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Sunday, 18 March 2018

Looking to Make People Accountable? Help Them to be Self-Accountable!

We in business tend to talk glibly about and even assume that there is a process in place for accountability but, in truth, is there?

I am a great believer in giving people the freedom to make decisions and take action without overwhelming pressure from nervous top-down management.

Indeed many wise business sages have expressed strong opinions that leaders should always appoint the best people possible and then get out of their way and let them get on with it, whatever “it” happens to be.

Easier said than done, of course, because two relevant words come to mind in the doing of it, those being “trust” and “threat”.

We can dispose pretty promptly of the threat connotation because if a leader truly thinks that an exceptional employee poses a threat on a personal or corporate basis then they need to indulge in a little self-examination.

Trust is an entirely different proposition. If a leader shows the courage to give people their heads and then lets them get on with it, then many outwardly confident characters can still suffer inward pangs of nervousness.

Time is, as they say, a great healer and time will usually exhibit results, positive or negative, that will confirm or deny the leader’s decision.

The trick is, of course, to shorten the time span to make sure that the time for any negative impact is as shortened as possible, and that is where accountability kicks in.

In essence accountability implies that while we have the freedom to make decisions and take action, we are always accountable for both decision and action that need to be for the greater good of the enterprise.

The difficulties now lie in the frequency, depth and hierarchical level to which people are accountable so that it does not become a wet blanket of authority.

It does seem obvious to say that if we rightly give our people freedom then they should be accountable and some individuals find this both scary and irksome. Consequently they can be identified as the people in the business who just need to be directed, told what to do and then get on and do it.

There is a danger, fed eagerly by the media, that accountability can be equated to dramatic failure and we then can get into a “heads must roll”  scenario.

The whole concept needs to be a part of the values and the culture of the business; we offer you trust and the freedom to do what you consider to be right and we expect that you will accept accountability for the outcome.

Aristotle said that excellence is not an act, it is a habit and he might well have substituted accountability for excellence. It is said also that when we have done something for thirty days it becomes a habit and I would suggest that this is the desired outcome anyway.

The real answer is to set up a process that is not irksome or seemingly investigative but one rather that eventually relies on self-motivation and self-accountability, in other words becomes a habit.

Eight plus years ago I was in a break-out group at a Vistage conference where we discussed accountability. Each of us decided on a regular action we would take and we would then be accountable to another member of the group. After four or so weeks I found that I was calling my colleague rather than being called.  

Self-motivation kicked, I found that I didn’t need to feel accountable or responsible for the blog, that I enjoyed the experience and now more than 450 posts later, I am still at it.  In other words it became a habit.

If we can set up a process in our business that delivers self- motivation and self-accountability as habits then we have a process that can only lead to growth and success and probably more satisfied employees.

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Sunday, 11 March 2018

Having Problems With Communications? Be Brave, Try Something Different!

Whenever a survey is taken of employee satisfaction it is strange to note how many comments are forthcoming about the perceived lack of communication in the business.  Paradoxically this complaint is being ventilated in a survey to uncover problems in communication.

I had a very interesting one-to-one this week with one of the members of my Vistage CEO peer group and we discussed this issue at length.

He is dedicated to doing as much as possible to enhance the level of effective communications to the employees of around 300 but has begun to realise that methods that worked at least on a satisfactory level now seem to have a reduced effect.

His overall theme was that as communication methods have changed then why are we still using old methods with noticeably less success.

Methods like noticeboards, an intranet, regular newsletters to everyone, briefing meetings, information campaigns, surveys and so on seem to have lost their effect.

We had a brilliant speaker from the USA, Herb Meyer, at a meeting of my group some time ago and he had been special counsel to the Director of the CIA so he had some some considerable experience of communications.

He said that if they needed to pass some extremely sensitive information this would be done by placing it in a locked box which was then transported in trusted hands to the recipient who then unlocked the box. Herb said that ten minutes later everyone in the building knew about it.

He went on to say, perhaps a little cynically, that the only way to make sure that it stayed secret was to put it on the noticeboard.  Question: how long is it since you have looked at your notice board?

The fact is that methods of communication have changed and are still changing dramatically and the question is, are we up to date with everything available that can be validly used in the business?

On a simple level we all see people in restaurants settle at the table then everyone gets out their phones and spend time gawping (my Lancashire background coming out) at them.

