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Sunday, 10 February 2019

Vulnerable to a Major Customer? What About Your Suppliers!

Over the years several companies with which I have been working have quietly and dangerously become vulnerable to a major customer.

It is axiomatic that the sensible approach is to keep the customer base as broad as possible with none accounting for more than around 15% of turnover.  This should, as far as possible, be accomplished not by reducing the direct influence of a major customer but rather by directing the marketing effort towards other sectors of the market.

However customer creep can and does happen and before you know it, one of them starts to account for a really major part of turnover.  I recall a business in domestic lighting dealing with a major outlet in the UK for their range of products.

Over a long period of time the customer placed more and more orders and at the same time, the demands started to increase.  In end, they accounted for more than 80% of turnover and whatever they said they wanted, the supplier had to comply.

It wasn’t a matter of “jump”, it was “how high do you want me to jump?

When I warned the Managing Director (and owner) that the company was massively vulnerable, he said firstly that he couldn’t refuse a good order from a good customer and in any case he had a great relationship with the buyer.  In fact he used that unpleasant comment of: “I have the buyer in my pocket”.

Guess what happened?  The buyer moved on, a new buyer was appointed and brought existing relationships with non-branded manufacturers.  Within six months my client had lost the account and was effectively out of business.

A salutary tale but what about your suppliers as well?  I had a client who manufactured a high tech product and one day called me to put off a meeting as he had an important matter to deal with.  Later in the day I happened to be in Manchester and, lo and behold, there was my client walking towards me.

He said: “ I have just been to see our lawyers.  One of our major suppliers who manufactures a special component exclusively for us, has gone into administration.  We have had to make an offer to buy the supplier’s business from the administrator just so that we can maintain supplies and keep our business going.

Another salutary tale.  We keep our eyes firmly fixed on our customers, and rightly so, but it should never be at the expense of watching the supply chain where events can be and often are detrimental to the company’s success.

The problem is, of course, that we can become complacent.  Orders are coming in, the customer may be starting to flex muscles but we can live with that and at the other end suppliers are happy to deal with us and seem to give us good service.

The question is, how often do you put these assumptions to the test?  The order book is usually very visible throughout the business but is the supply chain visible as well?

At the current stage of the global economic cycle some industries are booming and as a consequence demands on the supply side are becoming overwhelming.  Suppliers can be so busy that smaller customers by definition are expected to take a back seat.

The result is that the service to their customers suffers, relationships with the suppliers become fraught and everything becomes a problem rather than an opportunity. Those are perfect conditions for fire fighting rather than working to a sensible plan.

The really key imperatives in any business are the relationships with customers and the markets in general, relationship with significant players in the supply chain and, above all, the health and well being of the critical members of the team.

That last is possibly the most important and needs to be at the top of the agenda when critical factors in the business are being considered.  Make sure that they are all high on the agenda for regular top team consideration.

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Sunday, 3 February 2019

A Toxic Team Member? Do Something and Quickly!

When I started to publish the blog, more than nine years ago now, I resolved it would be written to maintain certain values and resolved that it never becomes self-indulgent. Foremost among these values was that it would not be overtly or covertly political.  

For example I have   something of a reputation now among my Vistage CEO peer group of revealing  some aversion to the BBC Today programme primarily because of the standards of interviewing. Of course we just cannot hide (would that we could) from the insidious and all-pervading influence that they wield in these pre-Brexit days. We can always switch off, of course.

I cannot hide, however, when one of the members of my group bemoaned to me the discovery that one of his prized team members was indulging in office politics and something had to be done about it.

When Dr Henry Kissinger left front line politics to become a full time academic he commented that his experience of the ferocity of  university politics made him long for the peace and tranquillity if the Middle East and I can fully understand his concerns.

The fact is that whenever and wherever we have a group of intelligent people nominally at one to deliver successful business outcomes, the situation can often be blighted by  an individual who is more concerned to construct a position that is more individually advantageous than one that contributes to the overall success of the organisation.

Another value I laid down was to encourage as far as possible topics that engender a positive outlook rather than look for situations that cry out for correction. An admirable objective but one that needs to be examined from time to time.

Wise sages say that it is far better to put emphasis on things that are positive and doing well rather than spending time, effort and emotion on correcting  unsatisfactory positions in the business and I agree with that wholeheartedly.

However there comes a time when things get out of kilter and the influence of the business terrorist becomes evident. In its worst manifestation this is a member of the team whose output and performance levels are high but whose attitude, behaviour and lack of team ethos overcome the positive.

It is the gloom-monger, the naysayer and the rumour provider who constantly gets in the way of being a successful team player.

