BUSINESS TIPS, TOOLS AND ARTICLES
1)LATERAL THINKING FOR STRAIGHT PROFIT
2)CAN YOUR COMPANY SURVIVE INFLATION?
3)THE TWO KEY FACTORS OF SUCCESS
4)IT'S THE MIND THAT MATTERS
5)ALL A QUESTION OF PERSPECTIVE
6)HOW TO STAY AWAKE AT WORK
7)THE DEADLY SINS OF STATISTICIANS
8)HOW TO SELL YOUR COMPANY
9)KEEPING POACHERS AT BAY
10)THE MEMORY GAME: USE IT OR LOSE IT
11)CAN YOUR COMPANY SURVIVE INFLATION?
12)HOW TO KEEP YOUR HIGH-FLIERS
13)GUARDING YOUR COMPANY'S SECRETS
14)FROM ENGINEERS TO DREAM SELLERS
15)EXPORTING: A MATTER OF SURVIVAL
16)HAVE YOU GOT WHAT IT TAKE TO BE A SUCCESSFUL ENTREPRENEUR?
17)DON'T DELEGATE THE MAIN EVENT
18)BUSINESS CLASS WITH THE BARD OF AVON
19)THE ULTIMATE YARDSTICK: CASH FLOW
20)A NEW BREED OF BOSSES FOR THE '90S
21)DON'T BE A SNOWPLOUGH...
22)HOW TO AVOID GOING BUST
LATERAL THINKING FOR STRAIGHT PROFIT
Keeping the cash register ringing may simply be a question
of marketing an old product in a new way
Businesses must change constantly to survive. Here are some ideas
on rethinking your business:
Make a name for yourself: Many products are traditionally
sold without a brand name. Many have found the road to success
by transforming a no-brand product into a branded product.
In the early part of this century, nearly all soap was sold in
grocery stores, in large unbranded, unwrapped bars. Mr Gamble,
later of Proctor and Gamble, had a dream for a profitable soap
business. He made the soap in his basement, added a bit of dye
and perfume, tripled the price, gave it a luxurious-sounding name
and wrapped it attractively.
He then sold it door-to-door until he had created brand loyalty;
then sold it through drugstores and grocery stores. This was the
humble start of one of the world's largest business houses. His
main capital investment was shoe leather.
The strategy is to find a commodity-type product, romance it,
give it special cosmetics, superior marketing and a higher price,
then run with it. This technique is more risky than having a genuinely
superior product, but it has proven successful many times.
Perhaps the most difficult type of business in which to make a
profit - and it's a business most often found in Asia - is the
original equipment manufacturer (OEM), which makes products for
an overseas marketer, using the marketer's brand name, specifications
and design.
Both the profitability and security of such a business is low.
For a start, the marketer can obtain quotations from other manufacturers
and play you off against them, squeezing your profit margin to
the point where it is almost non-existent.
He can also tempt you with large orders one year to make you over-expand.
Then he owns you; you can't quickly replace your biggest customer,
and your overhead forces you to operate at or near a loss, or
to sell out - often at a fire sale price to the very marketer
who put you in this position.
The many companies in Asia on this treadmill should consider initiating
their own designs, brands and marketing. Once your brands are
trademark-registered, you open the door to profit and stability,
as well as growth.
Join the service industry: Almost all services can be industrialised.
The modern supermarket is a classic example of an industrialised
service. In the old grocery store, a shop assistant waited on
one customer at a time and brought out each item separately, and
weighed and wrapped it while the other customers stood in a queue.
This was industrialised by converting the store so that each customer
does his own fetching and carrying. This change not only reduced
costs drastically, but also greatly increased sales thanks to
'impulse' buying.
Another example of industrialising a service is unit trusts. Without
these an investor with modest funds could not diversify stock
holdings and spread risk. In addition, the unit trust management
takes over the complex and time-consuming task of selecting stocks
in a constantly changing market.
Find a way to industrialise a service business in an innovative
way, and it is likely that some of the money that is generated
will rub off on you.
Service your customers: Take a straight industrial product
and package it with services. Steel companies used to sell sheet
steel to car makers in standard sizes. Just the steel, as it came
off the rolling mill.
But one steel mill in Detroit attracted customers by offering
more. It now sells steel sheets which have been degreased, pickled
for rust removal then zinc-coated. The sheets are supplied in
the exact sizes the car maker requires.
The car maker not only eliminates the scrap losses that come with
cutting large sheets to size, as well as the cost of cleaning,
galvanising and other operations; it also gets its steel on a
just-in-time (JIT) basis, cutting to the minimum its inventory
and storage problems.
In addition, much of the inspection cost is taken on by the steel
mill. For example, the car maker no longer has the task of testing
the thickness of the galvanised coating.
For the steel mill, the advantages are also immense. It can perform
the plating much more cheaply than the car maker, because of economies
of scale, since plating is now done for many customers.
The steel mill has also made the car maker into a captive customer,
giving it immense security and cutting its advertising and marketing
budgets. No competitor can take these customers away because no
discount could compensate the car makers for the cost and time
required to coordinate the complex JIT procedure with a new vendor.
The steel mill no longer sells sheet steel, which is a low profit
commodity. It sells a cluster of benefits - the intangible system
itself being the most profitable.
Shift the goal posts: Most companies in a particular industry
operate in a similar manner, following the same rules. But occasionally
an innovator uses lateral thinking and devises a business system
that gives it a competitive edge.
L'Eggs did it with women's pantyhose and stockings. Such items
had traditionally been sold in the exclusive fashion stores, such
as Nieman Marcus, Harrod's or Lane Crawford. But L'Eggs packaged
its wares in egg-shaped containers and sold them through supermarkets,
pharmacies and convenience stores, in literally thousands of locations
- most of them unconnected with fashion houses.
The convenience of being able to buy pantyhose at the same time
as milk or bread, plus the greatly increased exposure, saw sales
rise exponentially.
There was a time when Xerox had a virtual monopoly on the photocopy
market, thanks to its closely guarded patents. It operated in
a centralised, direct-to-the-customer style. It would not sell
its machines, charging the customer, instead, for each copy, using
an in-built counter.
But when the basic patent on the copying system expired, an innovative
company developed a simpler copying system and sold it through
local office supply houses worldwide. Distribution was less costly
because the factory did not have to provide the sales thrust,
using instead the staff and contacts - and credit terms - of local
dealers. It also passed on costly maintenance and trouble-shooting
to the local dealer.
The newcomer's strategy was so successful that dozens of competitors
were soon on the scene, all of them selling machines rather than
charging per copy.
Changing the rules of the game is not limited to going down-market
with a cheaper product. There are many way to go up-market and
change the rules of the game profitably. These include market
segmentation where a smaller, more selective group can be tailored
to.
Typical of groups who have different requirements in everything
from shoes to light bulbs to vacations, are senior citizens, sportsmen
(such as golfers or yachtsmen), golf course green-keepers, dentists,
obese people; the list is endless.
Ciba-Geigy, the famous Swiss pharmaceutical company, manufactures
a strong adhesive called Araldite. The company learned that morticians
in the West had a particular problem. When they were preparing
corpses for viewing at some funerals, they had problems keeping
the lips closed. Hanging lips detracted from the tranquil appearance
of a body being displayed before burial.
Ciba-Geigy simply sold Araldite in a different, special package
labelled Lip Clip, designed exclusively for - and available only
to - morticians.
TOP
CAN YOUR COMPANY SURVIVE INFLATION?
Firms that fail to prepare for the effects of inflation are
in for a rude awakening
In the most even-keeled of economies the threat of inflation is
ever-present, and in Asia today the beast is out of its cage.
Granted, some Asian countries, notably Singapore, Malaysia and
Taiwan, have monetary authorities that have held inflation close
to acceptable levels. Others, such as the Philippines and Hong
Kong, have not.
But the basic fact is that most commodities are priced internationally
in US dollars, so no Asian country can avoid importing inflation
from the US along with basic commodities such as oil or copper.
Perhaps I am being too pessimistic. But it is still wise to be
prepared. Every well managed company must be inflation-proofed.
If not, the ravages of inflation can seriously damage it. But
with the proper preparation, a business can build in a reasonable
amount of resistance and will have the resilience to recover.
The first step is in accounting. Without inflation-structured
accounting, it can appear that sales, market share and profit
are rising when in reality profitability may be non-existent.
Costs of every component of the business must be constantly monitored.
Without this, the company may appear to be running normally when
it is in fact on the verge of insolvency or at the edge of a severe
credit crunch.
When inflation strikes, a business is faced with the task of achieving
several incompatible results simultaneously. There must be minimum
exposure to the depreciation of currency, yet a high degree of
liquidity must be maintained. Costs rise but customers and sales
personnel argue in favour of lowering sales prices. Collections
become slower than normal because all customers try to stretch
their liquidity by delayed payment.
The solutions are not easy to find, but they do exist. Above all,
it is crucial to plan your company's responses well before they
are required. These responses include:
* Use short term credit to the maximum and hold minimum cash.
* Well in advance, improve relations with suppliers. Once it is
established that your company is a valuable long-term customer,
most suppliers will extend payment periods. Always pay on time
- not a day early nor a day late.
* If the inflation is bad, make certain your selling prices keep
pace with rising costs. When you raise your prices, it is often
better to make occasional substantial increases, as opposed to
frequent small increases. Anticipate the trend and raise your
prices enough to cover you when supplies go up in price. When
you must increase prices, be firm. Don't apologise.
If you sell through retailers or wholesalers or others who buy
your products for resale, anticipate the price increase and send
them a new price list at least 20 days before it becomes effective.
They have a right to object if they receive notice that prices
will rise the next day.
Announcing prices well in advance usually results in a barrage
of increased or extra orders to beat the price rise. While you
will not receive the advantage of the new price, the extra business
will still be profitable provided you have anticipated correctly.
* Devise methods to collect payment faster. There are many ways
to do this. The main rule to remember: It is the squeaking wheel
that gets the grease. Send customers reminder letters or faxes,
phone them, call to see them, or ask salesmen to collect.
It may become necessary to threaten delinquent cases with a visit
from the collection agency or with legal action. At that point,
you must remember that you are no longer dealing with a customer
but with someone who owes money and has had adequate time to settle.
Most companies start sending out statements on the first of the
month. Many debtors pay on a first-in-first-out basis. So it is
better to beat the other creditors to the punch. Close the month's
accounts on the 25th and make every attempt to have statements
on the customers' desk by the first of the month.
* Organise the filling of orders so that they are packed and dispatched
rapidly. Goods should come in the front door and go out the back
onto lorries as rapidly as possible. This makes better use of
your inventory and minimises the stock held, cutting down interest
and storage costs.
* Above all, recognise that spending for research, development,
advertising, and training of personnel must outpace inflation.
There is usually pressure from the shareholders or owners to cut
back or stop research, training, advertising and all costs that
do not return instant profits. This may appear logical. It is
not. It is madness. It is robbing the future to pay for the present.
Instead, employee productivity must be increased to compensate
for the higher costs of training, research and the other components
of 'tomorrow land'.
Blue collar productivity actually is usually determined by the
speed of machinery, but white collar workers' productivity is
not, and can be determined only by efficiency.
The lowest productivity is usually found among outside salesmen
who are left to work on their own without closely monitoring and
are apt to waste time in many ways, such as extra long lunches,
poorly planned routes, failure to fix firm appointments and the
temptation to attend to personal affairs during working hours.
The solution is for management to get physical control of the
work, so that supervisors are forced to deal with the activities,
prioritise them, assign work and follow through by assessing productivity
results regularly.
The first step is to organise in such a way that there is zero
backlog. Many companies make the mistake of computerising in the
name of increased efficiency. Computerisation should only be introduced
after the systems are already efficient. Otherwise, all the computer
can do is get through inefficient work faster.
Finally, don't forget that those who survive are those who never
stop preparing for the future. Planning should not only encompass
periods of inflation, but also periods of price stability. In
the early 1920s the 'genius' of the German hyperinflation was
Hugo Stinns who built what was at the time one of Europe's most
significant conglomerates.
Stinns' empire had been built on inflation, borrowing heavily
to buy companies, then watching them rise in price. But with the
end of inflation, his companies started to fall in price, but
the conglomerate still had to meet debt payments. No thought had
been given as to how this would be managed. Five years after the
Deutschmark had been stabilised in 1923, the Stinns empire was
in liquidation.
TOP
THE TWO KEY FACTORS OF SUCCESS
Too few companies define what they do or focus on where they
are going. As a result, they end up in confusion
What is it that makes some business organisations so outstandingly
successful that they become international giants while others
remain only mediocre or simply die out?
Many glib answers can be offered: Greater financial resources,
higher technology, superior marketing strategy, and so on. But
scant examination shows that these are all wrong because we have
all seen young entrepreneurial upstarts who have beaten the giants.
Ray Kroc, for example, had no advanced technology, no massive
funding, no super marketing strategy. Yet in just a few years
McDonald's became many times larger than US Steel, which enjoyed
financial resources, technology and about every other advantage.
So what is the secret? I believe there are two Key Success Factors:
Clarity of definition and singleness of purpose.
It is actually a relatively simple procedure to write a one-sentence
definition of a company's justification for existing. But this
appears such a juvenile exercise to most chief executives that
they never do it. That's a big mistake. They fail to define their
company's purpose with simplicity and clarity.
Thus they plod along, always toward some unknown horizon, because
no one in or out of the organisation knows what their ultimate
goal is, what basic concepts of ethics, standards, principles
and other disciplines the organisation must employ in planning,
hiring, training, advertising and satisfying customers.
An organisation's mission definition should be simple. It should
allow for new horizons in the future but also put limits on those
horizons. 3M (Minnesota Manufacturing and Mining) became one of
the world's leading companies because it clearly defined its purpose.
Its first breakthrough was Scotch Tape. But had it defined its
purpose as 'making Scotch Tape' it could not have advanced. Instead
it defined its mission as 'new product development'.
Once the clear definition came, all executives and employees knew
their success and the company's future depended, not on Scotch
Tape, but a continuous flow of new products. Armed with this the
company grew. It has gone on growing ever since.
ITT started life in Cuba as International Telephone and Telegraph,
a sleepy telecommunications company. It appeared destined to be
always a fringe company in the telephone business, playing second
fiddle to the likes of AT&T, British Telecom or Ericsson.
But when Harold Geneen became CEO, he analysed the business and
noted that telecommunications is a service business. He changed
the definition of ITT from 'telephone company' to 'service company'.
This gave the company a licence to become a giant player in the
service industry, with the result that it took over dozens of
service companies including Sheraton Hotels, Hartford Insurance,
and even a car rental company.
At the other end of the scale is the Australian Wool Board. The
name defined the organisation's activities far too narrowly with
the result that when synthetic fabrics were developed and the
wool industry took a beating, the AWB wasted enormous time and
energy fighting the new synthetics. Had the AWB defined its purpose
as 'producing fabrics for garments' it would not have had nearly
such a hard time.
But clarity of definition is not, by itself, enough. One-time
British prime minister Benjamin Disraeli had the right idea: 'The
secret of success,' he wrote, 'is constancy of purpose.'
This is the second Key Success Factor. One example of combining
clarity of definition with singleness of purpose amongst the many
that exist is the case of Witco Chemical Corp, which started up
in 1920 as a jobber of chemicals. From the very beginning, the
organisation set out its purpose: 'To become one of the world's
largest manufacturers and distributors of chemical and petroleum
speciality products through its research, acquisition, and pooling
of interests.'
In seven decades Witco has not strayed from this original definition
and has not engaged in any business excluded from the definition.
Two years after its start-up, it acquired an interest in a chemical
manufacturing factory. It now operates 46 wholly-owned factories
and is continuing its programme of acquisitions in the chemical
petroleum speciality field.
The original definition, including as it did 'chemicals', 'petroleum'
and 'the world', has enabled it to acquire companies not only
in the US, its home base, but in Britain, France, Israel, the
Netherlands, and other countries.
Witco had no need to enter fields outside the category it had
selected. It has steadily refused to acquire finance companies,
construction companies, metal working companies, insurance companies
and all others that do not fall within the scope of its definition.
But the principle of 'singleness of purpose' is not well practised
by most business enterprises. Many business organisations embark
on a course, but get diverted. They see opportunities outside
their business definition and strike out like a loose cannon on
this new invention. They may end up losing control altogether.
An old Chinese proverb says 'If you try to hold too many pumpkins
underwater, one will invariably get loose and bob to the surface.'
Clarity alone is not capable of motivating people. A clear definition
makes it possible for people to motivate themselves. When the
vision is clear as to what is meaningful and of value, it is likely
that all will be guided by it. It is a fact that employees become
committed to philosophies that their organisation is committed
to. A clear definition makes it possible for everyone, from the
CEO down, to become fanatically committed to one simple objective.
TOP
IT'S THE MIND THAT MATTERS
The trouble with most managers is that they don't use their
brains to anywhere near capacity
'We live lives inferior to ourselves,' wrote William James. That's
certainly a statement that applies to many in management. Very
few managers use more than a small part of the latent powers of
their mind. Using the mind more effectively may be the way to
superior management in every company.
Dr Walter Bortz of Stanford University wrote: 'Albert Einstein's
mind was no genetic freak. It was the result of high-intensity
mental gymnastics.' What enabled Einstein to write his historic
theories about time, space, gravity, light and physics was that
he had first learned to use his entire mind.
Today we have new insights into how the human brain functions,
and the vast untapped potential of the mind. After generations
of almost totally ignoring the development and understanding of
the human brain, scientists now believe that the mind can and
should be trained.
It was long assumed that those who achieved greatness in one or
more areas, such as music or design, are especially gifted. Not
so, say the scientists: Everyone has the capability to
display greatness in every area if he or she trains the
mind.
Most managers display superb ability in some areas but lack skills
in other areas. This is now known to be the result, not of being
more naturally skilled in some areas and less in others, but of
poor development of some parts of the brain.
Dr Robert Arnstein of the University of California showed that
the brain is split into two equal halves, right and left. Their
functions are different. The right brain manages creativity, rhythm,
imagination, colour, music, design, intuition and the human areas
of compassion, empathy and fellowship. The left brain is concerned
with such areas as mathematics, logic, language, order, criticism,
analysis and discipline.
An interesting finding was that a person who allows the under-development
of one half of the brain is subject to great mental stress. Two
thousand years ago the old Greek Stoic, Epectus, clarified this
failing when he stated 'man is not disturbed by things, but by
his opinion about things.' We know now that the mind not only
influences a manager's skill, but also his bodily health. Stress-induced
inhibition and capability come from within.
So all managers are potentially geniuses. The trouble is that
most managers and their companies ignore this potential, which
is very seldom exploited. This is perhaps a major reason we constantly
hear of managers who are superb at financial control, logistics
and many other areas but have a high staff turnover, or lack the
creativity to devise methods of advancing the company through
scientific research or new marketing strategies.
But the top manager in a company must be a multi-function manager
who is confident giving guidance or making decisions on creative
matters such as advertising and scientific research in the morning
and spending the afternoon on budgets and financial planning.
If the top manager lacks confidence in one major area, his company
may be in trouble.
For example, lack of confidence can result in the top manager
delegating too much to the head of a department to avoid managing
that department's activities himself. The department head, when
given carte blanche to run the department, may use the
opportunity to build an empire beyond the control of the top manager.
Or the top manager may try to bluff on subjects he does not understand
and end up making wrong decisions. Just as bad, he may be so terrified
of making the wrong decision that his procrastination bring many
aspects of the company's activities to a halt.
The lack of brain-training may even be lethal. The inability to
cope creates frustration and fear. The pituitary and adrenal glands
become overworked and the resulting stress creates the 'fight
or run' syndrome. That can cause insomnia, irritability and arguments
over minor matters and, in extreme cases, may trigger a heart
attack.
Probably a major reason that so many managers have brains that
have developed lopsidedly is that traditional Three Rs education
concentrates on the left brain: Reading, Riting and Rithmatic
- left brain, left brain, left brain. Business management training
also tends to concentrates on the left brain, reinforcing the
imbalance.
No education system can be complete without liberal arts that
include creative subjects such as music or drawing. The traditional
Three Rs education tends to teach future managers what to do but
not how to use their minds.
Fortunately, we are now learning how to train ourselves and others
to use the entire brain. This represents a great leap forward
for management.
COMPLETE SOLUTIONS FOR THE WHOLE MAN
A great step forward in the understanding of the brain has been
the development of Positive Emission Tomography (PET). This tool
makes it possible for scientists to watch the brain at work. When
a person addresses a specific task, a PET Scan shows that portion
of the brain which is being used as lighting up like a sunrise
as blood flows to that area to increase oxygen and nutrients.
It should also be remembered that the entire body, including the
brain, is linked, and each part must be exercised constantly for
maximum capability. About 1,800 years ago the Greek physician
Galen observed that depressed women more often contracted breast
cancer than happy women. Despite this, the separation of mind
and body in medicine remained. Indeed, it was reinforced by the
realisation that diseases were caused by external agents such
as bacteria, viruses or chemicals.
This led scientists to the erroneous and premature decision that
mind and body were entirely separate. Now medical scientists have
relearned that the mind and body are inseparably linked. It is
known today that there is a direct channel from the mind to organs
such as the thymes gland and the spleen. Thought patterns and
emotions provide a second blood-born pathway between the mind
and body. A healthy, happy mind may help prevent diseases from
occurring, whereas people with intense emotional disturbances
tend to suffer disease more often.