I find that habit objectionable but it happens and if people prefer to read news or check their emails constantly then that is their business.  The fact is that we may be missing a trick if we don’t exploit the habit in some way.

One method that I found out about only yesterday (I am not always an early adopter) is Facebook Workplace and that seems to me to be a very engaging way to encourage people to communicate more readily.

After all communication  to be effective must be at least two way.  The old technique employing a metaphorical pointing finger followed by “Do you understand?” has long gone or at least we hope so.

As far as possible the best way to pass on the message is individually and that can be complex in larger organisations where the message has to be delivered at all levels of the business. There is a consequent probability that it becomes garbled at some stage.

There cannot be too much communication but it is essential that the methods used ar acceptable to recipients  and are as little top-down as possible.

The old adage about “my door is always open” sounds great but it needs to be visible and individual to make it truly effective.  Think about some real differences that are exciting and try them out. Test them if necessary in a small pilot scheme and monitor the results.

There is no magic bullet but a constant drip feed of communication in ways that people understand and like can have a dramatic effect.  Perhaps it may even slow down the complaints in those employee surveys.

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Sunday, 4 March 2018

How Effective is Your Supply Chain? It's Vital For Your Gross Margin!

I posted a blog a couple of  weeks ago about the late Brian Warnes and his brilliant concept of Dynamic Budgeting.  He also introduced me to the 5-Line P&L, again a brilliant and simple concept.

During a recent one-to-one mentoring session with one of the members of my Vistage CEO peer group, we were discussing some instances of indifferent performance of their supply chain and it occurred to me that Brian’s 5-Line P&L might supply some form of solution.

If we analyse the P&L, Sales comprises Volume and Price and Cost of Sales is Labour and Materials.  This applies largely to a manufacturing businesses, of course.

We should always be aiming to increase the gross margin, the true income of the business so for a start let’s see how this can be achieved. Sales as we said comprises volume of product sold together with price.

Volume can and indeed should be affected by our sales and marketing procedures but can be seriously affected by competition.  

Please mote; competition is NOT restricted to price.  

There are many reasons why customers buy from us and price is frequently number 4 or 5 on the list below the product itself, quality, service and so on.

We do, however have control over the price for the product and on the basis of getting the basics right for a start, we should be able to increase prices.  Vistage speaker Malcolm Smith, for example, runs an excellent session called “It’s Not About The Price”.

If then we consider the cost of sales it usually comprises labour and materials with an adjustment, if required, for stock.

If we can’t or don’t want to reduce the labour cost, the spotlight falls inevitably on the materials component.

As a side issue it is interesting to do the 1% test on your 5-Line P&L because we don't always realise that tiny incremental changes can have a significant effect overall.  For example if the objective is to increase the gross margin, then we can increase sales, either by more volume or increased prices.  Do this by 1% which automatically increases cost of sales by 1% with fixed costs remaining the same.

If we then reduce costs by 1% and recalculate, just take a look at the effect on the net profit.  One of my members did the same exercise at 2% and he was astonished to find that it doubled the net profit.  Remember that even a 2% change should be relatively easy to achieve with a little imagination.

If we increase prices then the increase goes straight to the bottom line.  If we decrease the cost of sales, then the same applies so it seems sensible to concentrate on both of these factors.

Taking the cost of sales component, the part that needs to be considered is the materials costs.

My member discovered that the purchasing team, once they settled on a supplier then a certain amount of complacency set in and there was little examination as to how they could reduce the purchase costs other than by negotiation with one supplier.

There was some reluctance to look for alternative suppliers which immediately  raised concerns as to why this was the case.  For example, was it laziness or something more sinister?

He took the decision to insist with purchasing that for major supplies defined using Pareto Analysis (80% of all purchases result from 20% of suppliers) they were able to identify precisely where competition could be introduced.

The upshot of the exercise resulted in an overall 8% reduction in purchasing costs and a more active, competitive and responsive supply chain.

This is all very simple and I would be surprised if you are not working this yourself.  The question is: how effective is your purchasing and what could be achieved with a little more analytical activity and imagination?

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Sunday, 18 February 2018

Budget Time Coming Round? Try Dynamic Budgeting Instead!

Over the recent past I have been banging on about the value or otherwise of annual appraisals of team members as well as the danger of running the business metaphorically using the annual accounts.

