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20 Positive Business Minutes messages :
Theme: Corporate Turnaround Dr Michael Teng with Positive Business Minutes on News Radio 93.8
First week: Finance/Administration Companies get into trouble because of poor financial controls and administration. The first principle on “Corporate Turnaround” this week is: Somebody said: “Revenue is vanity, profit is sanity and cash is certainty”. You cannot pay rent with revenue or profit, you can only pay rent with hard cash. This is why cash is the lifeblood of a company. Just as a critically ill person needs urgent blood transfusion, an ailing company’s immediate lifeline is cash, cash and more cash. In rescuing the company, a turnaround manager must find ways to cut cost, improve short-term liquidity, and at the same time, negotiate new terms with the banks. Fresh funding is important to kick start the system and create stable platform for growth. Cash is an asset. It is needed to buy essential items such as raw materials. Mounting inventory or receivables is the first warning of declining business, even while your income statement shows profits. Also, one should not confuse borrowings with positive cash flow. Sales collected is the only true cash flow.
In order to survive, a sick company must do rigorous cost-cutting, unless it has an understanding bank or creditor. While this may save the business, it usually leaves behind a demoralised workforce and the problem of rebuilding confidence and motivation. Downsizing, delayering, outsourcing and business process re-engineering are other common prescriptions for cutting fats. But these medicines are only part of the answer. A basic place to look for fat in a firm is in its people. The people are the drivers that produce business fats or muscles. But care must be taken to cut costs without injuring the muscles and the organs.
Account receivables are monies that your customers owe you for whatever they purchase from you. When the customer pays you by cheque or credit card, the purchase is entered as an “account receivable” on the balance sheet, and remains there until the money is collected. It is not cash yet until your cheque and credit card amount is converted to cash in your bank account. Cash is money in the bank, while receivables are monies that you may collect at some future date if the buyer does not default on payments. In Singapore, many contractors run into problems with their receivables. The accounting standard allows for recognition of the profits and receivables before the money is collected. As the construction industry is going through a bad patch, many small sub-contractors though with huge book receivables and profits get into financial difficulties as the main contractors fail to pay up.
Principle 4: Litigation could put you out of business in a heartbeat (To listen, please click here) Many companies underestimate the potential gravity of getting into litigious situations. Their hard-earned revenues could just be siphoned off by litigations. In a lawsuit, the sure winner is the lawyer. If your company happens to be the loser, the financial impact of the damages could possibly derail your business overnight. The ramifications of litigation are serious especially in a country like China. From the outset, companies must understand the legal and regulatory issues at all levels, from state, provincial to city. Conflict and contract dispute resolution, remedies and legal recourse differ from region to region. This can be a potential minefield through which to navigate through. For example, state-owned enterprises (SOEs) have difficulty drawing the line between public and private business ownership. Therefore, understand the legalities fully before entering into partnership and joint ventures with any SOE. Don’t get on the wrong side of the law, especially if non-compliance creates safety hazards for employees or risks to your customers. Also, try to convince your creditors to extend the repayment period during hard times. Most creditors such as the banks would prefer to settle the matter amicably and avoid bad publicity.
Principle 5: Corruption is short term gain, long term pain (To listen, please click here) Purchasing and supply are areas for potential corruption owing to the Asian practice of offering gifts and entertainment to clients. Kickbacks are common in some Asian countries. Unnecessary purchases, family connections between purchasing staff and suppliers, unexplained wealth of purchasing staff and a lack of alternative quotes in buying items, are possible signs of trouble. It is wise to occasionally change the portfolio of the purchasing staff so as to prevent them from building a long-term cosy relationship with suppliers. Corruption is not only found in Asia. For every rat that you see, there are probably hundreds more hiding elsewhere. The West has its fair share of financial frauds and scandals –from USA’s Enron, Worldcom, Tyco, to Europe’s Ahold and Parmalat, and Canada’s Hollinger International Inc. Corruption happens with insider trading, abuses of executive powers or executives taking advantage of loopholes in corporate governance and financial systems. Curbing corruption is just like fighting the war against AIDS. There should be an upfront decision at the outset not to fall into this trap and a strong commitment to ethical business practices. In addition, there should be more stringent corporate governance, transparency, and tougher laws against errant parties. All stakeholders, from the Board of Directors, to shareholders and research analysts, should help to uproot corruption.