Lung cancer is an example. It is well documented that cigarette
smoking is a direct cause of lung cancer, and most lung cancer
sufferers are smokers. But what is not realised by many people
is that most smokers do not get lung cancer.
Dr Daniel Kisser studied more than 1,000 industrial workers with
respiratory problems in Glasgow, Scotland. Before he made any
diagnosis, he gave each a psychological examination. Kisser found
a distinct statistical link between those who had cancer and those
who found it difficult to express emotion.
In isolation, such a study would not be conclusive. But in the
US, Dr RL Horne of the Louisiana Veterans Administration Hospital
and Dr RS Picard of the Washington University School of Medicine
used Dr Kisser's results and other information to set up a scale
of psychological risk factors. Seventy-three per cent of the time
they were able to detect which persons had or would soon get lung
cancer by studying only psychological factors such as stress and
emotions.
There is now strong evidence that diseases caused by bacteria,
viruses and many other outside influences are much more likely
to affect people who have not developed certain areas of the brain.
People with strong positive attitudes are generally much more
resistant to disease than those with a helpless or negative attitude.
Dr Ray Rosenman and Dr Meyer Friedman have found that overemphasis
on some parts of the mind and underuse of others can cause some
managers to develop certain behaviour patterns. These patterns
can actually cause physical changes that increase the risk of
heart disease.
No doubt the greatest tool for training a person to use his mind
is to stress the 'use it or lose it' principle. A manager who
is weak in one area, such as creativity, risks losing that creativity
altogether unless he exercises it conscientiously. He can, for
example, spend some time each day taking current situations, and
concentrating deeply on adding a dimension of creativity to each
situation.
The ability to use the mind also includes the ability to understand,
use and control emotions. Again, there are dangers for those who
don't learn to do this. Dr David McClelland of Harvard has shown
that managers with 'uninhibited power motive syndrome' - those
who strive for power because they need the high prestige and impact
on others that power brings them - secrete abnormal hormone adrenalin
when encountering power-related stresses. This limits their ability
to cope and their immune system is often impaired to the point
that they contract many illnesses.
There are, naturally, times where a powerfully aggressive stance
is helpful, but the people who make the best leaders and managers
are those who learn to control their aggressiveness and allow
the powerful positive consequences of the expression of love and
other calming emotions to offset the negative consequences of
the thrust to achieve power.
As with so much in this world, the Middle Road is the one to take.
Over the long term the manager who uses all parts of his brain
equally is far more effective and far more able to cope.
TOP
ALL A QUESTION OF PERSPECTIVE
A person who can think 10 years ahead can shape the destiny
of the entire system.
The poem Thirteen Ways of Looking at a Blackbird by Wallace
Stevens is one of my favourites. Poetry to me is the most necessary
of all the arts because it advances one's cognitive powers.
These are not the same as IQ and reflect not raw brainpower but
how a person's perception and thinking are organised. A manager
who can think ahead one year is capable of something called Reflective
Articulation. This enables him to stand back and assess the work
he supervises, articulate what is happening, form ideas about
it and then shuffle these ideas to see other ways to combine or
modify them to achieve better results.
A person who can think 10 years ahead can shape the destiny and
growth of the entire system. He can understand how a mammoth business
organisation such as a corporation fits together, how its boundaries
can be expanded by, for example, entering new markets. He can
reason through the many possible consequences of such a move.
There are numerous ways in which managers make decisions. Some
use intuition. Websters Dictionary calls intuition 'the act of
coming to direct certainty without reasoning'. Carl Jung called
intuition one of the four basic psychological functions, along
with thinking, sensation, and feeling.
Other managers prefer committee meetings. More often than not
a manager does not make any decisions at all, taking the attitude
that if he makes one and it produces good results, his boss or
someone else will take the credit. But if the decision is unsuccessful,
he will have to take the blame and may lose his job. There are
many other methods but most seem hit or miss and the thousands
of bankruptcies each year bear witness to this. The missed opportunities
cannot be counted.
Which is why I think Wallace Stevens was one of America's greatest
poets. Thirteen Ways of Looking at a Blackbird taught me more
about business management than any text book or university course
ever could. For a half century I have rarely taken a trip without
including a book of poetry in my travel bag. Sometimes it is Yeats,
sometimes Longfellow. But more often than not it is Stevens and
Blackbird.
I know of no system which even approaches looking at your blackbird
13 ways. This has numerous advantages, including the following:
* It eliminates personal prejudices.
* It reveals new opportunities or strategies.
* It considers the same facts from many different perspectives.
* It enables the manager to see a matter from someone else's point
of view, thereby creating empathy, perhaps the most powerful tool
for dealing with people at all levels.
* It provides the manager with multidimensional understanding.
Once you try this technique you soon find that a blackbird looks
remarkably different from each of the 13 viewpoints.
You may ask, did Stevens just 'talk his talk or did he walk his
walk?' Not only was Stevens a prolific poet but he was also CEO
of the Hartford Accident and Indemnity Co, a company which he
built into one of the world's largest and best known insurance
firms. As he looked at this 'blackbird' he saw that there was
an enormous requirement for insurance for steam pressure vessels.
Today there are steam boilers in virtually every big building.
For example, a hotel must have hot water in every guest room,
restroom and kitchen. This comes from a boiler in the engine room.
If a boiler were to explode, the damage, injuries and loss of
life would cost an astronomical amount. There are few architects
who would design a building without specifying Hartford Boiler
Insurance.
When poet Stevens looked at his blackbird, one view was that the
reason other insurance companies did not care to accept steam
boiler insurance was because the risk was too high.
Another view of the blackbird was the solution, which was to take
the risk out of steam boilers. This was done in many ways. Studies
were made to find the perfect steels, and specifications for all
aspects of design and construction were written. Next, tests were
designed for the artisans who would actually build the boiler.
The tests for the tradesman had to be conducted with a Hartford
Engineer present at all times.
Once the fact that Hartford sold insurance to eliminate risk on
pressure vessels became known, architects worldwide were ready
buyers. The original small Connecticut company was eventually
bought out by ITT. Today it remains a leader in its field.
All because of a blackbird.
TOP
HOW TO STAY AWAKE AT WORK
There are many ways to boost alertness. Managers should know
them
Managers can easily forget that one of their main priorities,
if not the main priority, is to keep workers awake at the switch.
Modern business needs workers round the clock to maximise use
of expensive equipment, but humans are used to sleeping during
the dark hours of the night and being alert during daylight. It
is hard to change this pattern.
The problem also exists during standard working hours.
Many managers and workers make serious mistakes during the day
because of drowsiness and lack of attention to the task they are
carrying out.
Accidents such as getting an arm caught in moving machinery, are
often due to a lack of concentration. Of all air crashes, 70%
are blamed on `pilot errors' - which generally means the fly-boy
wasn't alert.
It is a mistake to think that reducing the work load and distractions
and improving comfort will lift alertness, since when this is
done boredom sets in and performance is reduced.
Perhaps the only way out of this mess is to redesign working conditions
so that they cater for humans not machines. There are ten factors
that affect people's liveliness:
Factor one: There is a daily cycle of alertness. It wakes
you by activating the sympathetic nervous system (which is triggered
in moments of danger and makes the heart pound, the pupils dilate
and the blood pressure rise) and then ushers you into inactivity
by pushing up the parasympathetic system (which switches you into
a relaxed state). This is what keeps people in tune with the historic
pattern of daylight wakefulness and night-time sleep. It is also
what causes problems in the modern 24 hour world.
Factor two: However, we have an in-built solution to the
problems of the daily alertness cycle: Our sleep account. The
need for sleep has its own agenda based on the number of hours
since you last slept. Any sleep gives you a deposit in your sleep
bank while staying awake makes withdrawals.
A shift worker can get along fine by balancing the hours he is
awake with his sleep deposits. Nothing beats a good eight hours
sleep, but when this isn't possible, strategically-placed catnaps
of five to 15 minutes are most helpful. In fact they are better
than two hour sleep breaks.
Factor three: The brightness of light has a major impact
on alertness. Expensive restaurants use dim light to encourage
customers to stay a long time and eat and drink more, while fast
food restaurants use brighter light to urge customers out fast.
Most factories make the error of using only dim light.
Factor four: Many industries keep the temperature toasty
warm at night. This is a mistake: Cool fresh air keeps a person
alert.
Factor five: A work place with soft tranquil music is a
prescription for error. Use `get up and go' music, whether it
be hard rock, Sousa's military marches or bagpipes. Action music
keeps workers alert.
Factor six: Mankind has five senses and the one that creates
the fastest reaction is smell. It is thought that the smells of
peppermint, Siberian pine, eucalyptus and lemon increase alertness.
Factor seven: Sleep training is much neglected but can
help greatly in controlling alertness. When I worked in Thule,
Greenland, near the North Pole, the US Air Force gave training
classes to teach people how to sleep during the five months a
year when it was light 24 hours a day.
Factor eight: If you are on a night shift, it makes no
sense to eat a heavy meal just before going to work. The whole
day must be turned upside down and you should eat `breakfast'
before going to work.
Nibbles can also help a worker fight sleep: Sweets, chewing gum,
raisins, and, best of all, little bites of jalapenos or other
chillies. Some US truck drivers take a product which contains
caffeine and powdered citrus juice.
But beware: Once the brain's chemistry adapts to such stimulation,
larger and larger doses are needed for the same effect. Shift
workers don't drink cups of coffee - they drink pots.
Factor nine: Any exercise such as jogging on the spot,
taking a walk or lifting weights can stimulate alertness for about
an hour afterwards. It is better for managers to require workers
to take a 10 minute exercise break than a 10 minute rest break.
Factor ten: Motivation is the dragon slayer of sleepiness.
Unfortunately too few managers understand that business is about
people; they think it is about things.
We must constantly upgrade our motivation to keep up with the
human psyche. At the lowest level mere fundamentals such as food
and clothing are enough to motivate. The next step is luxuries
which a higher salary makes possible. At some point money no longer
motivates; it then requires personal recognition, titles, prestige
and awards.
What does the future hold? Picture a woman who works in the twilight
hours. She starts to become drowsy and her alertness slips. An
unobtrusive infrared device picks up the signs of sleepiness from
her eye's cornea. The machine instantly puts remedies into action.
Cooler air and more oxygen is introduced at head level and a stimulating
aroma enters her work area. The computer sets interesting tasks
to test her. She ceases to be a zombie and is returned to action.
The future holds promise.
TOP
THE DEADLY SINS OF STATISTICIANS
Mark Twain once said: 'There are three kinds of lies: Lies,
damned lies and statistics.' He was right.
Government agencies, special interest groups, think tanks and
academics conduct an endless number of studies about safety, health,
the physical and social sciences. The luminaries usually try to
communicate the general idea of these studies to the public. Sadly,
most of these studies are compromised by errors in statistical
reasoning.
There are plenty of examples of the deadly sins of statisticians.
About two years ago, after the well-publicised murder of a German
tourist in Florida, the entire world heard that nine foreign tourists
had been killed in that state the previous year. Fear of such
violence has cost Florida an enormous amount due to the fall-off
in tourism. Yet this response was most probably an over-reaction
to statistical noise.
Even if murders occur at a low but constant rate, there are going
to be periods when a spate of killings happens. There will also
be times when none occur at all. Suppose that, over many years,
there is a 1 percent chance that a foreign tourist will be killed
each day somewhere in Florida and the average interval between
successive killings would be about 100 days, long enough to dispel
fears of a trend.
But probable calculations also show that, over a full decade,
the chance is about 3 in 10 that there will be some 12-month period
with nine or more killings; over a 20-year period the chance of
such a deadly stretch occurring rises to about 50:50.
In the six months following October 1993, the press fell silent
on the subject of murders in Florida. Conceivably a menacing trend
was reversed because of the sensible protective measures it provoked
from state officials. But it is also possible that there was no
trend to reverse, and that the pattern no more signalled heightened
danger to a foreign tourist than a year without murders would
have signalled a future free of risk.
Then there is the fear of flying. Almost everyone knows that air
travel safety records are excellent while car safety records are
horrid. However, many feel safer driving than flying because they
think themselves such good drivers that the fatal accidents won't
happen to them. A study concerning this flattering self analysis
was published in prominent US newspapers. Its primary finding
was that a typical US safe driver aged 40 and seat-belted into
a heavier-than-average car, is actually at less risk of being
killed on an 800 kilometre trip than a person who takes the same
trip by air.
A more fair and logical analysis would have shown that flying
is nearly six times safer.
The analysis began with the overall death rate per kilometre driven
on rural highways, the main thoroughfares for intercity car trips.
The researchers then revised this initial risk estimate using
multipliers that reflected various characteristics of cars and
drivers.
Sadly, for those who prefer to drive, this analysis greatly exaggerates
the safety of driving because the risk reduction factors are not
truly independent. Part of the reason 40-year-olds die less frequently
in car crashes than 18-year-olds is that middle aged motorists
tend to drive heavier cars, wear seat belts and stay off the road
when drunk. Taking credit for each of these factors separately,
as the study did, amounts to quadruple counting and greatly overstates
the safety of driving versus flying.
The study exacerbated this error by failing to distinguish between
the safety of different types of aircraft. In their risk calculations
for 800 kilometre flights, the researchers worked with merged
accident data for all types of aircraft. However, an 800 kilometre
flight is almost always by jet and jets have far better safety
records than propeller-driven planes.
The peculiar approximations of this study led it to conclude that
the mortality risk from driving 800 kilometres was similar to
that of flying 800 kilometres.
The most cautious course in general is to treat such statistical
reports as public announcements. Readers must be aware that statistics
can yield highly divergent interpretations. For the alert individual,
statistical humbug should be no harder to ferret out than other
forms of illogical argument.
TOP
HOW TO SELL YOUR COMPANY
Selling your company can be a disastrous and traumatic experience.
Here's a guide to making it go smoothly
The sale of a listed company is an event that is usually widely-covered
in the media. But less prominent are the sales of family-owned
companies which are not listed on the stock market.
The owner or family may want to sell for a variety of reasons.
Quite often it is simply a matter of the owner wishing to retire
but having no heirs to leave the company to or, at least, no heirs
who are interested in taking on the company.
Whatever the reason, the procedure for selling is basically similar.
Before you even think of meeting a buyer, there are two crucial
steps: Making the company ready for sale and deciding who is most
likely to be interested in buying it.
Fix up your company: Most family companies have some loose
ends or defects that must be 'fixed' before selling. For example,
in Hong Kong, interest and dividends are not taxed but salaries
are, so the owner may have placed his own personal investments
- stocks, bonds, property, cars and much else - in the company's
name.
This means that the business can take tax deductions on items
such as the cars for personal use and that the income on the investments
such as stocks and bonds belongs to the company. That income is
then paid out to the owner as a tax-free dividend.
Naturally, before it can be sold, the company has to be stripped
of all assets such as these that are not a genuine part of the
working company. The trick is to minimise the tax liability while
doing this.
Next, mistakes have to be fixed. Nearly all businesses make mistakes
- it is virtually impossible to operate a business without making
some. For example, there may be some products that are simply
not profitable. Many managers are only too happy to add new products
to their catalogue but procrastinate when it comes to ditching
products or even entire product lines.
Similarly, there may be obsolete machinery that sits in the plant
taking up space. Or there may be accounts receivable that simply
cannot be collected and should be written off.
All this has to be tidied up before the sale can be contemplated.
Anything incorrect or messy will be a stumbling block when you
start negotiating with a possible buyer. Don't make the mistake
of thinking that a sophisticated buyer will either not notice
or overlook these imperfections - and it's a sophisticated buyer
you should be looking for since that is the only type that will
pay top dollar for your company.
It may take as long as three years to prepare the company for
sale, especially if there is property to sell or non-productive
factories to close and workers to lay off. A buyer will not want
these 'aspirin poppers'. Take the time to do a good job of cleaning
up the company. If you don't, the buyer won't pay as much.
Define your buyers:You may be proud of the company you
or your family have built up, and you want to see it continuing
to prosper after you sell. So, define the type of buyer most likely
to be compatible with you, your present employees and any objectives
you may have for the operation of the company after you have sold
it.
Invariably a good business is a team effort and the owner is likely
to feel a moral obligation to make certain that the employees,
suppliers, professionals and others who have contributed to the
building of the business continue to profit from the association.
Naturally, in defining the type of buyer you are seeking, you
must identify those that are likely to be easy to sell to, since
it is not desirable for any restructuring to go on for a long
period of time. It is also, obviously, paramount in obtaining
a reasonable price.
SELECTING THE RIGHT BUYERS
There are three lists you'll need to make of buyers likely to
be interested in you company. First:
Venture capital buyers. These companies or individual investors
may invest in stocks, bonds, art, property or a variety of other
ways, some safe, some highly speculative. But the fact is that
few of their investments are likely to give them as high a return
on investment as the purchase of a successful business.
A business is often a bargain investment since much of its machinery,
product development and other assets have been amortised and written-off
and do not show in the accounts. But these items are still productive
and, given inflation, would be quite expensive to replace.
Another most important asset of a flourishing business - perhaps
the most important - is goodwill. Goodwill is an intangible
that is difficult to quantify. It comes from a mixture of customers,
brand recognition, trained employees and relationships with banks,
suppliers, professionals and distributors.
The most precious of all assets is time. When an acquirer buys
a business, he is getting many years of many people's knowledge
and work.
So one of your target lists of potential buyers should consist
of venture capital investors. Remember, capital available has
always been greater than the value of really good places to invest
it. Demand for investment outlets is greater than supply. In that
sense, anyone offloading a business is in a seller's market.
Strengths and weaknesses: Another list of targets can be
compiled by considering carefully which types of organisations
would gain most by acquiring your company. The best deals are
made when both sides can 'bring something to the party'. There
are companies that have an inherent weakness in their traditional
business that can be balanced out by acquiring a company that
offsets that weakness.
For example, a Connecticut-based business, Associated Spring Co,
had a problem because the manufacture of valve springs, one of
its specialities, is highly reliant on the car manufacturing industry.
In years when car manufacturing was strong, its sales and profits
were excellent. But during poor car manufacturing years, its profits
dropped.
So Associated Spring acquired Bowman Products Co of Cleveland,
Ohio, which made products such as sealants, fasteners, and car
repair items. When the economy takes a downturn, car manufacturing
suffers. But the repairing of cars increases because people want
the old car to last longer and thus give it better maintenance.
Tobacco companies are another example. They feel at risk investing
further in their own industry because of changing attitudes to
smoking. Instead, they have been investing their profits in food
canners, biscuit companies, wineries, aluminium factories and
a variety of other non-tobacco industries.
Offering added value: The third target list should be made
of companies that can create value by acquiring your firm. There
are two types that fit the bill.
* The first type is an existing company that sells products to
the same type of customer as your company sells to. If the two
companies can be amalgamated, the value of the acquiring company
can be enhanced.
Example: A company that markets ball bearings might acquire a
company that sells speciality greases. Everyone who buys ball
bearings must also buy grease. Both items may be sold by the same
salesman. The same invoicing clerks may be used, the same main
office, the same accountants.
By combining sales and support staffs of the two companies, economies
can be made in the office and administration. Sales can be increased
while the cost of sales is reduced.
* The second type of company is that which can gain by acquiring
the skills your company has. For example, the potential buyer
may have no experience of exporting, while yours has a successful
record in overseas sales. Or it could be the other way round:
The buyer may have skills that can be applied to your business
to make it much more successful.
A case in point: Hueblein Inc, which sells premium-priced Smirnoff
vodka and is the US distributor for Lancers wine. Hueblein acquired
United Vintners, the marketing arm of a large California grape
growers' cooperative that owned two well-known wine brands.
Hueblein's skill in distributing vodka and wine enabled it to
double United Vintners' sales within a year of the acquisition
going through.
Often, value can be added to a business simply by the transfer
of management skills. This particularly applies to family-managed
companies which often lack skills in cost-cutting financial controls,
budgeting or other management techniques.
BRINGING THE SALE TO A CLOSE
So now we come to the actual sale. There are three parts to this:
The first meeting, the negotiations and, finally, closing the
sale.
The first meeting: Once you have your lists of suitable
acquirers, the next step is to meet with them. First, you should
prepare, in writing, a detailed list of your company's desirable
characteristics. You may need a separate 'script' for each category
of acquirer, showing how the acquisition of your company would
increase the value of the buyer's company.
Once these lists are ready, the next task is to set up a meeting
with each potential buyer. This can be done by a direct approach
but it is usually better to go through an intermediary such as
the target company's banker or outside accounting professional.
Sell the value-enhancing features to the middleman first and then
ask him to arrange a meeting between you and the target company's
decision-makers.
When you meet with the decision-makers what you say in the first
10 minutes will probably be more important than anything you may
say in the following 10 weeks. It is crucial to have a condensed,
well-rehearsed verbal presentation, together with a written 'broad-brush'
version the decision-makers can study later. The acquiring party
will most likely also want to see audited accounts for the past
three years.
Concentrate your effort in the first meeting on interesting the
target company's representative to a point that there will be
further meetings.