It occurs to me that the value of the annual budgeting exercise also needs to be examined. First of all, what is the purpose of the annual budget other than the fact the auditors demand it so that they can report to HMRC (or the IRS) and the bank also likes (!) to see them?

If asked most business leaders would say that the budget gives them an opportunity to monitor performance against an acceptable and carefully crafted standard.

Oh yes?  The number of ways of devising the annual budget is as the sands of the sea and in many cases, just about as useful.

I have known situations where the budget was written by the finance department without any reference to activity; the numbers alone seemed to be far more important. 

In other cases the sales department has the honour and carefully assesses each major customer in an effort to guess what their turnover is likely to be in the year, and so on.

Having gone through that process with a former employer, part of a large conglomerate, we were told that the projected profit was inadequate and needed to be increased.  The helpful head office accountant suggested that we increase the estimate of turnover and reduce costs like, for example, marketing.

A very bright idea but we did as suggested and, lo and behold, the budget was accepted.  Sadly however performance was in accordance with our original estimates and far away from the amended version for which we were, to say the least, castigated.

“It’s your budget” they said: “Why are you not meeting it?”

My old friend and Vistage speaker, the sadly missed Brian Warnes had other ideas about the value of the annual budget.  Brian had an interesting career leaving university to start life as a physicist. He then was commissioned in the Household Cavalry and did strange things as an intelligence officer.

On leaving the army he then retrained, for heaven’s sake, as an accountant. Perhaps because of his scientific and military training he rebelled against the tyranny of the annual budget which he described as generally being a “limp forecast of mediocre performance” and devised an entirely new concept which he called Dynamic Budgeting which was, to all intents and purposes, break even analysis.

Break even is calculated from the “five line P&L” which is:

Sales (volume and price)
less variable costs (labour and materials)
= gross profit (margin expressed as a percentage of sales)
less fixed costs
= net profit (margin expressed as a percentage of sales). 

To calculate break even sales, fixed costs must equal gross margin.  Therefore divide fixed costs by the gross margin percentage.

The clever trick is to keep the break even sales below 75% of actual sales ad this calculation can be done weekly for example. It gives the leader a view of the trends so that if the break even percentage of sales is increasing, then action needs to be taken to increase the gross margin which is, after all, the true revenue of the business.

If this is on the leader’s IT system plotting both actual and break even sales on a rolling annual basis then it is feasible to keep a regular check on profit performance and make quick changes should they be necessary.

Annual appraisal v. regular one-to- ones?  Conventional budget v. dynamic budget?  I know which I prefer.

Read Brian’s book, The Genghis Khan Guide to Business (http://www.amazon.co.uk/Genghis-Guide-Business-Charles-Warnes/dp/0950943207/ref=sr_1_2?ie=UTF8&qid=1360330400&sr=8-2) and change your life (or your Finance Director)

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Sunday, 11 February 2018

Want Some 2,500 Year Old Leadership Advice? Read The Art of War!

I was reminded recently of the classic book, The Art of War, by the Chinese military strategist of the time,Sun Tzu (5th century BCE) and I looked up a copy that had lain dormant and unread on my bookshelf for many years.

I do not in any way equate running a business with warfare which is an abhorrent way for countries to resolve (or not) any difference of opinion usually to the detriment of the people involved especially the innocents.

However some of the strictures that Sun Tzu espouses have relevance today in the matter of leadership.  He has strong views on this subject which he discusses under the generic heading of The Commander.

In the prologue to the book he writes thus:

“The Commander stands for the virtues of wisdom, sincerity, benevolence, courage and strictness”.

and it is worthwhile examining these virtues in the light of accepted norms of leadership behaviour and attitude at the present day.

Wisdom is one of those intangible virtues difficult to define and even more difficult to recognise. The old concept of wisdom equating to age is nonsense.  We have all met many stupid old people (some not so old too) and very wise young ones that give a lie to the maxim.

Wisdom can be defined as “having experience, knowledge and good judgement and the ability to express it to others”.

One of our great US speakers in Vistage is Herb Meyer, formerly Special Counsel at the CIA. Herb says that there is a flow chart starting with data and progressing through information, knowledge, intelligence and wisdom, the latter being the culmination of the system.

The crucial aspect however is the ability to transmit that wisdom cogently and with clarity to all those involved and should be one of the primary functions of leadership.