Second week: Management/People This week, I will discuss principles in Corporate Turnaround in the areas of management and people. Principle 6: Dead body stinks from the head (To listen, please click here) When companies start to slide downhill, the most likely reason is the poor quality of the CEO. The CEO’s incompetence, ineptness, carelessness or ego is the root cause of this state of affairs. Also, very often these CEOs have become addicted to the four Ps – pay, power, perks and prestige – instead of more profits for the company. Management failure, loss of market share, bad debts and poor financial management are the common manifestations of an incompetent CEO. The latter usually hires incompetent managers who may lack the expertise and business acumen to run the company’s business. As a result, the company’s growth may be adversely affected. Sun Tzu acknowledged the critical role played by generals or CEOs when he said: Strong leadership at the top is extremely important in these challenging times. While one person alone cannot change the world, the concentrated energy, ideas and enthusiasm of many people can effect the changes. A leader can jumpstart the process and provide the vision and direction. Without leaders, good results are a matter of random chance and therefore unsustainable.
Troubled companies are often the result of incompetent management. These people continue to fester and bring in incompetent sub-ordinates. One way to avoid this is to practise regular rotation of key management posts. Besides providing a fresh perspective on issues, rotational programs provide a way to identify future leaders and groom them for higher positions and responsibilities. Welch, the former Chairman of General Electric says that the smartest people in the world are those who “hire the smartest people.” He said: “Every time you hire someone who is not better than you, you have missed an opportunity, because if you got all the answers, who the hell needs anybody else.” To also prevent a rat from getting up the pole, top management should also have the discipline to remove “dead wood” in the company. Good management means not just hiring the right person but also firing the wrong hire and dead wood. This is good talent management. In a company, the ‘yes’ men tend to find favour with the top management. However, they are usually promoted to their level of incompetence. And of course, they are unlikely to offer dissenting views or criticize the company’s leadership. This is why top management should hire people with different views, especially if these are supported by sound facts. Principle 8: If you need surgery, call in the surgeon (To listen, please click here) When you need a heart by-pass, you call in a heart surgeon not even a general practitioner can do the job. Yet many troubled companies make this fatal mistake of not approaching the turnaround specialist for help but instead use self-medication. The trouble is, the management of some of these ailing companies behaves like a deer caught in the headlights, petrified and totally clueless on how to move forward. Very often, the CEOs of ailing companies refuse to ask for help for fear of getting criticised by the board or shareholders. And so the problems drag on till the company goes into downward spiral. With the recent spate of accounting irregularities and scandals, turnaround specialists are taking charge of distressed companies to get them up to speed again. These turnaround experts usually former CEOs and have significant experience in business, marketing , finance or operations. These turnaround specialists have gone through the rough route before and know what to do. The outcome has been very successful with the use of these turnaround artists. Called in by the creditors or board of directors, these specialists are a special breed of talent, as they have to be entrepreneurs, visionaries, redesign architects and crisis managers all rolled into one. So when you need a surgery, quickly call in the surgeon.
Principle 9: Unlock the corporate energy (To listen, please click here) Like a living organism, an organisation has enormous energy waiting to be harnessed by the right stimulus. This special kind of energy comes about when the staff are taking risks and meeting challenges. People experience this sense of exhilaration and vitality, coupled with a strong will to win, and a desire to belong. The creation of corporate energy involves everyone. It springs from somewhere deep inside people that makes them want to work with their heart and soul. Corporate energy drives employee commitment to superb service and empowers them to make positive changes. Senior managers often diffuse instead of focus, confuse rather than inspire. Successful organisational performance can be correlated to an active staff force which is having fun at work. The problem is, many managers believe that when employees are having fun at the job, they are goofing off. Corporate energy fuels companies to grow during good times and pulls them through the bad. It is unleashed when the top can demonstrate effective leadership and galvanise the rest to action. But the catalytic role in high-performance organisations is not restricted to those at the top. The real magic happens when leaders make sure that the catalytic agents are dispersed throughout the organisation.