The negotiations: During negotiations you must first explain
exactly what you are selling to ensure the prospective buyer understands
exactly what he is buying. Then you can go on to establish a price
and terms acceptable to both sides.
Most companies are sold for a multiple of the previous year's
audited earnings or, sometimes, a multiple of the average of the
past two or three year's earnings. The price you will agree on
is related to the value that the buyer perceives as a reasonable
price to pay for the amount of value your company will add to
his organisation.
Naturally, the stronger your company, the more value the buyer
will perceive. As a rough guide, companies have been sold in Asia
for as little as four times after-tax earnings for the past year,
or as much as 12 times the after-tax earnings.
The next agreement that must be made is the terms - how you will
be paid. You may be offered all cash, or an initial payment and
a second payment later, or, if the buyer has a listed company,
part of the payment may be in stock of the acquiring company.
In many cases, the buyer may insist that a part of the payment,
say 10%, be put in an escrow account until an agreed date, to
cover any undisclosed problems within the company, such as litigation.
Once price and terms are agreed, a letter of intent is usually
signed by both parties. This has no legal standing, but does mean
that if either party does not proceed (except when there is good
cause not to) that party is not a gentleman, and may find that
others are not so willing to do business with him in the future.
Closing the deal: Once the letter of intent is signed,
the buyer will do 'due diligence' to make certain every aspect
of the company is as presented and is acceptable.
Lawyers, accountants and auditors will go through every detail
to certify the accounts are properly presented, that the trademarks,
patents and intellectual property are as represented, and that
the employees are reliable. Every detail will be verified; inventories
will be checked, insurance, leases, hire purchase and company
assets.
Next the written agreement will be prepared by your lawyers and
the acquirer's lawyers. The last act is the signing of the agreement
by officers of the buyer and seller.
You will probably find this an anti-climax after all you have
been through. But cheer up; you will now be ready for new horizons,
or the golf course, fishing or travel. Certainly, you have earned
it.
TOP
KEEPING POACHERS AT BAY
Losing staff to a rival company can cost millions of dollars.
As with many problems, prevention is better than cure
The problem of key personnel being poached by a rival can be a
serious one. Not only can this result in substantial financial
losses; it can also give your competitor enough information about
your methods, your strengths and weaknesses, to devastate your
company. Indeed, the motive behind poaching staff is often the
desire to weaken a strong or growing competitor.
The worst scenario is when a large number of staff are poached
at the same time. This occurs most frequently in stock brokerages,
travel agencies, companies that sell directly through sales representatives,
freight agencies and advertising agencies - in fact, in any business
where a stronger relationship exists between the client and the
employee than between the client and the employer. Some better
known cases of this type are:
London's Purcell Graham & Co, the City's second-largest Eurobond
broker lost nearly 100 financial brokers who left almost simultaneously
and joined Cantor Fitzgerald, a US broker with offices in London
and other cities. A further 14 left Purcell's Hong Kong office
to join Cantor.
In another case, Bateman Eichler, Hill Richards Inc, California's
largest brokerage, received a telephone call on a Friday evening
to say that all 25 employees in its Fresno office were quitting
at once, without notice. On the Monday morning all 25 moved into
an office across the street to work for a new branch of rival
Paine Webber Jackson and Curtis.
In addition to losing key staff - or even all staff - these situations
can result in other damage. Every company has intellectual property,
some of great value, that a wayward employee may take with him
when he is poached by a competitor.
Victims of poaching may consider taking legal action, but suing
a raider has legal ramifications that are truly a can of worms.
A legal conflict: At the heart of the problem are two absolutely
opposed principles, both accepted by most courts:
* The right of an individual to seek gainful employment and to
use his abilities to the full, free of the master-servant relationship.
* The right of a business to protect both tangible and intellectual
property.
The legal conflict between these two equally powerful principles,
usually deters victims from suing raiders - the process is massively
expensive and time-consuming, and satisfaction at the end of it
is by no means guaranteed.
If a group of salesmen or brokers is poached by a competitor,
the plaintiff has to prove his actual loss. This often means dragging
past customers into court, much against their will, to testify
as to why they switched suppliers. These reluctant witnesses are
more likely to tell the court they switched suppliers because
of their own internal decisions than because their favourite salesman
happened to move to the new supplier.
And after being dragged into court, they are certainly not going
to be inclined to move their business back to the plaintiff.
Secrets: When it comes to trade secrets, courts in most
countries today recognise that the knowledge an individual acquires
while working for a company belongs to him as an individual, in
the same way that the education, knowledge and information he
had before he was employed by that company are also his own property.
When he quits, he can take all this knowledge with him and use
it in any legal way for his own gain. Sorting out personal knowledge
from trade secrets is by no means easy.
When the two can be sorted out, the poacher can simply claim that
it developed the secret information independently and did not
obtain it from the poached employees. Proving this true or false
is often impossible.
Even where proof can be obtained, the principle of One Free Bite
tends to apply. When a dog is taken for a walk on a street he
is 'allowed' one free bite. He can only be ordered muzzled after
he is proved to have bitten someone. Similarly, some courts have
indicated that such a person's old company must prove that he
used his old employer's secret information - that he has bitten
his old company - before he can be restrained.
Prevention: As with so many problems, prevention is better
than cure. With careful thought, there are a number of ways that
companies can protect themselves from raiders and limit potential
damage.
First, take out patents on trade secrets. Even a 'patent pending'
can be effective. Keep trade secrets as secret as possible; only
release information on a need-to-know basis.
Then, require all brokers or sales personnel, on joining the company,
to sign an agreement that prevents them from joining a competitor
until a specified period after they leave the company, or from
operating in a specified area, or dealing with specific clients
in that period or area.
The contract must be clear and precise, and must not be too broad,
or courts will consider it unreasonable. The period of restraint
must be reasonable - usually two years at the most. The geographical
area must be limited. To restrict a broker from operating in an
entire country or all of a major city may be considered oppressive.
Better yet, consider reversing the normal restraint clauses that
state may not be done. Replace them with something along
these lines: 'In the event the employee does sell a competitive
product or work for a competitor who may make use of the secrets,
the employee agrees to pay US$500,000 (or whatever sum is appropriate)
to the original employer within 90 days of termination'.
This changes the situation completely. Instead of having to justify
whether the restraint is reasonable, and prove violations, the
plaintiff company is now only asking the courts to enforce a straight
commercial contract. In addition, there is no way to consider
such a clause as restraining a person from working, which is his
right.
So, get the employee to sign a standard employment contract, with
the additional statement that 'Exhibit A is attached and is a
part of this contract.' Exhibit A is a normal commercial
contract wherein two business people of equal status agree to
the price for one party doing certain things, or the penalty for
failing to do certain other things.
This gets you away from the 'master-servant' relationship, and
avoids the problems caused by the courts having to uphold a man's
natural right to make a living or advance his career.
TOP
THE MEMORY GAME: USE IT OR LOSE IT
A good memory is a manager's greatest asset. Here is how to
train your ability to recall
Great thinkers know the value of a good memory. 'A man's real
possession is his memory. In nothing else is he rich; in nothing
else is he poor,' wrote 19th century scholar Alexander Smith.
While Roman philosopher Cicero said: 'Memory is the treasurer
and guardian of all things.'
Good managers know it too. They must be able to pull out the most
convincing arguments and vital facts from their memory instantly
to have the upper hand in negotiations and deals. No other single
factor is so important in management as a trained memory.
People constantly complain to me that they have a poor memory.
What nonsense! There is no such thing as a bad memory only an
untrained memory. Managers must train their memory or they will
quickly become ex-managers.
I know that you can improve your own memory. I was kidnapped by
leftist guerrillas in Guatemala and held hostage alone in a deep,
dark underground dungeon for 100 days. To prevent insanity I invented
memory games and by concentrating my entire mind on the games
I kept my mind off my predicament and improved my powers of recall.
The subconscious never forgets but the conscious mind has a short
memory. I have lived in or visited many cities and naturally I
had forgotten many of the people I had met. My game was to take
a given city such as Toronto or Florence, remember each person
I had met there in my mind's eye and think of their name and details.
At first it was incredibly difficult to force the information
out of my sub-conscious mind. I included personal friends, business
friends and others such as hotel conierges and waiters,
bank managers and people I had met at parties. It was a challenge
to remember their names but as I had days, weeks and months to
pressure my memory, the names finally came from out of the dark.
Soon I would focus on a new city and my recall would be more rapid.
This taught me that the memory part of the mind must be exercised
and used. That you must use it or lose it.
After an eight day hunger strike my captors finally met my demand
for some light. They wanted to keep me alive so they could collect
a ransom. They also gave me a deck of cards which supplied me
with more memory games. I stretched my memory to learn tricks
such as the Black Jack player's knack of knowing how many aces
are left in the dealer's pack.
Luckily, my captors were eventually caught and I lived to tell
the tale.
You can train your own memory by using six key memory principles:
Observation, association, pegged system, phrased system, linked
system and habit. Over the next few weeks we shall consider them
separately.
Observation: You can't remember what you don't observe.
Most people don't observe because they are concentrating on something
else. For example, you are introduced to someone new and three
minutes later you can't remember their name. Why? You were probably
too busy concentrating on the impression you were making or the
stranger's accent or appearance, rather than their name.
Let us take a test. Read the following to a friend but don't let
them see it because this examines their listening powers.
'You are driving a bus which contains 60 people. The bus makes
one stop and 10 people get off while five people get on. At the
next stop nine get off and four get on. There are three more stops
at which four passengers get on each time while five get off at
one of the stops and none at the other two. At this point the
bus gets a flat tyre which the driver has to fix so eight passengers,
who are in a rush, get off. When the tyre is changed the bus goes
to the last stop and the rest of the passengers get off.'
Now ask your friend two questions: 'How old is the bus driver?'
and 'How many stops did the bus make altogether?' I can predict
that not one person in 100 can answer the two questions. Why?
They were hearing you but not listening or observing.
The answers are easy on review: The bus makes seven stops altogether
and the age of the bus driver is the age of the person you are
talking to - the passage started by saying: 'You are driving a
bus'. People who have difficulty with this simple test need to
train their powers of observation. You can learn to observe just
as you can learn anything else it is solely a matter of practice.
Try the following exercises and you will find you improve each
time. Observe everything in a shop window display. When you get
home write down a complete list. Next day, go back to the store
and see what you missed. Or, select a member of the public on
the train or bus for example and look at them for a moment. Then
close your eyes and attempt to mentally describe every detail
of their face as if for a police description. Then open your eyes
and check.
Once a memory is trained observing takes no longer than seeing.
Your training starts with learning to observe.
LEARNING HOW TO REMEMBER
Association is the most important factor in memory. I hold that
you cannot remember anything unless you associate it with something
you already know. And that once you've done that, you won't forget
it.
This remembering by association starts at infancy when the baby
relates everything new to something already known such as their
cot or their parent's features; the process may even begin before
birth.
Habit: Few people realise the importance of habit. A major
part of what we do each day is done by habit, not by reasoning.
Psychologists say that anything you do 32 times becomes a habit.
I don't know if this figure is correct but I am sure that if you
have to do something regularly that you don't like doing, you
can turn it into a habit and it will no longer annoy you.
However, all this is subconscious. A trained memory comes from
knowingly associating something to be remembered with an item
in the conscious mind. There are a few, easy-to-learn systems
to help you do this and you may be surprised at how easily you
can develop a great memory.
Phrased or initial system: Does 'Every Good Boy Does Fine'
mean anything to you? If it does, you must have been a music student
as a child. The letters of the treble clef (E G B D F) are difficult
to remember but a child can learn 'Every Good Boy Does Fine' in
five minutes and never forget it. The same system applies to the
spaces on the scale which are easily remembered as 'FACE'.
If you were taught the name 'Roy G Biv' as a child you will always
remember the visible colours in the light spectrum which are red,
orange, yellow, green, blue, indigo and violet.
This system is also known as mnemonics and it is a way to make
business lessons easy.
For example, when I was in the business of selling industrial
supplies, we trained the salesmen to close the order on a major
item.
Once the order pad was open and the customer had made the decision
to buy, the salesman would offer him more and more products to
try to increase the order. Friendly persuasion and tactful persistence
were used but it would become obvious when the buyer had lost
interest. Then the salesman would feel that to continue trying
to sell would offend a valued customer.
Our challenge as a commercial house was to find a way to stretch
the order. In other words we had to train salesmen to rewarm a
buyer who had frozen.
Our solution was to impregnate the salesman's mind with three
initials: B,I,G. We made that into a phrase which appealed to
the salesman's ego-driven personality and told them to 'think
BIG'.
Once they remembered the initials, no salesmen hesitated to stretch
orders. When they realised a buyer was not going to buy any more,
they would thank him for the order, gather up their things and
start to leave. At this point the buyer would drop his resistance
and the salesman would 'think BIG', turn and say: 'Before I Go
(BIG) there is one other product I would like to get your opinion
of...'
It was an automatic sale. Just those three letter tattooed on
the salesman's mind increased the turnover of a US$100 million
a year company by 9%.
This system can help you increase your company's profit. Just
think of the key items you want to promote and reduce them to
a phrase which can be drilled into your staff members' priority
memory compartments.
Remembering speeches is a vital test. If you try to memorise it
you are bound to forget some words and be left groping for what
to say next. But if speakers read their speeches out from notes,
audiences feel cheated.
The solution is key words. First write the speech and read it
a few times to become familiar with it. Then take a card and list
key words for each thought covered.
For example, if you are talking to a group of hotel executives
your key words might be occupancy, pricing, staff, food, maintenance
and a few more.
Memorising the key word 'occupancy' will jog your mind to expand
on advertising, links with travel agents, special promotions,
cancellations and all the factors behind keeping occupancy rates
high.
With key words you can remember your full speech and keep it organised
while having the relaxed appearance of a great speaker.
In the 1940s and 1950s I performed memory feats for a fee to clubs
and groups. One which audiences thought was incredible, was actually
quite simple. On stage I would thumb through a magazine given
to me by the master of ceremonies. Then I would ask for the magazine
to be torn up and a page given to everyone in the audience. I
would then get them to tell me the number of their page and, to
their amazement, I would reel off a summary of what was on it.
The secret was preparation. I would already have studied the magazine
and attached key words to what was on each page. For example,
if someone in the audience said page 80 I would remember my key
word for page 80 was 'cigarettes'. So I would reply: 'Page 80
is an advertisement for cigarettes and it states 'Enjoy the taste
of a Camel.'' I was booked up for weeks in advance.
THERE'S A FISH ASLEEP IN MY BED
Without a trained memory I don't think anyone can remember a list
of 15 to 20 unassociated items after seeing or hearing them just
once. With the Link System you can.
The technique is to link each item with the next one in the most
ridiculous way possible and form a mental picture of it as you
go. To save space I will demonstrate with just a few examples
from the top of a list: Bed, Fish, Chair, Window.
To remember 'bed' then 'fish', first form a mental picture of
your own bed. Now form a link to 'fish' such as a giant fish sleeping
in your bed. This is ridiculous enough to remember. Close your
eyes and actually see the big fish in your bed.
Next link 'fish' to the next item which is 'chair'. You could
picture yourself fishing and catching chairs on your baited hook
instead of fish. Imprint this image on your mind.
Next make a connection between 'chair' and 'window'. You could
imagine yourself throwing chairs through a window. It makes no
difference what the memory image is, just pick one that is ridiculous
and appeals to you.
Once you have frozen your images don't think of them again individually
- just when you want to remember the list in sequence. Try it,
it works!
If you want to make friends, as everyone does, you have to remember
people's names. When I first meet someone I place their name in
one of three categories:
* Names which have meaning from a trade or profession such as
Baker, Goldsmith, Plummer, Fisher and Cook.
* Names with a link to a national or ethnic origin. For example,
many Italian names end in a vowel; Welsh names often end in an
's', such as Evans, Johns, Jones, Edwards; and Norwegian and Swedish
names often end in 'son' such as Johnson.
* For other names I create a mental word picture. Here you need
to be a bit more creative but it is far from difficult. Let's
try some difficult names: Steinwurtzel can be pictured as a stein
of beer worth selling and Brady brings to mind a girl with her
hair braided.
Now you must also learn to associate the name with the person's
face. To do this find one, and only one, outstanding feature on
the person's face and create a mental picture. The more ridiculous
the connection the better it works.
If you meet a Mr Hamper who has a broad mouth, think of his mouth
as a hamper and your mental picture could be someone packing food
into a hamper. A Miss Smith who has big lips can be pictured with
a blacksmith pounding hammers on her lips.
The Peg System, which dates back to Stanislaus Mink Von
Wenneshein in the 17th Century, is invaluable for remembering
long numbers such as telephone numbers.
To understand the system think of how a peg enables you to hang
a picture on the wall: To retain an item in your memory you must
attach it to a peg in your mind.
Each digit from zero to nine is given a consonant sound which
you need to memorise:
* 1 is the sound of T or D which, like the digit, have only one
downstroke.
* 2 is N which has two downstrokes.
* 3 is M which has three downstrokes.
* 4 is R which is four's last letter when spelled.
* 5 is V because that is the Roman numeral for five.
* 6 is J because the letter is almost like '6' turned around.
It also takes the sounds of a soft G or CH.
* 7 is K or hard C.
* 8 is B because both have two loops.
* 9 is P because it looks like the figure '9' turned round.
* Zero is always Z or C.
This phonetic language for numbers is not spoken but the sounds
are the key to changing numbers into pictures, which are easier
to memorise than numbers. Practice the language until it becomes
second nature to you.
Next comes the exciting part: Converting the sounds which represent
numbers into images which you can remember. For example, the number
one, which is represented by T, becomes 'tie'. The number two
becomes a nurse. Number six is a jockey. Number seven can be a
cow and so on. Always stick to your original items to represent
the number.
This way you can form links between the images to remember a multi-digit
number. So 6127 is 'A jockey wearing a tie meeting a nurse riding
a cow.'
The next step is to advance from single numbers to pairs of numbers.
Following the same system you can identify 11 with a tot, 12 with
a tin, 13 with a tomb, 14 with a tyre and so on.
Practice until you have a mental picture for all pairs of numbers
up to 99. That allows you to remember long numbers such as telephone
numbers, by grouping them into pairs with an easy to remember
mind picture for each pair.
It may seem a lot to remember but the human brain is an amazingly
complex and efficient mechanism. Even the most brilliant person
does not use 5% of his or her mental capacity.
I urge you to train your memory; it will help you succeed as a
manager.
TOP
CAN YOUR COMPANY SURVIVE INFLATION?
Firms that fail to prepare for the effects of inflation are
in for a rude awakening
In the most even-keeled of economies the threat of inflation is
ever-present, and in Asia today the beast is out of its cage.
Granted, some Asian countries, notably Singapore, Malaysia and
Taiwan, have monetary authorities that have held inflation close
to acceptable levels. Others, such as the Philippines and Hong
Kong, have not.
But the basic fact is that most commodities are priced internationally
in US dollars, so no Asian country can avoid importing inflation
from the US along with basic commodities such as oil or copper.
Perhaps I am being too pessimistic. But it is still wise to be
prepared. Every well managed company must be inflation-proofed.
If not, the ravages of inflation can seriously damage it. But
with the proper preparation, a business can build in a reasonable
amount of resistance and will have the resilience to recover.
The first step is in accounting. Without inflation-structured
accounting, it can appear that sales, market share and profit
are rising when in reality profitability may be non-existent.
Costs of every component of the business must be constantly monitored.
Without this, the company may appear to be running normally when
it is in fact on the verge of insolvency or at the edge of a severe
credit crunch.
When inflation strikes, a business is faced with the task of achieving
several incompatible results simultaneously. There must be minimum
exposure to the depreciation of currency, yet a high degree of
liquidity must be maintained. Costs rise but customers and sales
personnel argue in favour of lowering sales prices. Collections
become slower than normal because all customers try to stretch
their liquidity by delayed payment.
The solutions are not easy to find, but they do exist. Above all,
it is crucial to plan your company's responses well before they
are required. These responses include:
* Use short term credit to the maximum and hold minimum cash.
* Well in advance, improve relations with suppliers. Once it is
established that your company is a valuable long-term customer,
most suppliers will extend payment periods. Always pay on time
- not a day early nor a day late.
* If the inflation is bad, make certain your selling prices keep
pace with rising costs. When you raise your prices, it is often
better to make occasional substantial increases, as opposed to
frequent small increases. Anticipate the trend and raise your
prices enough to cover you when supplies go up in price. When
you must increase prices, be firm. Don't apologise.
If you sell through retailers or wholesalers or others who buy
your products for resale, anticipate the price increase and send
them a new price list at least 20 days before it becomes effective.
They have a right to object if they receive notice that prices
will rise the next day.
Announcing prices well in advance usually results in a barrage
of increased or extra orders to beat the price rise. While you
will not receive the advantage of the new price, the extra business
will still be profitable provided you have anticipated correctly.
* Devise methods to collect payment faster. There are many ways
to do this. The main rule to remember: It is the squeaking wheel
that gets the grease. Send customers reminder letters or faxes,
phone them, call to see them, or ask salesmen to collect.
It may become necessary to threaten delinquent cases with a visit
from the collection agency or with legal action. At that point,
you must remember that you are no longer dealing with a customer
but with someone who owes money and has had adequate time to settle.
