Sunday, January 25, 2015

Cash Management - Now More Important Than Ever

This Blogger CEO has written that Cash Is King.  That adage is now more important than ever because many multi billion dollar corporations have as an objective delaying payment for goods and services as long as possible to work off their supplier's money.  It is certainly not that they can't pay sooner, but rather that they want to maintain the float on funds as a source of income for their firms.   This is understandable; but is it wise in the long run.  Procurement Departments are very focused on payment terms seeking longer and longer days, or even months to pay for the goods and services they are receiving.  In many ways, it is just a game because it can force supplier's to use their credit lines, assuming they have them, to fund operations.   When that happens, well run companies must factor the cost of funding into pricing, so in the end the client is paying for delayed payment terms one way or another.   Many clients may not care, even if it results in higher fees and even interest charges because they assume that their monies can be better invested in other ways. 

This trend particularly hurts smaller companies that may not have access to credit lines.  Once they have delivered goods, or implemented services, they often cannot afford to float the business for a big client.  As such, they might have to decline the business.  In the end, it hurts big clients because less competition will usually result in higher prices.  In addition, smaller companies are often more flexible and more innovative than bigger companies, so what the client may find over time, is less flexibility and higher prices as the trade off for longer payment terms. 

All companies need cash in the door as soon as possible to fund operations.  So the goal of every supplier is the shortest payment terms possible.  That could mean 30, 45, 60 or 90 day payment terms; but usually not longer.  In some cases, suppliers may provide a discount for quicker payment terms, recognizing the cost of money.  Whatever the arrangement, this is just squeezing the balloon.   It would be a fool's game to assume that longer payment terms do not impact the price of goods and services, one way or another.  Failing to recognize this factor is a road to bankruptcy.     

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Friday, January 23, 2015

Niche Marketing - Choose Your Clients & Customers Wisely

Small or Mid Sized companies need to choose their clients and customers wisely, particularly when competing with bigger companies.  Since resources are finite, it is important to define a Niche for specialization.  The Niche could be regional, national, or international.  The Niche could target certain size clients, with a particular mix of business as a requirement for Sales focus.  This can be  difficult because very often today when Procurement goes out to bid they will cast a wide net to test the market.  The temptation to bid on every Request for Proposal that comes in the door is great.  Certainly, sales people, working on commission, would prefer to practice the Spaghetti Theory of Sales, which is to throw every deal against the wall in the hope that some with stick.  The problem  with this approach is that it becomes less possible to focus on the deals that would be in the best interest of the company.

Completing increasingly complex Requests for Proposal, that come from major clients, cost time and lots of money.  Before doing so, it is critical to ask many questions of the client to determine if bidding makes any sense.  If the prospect declines to answer those questions, the odds are pretty good that the bidding process is just a requirement every three years, rather than a real opportunity.  If we can't get good answers to our questions that would allow for an intelligent bid, we pass on the opportunity. 

Further, it is important to establish a client or prospect business profile that is most advantageous to the company.  In our case, this relates to the mix of business.  If the mix will not provide suitable profitability, then it makes no sense to bid.  Since today clients often go out to bid every three to five years, it would be a mistake to absorb losses up front believing it could result in a long term relationship.  More often than not, the client that requires that the supplier lose money to get the account, will change suppliers as soon as a fee increase is requested. 

There are some clients that believe it is a privilege to do business with them just to have their names on a client list.  They expect major investments up front with no guarantee of future business.  These companies often go through suppliers every few years looking for lower and lower pricing.  This CEO Blogger is not interested in that business. It is very disruptive to an organization and will only lead to big losses and lay-offs in the future.   

It is critical to identify a Niche for Sales success.  It is just as important to focus on clients and customers that are likely to result in a long term business relationship.  If a client has a history of changing suppliers every few years, it could be a sign that all that matters is price.  In a cost driven world, partnerships are still the key to maintaining successful business relationships. Partnership are more likely when both the supplier and the client are suited for each other; just like in any marriage.  Business Partners strive for constant process improvements and cost savings in the normal course of doing business.  This is the sign of a successful business relationship that evolves over time and only gets better. 

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Thursday, January 22, 2015

Compensation & Benefits - Getting The Right Mix

Many employees, including Managers, often do understand the concept of total Compensation and Benefits.  Wages are not just about base salary or even bonus, incentive or commission; but rather the total weighted cost of employment, which must include benefits like vacation, sick time, pension and various other benefits.  In addition, the company is also contributing its share of Social Security and Medicare reimbursements, which can be 7.65% of salary or more depending on country.  So when all is said and done, it is the total load that matters.  Beyond regular wages, companies often pay 25% - 40% of wages, depending on family size, to support an employee.  Of course, this does not include facility and equipment expenses to pay for the space and or employee equipment usage necessary to support an employee. 

