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.



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.



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.



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.


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.



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.



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.



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.



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.


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.


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.



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.



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 con€ierges 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.


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.


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.



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.



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.



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.


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.


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.



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 Úlite. 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.


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.


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.



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'.


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?


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.


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.


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!'



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.



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.



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.



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.



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.



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.



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.


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.