Most people will work hard for money if properly motivated. More money is not key to increase employee’s passion but it helps. However, if they find a cause for what they are doing, many will be passionate and some die for that cause. People through the ages have died for their beliefs. Good organisations are great at rallying people around a great cause, which is turned into a crusade. The Indian born founder of Hotmail Inc, Sabeer Bhatia could only offer a cause to the people who joined him in starting up Hotmail. He could not pay them any salary. Many of his people continued to join him because of faith in his project and the potential of the internet. Today, thanks to the huge success of Hotmail, the people who stuck with Sabeer have struck it rich. If what people do on the job is for a good cause such as improving the quality of life, the impact can be dramatic. For Richard Branson, social concerns are an important part of corporate philosophy. Virgin produced low-priced condoms in response to the AIDS crisis. Anita Roddick, the founder of The Body Shop builds a successful business that respects nature, animals, people and employees. When your staff firmly believe in the company’s cause, they will go beyond the call of duty.
Third week: Marketing This week we will discuss the principles on the role of marketing in corporate turnaround. Principle 11: Dream, do and die in marketing and selling (To listen, please click here) What do Bill Gates (Microsoft), Sam Walton (Wal-Mart), Roger Smith (General Motors) and Robert Goizueta (Coca-Cola), have in common? Many successful entrepreneurs started their careers as marketing and sales persons. Bill Gates of Microsoft, Michael Dell of Dell Computers, and Sam Walton of Wal-Mart are all outstanding examples. Every successful product and service is the result of excellent marketing and selling efforts. A good analogy to illustrate marketing and sales is fishing. Marketing is throwing all the bait to attract the fishes. Selling is casting the net or line to haul in the fishes once they bite the bait. There is some form of marketing and selling going on every time you interact with people. For example, every successful courtship and marriage have one thing in common: the ability to market and sell yourselves to attract the other party.
Customer’s loyalty is the guarantee of your competitive advantage and survival. Studies have found that a 5 per cent increase in customer retention will be translated into growth of between 25 and 95 per cent in profitability. When the client perceives that you have helped him in some out-of-the-ordinary way– the result is often loyalty. Going the extra mile probably involves simple gestures or acts such as helping your client to get his children to school or sending him the birthday and thank you cards for his business. All these acts build client loyalty and enhance trust. The problem with business today is that there is no way to measure or evaluate loyalty. Accountants have devised sophisticated measurements for assets, costs, revenues and inventory. However, there are no distinctions between sales from new and old customers. Investments in old customers and acquisition of new customers are considered as costs, instead of amortizing it over the life in the customer relationship. Customers do not measure you on your earnings per share. They measure you on how much you love their business and the extra mile taken to retain them. Customer loyalty is a vital element for companies, and without this, companies may face a shortened corporate life span.
Companies are always keen to close a deal and take an order, But what is even more important is to build a relationship with a customer. Clients today have less time available to spend with outside professionals and salespeople. How do you capture your client’s attention and eventually their business? The answer: Add more value, build deeper, more personal relationships with your clients. Relationships evolve through three distinct phases, and in each phase your role changes. You start as an expert for hire, but the crux is to develop a longer term relationship. Next, you become a steady supplier and get rewarded with a steady repeat business. However, you are still a vendor and you should target to be your client’s extraordinary advisor and part of his inner circle. Successful companies try to create personal relationships with their customers. High-end hotels are familiar with their frequent guests’ preferences, from the specific rooms they desire, to the items stocked in the mini-bar. Successful online companies such as Amazon.com use technology to create the same sort of personalized relationships. Call centres are the rage today because companies recognise the need for customers to have front-line sales and support contacts. So work towards an in-depth relationship with your client, and lock in a loyal customer.
Principle 14: Do not suffer from competitive myopia (To listen, please click here) Competitive myopia occurs when companies do not monitor their competitors systematically. Competitor information needs constant updating and one should always ascertain what the competition’s next move will be. Most troubled companies lose sight of the fact that they do not operate in a competitive vacuum. Their existence depends on whether they can add better value to the customers compared to their competitors. Many companies have no programs at all for monitoring their competitors systematically. Some companies have extensive information on market movements as well as feedback from the sales force. Such feedback is sometimes like fresh milk. It has a short shelf-life if no action is taken to counter act against the competitors. We may have all the competitors’ action all mapped out, but do we have any clue on what specific moves they will be making next?