This is the reason adding headcount or Full Time Equivalents (FTE's) are so closely managed by most companies.  FTE's usually make up 65 - 70% of a company's expense line.  As a result, in our case, as the CEO of the company, I approve all new job actions, headcount and even replacements because it is such a big part of our expense line. 

In dealing with Compensation and Benefits, all aspects represent trade off's.  Most jobs involve base pay; though some are straight commission based on industry practice.  In the private sector, many exempt jobs also include various incentives, bonus or commission plans presumably to drive behaviors.  Getting it right can be complex.  It took this Blogger CEO 25 years in business to figure out that there needed to be a correlation between Sales Commission and Profit Margins.  The higher the margins achieved, the higher the commission percentage.  Otherwise, if commission percentages are fixed, there is little motivation for the sales person to achieve higher profitability for the company.  Further, bonus plans really should be predicated on pre tax profit in a way that represents profit sharing earned by achieving individual performance objectives.  Transactional incentives should drive specific behaviors to achieve the desired end result.  And, all of this must be weighed against the cost of benefits to come up with the total package. 

Getting the right mix of compensation and benefits is as much a science as it is an art.  And, this is a never ending process to some degree based on trial and error.  Each year some tweaking may be necessary to drive the right behaviors and properly reward employees for their contributions to the company.    

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Tuesday, January 20, 2015

Losing A Big Client - Opportunity For Change

In the life of every company, the day will come when a big client is lost.  Today, this can happen even if great service was provided for a variety of reasons.  More and more Procurement Departments at major companies are controlling buy decisions.  Procurement Managers, presumably as a result of their objectives and perhaps bonus structure are often looking for short term gains in terms of cost savings.   In the process, great service and technology are a given, so they are usually not the final determining factors in choosing a supplier any more.  The notion that a client receiving great service would change to another supplier just never happened 10 or 15 years ago.  Instead, the concept of partnership was used to achieve process improvements and cost savings as a normal aspect of doing business.  This Blogger CEO won't say this is all dead; but I will say that the good old days were better when relationships really mattered, particularly during tough times.

In any case, when the day comes that a company does lose a big client for whatever reason, no matter how painful, after a short grieving period, which is normal and trying to learn from the experience, it is a great opportunity to reinvent the organization from top to bottom.  First, take a look at the company's businesses in terms of viability and profitability.  This could be a good time to change direction and or emphasis.  Cards talk and numbers don't lie, which means use numbers to determine company direction, rather than emotional attachment.   A good manager must know when to hold them and when to fold them.  It may be time to limit investment in some business, while increasing investment in other businesses that could be more profitable. 

As part of the process, doing a talent assessment makes sense, as well.  Losing a big client could result in downsizing and lay offs.  It is a good time to determine the talent needs of the organization going forward.  Obviously, employees directly tied to the lost client, if they can't be reassigned to other clients, or functions, may have to be laid off to cut costs.  However, if it makes sense for the company to change direction or strategy, it may be that other employees, working in other functions and or locations are no longer a good fit, resulting in elimination of those jobs, as well.  This may seem heartless; but at the end of the day, the CEO's job is to insure the survival and financial stability of the company in order to fight another day. 

Finally, a facility assessment should be done.  If the loss of a big client results in having too much office or manufacturing space, it is best to get rid of unnecessary space as soon as feasible to eliminate expense, even if it results in a write off. 

Losing a big client is never a positive experience; but it can be a real opportunity to actually grow a company.  Most important, it is not the end of the world.  When times get tough, the tough get going.  Good managers use use losing a client as an opportunity to learn from the experience and if necessary to change direction to insure the success of the company. 

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Monday, January 19, 2015

Losing A Good Employee - An Opportunity For Change

This CEO Blogger has been managing people for over 45 years, in one capacity or another, either personally, or through direct reports.   As far as I am concerned everyone at our company works for me.  In doing so, while I directly have terminated very few employees, I have been involved in approving the termination, or lay off of many employees through my direct reports.  Terminating employees for cause, when necessary, though often unpleasant, is just part of a good manager's job.  It is actually more difficult to lay off employees in a downturn, or for other business reasons; but that responsibility too comes with a manager's job title.  Losing a Good Employee to voluntary termination is in many ways the most difficult and troubling aspect of a manager's job, since no one wants to see a Good Employee leave the company. 

It happens for a variety of reasons.  Some Good Employees that leave may think that the grass is greener someplace else in seeking another career opportunity.  The reality is usually not so; but it may seem so because of a few more bucks, or perhaps a new job title, or role.  Good Employees can usually do just as well, over time, staying right where they are; but in the short term, perhaps leaving does provide some opportunity for career advancement.  More often than not a Good Employee leaves the company because he or she does not have a good relationship with his or her direct report manager.  Over the years, I have been told by certain employees that if forced to work for a particular manager, that they would quit.   If departures happen frequently because of a particular manager, it is probably time to deal with that manager.   Good Employees often leave to go to the competition, or sometimes to try something new outside the industry.  In some cases, Good Employees retire, or stay home to take care of children.  In a rare case, a Good Employee may die prematurely, which is probably the hardest departure to accept. 