One of our Vistage US speakers says that we hire on skills and fire on attitude and that is a maxim well worth examining.  When we recruit from outside the business we naturally look for a replacement for the dearly departed and occasionally even a direct replacement.   This means that experience and technical abilities become essential whereas we actually need someone who can merge effectively into the team and contribute as such.

On that basis the last thing that we need is someone who has a personal axe to grind and whose whole attitude militates against good team ethics.

The problem is that this is often a creeping disease and it can take time to for a leader to realise that there is a problem.

In any case it is usually a problem that must be resolved if the team is to operate effectively.  Make no mistake, everyone on the team knows the problem and waits for some action to be taken from on high.

The question is always what to do about it?  On the one hand the individual’s performance is acceptable but the attitude and behaviour is not.  Can this be changed? Probably not so what is the remedy?

Remember that we usually can’t change people’s attitude and behaviour.  The best that we can accomplish is to build an environment which enables the individual to change - if they so desire.  If they don’t then surgery may be the best option based on the realisation that no individual however productive can be allowed to destroy a team and that can easily happen if we don’t take action.  

A disruptive team member is always a toxic influence and it is not good to wait for the eventual response of “What took you so long?

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Sunday, 27 January 2019

Can You Define the Purpose of Your Business? It Answers the “Where Are We Going?” Question!

Some years ago I attended a meeting in London to hear Theodore Levitt, the renowned Professor of marketing at Harvard, and apart from being totally inspired, I came away with a little mantra that I have used on many occasions since.

It is: if you don’t know where you are going any road will take you there.

Coincidentally I recently discovered a version of the same mantra which goes like this:

“If one does not know to which port one is sailing, no wind is favourable". (Lucius   Antaeus Seneca (4BCE-65CE) Roman stoic philosopher).  There is nothing new under the sun!

In both cases, of course, it is a matter of purpose, not objectives.  Accountants love objectives because they are easily monitored, easily measured and as a consequence can be used for praise or, rather more frequently, for  reprimand.

The definition of purpose is more intangible. Purpose has to have a base line of stated shared values that are immutable and that are based on moral, social, socio-political, environmental and other criteria whereas objectives are, more often than not, financial.

I am an avid collector of maxims and another that I like is:
People need to know two things. How am I doing and where are WE going?.

Leadership is all about the people and their needs (obviously) so that they are kept aware of their personal progress and that of the business, compared to the stated values of the organisation.

Because we are dealing with human beings the “How am I doing?” question is intensely personal and needs to be treated as such via regular and confidential one-to-ones.

The great Dan Pink in his YouTube animations and his book “Drive”, examines more deeply the factors and the environment that motivate people to perform at their best, simply stated as follows

  • Autonomy
  • Mastery
  • Purpose

People need to be given freedom and the autonomy to undertake their role in the best way possible and hence with the most satisfactory outcome.

That freedom to make decisions rather than wait to be told what to do and how to do it results in enhancement of the ability to perform and consequently in improved mastery of the task or subject.

Overall it needs to be achieved  with a sense of purpose that has been constantly instilled and has become the cultural centrepiece of the business.

It is all a matter of at what level the leadership is prepared to trust the people, how far will they go in paying them the respect of accepting and welcoming their abilities and desires and to what extent is all of that recognised and in some way rewarded.

The key to it all is the stated purpose of the business. If that is to generate as much money as possible for the stakeholders then that will be reflected in the culture of the business.

Equally if the stated purpose is, for example, to distribute any profits in such a way as to help solve a social problem then the perceived culture will reflect that decision.

That sense of purpose must be at the forefront of everything we do, of how we relate to our people and the world at large, of the values that we espouse and the way that we project ourselves in general.

Question: Does your business have a stated purpose and, if so, are you proud of it?  More than that, are your people proud of it?

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Sunday, 20 January 2019

Do New Recruits Bring Baggage? It Can Cause Culture Clash!

In the early days of my tenure as a Vistage peer group chairman, we had as a speaker the CEO of what he called a "London based corporate finance boutique". Despite this description he proved to be a very entertaining and insightful speaker.

His main message was that sale and/or acquisition of businesses is fraught with complications about which we mere mortals know little and having heard the stories from several of my members I can fully understand.

The fact is that buying and selling companies is a highly specialised activity and we, who are more interested in the running of companies, don’t normally come into contact with the issues associated with the sale or purchase of a business.

The speaker made several very important points one of which was that it is inadvisable to deal with just one company in terms of a potential buyer. It is far more sensible to hold a metaphorical beauty parade

This was borne out by one of my members who sold his company and made sure that initially he had at least three interested parties to bid for it. In the end he was very successful.