Most companies start sending out statements on the first of the
month. Many debtors pay on a first-in-first-out basis. So it is
better to beat the other creditors to the punch. Close the month's
accounts on the 25th and make every attempt to have statements
on the customers' desk by the first of the month.
* Organise the filling of orders so that they are packed and dispatched
rapidly. Goods should come in the front door and go out the back
onto lorries as rapidly as possible. This makes better use of
your inventory and minimises the stock held, cutting down interest
and storage costs.
* Above all, recognise that spending for research, development,
advertising, and training of personnel must outpace inflation.
There is usually pressure from the shareholders or owners to cut
back or stop research, training, advertising and all costs that
do not return instant profits. This may appear logical. It is
not. It is madness. It is robbing the future to pay for the present.
Instead, employee productivity must be increased to compensate
for the higher costs of training, research and the other components
of 'tomorrow land'.
Blue collar productivity actually is usually determined by the
speed of machinery, but white collar workers' productivity is
not, and can be determined only by efficiency.
The lowest productivity is usually found among outside salesmen
who are left to work on their own without closely monitoring and
are apt to waste time in many ways, such as extra long lunches,
poorly planned routes, failure to fix firm appointments and the
temptation to attend to personal affairs during working hours.
The solution is for management to get physical control of the
work, so that supervisors are forced to deal with the activities,
prioritise them, assign work and follow through by assessing productivity
results regularly.
The first step is to organise in such a way that there is zero
backlog. Many companies make the mistake of computerising in the
name of increased efficiency. Computerisation should only be introduced
after the systems are already efficient. Otherwise, all the computer
can do is get through inefficient work faster.
Finally, don't forget that those who survive are those who never
stop preparing for the future. Planning should not only encompass
periods of inflation, but also periods of price stability. In
the early 1920s the 'genius' of the German hyperinflation was
Hugo Stinns who built what was at the time one of Europe's most
significant conglomerates.
Stinns' empire had been built on inflation, borrowing heavily
to buy companies, then watching them rise in price. But with the
end of inflation, his companies started to fall in price, but
the conglomerate still had to meet debt payments. No thought had
been given as to how this would be managed. Five years after the
Deutschmark had been stabilised in 1923, the Stinns empire was
in liquidation.
TOP
HOW TO KEEP YOUR HIGH-FLIERS
Business is about people. Motivating them is essential
Business is not about things, as many people seem to believe.
Business is about people. Yet most managers spend far too much
time on details which can be delegated - and too little on dealing
with people.
All too often, they neglect the crucial areas of motivating, training,
advancing and retaining staff. These are areas that cannot be
delegated any more than spending time with your family or petting
your dog can be delegated.
Ted Levitt, the famous Harvard business professor, said: 'There
is no such thing as a growth company. There are only companies
organised to take advantage of growth opportunities.' In the final
analysis this means having people trained to step in when an opportunity
is identified, to pinpoint the tasks required, to prioritise them
and to approach them objectively with total loyalty and dedication
to the company.
How does a CEO build these loyal, capable people on his management
team? Countless ways have been tried - and are still being tried.
They vary from salary increases, perks and bonuses to stock in
the company, higher titles, more elegant offices, profit sharing
or entertainment - the list is long. In the end all have limitations,
and all have drawbacks as well as advantages. Many turn out not
to be incentives; some are plain disincentives.
In recent years, several surveys have been made in both Britain
and the US by management consultants and CEOs, to assess the effectiveness
of incentive plans.
One 1990 survey by Howett Associates of Lincolnshire, Illinois,
showed that 60% of small businesses are dissatisfied with their
incentive plans because they fail to motivate capable staff to
make extra effort and resulted in underperforming employees being
overpaid. In another survey, 73% of CEOs said they saw no signs
that incentive programmes, perks or increased pay had resulted
in improved performance.
Yet some companies have obtained better performance from
incentive plans. Other companies have tried to copy the successful
programmes but failed to achieve the same good results. This obviously
is due to the iceberg principle: The successful incentive programme
is the visible tip of the iceberg. Not so readily apparent is
the bulk of the iceberg, consisting of plain good all-round management.
A company cannot simply offer high salaries and good incentives
and expect great results. Indeed, I believe there are eight elements
in creating a long-term profitable growth company, and incentives
are only the eighth and last element. Here are the eight elements
in order:
1. Leadership: The CEO or founder must display excellent
qualities of leadership. This will manifest itself in an ability
to inspire people to follow, trust, and respect him. He must be
a 'people' man, not a detail man.
2. Innovation: The CEO must have the ability to formulate
or lead the formulation of innovations. A successful business
cannot be a 'copy cat' but must develop a unique selling proposition
(USP) which sets it apart and gives it advantages over its competitors.
3. Strategy: From the first two elements will come an carefully
articulated, needle-sharp strategy. This will enable all employees
above the category of 'workers', (that is, all 'knowledge' employees)
to see clearly what they must do to promote the USP and the goals
of the leadership.
4. Systems: The strategy will include systems which inform
employees, coordinate activities, create discipline, provide continuity
in service and promote innovation. These must be constantly refined.
5. Retention of staff: The company must have competent
management, adequate systems, a clearly defined strategy and contingency
plans to ensure the it stays in profit in any economic climate.
Otherwise, it will not retain staff of character and determination.
6. Improved skills: Once elements 2 and 5 are in place,
the company will see improved skills, self training and the acceptance
of training by others. At this point it has succeeded in taking
ordinary people and preparing them to achieve extraordinary results.
They are now conditioned to advance further.
7. Assets, tools, new challenges: Only skilled managers
can make use of advanced approaches and tools, such as the use
of lateral thinking. Sophisticated tools don't do much if your
employees are all baboons.
8. Incentives: Once elements 1 to 7 are in place, the company
has employees it values highly, while the employees are happy
with the company and want to make a permanent career with it.
At this point the introduction of incentives will be effective.
These should be based on goals that can be achieved with extra
effort, and when met, pay for themselves by increasing profit
to the point where it more than covers the cost of the incentives.
TOP
GUARDING YOUR COMPANY'S SECRETS
Information is vital to any company. So it can be devastating
if that information lands in the wrong hands
Everyone knows that it is much easier to lose money than it is
to make it. But what is apparently not known to every businessman
is that the same applies to good, creative, intellectual property.
All too often not enough care is taken to prevent crucial ideas
or information disappearing or being copied.
Intellectual property includes exotica such as inventions and
trade secrets, but also encompasses more mundane items such as
marketing techniques, pricing information, growth plans, customer
lists, financial secrets and personnel programmes - the list goes
on.
Not protecting these priceless assets is as foolish as playing
chemical warfare with a skunk. Let us review some of the legal
ways any company can protect them.
While some types of assets are readily protected by trademarks,
patents or copyrights, every business has a mass of knowledge
that cannot easily be protected by the legal system, even if it
is taken illegally. It is difficult, through the legal system,
to prove crime, evaluate the damage, and collect compensation
from the person or organisation that uses your intellectual material
without your permission.
Unfortunately, we live in an era when white collar crime is probably
the most common offence. But it is also the most difficult to
detect or prosecute. Professional corporate espionage is common
and amateur white collar crime goes on every second of the day.
The losses extend to practically every company and some companies
suffer irreparable loss.
Customers or contracts are lost, advertising plans are counteracted,
marketing schemes are thwarted. Your company may be bidding on
a tender. Knowing your price could enable a competitor to bid
slightly lower.
Or say a competitor gets hold of your list of customers, with
information on their buying habits - possibly from a filing clerk
in your office. Think of the damage.
Or the thief may be a full-time industrial spy sent in by a competitor.
With large companies, a takeover attempt is often preceded by
spies infiltrating the targeted company, perhaps as delivery men,
or as new full-time employees.
There are no fool-proof ways to prevent the theft or misuse of
sensitive information. But there are measures that can be taken
to make such crimes a great deal more difficult.
Use codes: All sensitive documents, faxes and telex messages
should be sent in code. To design an unbreakable code is nigh
impossible. But your average business competitor is not a cryptographer,
so a fairly simple code will normally suffice.
For a start, refer to people - even customers and suppliers -
by numbers: One key player might be called '45', another '28'
- no reference to their place in the hierarchy, so no clues as
to who they are.
Often, the most sensitive subject is money. This can be easily
expressed in letters rather than numerals. A code for money can
be based on a simple, easy-to-remember word or group of words
that have 10 letters, each letter being different. For example,
take the phrase 'The Lazy Fox.' Substitute the first letter, 'T',
for the figure 1, the second letter, 'H', for 2, and so on.
Thus the figure 2,241,000 would be expressed as: HHLTXXX. Such
a code can assist in confidentiality, protection of company and
trade secrets, and even to ensure the tax man knows no more than
is necessary. For extra security use two or three such codes and
switch between them from time to time.
Cities can be described by using the airport code letters, or
better yet, using them backwards. Take for example Los Angeles,
whose airport code is LAX. So in your messages, Los Angeles becomes
XAL. A simple company code takes no more than an hour to think
out. It can be highly-effective. A telex or fax reading 'Offer
47 ZFXXXXX. 56 arr ex RHL tomorrow (Sat).' should be enough to
confuse the opposition.
Control knowledge: Sensitive company information is best
made available only to those who need to know it. Such information
may include managers' salaries, suppliers' names and prices, executive
trip plans, sales volumes and customer lists.
Control waste paper: You never knows what sensitive information
may be found in your company's waste-paper baskets. Often those
baskets are emptied daily by a contract cleaner - who might be
amenable to approaches from your competitors. Documents should
be classified as to their importance, and sensitive papers should
always be shredded.
Control employees: Consider requiring new employees to
sign documents that will protect the company. These may include
an undertaking not to disclose specified information that they
will learn as a result of their employment. They should be required
to sign a contract, agreement or document that restricts them
from working for or going into business with a competitor, or
setting up in competition themselves, for a specific period after
they leave your company.
Enforcing such contracts through the courts may not always be
easy or even possible, but the fact that an employee has signed
such a document may make him wary of flouting its terms.
Create financial guarantees: Some companies require the
employee to agree to having a percentage of his salary withheld
until a specified sum accumulates to serve as a security deposit.
This deposit will not be repaid to the employee until, say, 180
days after he leaves the company.
Remove temptation: Some companies establish a separate
corporation which performs tasks such as paying staff, purchasing
and any of the jobs where secrecy is desired. This company can
charge a fee for the services. The employees of the parent company
may not even know the employees of this separate company.
Keep staff moving: Rotate employees such as purchasing
managers from one job to another or one branch to another. Banks
regularly transfer branch managers to avoid relations between
manager and customers becoming so strong that the manager becomes
obligated to friendly customers. This could also form a safeguard
against ex-employees setting up in competition, taking clients
away from his former employer.
Check employee backgrounds: Key employees' backgrounds
should be investigated to determine if they have family members
or friends who are affiliated with competitors. New employees
should be carefully screened to verify that they are not industrial
spies. Embezzlement remains a major corporate problem. The embezzler
is often a model employee of excellent standing, who has a weakness
for women, gambling or drink. Such weaknesses may be spotted in
a thorough background check.
Watch for trouble: An employee receives personal mail at
the office? Why? Perhaps he is involved in an illicit romance
or has financial trouble he does not want his wife to know about.
The romance or money difficulties may have been organised by someone
who plans to squeeze your employee for inside information. At
the very least, the skeleton in your employee's cupboard makes
him a potential target for blackmail.
Watch your technology: Many modern hi-tech labour-saving
devices can be used either to help white collar criminals pass
information to a competitor or to sabotage the company they work
for.
Modern photocopying machines, tape recorders, modems and fax machines
make it easy for the spy to steal information unnoticed. Limit
the number of people who have access to such machinery. Computer
passwords and lockable glass rooms for copiers and fax machines
will help.
Similarly, sabotage by insiders, such as product contamination,
computer damage, or withholding of or falsifying of information
needed by decision-makers may be made more difficult by limiting
access to those who need to know the information or need to use
the technology.
USE COPYRIGHT TO PROTECT YOUR INTELLECTUAL ASSETS
Shareholders of companies often don't have enough protection because
many managers do not place enough importance on the need to preserve
intellectual property. Often they are so engrossed in obtaining
new assets, they allow existing assets to be lost.
Copyright protection is overlooked by most companies. In my companies
we copyright virtually every piece of typed or printed material,
except personal letters. We copyright bulletins, price lists,
catalogues, contracts, agreements - even requests for hotel reservations.
Most of this is never required, never of value, but occasionally
some sentence in one of our copyrighted pieces shows up in a competitor's
publication. Sometimes we take action. We believe that every printed
sheet may be used to our disadvantage at some time. We make that
more difficult by copyrighting it.
Copyright laws vary around Asia, but most are based on either
the US, French or British legal codes, which make copyrighting
a simple matter.
Virtually all that is necessary for protection is to print the
words 'Copyright, All rights Reserved' on each document. This
is such a simple procedure that it is difficult to understand
any company not protecting its intellectual property in this way.
An example of misuse of your printed material is if a competitor
prints your prices alongside his to show that his goods are cheaper.
Your position is strengthened if your price list is copyrighted;
he has infringed your rights by printing your copyrighted material.
Always remember that there are people who want to use your intellectual
property to their profit and to your disadvantage. There is no
reason to make it easy for them.
Protecting trademarks is rather more difficult, but worth doing
- trademarks can be incredibly valuable. A classic example is
Coca Cola, which is worth billions of dollars.
Trademarks are granted by practically all non-communist countries
and even some communist countries. In most countries, protection
is gained by making an application to the relevant authorities
together with an affidavit to the effect that the trademark has
been used in commerce.
While trademark law varies from country to country, there is a
thread that holds them all together. This is that virtually all
countries, even new nations, have signed the Paris Convention
of 1896.
In most countries, after an application has been accepted, the
registrar of trademarks advertises the application in a gazette
for a period of time. If no one objects, it will probably by registered.
There are some rules which are reasonably consistent:
* A common word, such as those found in a dictionary, can be registered
as part of a trademark, but must be 'disclaimed' by the
applicant, meaning that others may also use that word. A geographical
name, such as Singapore, Sydney or Chicago, cannot be protected.
Thus a name such as Chicago Garment Co may be registered but all
three words would have to be disclaimed so the trademark would
be worthless.
* There are 34 internationally accepted classifications of goods.
Any trademark must be for the class or classes in which it has
been used in commerce. A name or design that is registered by
one party in one classification could normally be registered by
another party for a product that falls into another classification.
* Extra protection is gained by registering a name with a design
incorporated in the trademark, as this becomes more distinct.
For example, 'Johnson's Milk' would give little protection alone,
nor would a picture of a cow alone, but both together would present
a clear definition which is much more difficult for an infringer
to use in an attempt to pass off his goods as those of the trademark
owner.
An entirely new word which has no meaning - Corum, Sony, Chevron
and Mobil are examples - is easier to protect than words or names
that already exist.
* In many places, a number alone can be registered and will be
given protection. Many products are sold using a name and number,
- Chanel No 5 perfume, for example. The No 5 alone, without the
word Chanel, could be registered, which would protect against
a rival called Canal producing a perfume called Canal No 5.
Heinz foods has undoubtedly registered the number 57 as its own.
* How long a trademark remains registered varies from country
to country, but is usually about 10 or 15 years. Just before expiry
it may be renewed. Renewal may be repeated. This may continue
for centuries, so long as proof of continued use can be established.
* A trademark should be registered in every country where it is
used and where it is likely to be used in the future. Failure
to do so leaves the holder open to a form of blackmail.
Unscrupulous people have been known to register hundreds of overseas
trademarks and then sit back and wait for the nuisance fees -
usually about US$5,000 a time - to roll in. It is cheaper for
the original owner of the name to 'buy back' the trademark than
to waste time and money on travelling and legal fees.
* Registration should always be done as a matter of urgency, but
in some developing countries, it may take as long as two years.
It may be helpful to apply for registration in Switzerland, which
grants a trademark faster than any other country. While technically
a Swiss trademark does not protect in other countries, it will
be taken into consideration by the registrar in another country
in the event of a dispute with an infringer.
PATENTING YOUR VISIBLE ASSETS
Protection can be granted to a wider range of ideas and inventions
than most people think. Protection of inventions is steeped in
law which is quite explicit. Many companies, astute in most other
areas of commerce, do not make use of patent protection. This
is mainly because they don't understand the laws.
Too many executives think that patents are only revolutionary
new discoveries, not realising that their own probably has property
that can be protected by a patent. The US Patent Bill, signed
by George Washington in 1790 and largely unchanged since, says
that a patent can be obtained on 'any useful art, manufacture,
engine, machine, or device, or any improvement thereon not before
known or used.'
In theory at least, and often in practice, anything that is 'new,
useful and not obvious to others in the same discipline', means
that such diverse inventions as a new dance, an innovative accounting
system, a method of sorting oranges, a marketing program or a
new breed of spinach can be patented. Even animals can be patented.
Harvard University took out a patent on a genetically-engineered
rat.
In theory, a human produced by some new laboratory method may
be patentable. About the only thing that cannot be patented in
the US is the military use of nuclear energy. The US Patent Office
has granted approximately five million patents and, in recent
years, nearly 50% have been to people from abroad.
There are several things to know about patents:
* A patent is regarded as personal property. A company is not
normally granted a patent, even though the invention was sponsored
by a company. The system in corporate practice is that a person
applies for and receives a patent, then 'assigns' it (sells it,
usually for a token payment) to his company.
* Patents live fast and die young. US patents last only 17 years
before going into the common domain.
* You cannot patent something that has already been sold. The
application for a patent must be made a minimum of 366 days before
the item is sold.
* A patent only gives protection in the country where it is issued.
But if a dispute arises as to who has a rightful claim a patent,
and you have an earlier patent in another country, it may influence
the final decision.
In some countries - including Spain, Germany and Japan - it is
possible to obtain, instead of a patent, a registration called
a 'Petty Patent'. These are, for all practical purposes, as good
as a patent, but have the following features:
* The standards required are less demanding than for a patent.
* The legal proceedings required to stop an infringer are faster
and less expensive.
* They are only good for about ten years, but may be renewed for
a small fee.
You can patent an invention with no intention of ever using it.
Your company may be able to make money licensing or selling the
patent all over the world. It has often happened that royalty
payments on a company's patents make more profit than the core
business of the company to which the patent is assigned. Your
own product department may invent a new product that you don't
care to exploit directly because of tooling, production and marketing
costs, but it can still be a profit spinner.
It can't be stressed too strongly that individuals or companies
can make fortunes by patenting a design, yet never manufacturing
the product. A classic case is the late genius, Buckminster Fuller,
who observed bubbles in the ocean during a sea voyage. He was
impressed with the phenomena of the minute amount of water in
a bubble having such strength. He patented that impression as
a structural design and made a fortune by licensing the design
to thousands of architects, manufacturers, builders and others.
Today, using Fuller's patented design concept, enormous structures
such as domed athletic stadiums are built without supporting columns
that obstruct vision.
Considerable opportunities have been lost by inventors failing
to patent their ideas. The first people to conceive of such things
as credit cards, zero coupon bonds, unit trusts, junk bonds and
a thousand other patentable concepts could have secured fortunes
with a simple legal procedure.
In your company, you may have an innovative way of collecting
past due accounts receivable, or a new package or numerous other
things that can be patented and that someone else would want to
use. The product you make may not be original or patentable but
the way you manufacture or market it may be. You may be able to
patent this personally, sell it to your company, and it may end
up as an asset on your financial statement that will fatten your
company's net worth, and thus its borrowing power.
TOP
FROM ENGINEERS TO DREAM SELLERS
What makes an effective CEO? Different times require different people
What type of CEO do companies require in this last decade of the century and beyond? All learning comes from the past so we will look into this century's management rear view mirror for guidance.
The period around 1900 launched the high period for the steam Jenny and steam-powered equipment and the first Dow Jones Industrial Stock averages consisted of 12 stocks, 11 of which were rail companies. The gasoline engine had started the change away from genuine horse power. Pioneers such as Daimler, Benz, RE Olds, and Walter Chrysler introduced automobiles. In World War I, warfare was changed forever by the machine gun, while the aircraft, from being a public amusement, became a useful fighting machine.
During the war thousands of steel ships were built in weeks using both riveting and welding. Cavalry switched gradually from horses to tanks.
The genius Steinmetz led the electrical engineers who made every conceivable type of electric machine, and Westinghouse gave the world alternating current which made it possible to bring power into households, for cleaning rugs or providing light.
The mechanical age caused such an intense focus on machines and electricity that engineering dwarfed all other disciplines. Every serious company had to have a mechanical, electrical or civil engineer as its chief executive. At that period it would have been inconceivable for a bean counter to have been the boss.
But management history moved fast in this greatest of centuries. Around 1915 the market took over. Without a doubt the greatest marketing genius of this, and perhaps any other century, was Henry Ford. Most people think Henry Ford's automobile assembly line was an engineering achievement. Engineering had little to do with it. It was totally a marketing concept.
Ford wanted to sell millions of cars but the question was how to market them? Until his time the horseless carriage could only be afforded by the wealthy élite. Ford's marketing problem was how to sell them to the masses.
The solution was to build them cheap enough for them to be affordable to the ordinary family. The tool he used to realise his marketing concept was the assembly line.
