercial real estate sector is now showing strong signs of decline, with deterioration not far behind.

“What this implies to me is that we can only see about three months out right now.  The stimulus packages (trillions of our tax dollars) are not being spent, certainly not coherently, and are going virtually nowhere…at least so far.  Less than $200 million of the original $800 billion has actually been spent.  It’s just not happening…yet…and probably not real soon.  Plus, it’s not aimed at most industries, just some.

“The economy continues downward, and some are saying bankruptcies will be even greater in 2010, while they’re already up in 2009 by 240% over 2006.  Again, we can only see with some certainty about 3 months into the future right now.

“So, my thought would be to set your goals and do your plans only 3 months out, and re-assess each month.  As we’re able to see somewhat clearly further out, then open up your range to 6 months and start implementing your growth and recovery plans.  There are some recovery things you can start to do now, but do continue to deal with the downturn while planning for growth.  The really savvy economists are saying we’ll bottom by the end of this year, but have a slow, very drawn-out sectoral recovery (meaning each industry will start recovery at different times and at different rates of speed).  So, watch carefully, frequently, and adjust accordingly.

“Really hope I’m wrong about the economic observations made above and that it’s much better than it looks.  As always, hope this makes sense for you and your business.” [END QUOTE]

That makes perfect sense to me, plan for the next 3 months at max.  Set monthly goals, weekly to do lists and work on a daily basis to make the plan a reality.

Good luck, to all of us!

Leading through uncertainty: HBR July/August 2009

Reading this article in the most recent Harvard Business Review brought to mind dog agility tests. The dog, usually an Australian Shepard, runs manically, through the uprights, over the tipping bridge, under a log and through a canvas tunnel to reach the end line for a tiny reward:  small kibbles.

We, owners of remodeling companies, employees of remodeling companies and the myriad consultants, groupies and hangers on, of whom I count myself one, might be feeling like that dog right now.  Running, jumping, leaping and navigating tight quarters, often in the dark, to receive a tiny reward, at least tiny compared to two years ago.

Some perspective on the matter, however, might cheer us all:  if you’re still in business, if you’ve got sufficient cash flow, if you count hard working and engaged employees in your group, and among your clients satisfied long-term relationships, if your health is good and your family safe — you’re a lucky person!  And, just like that dog, ready to run the current obstacle course.

So let’s take this one step at a time.  One of the GREAT articles in the current Harvard Business Review is Leadership in a (Permanent) Crisis (page 62). The first paragraph reads:

“It would be profoundly reassuring to view the current economic crisis as simply another rough spell that we need to get through.  Unfortunately, though, today’s mix of urgency, high stakes, and uncertainty will continue as the norm even after the recession ends.”

Further on, it states:

“Crisis leadership has two distinct phases.  First is that emergency phase, when your task is to stabilize the situation and buy time.  Second is the adaptive phase, when you tackle the underlying causes of the crisis and build the capacity to thrive ina new reality.”

I hope by now most of us have stabilized:  gone through the heart-wrenching difficult tasks of letting people go, of changing the rent structure – perhaps even moving the office back into the home – and built a “starvation” company budget for the remainder of 2009.

Now comes phase two, “the adaptive phase”.  In this phase we’ll have to determine our new reality by re-thinking what we sell, to whom and how we sell it and how to best produce great outcome both in terms of customer satisfaction and quality construction.  Efficiencies, both in the production process itself as well as in economics of scale, should be put under the microscope for improvement.

Tackle, as always, the issues with the biggest payback first, leaving less vital considerations to fall off the ‘todo’ list over time.

Start now, prepare for the future by engaging your brain as well as your employee’s brains, ask your customers what they need most immediately and what they hope for down the road.

“Jack be nimble” should be our new mantra.  Starting today!

[Download reprint RO907F from HBR.org]

Flashback to Summer 2008!

Last year this time Jay Goltz, columnist for Fortune Small Business, “thought maybe I was dodging a bullet.” I’m not sure what he’s thinking now but I’m sure he hasn’t dodged that bullet, at least not according to his monthly columns.

How about you?  Did you think last year you were dodging a bullet, that the downturn might be less dramatic and that standard responses to the downturn could pull you through?

How about now?  Do you expect that this summer building season will protect you through the expected downturn late in the year?  Many people have work for this summer but late fall and winter looks bleak.  Now’s the time to put into place significant changes to the business model.