A further point that the speaker mentioned was that while due diligence by accountants was normal for both parties, it is equally important, perhaps even more so, that the question of a culture match was explored and seriously considered.

In his opinion at least 50% of all acquisitions fail and half% of the balance were not very successful. On that basis he suggested that it was usually a clash of culture between the two parties that was the problem.

This is particularly appropriate when a large corporate is acquiring a small entrepreneurial business that has probably been run very successfully with one individual in charge. In that case a culture clash can be terminal.

In fact it can be so traumatic that in many years I have never experienced anybody selling a business and notionally staying in it to be there for more than about six months. The change in culture is just not to the taste of an entrepreneur.

This is not to say that some acquisitions are not very successful.  Usually this is because there is a good match of cultures between the two businesses and indeed between the two leaders

In the normal run the sale or acquisition of a business is to say the least an unusual event but the recruitment of executives from outside the business is very frequently a normal experience.

Consider the potential issue of bringing in an executive from a large corporate into a small entrepreneurial business or vice versa for that matter.

In both cases the experience and manner of working is manifestly different from the other and unless both sides are willing to compromise there can be real problems.

Ideally each side should consider this new situation to be a learning experience and should be able to adapt their own working to develop a change that ought to be for the better.

I know of one case where a marketing executive was brought in from a large organisation into a smaller one and he quite frankly cause real issues in the business until after a while people realised that he was offering some great insights as they started to use them.

The crux of the matter is that it is all down to the leader. In every case the leader has the responsibility for designing and driving a culture into the business and furthermore to ensure that it isn’t just driven downwards by function but it needs to be across all aspects of the company.

The culture of the business or "the way that we do things around here" is the most important factor in the way in which the business is run. It is the most important function of the leader to drive that concept right throughout the business so that success will follow.

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Sunday, 13 January 2019

Unsure About a Decision? Remember That It Is JFDI Time!

It is curious that one of the most important attributes of a leader's activity, that of decision making, can be the most taxing.

I recall a member of my Vistage CEO peer group telling me that his colleague, the Technical Director, was unable to make a decision, which he found irksome to say the least.

He put this inability down to the fact that the director was an engineer and needed to collect all the relevant (and sometimes irrelevant) evidence to substantiate the decision making process.

It wasn't that he was risk averse, or was just that he needed to be absolutely certain that every possible piece of justification had been covered.

The upshot was that he finished up with vast amounts of data, very little information and no intelligence on which he could make a decision.

As a consequence he either went on and on collecting data or just gave up and went negative.

The leader's frustration was understandable; being the owner as well as the leader he wanted decisive people around him who didn't need constant reassurance that the data collecting process was essential to "get it right".

This inability to come to a decision can have several a raft of reasons and sometimes a mixture of all of them.

It must be said that certain functions in a business can lead to this irritating result of indecision; the numerical functions like technical and financial often lead the way whereas sales people can go overboard in the opposite direction.

It's the "ready, fire, aim" syndrome.

If one of the team is inherently risk averse then by definition they are more than likely to be indecisive and hence their value has to be questioned. That form of indecision almost always leads to upward delegation and that has to be resisted at all costs.

Beware of the indecisive one who won't make a decision in case, heaven forfend, failure could prejudice both is/her position and the job itself.

Fear of failure is a very powerful emotion and it takes a combination of personal strength and sensitive leadership to overcome it or at least get it into perspective.

That perceived downward spiral following possible failure leading to the only realistic solution of jumping off Beachy Head is all too real for some people. As I said a dose of reality and getting it into perspective is necessary in these cases.

And what about he leader or executive who shoots from the hip, who is reactive and ready to make a decision often without any evidence to back it up?

More dangerous I would submit than indecision when at least some assessment of the possible risk would be valuable.

It can be a dangerous but exciting roller coaster ride with the outcome in doubt all along the line.

Another issue is decision making by committee.  I remember talking to the Managing Partner of a law firm with 30 partners about how they came to a decision.

I rather naively suggested that he would seek consensus at which he exploded.

"Consensus?  Some hope!  They must have unanimity so that everyone agrees"

Again naively I asked him his they came to a decision on anything.

"We don't,” he said and that was the end of that conversation.

Smooth decision making is the lifeblood of any successful business or organisation for that matter.

There will always be a modicum if risk involved; the art is to assess that risk, decide whether it can be reduced and if not to make a conscious decision to go ahead or abort.

The key is to do it, one way or the other; vacillation does no good to anyone and only spreads uncertainty through the business. 

Remember that it’s always JFDI time!

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