To Ford, the assembly line was a very small part of the whole idea. His vision was broad enough to know that he had to make a social change in the attitudes of workers; a five-minute break by one worker would disrupt the entire line, so workers had to be persuaded to work like machines - no smoke breaks, no going to the bathroom or for a drink of water - for hours on end.
He achieved this by paying every employee the then incredible wage of US$5 a day. Workers from all over the nation, used to US$1 a day were attracted by the high wages and poured into Dearborn, Michigan.
Ford also calculated that really low prices could only be achieved by producing an utterly uniform product. The Model T came in one colour only, one model only, and was simplicity itself. At one time it sold for US$250, a sum that even a dirt farmer could find.
His marketing concept also generated multi-million-dollar markets for building the highways, roads and bridges that a world on wheels required. The mass-produced auto required high-quality alloy steels and this required a remarkable expansion of steel mills. To fuel the steel mills a massive expansion of coal production was needed. Sir Stamford Raffles' rubber trees in Malaysia generated new fortunes as demand for rubber for tyres soared. The Cabots of Boston, whose fortune had been built on the slave trade but who had lost out when slaves became illegal, made a comeback when they started producing carbon black to turn the rubber into tyres.
The Du Pont de Nemours family found making paint for autos less risky than making explosives. Many second-generation industries, such as Goodyear and Fiske tyres, came into prominence. Spicer and hundreds of others made auto parts.
Ford's concept gave birth to the great petroleum and lubricants industries. New oils fields had to be found and new refineries built. The same concept launched the plastics industry; Ford was the first to use bakelite for the dashboard.
The era of marketers continues to this day but by 1920 another kind of company leader was emerging: The Dream Merchants. The greatest of these was Will Durant.
Durant didn't know a Pierce Arrow or a Duesenberg from a mountain goat. His talent was not accounting, he could not read the law, he didn't know a bolt from a nut. But he did know how to sell dreams. At that time there were over 800 car makers. Durant talked to less than a dozen of these and promised them he would make them into an empire. He delivered on his promise in full measure. The company he created, General Motors, grew to become richer than most nations.
There were other dream merchants. David Sarnoff moulded all the believers in the Audion Tube into one giant company called RCA. (It was a dubious industry at first; one believer was subjected to criminal prosecution by the US government for being rash enough to promise shareholders that someday the human voice speaking in New York would be heard in Europe.)
William Paley turned the family cigar business into a nationwide broadcasting enterprise known as CBS. Never before in history could one person talk to one million simultaneously, in their own living rooms.
Howard Hughes was a dream merchant supreme. His dream ran the gamut from casinos to sultry movie stars such as Jean Harlow and Jane Russell, from hotel chains to oil tools to his airline, TWA. He broke world records as a flier, including flying the world's biggest plane, the Spruce Goose, which he had built himself. He established the laboratory that later developed the laser beam. He was said never to have had an office or desk in his life. Dreams, after all, cannot be found in offices or kept in desk drawers.
Joe and Nick Schenk, who owned an amusement park outside New York, took motion picture making from New York to California. With David Selznik, Sam Goldwyn, Bill Fox, Louis Mayer and others, they turned Hollywood into a dream factory that enchanted the world.
There were countless European Dream Merchants and in South Africa Harry Oppenheimer created the diamond dream industry by making diamonds a girl's best friend. John Patterson and Tom Watson sold the dream of machines taking over most of office manual work. A federal judge in Dayton, Ohio, sentenced Watson to five years in prison. Still the IBM dream endured and grew.
There were perhaps a hundred other dream merchants who launched and ran entirely new global enterprises. Mere dreams by empire builders became billion-dollar new industries. To this day there are dreamers founding and running successful companies, but the heyday of the dream merchant was over all too soon as other imperatives demanded other solutions and a differnt kind of CEO.
THE GREAT SLIDE INTO EVIL
Management in the free world is today in a worse state than at any time in the history of business. After the rapacious greed of the 1980s we are left with a cold world in which companies are all too often run - or hacked to pieces - by 'corporate doctors'.
The salesmen, marketers, inventors, and customer service experts who used to make companies are no longer wanted. Now, the most sought-after qualification is the ability to downsize, an innocuous word that hides the harsh reality: Axing jobs, closing factories, slashing wages.
So the shareholders have brought in the corporate doctors - the rippers and axe-wielders. It is not how you can build a company that is desirable, but how you can cannibalise and tear it down that is important.
It's a sad outcome from a century that began with the engineer-executives then glowed with the amazing innovation of the marketing men, in particular Henry Ford, followed by the dream merchants of the 1930s who built huge empires that survive today.
So how did it all come apart? The first backward step came in the aftermath of the Great Depression in the US, when labour unions entered their most powerful era. To assist them in getting the best deals from their bosses, the unions hired top specialist lawyers. Indeed, so much was the demand for such lawyers at this time that union attorneys commanded the fattest salaries in the legal profession. Companies naturally hired their own legal eagles in top positions.
Added to the corporations' union troubles was the growing tide of litigation as the dream merchants' dreams failed to realise and companies faced major litigation.
By about 1940 many companies had lawyers as their CEOs simply because there was so much costly litigation flying around that lawyers were considered the only people capable of understanding the ramifications of policy decisions.
The appointment of lawyers was a defensive act, and the lawyers ran the companies in a purely reactive way. They were overwhelmingly lacking in innovation - no one could make a move without a contract.
This was fine when dealing with government, which many companies did during World War II. Government contracts at that time were often on a 'cost-plus' basis, so you couldn't lose. But when the war ended, the sterility of this approach soon ensured the death of lawyers as an executive species. By 1946, thanks to the nationalist sentiments built up in the war, the unions had lost much of their power, and the lawyers were more or less out of the picture, overtaken by another generation.
During the war, few consumer goods had been made, creating an overwhelming pent-up demand for all types of products from automobiles to zippers. In 1946, with the war over, demand was enormous.
The prime drive of businesses during this period was sell, sell and sell some more. CEOs now commonly came from the ranks of salesmen. Within a decade this drive to get the product to the consumer had expanded far beyond pure sales, and the salesmen-CEOs gave way to the marketing experts. It was back to Henry Ford's speciality.
But by the late 1960s the era of big government and the welfare society had truly arrived. With it came a time of super-high company taxes. The sticky-fingered tax frenzy of governments from New York to New Zealand drove businesses into a corner where profit was no longer the major objective. Instead, the CEO's main function was to find ways to avoid taxes.
Government greed led to private sector greed. As tax avoidance became the highest priority, executives decided they too wanted to get on the low-tax bandwagon. They would not work unless they were paid in stock options or condominiums or some sort of 'Teflon' that taxes would not stick to.
This 180-degree shift in focus from the customer to the numbers was a drastic change that led to a management style that was more ugly than anything in history - the age of the freebooting pirate.
One group of CEOs endeavoured to advance their companies by raiding and plundering other companies. No method of taking over a company was considered immoral if it succeeded. Society accepted that any villainy, from corporate blackmail, to bribing the management of the company the predator wanted to swallow, to the use of junk bonds - so called because that's precisely what they were - was fair business ethics.
CEOs - hired and paid by the shareholders to look after shareholder's best interests - began selling their employers down the river. In return for bribes such as life-time employment for themselves and their families, plus a variety of benefits to swell their purses, these CEOs agreed to write to stockholders recommending that they accept a predator's offer.
Others, particularly in the US auto industry, took a more direct, more reliable route to the cash. They simply paid themselves millions of dollars in bonus money when at the same time their mismanagement was resulting in horrendous losses and ruthless laying off of loyal workers. This was by no means a purely American phenomenon. In Britain the despicable behaviour reached a new high when newspaper baron Robert Maxwell syphoned off his employees' life savings from pension funds that he controlled.
The 1990s struck with stunning speed and typhoon force. Suddenly the world was hit with asset devaluation, recession and depression, economic squeezes, little growth or none at all. Countless companies were confronted with bankruptcy. Enter the ruthless era of the corporate doctor.
So there's the story so far this century. Naturally there were and are exceptions - some innovation and invention and marketing still occurred, the computer being a prime example.
But compared with Ford's achievement the marketing of the computer was a paltry feat. The computer created new financial transactions, some jobs and some growth but nothing that could equal, for example, the oil industry that Ford's marketing achievement created.
In this last decade of the century we can look back and see that the performance of management was of remarkably high standard in the early part but has declined disgracefully in recent decades.
The great opportunity and necessity now is for business to redefine management standards and practices to recharge the world's waning standards of living and improve life values in the decades to come. Here's how this may be achieved.
THE MANAGEMENT OF PURE THOUGHT
A study of management practices in recent decades shows that managers have tended to spend precious little time on the real business of management. Most time was - still is - frittered away on such frivolous activities as addressing luncheon clubs, avoiding taxes, or chasing around after trivial matters which could easily be handled by junior staff.
A new type of CEO is required, one who acts less and thinks more, who will be dedicated to a high degree of competence in vital areas. Aided by today's computer technology, he or she will make fewer decisions. But those decisions that are made will result in truly major achievements. A menu of the thinking process areas the new CEO will inspire in the organisation will include:
* Achievements of 'adhocracy'
* Innovations within the company
* Innovations outside the company
* Elimination of inefficient activities which are replaced by a concentration on mainstream activities.
Adhocracy. By this I mean putting together a group of people in a company to work together on an ad-hoc basis. This is a fluid, flexible, new type of management that enhances the ability to respond quickly to changes, that will get out a message, service or product as soon as it is required, or as soon as the need is perceived.
This way of working, made possible by computer networking, increases people's commitment to their job by granting them more individual authority and responsibility and spreading the decision-making power widely throughout the organisation.
The advantages of adhocracy were long ago perceived by law firms, universities, and management consultancies. The business world, too, must now recognise the advantages.
Innovation within a company. This occurs in four ways:
* Unexpected occurrences: The scientist who synthesised Novocaine, the first non-addictive narcotic, intended it to be used for major operations such as amputations. Surgeons refused to touch it but, unexpectedly, dentists found it ideal for their purposes.
* Incongruities: For the first half of this century, ship owners tried every conceivable method to make their ships faster. Eventually someone figured out that people were coming up with right answers, but to the wrong problem. The problem was not how fast or how slowly the ships moved, but how long they stayed in port. This identification of the real problem led easily to the introduction of containers and roll-on, roll-off shipping.
* Industry and market changes: Brokerage Donaldson, Lufkin & Jenrette (DLJ) was founded in 1961 by three young Harvard grads who realised that institutional investors were beginning to dominate the market. Pension funds did not want to pay the same commissions as Joe and Betty Sixpack. DLJ led the way to negotiated commissions. It was also the first brokerage to go public. Others have since followed.
* Process needs: About 1910, a statistician at AT&T predicted that within 15 years, unless technology improved, every woman in the US would have to work as a switchboard operator, simply to keep up with the volume of calls. AT&T was spurred to invent the automatic switchboard.
Innovation outside the company. This represents an enormous opportunity for managers to achieve colossal results. Examples:
* Demographic change: This can be illustrated by holiday company Club Med's success. In 1970 it identified the emergence of an educated and affluent generation of young people worldwide who were not thrilled by the type of vacations their working parents had enjoyed - summer holidays in Brighton or winter weeks in Miami. These young people were ideal customers for a romantic, exotic, low-budget vacation on a romantic island or exotic part of the world.
* Changes in perception: Take the case of Sam Walton whose simple idea for changes in the retail trade made him one of the world's wealthiest people. Walton noted that to get the goods from producers to customers involved at least six steps - from manufacturer to wholesaler to sectional wholesaler to jobber to retail warehouse to retailer to customer - and each step added costs that didn't benefit the customer.
Walton reduced this to two steps. The manufacturer dispatched the product direct to Walton's Wal-Mart retail store, employing just-in-time (JIT) delivery. It was then sold to customers. The cost reduction was enormous, around 30%, allowing Walton to pass big savings on to customers. The manufacturers, Walton himself, his employees, his stock holders, and his customers, all were happy.
The problem with most companies lies with the CEO who could introduce JIT if only he or she would put in the time to think and innovate, to cut out waste, or to get out of activities in which the company is not a specialist.
Elimination of inefficient activities. Countless companies have taken some steps in this direction. Car makers contract out the manufacture of tyres, springs and a range of other components. Insurance companies send masses of paperwork to specialists in India who process it more efficiently and more cheaply than they could. Software developers send the drudge work of inputting machine codes to specialists in southern China.
So is there any reason a business could not take this to its logical extreme, paring down to a CEO and a small group of people comprising a 'think tank'? All actions stemming from think tank decisions would then be contracted to outside companies. This would allow the think tank to concentrate 100% on innovation in all areas.
By having virtually all detail and routine operations performed by outside specialists who enjoy the greatest economies of scale and who have perfected the learning curves, the central management can concentrate full-time on thinking, and on achieving the real management purpose of creating higher profits and faster growth for the shareholders, and more benefits for customers.
TOP
EXPORTING: A MATTER OF SURVIVAL
Business these days is a global affair. Any company that does
not look overseas will find itself in deep trouble
Hardly a week passes without newspaper headlines recording a crippling
balance of trade deficit for one country or another. Even the
most industrialised of nations is not immune to this problem.
But the lack of exports is a special calamity for small countries
that have only a limited home market and must sell overseas,
or suffer a drastic reduction in their standard of living.
The trouble is, governments cannot force companies to export.
They must persuade them, and in this they are up against plenty
of excuses not to export: 'In our industry, wages are too
high and we naturally can't compete with low-wage countries.'
Or: 'There is no demand for this type of product outside this
country.' Or: 'The costs of exporting, travel, advertising and
selling abroad are just too great.'
I'm not trying to suggest that booming exports are easy to achieve
- quite the reverse - but they are vital to profit, survival and
growth in almost every company today. A successful company 'taking
it easy' and selling only into the local market is a pipe dream.
It has been shown repeatedly that a small company, to be successful,
cannot stand still. It must grow. If it does not, its competitors
will grow, achieving greater efficiency and better customer service
through economies of scale. They will soon crowd the small company
out of existence. Growth is vital. It's a question of how.
Until recently, Asia seemed to be the best example of export success,
with thousands of companies prospering from overseas sales. But
now that the US is in recession and American consumers are not
spending aggressively, the cracks are showing. It is now clear
that many of Asia's fabled claims to be an 'export powerhouse'
were unreliable.
True, Asian businesses have prospered from exports, but not because
they have been skilled exporter-marketers.
Many got their edge from cheap labour. But a country which exports
well because of cheap labour inevitably loses its advantage when
the wealth created steadily drives up the standard of living and
therefore wages. At that point another, cheaper country captures
the market.
Yet a country must find ways to continue exporting - or sooner
or later end up in trouble. The same applies to companies; they
must recognise that in today's global commerce, they must export
or die.
Even those Asian companies that do export must change their style
to increase profit, growth and stability. Methods that worked
tolerably well in the past are long overdue for restructuring.
Some firms must swing round 180 degrees. Others must completely
re-invent the nature of their business to adjust to a global,
rather than a localised orientation. A management decision to
expand the receipt of cash flow from the few million people in
the home market to the four-billion-plus world market requires
a whole new approach to market intelligence.
There are certain fundamental qualities and procedures necessary
for export success:
* Imagination: You cannot be a good exporter without improving
your imagination and lifting the levels of creativity within your
organisation.
For example, if your product is expensive, don't sell it on its
own. You'll lose. Assemble a cluster of customer benefits that
make what you offer unique. With ingenuity, you can make it more
acceptable, even if the product is more expensive than competitors'
products.
* Planning: Nothing in the business world happens by itself. To
offer your products overseas and then sit back hoping that someday,
somehow, someone overseas will buy from you, is to go on feeding
the crocodile, hoping he will eat you last. But eat you he will!
There is only one thing in the world that people buy - postage
stamps. Everything else must be sold. Plan how you are going to
sell your product.
* Courage: It takes courage to step out of the familiar waters
of the local market. It takes courage to take on another man in
his own local market. It takes courage to learn from one's mistakes
and come back fighting. Courage will win when you are faced with
a seemingly impossible situation that requires you to whittle
down the other man's advantages and gradually replace them with
your own.
* Optimism: Pessimism never made export sales, and never will.
But nor will blind optimism. You need the kind of optimism that
keeps your feet on the ground and yet enables you to stretch much
further than most people would have believed.
* Integrity: The successful exporter is not the man interested
in making one big killing. He has to build trust; he has to build
belief in his honesty; he has to build up a spirit of fair play
and fair dealing with his customers.
His goods must be true to label; his quality must be according
to his warranty; customers must be able to bank on his word, to
believe his promises. Today this is more important than ever.
So many times one hears of exporters who have delivered inferior
goods, or delivered late, or broken promises. If you make a practice
of taking unfair advantage of others, leave export alone. You
will not only tarnish your organisation's reputation. You will
besmirch the image of your country.
* Hard work: Only in the dictionary does 'success' come before
'work'.
SOME EXPORTING MYTHS EXPLODED
Let's lay to rest some of the common false assumptions about exporting:
Exporting is only for large, long-established organisations.
Small or young companies cannot do it.
The US Department of Commerce reports that in 1989 (the latest
year for which reliable statistics are available) exports made
up 19% of gross national product and more than 20% of those exports
were provided by small businesses.
Export opportunity, system, and structure is determined by
the characteristics of the product.
Actually, the product is a mere incidental. Indeed, the greatest
single mistake is to make export decisions focused heavily on
the product. The only attention that should be allotted to the
product is to determine the following:
* What type of customers will buy this category of product?
* Who makes the decision to buy?
* What does the buyer want? With what benefits must the product
be packaged in order to fulfill this requirement?
* When is the buying decision made?
In short, the would-be exporter must find out what is needed to
satisfy the final customer and then work his way back from there.
Exporting is not about things. It is entirely about people. And
people don't buy a product. They buy a promise of benefits and
satisfaction.
Eliminating middlemen will reduce export costs and increase
profits.
Middlemen are often the best profit-makers because they can perform
certain services more efficiently than you can.
A local middleman, whatever label you put on him - distributor,
retailer, wholesaler, agent or partner - knows the local culture,
has local banking arrangements, provides invaluable contacts.
He can also handle such functions as transfer of title, customs
clearance or warehousing.
But the most important thing the middleman does is sell the product.
When it comes to selling, the person making the offer is often
more important than the offer itself. We all buy from people we
know and like, and in any market that is unlikely to be the exporter.
The primary function of the foreign wholesaler or distributor
is to provide a warehouse for storing goods.
This common myth is wrong on at least two counts. First, the primary
purpose of foreign middlemen is to deal with people, not to be
warehousemen. Second, this belief assumes that storage is a key
factor in success. But no product makes money when it sits in
a warehouse.
Administered channels in exporting are more efficient than
non-administered channels.
An administered export channel is one that is controlled and administered
by a single organisation, whether through franchise, ownership
or force.
The exporter can force products that customers do not want through
a distribution system. He can force commitment by all parties
to planning, scheduling, advertising and promotion. But if the
customer doesn't want the product, he won't buy it.
Very often it is more successful for the exporter to share the
administration with local wholesalers, distributors, or retailers.
The exporter must be demanding on some basic standards, such as
honesty, ethical behaviour and operating sdystems. But local matters
can be delegated to local institutions within the distribution
channel.
A good method of doing export business is by getting on the
mailing list for tenders with foreign government agencies, and
large businesses such as utilities.
A tender is a suicide pact which guarantees the thinnest profit
margin for the exporter and the lowest quality of product and
service for the buyer.
Usually, the tender issuer will list specifications in the belief
that all products that vendors quote on a tender, so long as they
meet the specifications, are equal.
In the real world that is not the case. A reputable exporter will
supply products that exceed specifications to provide extra quality
in order to build long-term repeat customers and brand loyalty.
A wise exporter will not participate in a tender unless it specifies
his brand, and further stipulates 'genuine exporters' product
only; no substitutes acceptable.'
Trade missions are an excellent way for an exporter to develop
an overseas market.
It is rare for participants in missions to come back with firm
business, such as purchase contracts or letters of credit. More
often, all he gets is much pomp and hospitality.
To be sure, the value of trade missions depends on the exporter's
objective. If his aim is to make contacts at a political or chamber
of commerce level so that someone can follow up later and conclude
the transaction, then trade missions may be worthwhile.
To export, you must sell your product cheap.
Of all the myths this is perhaps the most dangerous, yet the most
widely believed. It is spread by bureaucrats, economists and accountants
- none of whom has ever exported anything. Specifically, these
people believe that if a country's currency is devalued, its exports
will become cheaper and sales will rise.
But in the real world, the opposite is more often true. Granted,
with some categories of exports, a competitive price may be essential.
But in addition, the goods that sell best in foreign markets are
those that buyers believe will give them premium benefits and
satisfaction when compared to cheaper local brands.
Anyone embarking on an export endeavour would be wise to specialise
in a range of upmarket, higher quality products and this is true
for any type of product apart from raw materials.
Premium quality requires premium price. But an exporter can make
a profitable trade-off between premium pricing and premium quality.
To tell a buyer that you can supply a product with a better cluster
of benefits for the same price as a lower quality cluster is to
insult his intelligence. Everyone knows that you only get what
you pay for. Anytime that a manufacturer improves his product,
he must ask a higher price for it.