Goltz says:  “if your revenue is off about 10%, that might not sound so bad.  But because of fixed costs such as rent, that 10% decline can easily wip out 100% of your profit.”

Here are some of his suggestions and observations from that article:

“I recently asked one vendor for a discount if I paid on delivery instead of the standard 30 days later.  The salesperson was skeptical but called back after five minutes offering 10%.

“I’ve saved by cutting back on yellow pages advertising … I think new media offers a better return.  But don’t be tempted to gut your advertising.  Companies that continue to advertise come out ahead after a recession.

“That’s another lesson I’ve learned the hard way:  you can survive decreased profits if you have cash flow, but the converse is not true – if cash flow takes a dive, you’re in trouble.  This will happen if you let your receivables … get our of control, which is surprisingly easy.

“Consider laying off someone instead [of cutting hours].  Cutting everyone’s hours might sound fair and reasonable, but it can do more harm than good.  What happens is that everybody suffers and eventually somebody quits.  Too often it’s the best person in the department who walks.”

Now, you, what’s your company’s biggest issue right now?  Cash flow is huge all around the country, track and manage your receivables vs. payables better to control cash better; have you cut hours across the board rather than biting the bullet and letting go the employees who aren’t truly A caliber; are you marketing better or just more?  And just as important – what are your numbers telling you?

Runway – a new definition for an old word!

The old definition – a path or a roadway over which something runs – has been updated for the times to mean: the length of time your company has until it runs out of cash.  Jason Calacanis, a successful geek entrepreneur (and I use that word with all due respect)  said the following:

“You need to figure out your runway immediately. This is really easy to
calculate: you look at how much cash you burn every month and divide
that into how much cash you have in the bank. Your accountant can do
this for you or you can simply look at your P&L and bank statement.

Once you know how many months you’ve got left, you’ve got to do the
hard work of trying to extend it by at least 1/4. This means cutting
staff, negotiating with your landlord and cutting any and all
recurring bills. You then need to look at your revenue streams and
figure out if you can double them. In most cases, if you do these two
simple things, you will have increased your runway by 50-100%.
If you double your runway, your chances of figuring out what your business
actually is will go up exponentially.

You also need to do a monthly P&L review with your management team.
Look at every single recurring cost you have and figure out how to cut
it. In an up market, this level of obsessiveness is often wasteful,
because you’re in a race to take market-share. In the case of MySpace
vs. Friendster vs. Facebook all having unlimited funds for a period of
time, this makes total sense. Why worry about $100,000 in server costs
if you’re racing to see who gets bought for a billion dollars first?
However, this is not that time. You have to change your style.
There are times to hit the gas and there are times to conserve your gas.”

So do you have enough cash to ride out the next 6 to 9 months until things turn around, assuming that’s the period of time in which thing do turn around?  If not, what where will it come from?  Or what are your alternatives?

Read the entire article at http://calacanis.com/?s=runway

Read more Jason Calacanis at http://calacanis.com/2008/09/29/the-startup-depression/

The Last Waltz – what do you play?

Over the weekend I watched The Last Waltz, the Martin Sorcese documentary on the last concert given by The Band, a fixture in music during the late 60s into the mid 70s.  The Band worked with Bob Dylan during a brief period in Woodstock, NY where they produced Music from Big Pink as well as The Basement Tapes – still great pieces of music

I loved the music, enjoyed watching the guest artists (Neil Young, Joni Mitchell, Dylan of course) but what struck me most about this performance was the incredible cr0ss-pollitantion of most (all but one of the 5) of the musicians:

The organ player, a difficult instrument to be sure, played the sax; one of the lead singers and guitar players also played the fiddle and the piano, the drummer played the piano, the cello and sang, the piano player worked miracles on the drums – another difficult instrument.  Each one played their secondary instruments nearly as well as they played their primary.  And 2 of the 4 sang at the same time they played.

In other words, they were each cross-trained!  They could have taken the entire show on the road (oh yes, that’s what they did for a living) and if one were sick, another would replace that instrument and even those vocals.  Perhaps the precise sound wouldn’t be the same but the outcome would be similar enough to be equally effective.

This raises the big question:  how are you doing in cross-training your people?  Even more important, how cross trained are you?  What instruments, to maintain the metaphor, can you play when things get tough?