However, whatever the reason a Good Employee leaves the company, it is never the end of the world.  Life always goes on.  This CEO Blogger has seen other employees go into a real funk when a Good Employee leaves, as though the company will cease to function.  Of course, that is ridiculous. When dealing with anything bad that happens in business, or even in life, should a Good Employee leave the company, a good manager allows him or herself a short time to grieve and then immediately moves on to Plan B.  Actually, when any employee leaves the company, for any reason, it is a great opportunity to take a hard look at the job function and the company in general.  Sometimes when a Good Employee leaves, it forces decision making that probably should have happened anyway and sooner. 

It may be time to change direction for the department, division or subsidiary and or to eliminate the job entirely giving out responsibilities to other employees of the company.  One employee leaving could create a promotional opportunity for another employee and or it could be a chance to hire someone more experienced and or talented to replace the employee that left.  When we have a Good Employee leave our company, we always turn lemons into lemonade, one way or another.

This Blogger CEO has more than 1500 professionals in my Linked In from both within and outside our industry.  These are people who could fill lower level jobs all the way up to senior managers.  I will accept a link to anyone that I think might benefit our company one day, one way or another.  When we have a job opening, I frequently check my Linked In to identify candidates that might be suitable.  I contact those candidates to determine interest in our job opening and to arrange  interviews.  In many ways, I am our company's Recruiter in Chief, which I see as a good use of my time, since we can only succeed by hiring and retaining good people.  We have hired several people from my Linked In contacts.  So while losing a Good Employee is never positive and can be challenging until a replacement is found, or reorganization is accomplished, it really is an opportunity to bring in, or to advance other talent that can benefit the organization.   Most important, all employees should see losing a Good Employee as an opportunity to benefit the organization. 

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Wednesday, February 5, 2014

Driving The CEO Crazy - Pretty Easy To Do

As a CEO for 23 years, I have concluded that smart people in management can often do some pretty dumb things, sometimes Me included.   Good management is about setting priorities and good old fashioned common sense and not just about numbers and stated objectives.   Many times managers are so into their piece of the puzzle that they fail to see the big picture.  Obviously, CEO's in particular are paid to see the big picture and bring focus, discipline and passion, the elements necessary to success in business and in life, into every business discussion. 

And, when common sense is lacking, it can cause a CEO to talk louder as many times occurs when talking to someone who is deaf.   People often believe if they just talk louder to a deaf person that the person will finally hear what is being said.    The same can be true when discussing something important with a manager that just fails to listen to what is being said.    This drives every CEO crazy. 

Sometimes the building can be on fire; but managers fails to smell, or see the smoke around them because they are so busy focusing on their priorities, which for the moment may be irrelevant, than to recognize that the building is collapsing.   Most CEO's would have no patience for this inability to properly prioritize work to deal with what is really important in terms of the mission of the organization.     

Successful CEO's see the train coming long before anyone else even knows that there is a train on the track.  Some managers never see the train coming until it runs them over in the form of a job termination and then they wonder what the hell hit them.  Driving a CEO crazy is actually pretty easy.   Any manager who lacks common sense, or who cannot prioritize work effectively, in keeping with the organization's mission, is probably headed for the unemployment line.  If and when it happens, they are likely to be standing in line with other terminated employees that share the same weakness.       

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Sunday, June 23, 2013

The Role of the CEO

As CEO of a mid sized global company for many years, it has become clear to me that the CEO is not only the keeper of the company's vision and image, but perhaps the only person within a company with the big picture.  No matter how talented and smart a senior management group, each member comes with their personal responsibilities as a filter related to decision making.   And, it is so easy to get stuck in the muck of daily operations that very often senior managers and other lower level managers, in particular, just cannot see the forest for the trees. 

If the ship is going in the wrong direction, only the CEO, as the final authority within a company, can right the course.  And, if the ship is going too slowly because of other real or perceived priorities, it is the CEO's job to re-prioritize what is happening within the company to focus on more critical priorities in the best interest of the company.   CEO's are inherently impatient.   We want everything to happen faster.  There is a natural tendency in every organization to slow things down and to some extent, it is probably a good thing to allow for proper due diligence to avoid sinking the ship.   However, since we are all going to die and some of us sooner than later, the clock is always ticking. 

If not careful, weeks turn into months and months can turn into years before meaningful change occurs.   It is the CEO's job to make sure that this does not happen.  Failure to do so will result in the demise of the organization, which can never be an option.    

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