Usually, low-cost products are already available in an export
market, so another low-price product is not required and will
probably not succeed. But what may not be available is a premium
quality product. Products that offer more benefits to the customer
are always welcome.
A premium price does not impair export. On the contrary, it helps
sales, provided that the promise of superior benefits - the product
plus special features, such as appearance or extra service - is
fulfilled.
Exporting requires heavy investment and a large staff.
3M made sales totalling just US$189 in its first year of exporting
in the early 1920s. In 1990, its export turnover was US$6.5 billion.
In many countries it started exporting with a staff of two. When
it goes into a new country its investment is modest and it promotes
one basic product. It then adds more products, one at a time.
3M vice president Harry Hammerly says: 'We never rush in. We ease
in.'
Successful export businesses have been started with one sales
person visiting export markets and establishing local organisations
to do the importing, warehousing, distribution, and selling. With
modern communications and jet aircraft, overseas markets are easily
accessible and can be approached without excessive investment.
To compete, you have to manufacture in the export market.
For a hundred years Coca-Cola has been exporting its secret formula
syrup, made in a factory in the US. It arranges with local companies
in each export market to bottle and distribute the product.
Coca-Cola's main profit is in exporting the syrup. Local bottlers
can buy other ingredients such as water locally, thereby saving
freight costs. The local bottler acts as Coca-Cola's banker, as
its local management, manufacturer, warehouser, distributor and
seller. Coca-Cola's local investment is marginal.
Companies from small countries find it hard to compete in the
export market against companies from larger, more industrially-advanced
countries.
The opposite is true. Large, industrially-advanced countries have
such a big home market that their companies are rarely strong
competitors in export markets. They don't have to be - there is
an abundance of business close at hand.
In the US, fewer than 30 out of every 1,000 companies export,
and fewer than six sell to more than five foreign markets, according
to the US Department of Commerce. In 1988, total US exports, including
a high percentage of low-profit-margin agricultural and mineral
commodities, represented only 6.6% of GNP.
Countries with a small home market such as Singapore export substantially
more than advanced, industrial countries with a large home market,
such as the US, both in per capita terms and in terms of GNP percentage.
It takes many years to get past the break-even point and make
a profit from exports.
Why? Why not plan your export business so you will be in profit
from on day one?
AN EXAMPLE TO US ALL
Good examples are always a fine way to learn. Here's how one company
succeeded in the export business.
In 1965, a business was started in Australia to produce industrial
consumables for the maintenance of machinery, vehicles, equipment,
buildings and grounds.
The company - for the purposes of this article I'll call it Mega
Maintain - produced such items as paints, cleaning chemicals,
adhesives, welding electrodes and lubricants.
Mega Maintain started with small capital and few people, but it
made a profit in its first year in its home market. Then the decision
was made to go for exports.
No market surveys were done nor was any additional capital invested
in fixed assets. Two days after the decision to export was made,
Mega Maintain's founder - call him Larry Roberts - flew to Singapore,
arriving on a Saturday. On Sunday he sat down and compiled a list
of possible distributors, by scanning the telephone directory,
talking with other business people in the hotel lobby and taking
bus rides to 'eye-ball' possible candidates.
Roberts's aim was to locate local companies that already had a
business providing good cash flow, but which were not already
doing business that would compete with his own. A key argument
in persuading the company to be a partner would be that the partnership
would cost very little, since it would use the distributor's existing
assets to generate additional profits and growth. The perfect
partner would therefore have a number of specific assets. These
were:
* A warehouse in which to store the goods and from which to service
the market.
* Adequate funds, or adequate banking facilities to finance an
initial order, pay sales agents, and finance local clients, who
tend to require 30-day payment terms.
* Basic essentials, such as an office and telephone, a clerk to
type invoices, a means of delivering to customers, and the various
other facilities for modern marketing, such as sources for legal,
accounting and other professional services.
On Monday morning, Roberts started calling on prospects. Those
who appeared most promising were taken to visit a few possible
local customers, who were shown samples of Mega Maintain's products.
They said they liked the products and would buy them if they were
available locally. This hooked Roberts's first choice for distributor.
By late afternoon on Wednesday, he had the numbers of two Letters
of Credit covering two of his product lines - welding consumables
and chemicals products. Each LC was for US$10,000 - real money
in those days.
Roberts then flew to Bangkok. By Sunday he had the numbers of
two more LCs, again for about US$10,000 apiece, so he could go
home with orders for US$40,000 worth of products, having laid
out the cost of three economy class airline tickets, seven nights
in hotels, meals for one week, and incidentals, such as taxis
and local phone calls.
Within a few days, his local bank advised him it had received
the four LCs. The orders were swiftly filled and the US$40,000
in receipts had enough of a profit margin built in that Mega Maintain's
export venture had turned a profit in its very first week.
Roberts next recruited and trained representatives fluent in European
and Asian languages. They repeated his success in other countries.
Then, along the lines of the 'domino principle', each export representative
'cloned' him or herself by recruiting and training additional
export representatives. Eventually, Mega Maintain's products were
selling in about 100 countries.
Yet no borrowed money nor additional funds were ever necessary
to get the export venture off the ground. It funded itself. Each
action, each export trip, every movement was engineered to pay
its own way - and provide a profit. Each expansion was accompanied
by more profitable sales.
In 1968, after just one full year of export, Mega Maintain received
the Australian government Export Award, the youngest company ever
to win this award. The following year it became the youngest company
to receive the prestigious Hoover Export Award.
But this was just the start. By 1976, Mega Maintain's exports
had outgrown Australia's port and shipping infrastructure, so
the company abandoned Australia and relocated its headquarters
to Hong Kong in 1976. Since then, each year has shown an improvement
in export turnover and profit.
The reader will by now be wondering if this tale has been over-simplified.
It has. The key ingredient in Mega Maintain's export success has
not been mentioned. That ingredient is careful planning.
Export success is not some secret in a locked box for which only
a few can obtain the key. All that is needed is a pad of paper
and a pencil to enable planning.
What is not needed is a university degree or huge amounts
of capital - I've never heard of a person becoming a success in
export who was either exceptionally well-educated or could afford
to fail.
Both the London School of Economics and the Massachusetts Institute
of Technology use the beaver as their symbol. This animal epitomises
the achievement of high productivity despite low intelligence.
There must be a message in this.
But there are some traits or characteristics shared by
those who succeed in export:
* They are good 'assumers'. They stake their success on subjective
assumptions about the 'unknowables'. This is because in a new
export venture, there is no cash flow, no history of customer
acceptance, nor anything else. Just intuition.
* They are dreamers, able to see ways to succeed that others have
overlooked. To quote Deng Xiaoping: 'It doesn't matter whether
you climb Mount Everest by its north slope or its south slope,
as long as you get to the top.'
* They have stamina. The ability to accept rejection or disaster
and walk into the next situation as if you had just won the lottery
is an absolute must. Walt Disney went bankrupt three times before
he made his first successful movie.
EXPORT SUCCESS MEANS PLANNING
The most crucial aspect of getting your export drive off the ground
is planning. There are five essential points you must base your
plan on.
Target a market: Your business should be targeted at a
market - not a service or a product, but a specific group of customers
who have a need that existing suppliers do not completely satisfy.
There are endless ways to accomplish this, but one of the most
successful is to use the 'Divide and Conquer' technique. An analysis
of the giants in any industry will reveal that they are attempting
to supply the entire market, to be all things to all people, which
is, of course, impossible.
When a market is analysed, it becomes apparent that it consists
of many niches, each different from the rest. For example, a consumer
market can be broken down by gender, age, hobbies, careers, ethnic
background, wealth or lifestyle, to name but a few.
The fact that members of an identified sector now buy their products
from an all-purpose, total market giant, does not mean that they
are fully satisfied. It means only that the products are the best
they have been able to find.
Once you have identified a market sector which does not have its
special needs recognised and catered to, you are well on your
way to building your export business. It is now just a matter
of incidental details, to organise a product line and a sales
programme that can be tested and fine-tuned in your home market.
Once you have done that, the new concept can be taken, market
by market, to overseas export markets. An appropriate distribution
and market penetration system can be found. This may consist of
wholesalers, distributors, franchisees, or any other appropriate
vehicle.
Raise a family of products: It is easier to succeed with
a family of products than with a single product. A family of products
that meets the total requirements of a specific market brings
many advantages. Each product supports the others in the range,
building regular repeat buyers, nurturing the market sector image,
and helping to change a product into a service. Single products,
by contrast, end up in fragmented distribution.
A good example of the family concept is Dr Scholl's foot care
products. Before these were launched, foot care products were
considered 'general line' products - corn plasters were corn plasters,
and could be found on the shelf alongside the paracetamol and
the roll-on deodorants.
By selling specific 'foot care products' Scholl brought out a
previously-neglected market. Most people have a foot problems
from time to time. But no one previously had recognised this fact
or homed in on care of the feet as a separate category of human
wants or needs.
The Scholl family-of-products approach made almost everything
required for feet available from one supplier, under one brand
name. Now, whenever a person had a foot ailment, whether it be
bunions, or problems with loose shoes, or athlete's foot or foot
odour, that person could go to the Dr Scholl section of the department
store and obtain satisfaction.
This concept was also easy to export since foot ailments existed
- and had been equally neglected - in all markets from Alaska
to Zambia. And being the first in a newly recognised market created
for Scholl a business that was almost completely protected from
competition, price-cutting or other problems.
The right package: All successful export ventures must
include a Unique Selling Proposition (USP) and a Balanced Assembly
of Success Essentials (BASE). It is an exercise in futility to
endeavour to export to a specific market a package or a concept
which is already available in that market.
If there are already a dozen suppliers of standard insurance policies
in the market, another of the same type will not be well received
and will have to fight a long, difficult battle to get a profitable
market share. But if the existing insurance policies do not cover
certain perils, and yours does, your package of benefits can prove
a winner.
There are many ways to establish a USP - better guarantees, accepting
trade-ins if others don't, providing superior after-sales service,
better design, lighter weight, greater durability, or a more universal
product that replaces several products required now - but you
must incorporate at least one with your product package.
You must also have your BASE. Every aspect of your package must
be thought through and incorporated before you go to market. This
includes a superior product package for the market sector, plus
crackerjack marketing, the ability to deliver, and forms and systems
to control the entire procedure.
If you have a perfect concept but can't deliver rapidly after
the sale, or if anything goes wrong, your brilliant export concept
will come to nothing. You must promise more than your competitors
and then deliver in full measure all you have promised.
MAKING THE MIGHTY FALL
Competing with established giants in your planned market may seem
a daunting prospect. But it's easier than you think
In most markets, the customer is already being supplied by an
old giant. Many novice exporters believe that it is impossible
for a new, small company to win market share from such entrenched
behemoths.
But this is usually a case of mistaking fat for muscle. A lean
and hungry exporter will find it easier than it first appears
to beat an old company that long ago forgot service and now concentrates
more on creative accounting to avoid taxes. Most have forgotten
the customers even exist, and take their regular business for
granted.
Remember: Your new export business is the same age as your
competitors. Both are one year old. Your opponents may have started
50 years ago but in business, as in sports, every year is a new
season. A team may have won all the medals last year, but that
doesn't help its score this year. Like you, your opponents start
the year with a blank record.
No exporter is perfect; all have areas of vulnerability or weak
links. But a new team has one strong advantage over the old, entrenched
exporter: It is easy to obtain details of established exporters'
marketing methods, selling systems, product lines, after-sales
service and, indeed, their entire policy of dealing with customers.
But the new boys' game plan - their group of customer benefits
- is unknown.
So, for the new exporter, it is like playing poker with an opponent
who has a mirror behind him; you can see his cards but he can't
see yours. All you need to do is to make a thorough examination
of the old company's total programme, including its product, how
it is sold, to whom it is sold, what benefits it offers, and how
it is positioned in relation to buyers' locations, needs, satisfaction
requirements, and total service.
All along, you can determine areas that can be improved, both
to the total market, but especially to specific segments of the
market. These can include improvements in product design, cosmetics,
packaging, function and diversity of uses.
The old exporter's distribution channels may be clumsy and not
totally effective. He may be relying solely on retailers who don't
care whether his product is on a shelf where it sells, or hidden
at the back of the store. You may counter with personalised consultant-type
selling or other unique methods. It is never difficult to devise
superior catalogues, superior product demonstrations, or better
point-of-sale displays.
Outbid the opposition: Once you have examined the leading
exporter's total programme, you will be able to identify numerous
areas of vulnerability. Study what customers would like to have
but are not now receiving. You may find some big 'Game Breaker'
improvements. Or you may find dozens of minor added benefits that,
cumulatively, make the difference.
There are always ways to provide a customer with special benefits
that his present suppliers do not offer. You could supply free
storage bins for industrial customers. You could offer a broader
assortment of products, or employ superior advertising, or offer
just-in-time delivery - the one-upmanship possibilities are endless.
Markets may be segregated geographically. Some exporters have
only one master distributor covering an entire country, with centralised
management and sales. The breakdown of the centralised economies
of the communist countries proves how inefficient such systems
are. By enlisting or recruiting a distributor network with each
member servicing a smaller, more easily managed area, you can
achieve far greater market penetration.
Once you have constructed a Balanced Assembly of Success Essentials
(BASE), worked out where and how to apply the Divide and Conquer
Technique, identified the chinks in the armour of the existing
exporters or local institutions, and planned thoroughly all aspects
of the venture, you can hit the ground running.
Since the calcified arteries of large, obese, old, entrenched
suppliers slow new ideas to a trickle, it will be two years or
more before they catch up with a young new exporter. Even then,
they are on the defensive and are forced to copy the new market
leader. They will never again be better than second best.
There are two more factors you will find helpful, but which no
writer can give you. One is stamina. You must recognise that only
those who refuse to give up when everything appears frustrated,
will succeed. A kamikaze pilot is more likely to succeed
in his mission if the wheels fall off after he leaves the runway.
The other requirement that no one can provide is the intangibles
- the dreams. These rule the export world just as they rule all
human endeavour, from religion to politics.
All really great exporters make full use of intangibles - whether
it is Michael Jackson exporting entertainment, or Hong Kong's
Diane Freis when she started exporting her unique fashions, or
Gillette exporting his safety razor. As Willy Loman's brother
said in Arthur Miller's famous play, Death of a Salesman,
'You've got to dream, boy!'
TOP
HAVE YOU GOT WHAT IT TAKE TO BE A SUCCESSFUL ENTREPRENEUR?
Here are some of the qualities and preparations you'll need
to go it alone
The most profitable investment has always been an entrepreneurial
venture. It is the one way that an ordinary person without an
advanced education and with almost no capital can become exceedingly
wealthy in just a few years.
In my view the term 'entrepreneur' is almost synonymous with 'innovator'.
The only true profit is innovative profit. All other sources are
just an attempt to repeat last year's profit this year.
It has been estimated that 80% of all new ventures fail. But there
is only one reason for a business venture to fail and an entrepreneur
looks at that reason in the mirror every morning when he or she
gets ready for work. An entrepreneur can't blame anyone else when
things go wrong. His or her main purpose is to foresee and head
off any problems.
Doctors can bury their mistakes. Architects advise their clients
to plant vines. Unfortunately there are no holes or vines to cover
an entrepreneur's mistakes.
It is next to impossible to succeed in your own business without
pre-planning every step of the venture. As Harvard marketing professor
Ted Leavitt said: 'If you don't know where you are going, any
road will get you there.'
What does it take to succeed as an entrepreneur? In this column
I will look at some of the necessary preparations and personal
qualities.
First is stamina. Walt Disney went bankrupt three times before
he made his first successful film. He knew that difficulties are
merely opportunities in work clothes.
Then there is the ability to be good at assuming. Most events
can be anticipated and planned for but there are some things that
can't be and you must make good assumptions. Forecasting is not
an exact science, especially in a new business with no history
of sales, cash flow, customs acceptance, or anything else. Usually
a list of assumptions has to be made and this involves risk.
Good 'assumers' are rare buzzards but nobody is born with this
characteristic and you can train yourself. There are various methods
of decision-making. One comes from writing a list of all the possible
results of an action and then eliminating, one by one, the worst
option until there is only one left and that becomes your best
assumption. It is often easier to decide on the worst outcomes
than the best.
An essential factor for starting up a business is that you must
not have enough money. I have never heard of a successful
business being started by a person who could afford to fail. The
founders of most of New York's great department stores were impoverished
immigrants who started off selling goods from a barrow.
There is a disproportionately high percentage of successful businesses
that were started by immigrants, refugees, or other disadvantaged
people.
You don't need an advanced education. Few successful businesses
were started by a person with a university degree; these people
tend to become corporate bureaucrats. They find it hard to accept
the fact that Robinson Crusoe was the only man in history who
had all his work done by Friday.
Most entrepreneurs were specialists before they started their
own venture. They were salesmen, research technicians, engineers,
accountants or some other specialist. They tend to spend too much
time on that what they know and like best.
An engineer will have a perfect product but no way to sell it;
a salesman will sell for a high price but never collect the money.
Think of a gear wheel; every tooth must be in place and fit in
with every other tooth. A successful entrepreneur must be a good
mechanic to make sure every tooth fits.
Never forget that amputation beats mutilation every time. Some
of your plans will not succeed so you must have a good way of
gauging which concepts are not giving good results. No concept
is good until it has been proved.
Every successful innovation must have a unique selling point.
You have to work long and diligently to develop benefits for your
product or service so that it offers more than the customer is
getting from his or her present supplier.
Don't rely on one feature. Have a cluster of benefits which, like
the Godfather, make an offer the customer cannot refuse! Your
products could be easier to use than your rivals', have better
guarantees or be better packaged. They could have instructions
in three languages or a re-order card in the package, come in
a variety of colours or sizes or have better in-store demonstrations.
Always remember that cash flow is your goal. In an entrepreneurial
venture, cash flow must come quickly. Most other things can wait.
I planned my first entrepreneurial business, selling products
for machinery maintenance, from my home in the US but started
the business in Australia in 1964.
The first week I arrived in Australia I leased a small building
for headquarters and within days I was calling on customers and
selling to generate cash flow. The products had not arrived and
packages had not been printed but I knew I had to have cash flow
quickly and everything else could wait.
I started the business with less than US$100,000, yet in the third
year the net profit after taxes was more than US$1 million and
we were exporting to 40 countries regularly.
The first and most vital step for an entrepreneur is to determine
the reason for a new business to exist.
Entrepreneurs must look at the market - actually many markets
- and find an area where the customer is not obtaining as many
benefits or services as he or she would like to receive.
Having a successful entrepreneurial venture rests on giving the
customer more. Nothing in this world is ever perfect so it is
always possible to assemble a better package of benefits. Once
you have done this, you are on your way.
There are many proven ways to do this.
It is possible to find groups of customers whose needs are different
from other customer groups in the same market.
Senior citizens, for example, have requirements different from
those of younger people: Different health needs, music tastes,
preferred foods, favourite vacations, choice of clothes and so
on. This is a consumer group. Farmers have different requirements
from city dwellers.
Once one can define a segment of the market that has special needs
it is a good bet that a successful business can be designed to
serve that particular segment better.
An outstanding example is a friend who formed a successful venture
by identifying the funeral parlour industry as a category that
required special treatment. He noted that when funeral directors
had to prepare a corpse for display before burial they often had
problems with the lips which would not stay closed. This entrepreneur
took an ordinary adhesive and renamed it 'Lip Clip'. Funeral companies
bought it immediately because it was identified with their industry
and solved the problem. He launched a whole line of other specialised
products too.
Another entrepreneurial technique is to change a commodity into
a product. A classic example is soap. Original soap made from
animal fat and lye was cast in moulds to form bars. These bars
were then sold in grocery stores as a commodity the same as celery
or turnips with no brand name, or package.
The original Mr Gamble, of Procter & Gamble fame, was a young
entrepreneur and noticed this. His vision told him that soap could
be changed from a commodity into a product. He added colour and
fragrance, made a smaller, more elegantly-sized bar and packaged
it into a more enticing product. At night he worked in his basement
at home making the product and in the day he sold it door to door.
Every text book tells entrepreneurs to stick to what they know.
But why not select a venture with the greatest opportunity for
success? Perhaps you can offset your lack of knowledge by hiring
technical people, using consultants, and concentrate on using
your own knowledge to coordinate.
Richard White, of American Business Consultants, specialises in
providing consulting services to entrepreneurs and says 70% of
his most successful entrepreneurial clients were new to the field
in which their business succeeded.
Another way of identifying your best venture is to industrialise
a service. Customers who buy a known brand of a manufactured product
such as a television set or a washing machine automatically expect
that product to be of an acceptable and consistent quality.
But the service industry is associated with being haphazard. People
are often uncertain of whether their real needs will be met when
they pay for a service.
Fortunes can be made by those who convert services into a standard
reliable product. It has been done many times before and it can
be done today and tomorrow. Some classic examples:
It was not very many years ago that an individual had to go through
an application, credit check and usually several weeks of delays
at each place he wanted to have credit.
Then Diners Club invented the credit card system and dozens of
other companies followed and prospered in this industrialisation
of credit. Any responsible individual can now obtain a single
credit card that gives him credit in practically every city in
the world and thousands of stores. Only one application form has
to be filled out and the entire process probably takes less than
20 minutes.