Can you do AP, process payroll, reconcile the bank statement, calculate cost to complete, develop a good cash flow, hire and fire effectively, train the least skilled of your employees to do their job well?

How many instruments do you play?

If I were you I’d print out all the job descriptions from the primary players in the company and highlight those areas in which you’re fully capable as well as those in which your skills fall far short of ‘fully capable’.  Then you’ll know what you need to learn, they you’ll know where the company is vulnerable in terms of its skill set.

Keep practicing!

What it takes to be a successful CEO!

As I survey the landscape of clients, colleagues and friends in the remodeling industry, I look for patterns of success as well as patterns of failure.  These patterns, I’ve discovered, are not black and white, but shades of gray.  That’s one of the beauties of growing older (of which there are many to my mind) – I’m not quite so intent on placing my personal opinion, righteously defined, into the mix as the only opinion.  There are, as Rick Steves said on a travel program last week “many different truths which many different people hold as self evident.”

So it was with interest that I read in the Sunday NY Times (March 15, 2009, Business Section “Openers”, page 2) that a turn-around expert defined one of “the keys to effective leadership” as “you treat everybody incredibly well and lead with a bit of humility.”

He also said, in the same paragraph: “so I’m constantly asking the question, ‘What are the two or three levers that, if done right, if pulled correctly, will really turn this business?'”

So the obvious questions which come from the first paragraph of this short column entitled “Can you Pass a CEO Test?” are these:

  1. Are you humble?  Can you see others’ points of view easily and not just acknowledge the potential reasonableness of theirs but also change your own mind based on what you learn?
  2. What is the primary lever to pull to change your business around?  What is the secondary and then the tertiary?  For many people the primary lever is cash — banks are cutting lines of credit, clients are slower to pay and cash is the defining line between success or failure.  For others who have protected cash, and not spent it during the past year, the primary lever is sales — these are hard to come by now; competition is fierce and speed to the client is definitely not of great importance.  And finally, it might come down to morale:  yours and and that of your employees:  how do you keep those valuable people who remain upbeat enough to focus on productivity, positivism and playfulness — the 3 “Ps” in my mind which drive good morale in any company.  Oh yes, let’s add a fourth:  PROFITS!

The last paragraph says quite clearly something I’ve been asking for a long time:  “If compensation isn’t going to be the same, where do you get your fulfillment in life?”

Read the article in its entirety (it’s short):

http://www.nytimes.com/2009/03/15/business/15cornerweb.html?_r=1&scp=1&sq=GReg%20Brenneman&st=cse

Are you close to the CENTER of your company?

There’s an interesting article in the NY Times Business Section today entitled “Is it Time to Retrain Business Schools?” which says, in part:

“Some employers and recruiters also question the value of an M.B.A., and are telling young people they can get better training on the job than in business school. A growing number are setting up programs to help employees develop skills in-house.
On many campuses, changes are under way in courses and curriculums. Some schools are heightening their focus on long-term thinking or leadership, and many are adding seminars to address the economic crisis.
Jay O. Light, the dean of Harvard Business School, argues that there have been imbalances both on campuses and in the economy. “We lived through an enormous extended period of financial good times, and people became less focused on risks and risk management and more focused on making money,” he said. “We need to move that focus back toward the center.” ‘

How about it, how close to the center are you, is your organization?  By this I mean:

  • Are you, the owner, intent on personally touching your clients knowing that they are the backbone of your survival?  We’re not talking here about Citibank, we’re talking about a good remodeler desirous of maintaining a good reputation as well as a sufficient profit margin through this downturn.
  • Are you, as owner, personally responsible for a cash flow projection which protects the company during the wild swings inevitable in this economy knowing that cash is the primary key to long term success?
  • Are you working on a budget for a BAG (big, audacious goal – see CEO Tools for more on this subject) as well as a workable budget which allows the company to make money with 30 – 50% less knowing that net profit is the secondary key to success over the long term?
  • Are you focused on employee satisfaction knowing that it contributes heavily to customer satisfaction?
  • Are you, as owned, intent on maintaining the richness of your personal life knowing that it contributes substantially to your abililty to deal gracefully with changing times?
  • And finally, are you a true entrepreneur, knowing that “if first you don’t succeed, try try again”?

Rate yourself on a scale of 1 to 5 (5 being best) in each of these categories.  Then you’ll know what to work on to put you closer to the center!