Remember that wonderful gag of George Burns?  He said that the secret of success in show business is sincerity and once you can fake that you’ve got it made.

Cynical yes, but with a grain of truth.  One of the great abilities of any leader is to be able to put a point over so that he/she is believed and that demands an outward display of sincerity.  Please note: it only works when eventually the truth is out and the sincerity proven.

Benevolence was at one time a non-starter for many leaders of businesses.  They ruled with an iron discipline and no variation from the rules was permitted.  That form of authoritarianism is way off the beam these days and those businesses where a benevolent attitude is instilled are the more likely to be successful and crucially, keep their good people.

Courage is, of course, the ability to take risks and that needs to be modified to “considered risks”.  If a leader finds it difficult to take risks then the outcome is likely to be a stagnant business.  The courage needed can be considerable at times and a sensible attitude towards backing-up evidence is needed.  I recall a Chief Operating Officer in a business who was so risk averse that he would make no decision until he had what he considered to be sufficient back-up evidence.  Needless to say he never made a decision.

Strictness of course harks back to the past when the leader would always be expected to be strict.  Perhaps the nearest we come to that these days is a culture of self discipline engendered and encouraged throughout the organisation.

All in all The Art of War has many really valuable lessons for us in business provided of course we can manage to implement them without killing anybody.

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Sunday, 4 February 2018

Feeling Angry or Annoyed? Pack Up Your Troubles and Smile, Smile Smile!

Regular readers may recall that a couple of weeks ago I posted an exhortation to be positive and smile.  I  mentioned a notice that is posted at the wonderful store of Housing Units (www.housingunits.co.uk) here in Manchester that says:

“If someone doesn’t give you a smile, give them one of yours”.

A couple of hours later my dear friend, Harold Woodward in Yorkshire sent me the lyrics of the old song: “When you’re smiling, the whole world smiles with you”.

That evening I was listening to BBC Radio 2 and, lo and behold, they played a song by Harry Konick Jnr called “You’re Never Fully Dressed Without a Smile”.

It was a day of synchronicity.

There was quite some response to the blog and it occurred to me that there must be more instances of smiles being the subject of other song lyrics.  I was right.

Popular music lyricists have always had their collective finger on the pulse of the public and especially during difficult times, they have managed to brighten lives with cheerful and positive lyrics to cheerful and positive music.

Among many, the World War 1 song, “Pack Up Your Troubles (in your old kit bag and smile, smile smile) was almost diametrically opposed to the actuality of that appalling conflict but nevertheless the song was one of the most popular of its time presumably on the basis of This Too Will Pass.

Another rather gloomy epic was “Smile though your heart is breaking”, a further instance of recommending a smile to chase away sadness.

My favourite country group of the 1970s, the Dutch trio  Pussycat, sang about remembering love that has gone away in their record of Smile and there are many others.

A dictionary definition of the word Smile is:

“Forming the features into a pleased, kind, or amused expression, typically with the corners of the mouth turned up and the front teeth exposed”.

For such a definition it is surprising to realise that the word Smile can bear a multiplicity of modifying adjectives such as cheerful, beaming, expressive, charming, warm, soulful, and at the other end of the scale, sad and grim.

Overall however, the main thrust is that of exhibiting a positive outlook and one that encourages others to follow suit because smiles can be catching.

During this awful January I have been catching up with one or two audiobooks, in particular The Pickwick Papers by Charles Dickens, that has been a favourite of mine since childhood.

Throughout the book whenever Mr Pickwick lapses into annoyance, anger and rage at some supposed slight, following a comment by his faithful servant, Sam Weller, he allows a smile to suffuse his face and the anger dissipates.

My Vistage CEO peer group is extremely adept at scotching too much seriousness with a comment that brings on a smile and often defuses a complex situation.

The fact is that the very act of smiling can change the atmosphere in a difficult discussion or conversation and lightens the whole scene.  In essence it indicates positivity and can soften anger.

Mr Pickwick had the right approach.  He was sensible enough to realise that anger is a useless emotion said to be like taking poison and expecting the other person to die.  The fact is that a smile can and does dissipate negative emotions.

Boxing the chimp in our minds can be achieved in many ways and a distinct change to  positivity is one of them.

Trying to smile whenever one feels anger or irritation can change one’s feelings quite dramatically.  Give it a try and encourage your people to try.  You may be surprised at the result.

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