Another example is travel. Not too long ago if you wanted to take
a trip such as an African safari you would have had to handle
a mountain of details such as arranging transport, hotels, visas,
vaccination information, and a myriad other details. Now, you
can go to one company and in a matter of minutes arrange a complete
safari.
Lawyers used to spend untold days ploughing through law books
to find precedents to prepare their cases for trial. An ingenious
entrepreneur industrialised this service by programming law cases
onto computer software.
Look about you and you will have no trouble finding services that
are loose and fragmented today. With ingenuity, you will be able
to think of a way to package these services into an industrialised
product that is cost- and time-efficient. Most important of all,
you can provide a completely consistent product.
Most Asian companies are overstaffed. They simply have too many
employees. The loss in profit is appalling but even more damaging
is the inefficiency caused. Overstaffing is particularly damaging
to a manager's ability to do his job: Managing the company.
In an overstaffed company managers are prone to become involved
in details such as employees' salaries, petty disputes, retirement
benefits, hiring and firing, vacations, travel costs and a host
of other mousetraps that erode their time and prevent the organisation
from achieving maximum profit and growth.
How much time should a manager spend managing? The answer is the
maximum possible. But how much time does the average manager allot
to real management?
Reliable statistics are difficult to obtain, and most studies
result in mere guesses. But an investigation I once made of managing
directors in five companies led me to believe that, on average,
they were doing real management activities one hour and 20 minutes
a week.
They spent a great deal of time and energy inspecting product
quality, looking at historical accounts, evaluating customer creditworthiness,
buying new office furniture, attending funerals of departed friends,
giving luncheon talks to clubs, or talking to suppliers' salesmen
offering everything from office supplies to insurance.
I am not saying that these tasks were not important or, in cases
such as funerals, unavoidable. But they are not management jobs
if one accepts the only valid definition of management: Activities
that increase the company's profit and growth.
So how can a company create an environment that allows managers
to concentrate on profit and growth? That allows, at the same
time, reductions in the work force and a streamlining of the organisation
to make it leaner and meaner? How can it do all this and yet improve
its 'friendliness', its public image, at the same time? Here are
some ideas:
Bare essentials:Contract out every task except the main
function the company has been designed to do better than anyone
else. Usually that is the area that brings in the cash flow. For
example, a life insurance company can contract out or otherwise
disposed of everything except the selling of life insurance policies
which is the heartbeat, the very essence of the business.
The idea that a company should handle every aspect of what it
does is an old-fashioned, failed theory. Yet today, if an Asian
company's business is jewellery, the chances are that it makes
all the jewellery in-house, plus handling the advertising, sales
promotion, accounting, designs, labour relations, recruiting,
training, housekeeping, building maintenance, staff canteen, insurance,
product development, and almost everything else.
Think about it: Anything a company does in small volumes cannot
be done efficiently. A company that makes its own unique labels
in lots of 5,000 cannot possibly do it as efficiently as a label
manufacturer who makes 50,000 per hour three shifts per day, month
in and month out.
Unless manufacturing is the company's main strength, it should
contract it out to companies with better machinery and more experienced
staff who can do it better, cheaper, faster, and with the added
benefits of reduction of capital investment. Quality control and
inspection can be factored into the equation and there are ways
of keeping trade secrets confidential.
The ideal is for the company to receive Just in Time (JIT) delivery,
with the finished goods inspected, labelled, sorted, packaged
and the boxes never even opened but routed directly on to customers.
This peels off layers of employees, reduces investment in warehousing,
capital tools and machinery, and the obvious interest on capital
required, instantly igniting return on investment.
Above all, it allows management to eliminate wasted thinking and
concentrate on profit and growth, on innovations in products and
markets.
Contracting out is by no means limited to manufacturing. Paperwork,
word processing, computer studies and many other such tasks can
be achieved outside more efficiently by experts who specialise
in that detail.
US insurance companies now courier their new policies, customer
queries and other paperwork each evening to India to specialist
houses that handle it on a piece-work basis using lower cost labour.
The contractor is provided with company manuals that explain all
the insurance company's policies from which correct answers and
procedures are structured.
Architects and designers in cities such as Chicago fax specifications
for buildings to their counterparts in low-labour-cost countries
who do the time-consuming drafting and send back blueprints, saving
management large amounts of time and salaries for low level staff
at the home office.
The principles of accounting are well known to professionals and
vary little from one industry to another. Many companies have
an accountant; in fact some relatively small companies have dozens
of them. In a small company, and especially a family company,
the job is often a dead end. Ten years on, the accountant will
still be an accountant as there is little scope for advancement.
Naturally, the brightest accountants don't work for such companies,
but in a major international accounting firm where, after 10 years,
they have a reasonable shot at a partnership. The in-house accountant
in a small company can rarely supply 'management accounting' which
pin-points what the company should do. All he can supply is what
the company has done, often months after the event.
Possibly your company doesn't need an accountant at all but only
a book-keeper who can pay day-to-day bills, handle banking and
keep basic records to supply the outside accountant with the raw
materials to work with. A professional outside accountant is almost
certain to reduce the cost of an annual audit and will reduce
taxation costs.
Research and development, too, can be contracted out, saving management
time as well as capital research equipment cost - in one company
I know, the breakage of laboratory glassware alone costs an average
US$10,000 a month.
Much of the US military's research is contracted out to universities.
In the US my company contracted out research to prestigious organisations
such as Carnegie Institute and Batelle Memorial Institute. Having
this quality of research done in-house would have been impossible.
Many people tend to overlook the fact that when a task is contracted
out and an employee is eliminated there are many hidden savings.
An employee must be paid not only when he works but also when
he doesn't - on public or annual holidays, sick leave, family
emergencies, pregnancy leave, coffee breaks. Then there's the
cost of administration for each employee: Workman's compensation,
insurance, salary deductions for pension plans, statutory reports
such as income tax reports, and so on. Why not let the contractor
bear these costs?
Indeed, while you're at it, why not contract out the administration
for those employees you can't do without?
A major objective of good management is to reduce the number of employees. But no manager enjoys firing employees, and most tend to put off this unpleasant task.
That's a mistake. The delay hurts everyone: It reduces company profit which lessens shareholder dividends; it reduces the opportunities for other employees to obtain promotions and higher pay cheques.
Even the employees to be laid off suffer; if terminated they could go to another company and make a fresh start with the potential for career advancement and fatter pay packets. But they will definitely get neither of those in their current job.
The acid test of whether the company needs a particular employee is cash flow. Ask yourself: 'Would cash flow fall if the company laid off this employee?' If the answer is 'No', the company probably does not need the employee.
Independent Agents: Instead of hiring employees, always consider first the possibility of using an independent agent. This approach has huge advantages:
* Independent agents are normally paid for results only. So, no results, no costs.
* Independent agents are especially good for jobs where the person carrying out the task cannot be seen working, such as field salesmen, estimators, construction foremen, delivery personnel, or people on overseas sales or negotiating trips. Office workers can be supervised throughout the day, but these people cannot.
The thing that motivates those who cannot be supervised is money. The independent agent 'supervises' himself to try to get the highest earnings possible, whereas a salaried employee who is not under observation may be sightseeing or lying on the beach.
* An independent contractor achieves more because being paid for results makes him 'hungry'. He is likely to take a buyer and his wife to dinner at night and thinks nothing of travelling on Sunday so he can start making money early on Monday morning.
* The reduction in home office costs is dramatic. There are no social security, pension or other deductions to make. The company doesn't have to be the government's unpaid tax collector. No insurance, medical or dental benefits are necessary. The agent pays his own telephone costs.
Who is an independent agent? Laws vary in different jurisdictions but a contract or an agreement must be signed by both parties. In all jurisdictions the agreement should include the following: The agreement must clearly state that the person is an independent contractor and not an employee; it must state the method whereby the contractor will be paid; it will agree that the contractor will control his own time and not be directed by the company, and that he may work for other companies at the same time. It must also include a mechanism for terminating the agreement. Above all, the agreement must be drawn up by a lawyer.
Some managers may not like the idea that the independent agent controls his own time, or that he is allowed to work for others at the same time. But there are distinct advantages to putting this in writing. For a start, tax officials in most countries don't like the independent agent concept and often try to rule that the person is not an independent agent but actually an employee.
But the taxman cannot win if the contractor controls his own time, is not required to send in reports he doesn't want to submit, and has the right to work for others.
I once was chairman of an Australian company which marketed, among other things, small hardware such as nuts, screws and flat washers. These we bought in barrels but we had to have an employee to package them for resale in small boxes of 100 or 500.
We decided to shift this task from a company employee job to an independent agent position. The barrels of small parts were delivered to the agent's garage along with the boxes. The agent was paid a flat rate for each box packed.
The job got done, the cost was known in advance, and the company had the cost saving of eliminating an employee.
Consultants: Perhaps the greatest opportunity of all for eliminating employees is provided by hiring consultants. While Southeast Asia has many highly qualified consultants, they are not used to nearly the extent they should be. There are many advantages:
* Many infrequent tasks in a company do not justify hiring a full-time employee. For example, analysing a possible acquisition is a 'one-off' task that the company cannot retain an employee for. Hiring a consultant is the only sensible option.
* Consultants can approach company problems and opportunities with fresh eyes and put into effect new solutions. Today's consultant searches out areas of problems and opportunities and not only finds solutions but takes action to apply them.
* They can definitely reduce the number of executive employees. Even today as corporations lay off employees and managers, consultants take their place to expand, change structures, and go global.
* Many managers use consultants to do the 'dirty jobs'. There is nothing wrong with this; it comes with the territory. A manager may have an old friend on the pay roll who is no longer required. The manager knows that the employee has to go, but shrinks from doing the hatchet job personally. This task can be delegated to a consultant who has no such emotional investment.
* Above all, consultants are great for clearing bottlenecks. The head of the bottle - management - is where most bottlenecks exist. Most failures of a company to grow and make profit occur at the management level.
A wise management brings in a consultant to initiate major decisions that catapult the company forward. Only a lame-brain management takes the view that it would lose face by bringing in a consultant to contribute to management.
In today's brave new business world, companies must grow and make more profit while at the same time downsizing and eliminating employees, often in large numbers. There is no way to do this competently with a stripped-down management, but adding new management totally contradicts the whole aim of downsizing.
The only answer is to grab the hand of outside experts on a short-term basis to restructure, reorganise, expand, increase profit, put in force innovative systems, marketing, selling, financing, research and development, and tax avoidance.
Following these guidelines will bring your company closer to what should be your ultimate goal: To have no employees at all except for two or three managers who will spend all their time thinking of new ways to increase cash flow and profit.
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DON'T DELEGATE THE MAIN EVENT
With a forward-looking and achievable business plan in place,
the CEO must focus on the business's key factor for success
How many CEOs can really say that their organisation is doing
exactly what the management wants? A business plan makes sure
the whole company knows where it is going.
As I stressed last month, it should be the CEO who draws up the
overall plan while executives and department heads should set
their own short-term targets.
For the CEO, there are four points to consider when preparing
a company business plan.
Diagnosis: To establish what action is needed it is important
to find answers to a barrage of questions, including: Where has
the company been? Where is it now? What do we do well? What do
we do poorly? Are we the market leader? If not, why not?
Are staff highly motivated? Do we have staff or managers who need
more training? How good are our systems?
Which areas of the business are most profitable and least profitable?
If our profit is too low, should we increase cash flow or cut
overheads? Should we increase prices? Can we turn any cost centres
into profit centres? Should we expand? If so, should we expand
by increasing product lines, by acquisition, by export, or by
adding new retail outlets?
As the Zen master said: 'One fool can ask more questions than
10 wise men can answer.'
Prognosis: If we make no changes to the company, where
will we be?
Objective: Where do we want to be in one year, in five
years, in 10 years?
Strategy: How do we get from here to there?
From these four steps, the CEO can give birth to The Business
Plan. It must not be so ambitious that it cannot be achieved.
It must set step-by-step goals that consistently advance the business
in essential areas such as profit, market share and growth.
It is said that the best managed companies take three steps forward
then two steps back. This means that one year they will make a
major advance such as adding a new product line, then in the next
two years the company will digest and consolidate the new profit
centres before taking on a new venture the following year.
Growth is most profitable if it can make use of existing fixed
costs, capital expenditure and management. For example, if a new
product line can be stored in the existing warehouse and there
are staff skilled enough to be promoted to new roles, then profit
will be increased and all employees will be highly motivated.
In developing the business plan, there can be no impulsive advances.
If the company wants to include the launch of a new product line
or service in its business plan it must make a viability study.
This must analyse:
* Market trends. Is the pool of potential customers growing? How
large a market can the company service?
* Historic sales and profit trends of the type of venture being
considered.
* The long-term business objective. This might be:
- To achieve a 30% share of the market in three years.
- To achieve a US$2 million cash flow in three years.
* Short-term goals. These targets can be set for a 90 day period
and might include:
- Identify the top 100 potential users of the new product.
- Determine which goods or services customers would like to receive
that their present suppliers are not providing.
- Conduct a minimum of 20 test sales.
- Produce a quality direct mail advertisement. Obtain a mailing
list of potential users.
- Determine start-up costs, break-even point and time until profits
start flowing.
- After forecasting first-year sales, build an inventory of two
and a half months supply.
- Get approval from your banker for the viability study.
Naturally, there are many more requirements to a viability study
but this is an article, not a text book. One highly important
factor is to establish with everyone in the business that responsibility
for the venture's success lies with them too. Management must
provide the tools but all staff must fulfill their part of the
team effort.
After the business plan is written, what next? A written plan
is vital but it must be reviewed. The CEO must have a periodic
reassessment with each executive, and the executive with his staff,
to ensure the goals are being met to determine where extra effort
is needed.
Good performance should be praised but a workable business plan
also requires a stick when weak concentration and poor results
are detected. No one respects a manager who tolerates sloppy performance.
The fatal folly is to assign too many objectives to any one person.
One goal is the right number. If a manager at any level can achieve
one meaningful objective, he is a success. A few rare people can
complete two objectives in a year.
What else does the CEO do besides plan? Every business has a key
success factor which is more important than any other and it is
up to the CEO to identify it. It can be difficult to isolate.
In movies, for example, the key to success is distribution, not
actors and actresses nor authors nor directors, as most might
think.
The key success factor is too important to delegate. The CEO must
manage it personally and focus on it as his sole objective. If
the company is floundering because of a shortage of cash flow,
the CEO can't take the easy way out and delegate it. He must personally
see to it that cash flow increases. Let us consider a historical
example:
When Franklin D Roosevelt became US president in 1933, the country
had 12 million unemployed and soup kitchens in operation to stop
people starving. Many people were homeless and hundreds of banks
and businesses were going bankrupt each week. The president recognised
his number one priority was to end the depression. He assigned
this vast task to himself to manage personally.
He appointed the best people he could find to his cabinet and
explained his master plan to them. He gave each of them plans
that would lend support to his personal job of beating back the
depression. He created the New Deal and put into effect a vast
number of programmes to get the economy moving. He worked at this
intensely and, eight years later, the recovery had advanced so
far that he could declare war on the Axis powers.
Roosevelt is a classic example of a manager working totally on
his objective with singleness of purpose.
TOP
BUSINESS CLASS WITH THE BARD OF AVON
Shakespeare knew a thing or two about people - things that
can be used today to great advantage
Picture yourself sitting on the banks of the meandering Avon river
in the English heartland, at the June Meeting of 1596.
You and your colleagues are listening to Will Shakespeare, who's
taking a break from writing plays to moonlight at an outdoor business
managers' class.
The Bard analyses business complexities and offers reasonable
solutions:
'Sweet are the uses of guile and confusion, along with evasion...and
the never-ending false excuses for failure to turn a profit,'
he explains. He also tackles that great adversity, the failure
to cut a profit (which he dubs Love's Labours Lost): 'It is like
a snake, venomous and ugly, which yet wears rubies and emeralds
in its headdress.'
'Gentlemen - and ladies - what is it that I am focusing your attention
on? It is this: Quid for quid, shilling for shilling, we can't
hear what the customers have to say to us. They are telling us
that we are blowing it - but good - when we don't listen to the
market but expect the market to fall at our feet.
'We regurgitate well-worn recipes from the plague fairy's menu
of excuses for poor results - when the market is letting us know
that we should not be so self-centred, that we should not spend
so much time sending excuse sheets to the media that we forget
the jewels in the serpent's head, just waiting for us.
'These sheets read like a Comedy Of Errors, A Midsummer
Night's Dream. You say you are losing business to someone
who's undercutting your prices, or to a new widget, or to an Acapulco
vacation or to a Happy Valley oat-burner!
'But the flaw, my good gentlemen, lies not in the heavens, but
in ourselves. If lost sales and lost cash flow and lost profits
are seen to be what they are, and if we put the blame on ourselves
(where it belongs) All's Well That Ends Well.
'Prithee', says Will, tossing into the stream a stone that skips
along the surface and makes many impossible rings, 'What do you
read? Only What, Me Worry? by Alfred E Neumann? You must
read the Golden Book that says, "Take thee to him some sweetmeats,
some almonds and dates, then lend an ear to his tales of woe.
Then at the golden moment ask him one leading question which friendly
forces him to make a judgement which is a decision to sign on
the line that is dotted." '
Shakespeare the business professor was right in 1596 and he is
right today. We must stop using the words 'I', 'my', 'our', and
other 'inward' statements. We must translate these into 'you'
statements. People have responded to this approach ever since
emerging man, millions of years ago, first put a price on a stone
axe or a mammoth's skin.
Nobody ever has to buy from us. People do buy from people,
but only after we have made them want to buy from us. Price
is not even a factor and quality is hardly one.
You want proof? Consider Perrier water, sold at pregnant prices
in non-returnable bottles which come all the way from 'Gay Paree'.
People stand in queues to buy the stuff, even though they probably
can't tell Perrier from Apollonarius or any other water that costs
far less.
More often than not, the magic quality is the person making the
offer. We must first understand what the customer wants.
We know already that he doesn't accept statements that include
'our company' or 'we' or 'I'. Try practising for 48 hours making
only 'you' statements, and fine yourself each time you break the
first law of empathy and say 'I' or 'We'.
Then turn to your customer and ask him two of the most important
questions:
What interests you most in new products?
What interests you least in new products?
The answers to these can only lead to further questions along
the same course. This technique never fails. The customer stresses
the factors that hit his hot button. Once we know his hot button,
we only need to press it by selling back to him the same ideas
he has already told us he wants.
Customers think we are the smartest people in the world. They
buy and they can never explain why they bought. But we know: They
were inspired by us showing an interest in them. We give them
what they want.
It takes two to make service perfect: The seller and the buyer,
and you are responsible for your part of it. Once an order is
written through the power of our interest, our inspiration, then
the rest is downhill.
Cash flow is the engine that makes the business locomotive go.
Once we have cash flow, it is only a minor incidental to delegate
the paper shuffling, press the computer buttons, sweep the office
floor and count the beans.
But until cash flows from a sale, there aren't any beans for accountants
to count.
TOP
THE ULTIMATE YARDSTICK: CASH FLOW
Cash flow is becoming the gauge of management performance
In assessing a company's ability to show profits and grow in a
sound manner, the accounting and banking professions have become
increasingly sophisticated in their 'guesswork' as to how past
success and failure can be used as a guide to future performance.
The banker who evolves methods of analysing published corporate
data effectively will reduce his loan losses. A seller of goods
who can read large customers' annual reports will reduce his bad
debts. An investor who can determine the strengths and weaknesses
of a company from its published figures will maximise his capital
gains.
But there are no foolproof ratios or analytical tools for pinning
down unequivocally what shape a company is in. Nevertheless, the
rend is toward increasingly close scrutiny of information that
discloses whether an individual manager is succeeding in pushing
down costs while pushing up incoming cash flow.
Originally, great emphasis was places on analysing a company's
balance sheet. Later it was realised that assets by themselves
are no indication of how well managed a business is, so profits
took over as the test of good management. It took a considerable
time and many business disasters (and not a few disillusioned
shareholders) before it was realised that because of the different
ways profit could be brought onto the books, the profit and loss
statement could be misleading, especially with regard to solvency.
The next step was the source and application of funds statement.
This statement tells us something about management policies. It
tells us how the funds were generated for the business (the sources),
how the funds were allocated (the application), and how successfully
the management reacted to changing conditions.
Cost of funds is the critical issue. Clearly, a reduction in the
cost of funds is another way of tackling the problem of ensuring
that investment decisions are planned to make a return at least
equal to the cost of those funds.
A manager who is able to structure his area of the business so
that his controllable costs are low and his customers buy the
largest volumes on the shortest possible payments terms, will
clearly be able to obtain higher returns at lower risk than a
manager who ignores these aspects.
In a soundly managed company, there is really only one major decision
each manager has to make: A 'cash flow' decision. Everything the
does must be decided by testing it against cash flow considerations.
Recently, a leading firm of London stockbrokers produced a report
entitled Asset Profitability. The purpose of the report
was to identify major UK companies, not by classical yardsticks
of return on assets employed, but by the cheapness of the shares
expressed as cash flow per share.
It can be seen that increasing emphasis is being placed on management's
ability to use the cash at its disposal by allocating it to productive
use in the most profitable way. And analysts, banks, investors
and suppliers are increasingly looking at companies as organisms
that raise funds and put them to work to produce a positive cash
flow. For this reason, increasing productivity of cash should
be the aim of every manager. Productive allocation of cash resources
will lead to profits but, more important, will lead to positive
cash flows.
There are two major reasons for companies failing to create positive
cash flows:
* Lack of controls. Some companies, generally smaller companies
but even sometimes quite large companies, do not plan, do not
maintain a cash flow forecast and do only historic, 'rear-view
mirror' accounting, which reveals where the company has been,
but not where it is going.
* Lack of financial reserves. Some religions require a
tithe from church members - a percentage of all members' earning
to be sent to the church before any other expenses are paid. It
is prudent for a company to have a similar compulsory savings
plan, whereby a regular, pre-determined percentage of receipts
go into an interest-bearing reserve fund. This creates a pool
of money that can be drawn on in periods of adversity.
Also useful are financial investments that are highly leveraged
and run in an opposite way to the business. Thus, if the business
loses money, the hedges will come into play and offset the losses.
What action should be taken when the company is facing an extreme
period of contraction?
Sometimes it is too late to do anything: When the brown spots
appear on a banana, it is not the time to form committees to deal
with the matter. A well guided company will have a contingency
plan in place to deal with any variables that might arise.
When hard times strike, many companies lay off 'knowledge' workers,
such as research , marketing, sales, advertising, and others.
If these people are not required they should have been let go
long before. Usually, when a crunch comes, knowledge workers are
needed more than ever.
Often advertising and sales promotion are cut first, when in fact
this is a time when advertising and anything to do with sales
and customer service are most important. If anything will pull
a company out of hard times, it is cash flow. Customers are the
source of cash flow. It is therefore a serious mistake to cut
back on customer service, sales, and marketing.
TOP
A NEW BREED OF BOSSES FOR THE '90S
The role and skills of management will have to change drastically
to survive the 1990s
The best-managed companies I have seen of the mature type are
those with 'few generals and many sergeants'. The least effective
are those with many generals, each an 'empire builder' whose main
emphasis and total focus are on self-advancement.
Such a system thwarts harmony throughout an organisation, since
each general expends major effort on self-aggrandisement, on sacred
cows, and on defeating other generals within the company. These
self-servers cannot form part of a cooperative thrust to push
their company into dealing with strategic change and the future
of the company.
There are many advantages to having few generals and many sergeants.
Obviously, if the staggering complexity of modern business is
broken down into small, easily-managed units, and a sergeant is
put in charge of each (instead of generals handling big, clumsy
administrations), a few coordinators is all it takes to pull the
whole thing together.
These coordinators are not bewildered by the complexity of the
overall, but instead orchestrate the individual units responsibly
to harmonise with all the other units. The sergeants are easier
to train, (and easier to replace if necessary), and can perform
their own specialties with greater efficiency.
Management guru Peter Drucker has said that the most effective
executives he has observed were not especially intelligent, imaginative
or brilliant. Indeed, all too often the result of having too many
brilliant managers 'running for God' is bankruptcy or the company
being taken over.
Determining the type of managers needed for the new decade involves
recognising the changes that are coming and making certain that
the organisation can turn these perils into opportunities, with
an appropriate management structure. A few thought-starters:
* In past decades, moving people was difficult and costly. Such
a problem no longer exists because we now have the ability to
move ideas and information rapidly and cheaply without physically
having to move the person. This is one reason I believe we will
need less managers.
* Few managers have recognised that companies must adjust until
they are in a situation where a major proportion of business activity
will no longer be accomplished in-house, but will be contracted
out to specialists who can do the work more efficiently.
Many banks and insurance companies no longer process their own
paperwork. They contract it out to other companies who specialise
in this. Before the end of the decade, few companies will do their
own clerical work. This will free senior managers' time for important
'thinking' and planning, instead of wasting their time supervising
elementary cost centres.
In the US and Europe today, few airlines locate their reservations
personnel and computers at airports or home offices. If you are
in New York and telephone for a reservation, you will probably
be answered by a person in an office in Cheyenne, Wyoming.
The staff at this office also make reservations for a national
hotel chain, and take orders for mail order purchases for an organisation
that markets bibles, raincoats and luggage. The airline's multi-function
office is no longer a cost centre, but a profit centre. It is
managed by a sergeant, not a general.
Chicago architecture firms are having design drafting done by
Asian architects, who are more efficient and, because they pay
less tax and have lower operating costs, work for lower salaries.
They receive their instructions by fax. I foresee a trend for
businesses in general to contract out a major part of their detail
and clerical work.
This contracting out will increasingly extend to manufacturing,
both in industrial and hi-tech products, just as it now does for
soft goods such as garments. The time is coming when managers
will actually think, not just fritter their time away on details.
This will rocket their enterprises forward. Just as governments
are privatising everything that can be done by the private sector,
corporations will do no tasks such as research, accounting, market
surveys or anything else that can be done by outside organisations.
* I also believe that many enterprises will advance to shift work.
Capital intensive industries such as oil refineries or production
lines have for a long time worked three shifts a day. Technology
may give rise to equipment for other sectors that is so sophisticated
(and expensive) that the owner must operate three shifts to avoid
having to buy several units to do the same amount of work.
* In the future, there will be more 'partnering' and fewer local
enterprises. Even small industries will be compelled to go global.
The funds and knowledge required to do this will make alliances
necessary through joint-venture, cross-licensing, subsidiaries,
minority participations, distributing or marketing tie-ups and
many other cooperative ventures.
There will be fewer multinationals and more alliances. This means
that skilled negotiating sergeants will be necessary. This is
a role that today's efficiency-specialist managers cannot fill.
What will actually be required at the general level is a Renaissance
man, a new Leonardo da Vinci. He cannot be an 'accountant-type'
person, an operations specialist who can only deal with absolutes.
He will have to be an all-rounder who can coordinate the designing
of a flying machine, the painting of a Mona Lisa, and arrange
business marriages in Albania or Zambia. Those tasks he will coordinate
to be managed ultimately by his sergeants.
Where will these Renaissance men, these advanced-ability managers,
come from? Obviously, from the ranks of young men. For all too
long, business leaders have had an almost total lack of respect
for youth - stating that they didn't have enough experience. They
overlook the fact that Alexander the Great died at 30, but achieved
more than all bar a handful of people have managed since. The
pages of history are filled with splendid accomplishments by young
men.
The American system has been to promote a person to chief executive
when he is 60, and to retire him at 65! Thus the CEO only thinks
in terms of short-term profits, with little spent on research
or improving profits after the next five years. Too often, his
wish for a place in posterity means that it is in his interests
to diminish the company's future to make his time at the
helm stand above his successor's.
It is the young person who will be able to respond to the next
decade's massive changes. The older men will be required to train
them, and since they are no longer looking for personal advancement,
they are in a position to do this.
In the new order, I see no place for middle-aged people who are
too mentally set in their obsolete ways. They will become redundant.
The future will be solved by young men guided by the elderly.
When Lord Mountbatten was asked how he had obtained so many talented
officers, he replied: 'I dig deep in the barrel and find the young
men.'
* The role of director varies from country to country. What is
required is a completely objective board of directors, who have
nothing whatever to do with operations. Their task will no longer
be merely to pick up an extra US$5,000 for two or three social
meetings a year.
Their function will be as 'outside directors' who inspect, question,
and completely examine the company's activities. The British-originated
managing director role should be eliminated. How can an MD, sitting
as an equal (and often chairing a meeting) be expected to criticise
or objectively analyse his own performance?
Directors who operate the company are an impractical breed. They
change the directors' meeting into a clubhouse, old boy atmosphere
where it would be 'impolite' to criticise. Opportunity for better
progress in diverted in such meetings by operating directors,
using the meeting to praise their own, alleged accomplishments.
Americans often have 'celebrities' as outside directors, who are
simply for show. This is utter folly. When Continental-Illinois
Bank had the biggest bank failure in history, it was revealed
that the outside directors were merely lay persons who had permitted
disastrous management policies and practices. They were all promptly
fired.
Already, some laws and regulations are being enacted requiring
outside directors to have had experience in one or more of the
vital areas the company is involved in. They must be in a position
to examine finance matters knowledgeably, or scientific aspects,
engineering, marketing or other disciplines.
Some regulations have made directors legally responsible for malpractice
or inefficient operation that damages the shareholders' interest.
Singapore, for example, deals harshly, as it should, with directors
who allow a corporation to go bankrupt.
The New York Stock Exchange now requires listed companies to have
an audit committee of directors who understand finance, and can
detect malpractice and anticipate problems before they occur.
Directors must be able to look at events with fresh eyes and to
employ lateral thinking. Outside directors should be able to make
practical suggestions on how changing circumstances should be
dealt with.
The director's job must no longer be just a sinecure. Directors
must do what their title implies: Actually direct the company.
Naturally, they must be adequately paid in order for the company
to attract directors of high calibre and to reward them for the
heavy responsibility they bear. Above all, the starting point
for improved management is to restructure the very nature of boards
of directors.
TOP
DON'T BE A SNOWPLOUGH...
It's too easy to blame a downturn rather than look for the
real problems
Are you a 'snowplough' manager? The recent more or less world-wide
recession has revealed that there are thousands of these people
in both large and small companies.
'Snowplough' managers are those who just pile up problems and
push them forward. They hope that the climate will improve and
melt this huge pile but they do absolutely nothing to ensure that
it will. They have delusions that their problems are recession-related
and as soon as the economy picks up all will be well.
The recent spate of 'down-sizing' and loss-cutting exercises to
prevent companies going bust has revealed that most of the major
problems were structural. As often as not waste, duplication and
poor performance were found that should have been corrected months
or years before, when there was no pressure.
Many companies computerised to cut costs by reducing staff, but
never shed the employees. Some managers invested poorly and took
on too many new technologies in one go so that when the recession
struck they found that they had several loss centres requiring
major surgery at the same time.
What may appear simple, but is far from it, is gathering information
about a company's activities. Far too many managers spend most
of their time handling what, when put to the test, are trivial
matters, rather than getting involved in the real heart of the
business. They rarely go to the research and development department
where they can evaluate progress on their products, or spend a
few days with a salesman observing and asking questions. They
do not capitalise on work force participation, which is essential
in modern business.
Most bosses hardly know what all sections of their own company
are doing let alone what their customers, competitors and suppliers
are doing, thinking and planning to do. When a life-threatening
problem is encountered by a company, it may have not just one
cause, but many. This is only one of the many reasons that good
information gathering systems are essential.
An example of the necessity for detailed information is General
Motors (GM) of the US. After a multi-billion dollar loss in one
year, shareholders demanded new management. For many years, until
the US recession struck, GM bought from its established suppliers
at whatever price the suppliers demanded, even if they increased
their prices.
The new management brought in an experienced European purchasing
agent who forced all suppliers to tender for every order. Any
bids that were too high were returned with a note saying: 'Unacceptable
- submit new tender.' He got at least a 10% reduction on previous
prices and with many he obtained a 50% or more reduction.
Now the management has learned the necessity of cutting costs.
Last year, GM's parts department, which has always operated as
a separate, semi-autonomous group, failed to produce a reasonable
profit. Corporate management has given the parts department a
profit target for 1994 that it must meet. If it doesn't the department
will be closed and its work done elsewhere. The department's problem
has been identified: Too many of the parts are made in the US
and other high labour cost countries. The solution is expected
to come by switching to parts manufacturers in high productivity,
low labour cost countries such as Mexico.
Hindsight reveals all. It is not difficult to see that GM's problem
was not the recession but was structural. The problems could have
been solved years earlier, and shareholders would not have had
to take a loss of billions of dollars. Sound management must be
based on a business plan that solves problems in advance, before
they threaten the health of the organisation.
I once worked as a management consultant for a company in Akron,
Ohio, that made fire-fighting equipment, such as brass nozzles
for hoses. The firm was profitable but did no market research
because the directors believed its products were already the best
in the industry so they did not need to be improved.
That naturally was a structural error. When a company has the
best product, that is the time to improve. We visited firemen
to find out their opinions of the company's products. They told
us that they wanted lighter nozzles so they could move up a ladder
faster and so that it needed only one fireman to carry the hose
and nozzle into a hazardous area, thus not risking two firemen's
lives. It took only weeks to redesign the nozzles with a magnesium-based
alloy which was about half the weight of the brass nozzle.
Then we looked further into the company and found that the products
lasted so well that there was not much repeat business. The answer
was to develop a series of consumable products to sell as well.
The company subcontracted to a chemical company the manufacture
of fire-fighting foam used especially on electrical equipment
where water cannot be used. It also developed a chemical which
reduces the surface tension of water and so makes the water go
twice as far in dousing a fire.
The products were sold through catalogues which were posted to
every fire department or industry that kept fire-fighting equipment,
such as chemical factories and oil refineries. Once it went into
the catalogue, orders flowed in, since fire-chiefs knew the quality
of the firm's other products and liked to buy as much as possible
from one supplier. The series of consumable items added much cash
flow to the company.
Snowplough management is flat-earth thinking and not reliable
in today's world of changing economic conditions and aggressive
competition. When there is no urgency, that is the time
to improve.
TOP
HOW TO AVOID GOING BUST
Tens of thousands of companies go bust every month. Here's
how to avoid doing the same
Why do businesses fail? Generally, they don't. What fails is their
management. In many advanced countries an alarming number of firms
- sometimes tens of thousands a month - have been struck with
'negative financial reality'. They've gone bust.
The cost to society of this great rat-hole is horrendous. Broken
homes, unemployed workers, unpaid creditors and a host of evils
follow in the wake of business tragedy.
Let's have a closer look at this phenomenon, and try to pin down
who it happens to, and why.
* What exactly is a business failure? A workable definition is
'a situation where a business's liabilities exceed the value of
its assets.' In practice, firms are generally liquidated when
cash flow combined with credit is insufficient to satisfy current
debts. Money-losing companies generally continue as long as cash
flow and credit hold up.
* What types of businesses fall victim? Before about 1970, virtually
no large company ever became bankrupt. But since that time even
billion-dollar oil companies have filed for bankruptcy.
But what is still true is that small companies are more vulnerable.
One reason is that, in general, both suppliers and bankers are
prejudiced against smaller firms. They tend to take longer to
act against a slow-paying - or non-paying - large enterprise than
they do against a smaller firm, because they equate bigness with
safety and security. This trust may be misplaced; what is perceived
as muscle may in fact be fat.
* Many studies have been made into the age of companies that fail.
These indicate that there are few companies - actually less than
1% - that fail in their first year. By contrast, 11% fail during
their second year, and 17% in their third year.
In the fourth, fifth and sixth years a modest, but steady, number
fail each year. After seven years, the propensity to failure drops
dramatically, virtually to zero.
These figures make sense; a new business has no cash flow except
that which it generates for itself. An old, established company
can make many cuts in overhead and still have a residual cash
flow from old, loyal customers, who order automatically.
It is interesting to note that the risk is reduced during a period
of high inflation, because inflation helps weak companies, protecting
the inefficient and reducing competition. Inflation is, after
all, too much money chasing too few goods, and at such times,
customers tend to be more interested in obtaining goods then they
are in price or service.
Companies with high capital investment and/or high fixed costs
are more vulnerable to collapse than companies with low capital
investment and low fixed costs.
For example, a distribution business can remain strong through
a crunch because it has little capital equipment and most of its
assets are accounts receivable and inventory.
By contrast, a manufacturer has a higher propensity to failure
because it usually has to go on servicing debt on machinery, equipment
and buildings at a time when these are less capable of producing
cash flow. The maintenance costs of a hotel that has 30% occupancy
are almost as high as when it has 90% occupancy.
On the flip side, however, banks often fail to recognise the true
liquidity of assets. They fail to understand, for example, that
a distributor's inventory and accounts receivable can be liquidated
quickly in a crunch, while heavy machinery, bricks and mortar
require many months to liquidate, even in the best of times. For
this reason they may take a tougher line with a distributor than
a manufacturer.
The root cause of failure
By far the most common generator of failure is lack of planning
or poor planning. Most managers don't plan to fail; they just
fail to plan. Every company should have a 10-year plan. As each
year passes, one year of the plan is dropped and a new year added
at the other end. They must also have a one-year plan and a 12-week
plan. All plans must be threefold:
A - Best case results
B - Probable results
C - Worst possible case results
Cash flow should be aimed and driven in the direction of A (best
case), but all activities must be planned with recognition and
preparedness for C - the worst possible case. The manager who
plans in advance to cope with adversity when it strikes will shield
the enterprise from harm in a worst-case scenario.
Even the squirrel knows that he must save nuts in the summer for
the winter that will surely follow. The farmer who neglects to
plan for a drought or a flood ends up eating his seed-corn, which
often turns into his last supper.
It is a strange quirk in nearly all people that they do not want
to admit they have failed, even to themselves. We often read in
financial periodicals that a company had poor results because
of such things as shortages, high cost of raw materials, low prices
for the commodity they produce, excessive interest rates, a drought
or a strike, and so on. There is no limit to the smorgasbord
of excuses.
That's what they are - excuses to avoid admitting the truth: 'I
failed to plan for the condition that occurred.' A management
that does not anticipate any and every possible problem is betraying
the shareholders it works for.
Some common contributors
On top of lack of planning there are a number of other contributory
factors:
* Striving for larger volume through too small a base of customers
instead of doing small volume with a larger customer base. Business
history is rich in cases when a business obtained 50% or more
of its volume from only a few - often only one - customer. Security
and safety can be found only in spreading risk across many customers.
Then, when you lose a customer, you are not happy about it, but
you don't lose any sleep over it.
* Over-trading. Many small companies fail because of their success.
They expand business volume, which involves selling on credit
faster than cash flow can support.
* Lack of diversification. If a company sells one product or only
one product line, a strike or shortage of supplies, or even a
super-aggressive competitor can emasculate it. But if it has diversified
with unrelated products, it is unlikely that all will go sour
simultaneously. If the company becomes locked-out of the peanut
business, it can still sell the popcorn.
FUNDS AS A FACTOR IN FAILURE
Most businesses have features of their operation that distinguish
them from their competitors. Most industries have their own trade
customs, their own ways of 'doing business'. So setting out specific
reasons for management failures, whatever the company's activities
and methods, might at first seem impossible.
But there is one thing that all businesses have in common. They
all use funds. Combined with the skills of the employees, it's
funds that create the profit.
The investment of funds is the one common denominator in every
business decision. So let us first determine briefly what is meant
by 'funds'.
Funds include all the monetary resources available to a company
- shareholders' funds, bank guarantees, bank borrowings, supplier
finance, and cash on deposit in the bank.
Management of funds means raising funds at the cheapest cost to
the company, and allocating those funds to specific, highly productive
uses within the company.
Funds are the most precious resource available to a business.
They should be treated as such. The manager must be satisfied
that his company is getting the greatest possible value out of
every dollar invested.
Availability of funds, whether generated within the company or
raised on competitive terms from outside, gives management flexibility.
With funds a company can:
* Diversify its activities
* Increase its dividends
* Expand geographically
* Survive market downturns and recessions and, of course, pay
bonuses and higher wages and salaries to all its people. Managers
cannot receive increases if there aren't enough funds - indeed,
they may even be forced to accept reductions.
Funding is both the start and the finish of the working capital
cycle. The success of management in using funds is measured by
the funds that accrue after completion of the working capital
cycle. The margin of funds earned by the day-to-day transactions
of a business is what pays for:
* The cost of borrowed money
* The shareholders' dividend
* A reserve against inflation and contingencies
* Expansion of fixed and current assets
Unless a manager knows the cost of each constituent part of his
trade, he will not know until the end of a transaction whether
he has turned a profit.
If he has both planned his operation and studied its costs, he
will be able to predict (with reasonable certainty), how much
profit will be made, and when that profit will accrue in the form
of funds.
Frequently, insufficient consideration is given to what constitutes
an acceptable level of profitability. This often stems from a
misunderstanding among middle managers and even, sometimes, senior
executives, about the use of funds within a company.
What is often not understood is that funds cost money. They are
almost always available to sound companies - at a price. It is
this cost of funds that the eventual profit must cover. Failure
to cover the cost of funds will mean, at the very least, diminishing
return to shareholders. At worst it will mean insolvency and liquidation.
Each company will fund itself in different proportions of equity,
long-term and short-term debt. No two companies' businesses are
entirely alike, nor are the ways they structure their debt. But
funds always have a cost, wherever they come from, and financial
managers must be able to work out what the average cost of funds
to the company is.
Each company has to determine what it pays for funds, taking into
account its particular asset and liability structure, its working
capital cycle, its debt and equity servicing requirements, and
its short- and long-term plans for earnings growth.
The overall cost of funds is a weighted average of the costs of
interest-bearing debt, non-interest-bearing debt, and equity.
This cost figure, expressed as a percentage, must be included
as a factor in all decisions involving the use of financial resources.
While it should not be the one and only arbiter of any investment
decision, any investment decision must be tested against it.
What conclusions should be drawn with regard to the allocation
of funds to those areas that make up 90% of companies assets -
fixed assets, inventories, debtors and cash itself? The conclusion
is that there is cost to carrying all these items, and
that that cost can be quantified and must be covered in order
to maintain acceptable returns on shareholder funds.