Principle 15: Spread positive infection – enthusiasm (To listen, please click here) Never underestimate the power of enthusiasm. If you are feeling unenthusiastic and bored in life, the people around you fall asleep too. True enthusiasm is very contagious. You have it and others will soon have it too. Nothing great is achieved without enthusiasm. Enthusiasm is even more important in some cases than intelligence and hard work. This is because projects will face obstacles, companies will face challenges of all sorts and disappointments will come in many proportions. If you are hardworking, work smart and have full of enthusiasm, nothing will be able to stop you. Microsoft’s Bill Gates, Southwest’s Herb Kelleher and Intel’s Andy Grove display an ardent enthusiasm for what they do, which arouses a similar response in others. He said that each had a fire-in-the belly excitement that helped to arouse enthusiasm in others. They felt strongly about a particular idea, product or process, and were able to use the pulpit of their office effectively to spread their “gospel’. If you are lukewarm, you will never be able to get others all boiled up. Enthusiasm is highly infectious, have you spread yours around?
Fourth week: Strategy This week, I will discuss the principles in corporate turnaround in the areas of strategy and corporate culture. Principle 16: Companies without strategies are heading for tragedies (To listen, please click here) The best chess players always strategise their future moves. Yet in business, future planning seems to play second fiddle to analyzing past performance. Many businesses are still focusing on yesterday’s problems instead of exploring and harnessing future opportunities. An architect would not build a house without the relevant architectural plans. Likewise, a strategic plan is the vital architectural blueprint for your business. An excuse which executives always use for not doing strategic planning is that things are changing so rapidly. So why bother to do ten or even five year planning as events may change. While rapid environmental changes do make long-term planning more difficult, one should not throw the baby out with the bath water. In fact, it is even more critical to do strategic planning during turbulent times. Take Titanic for instance. With all its state-of-the-art technology, it sank after hitting the ice-berg because its builders were overconfident and did not plan for any crisis. It is naïve for any CEOs to think that tragedies will not affect them. While the preparation of a strategic plan may not guarantee success, failure to do so is a sure recipe for disaster.
The best way to prevent an ailment is to build a strong corporate immune system. The immune system produces antibodies to get rid of viruses. In the corporate context, the immune system is the strong and healthy corporate culture which can help to respond quickly to changes and shocks in the marketplace. The success of the company depends on the actions undertaken by all the people in the business. The trigger for action comes from the people at the top but in the end businesses succeed or fail because of all the people in them – from the humblest member and newest recruit to the highest member in top management and board. Oftentimes, a company got into a jam not because of market miscalculation, lazy employees or that the gods were against them. Rather, it was because of a weak immune system or corporate culture which does not allow it to handle changes and competition. The corporate culture is the way people do things in an organisation. It is a set of beliefs and assumptions, core values, attitudes and behavioural patterns shared by the people in the organisation. A healthy corporate culture will enable the people to be aligned with the organisation’s vision, mission and objectives.
Principle 18: Be creator of change, rather than creature of change (To listen, please click here) We are going through a period of ‘creative destruction’ in history. The leaders need to consistently re-invent, redesign and recompose the organisation. John Chambers of CISCO said: “ We have a philosophy that we will eat our own young before someone else does.” .” Lewis Platt, CEO of Hewlett-Packard said: “It is counter to human nature, but you have to kill your business while it is still working.” We cannot drive into the future in a leisurely manner any longer. Many market leaders fall asleep while driving and have been overtaken by smaller competitors who come out of the blue. Past successes will not see us through the future. The future will not be an extrapolation of the past. In the future, the winners will be the trail-blazers, rather than the change-trailers. The way into the future is to take charge of the future and not by responding to it.
Principle 19: Life is Simple. And in business, the simpler the better (To listen, please click here) If there is one guiding motto in life, it is simplicity. This principle should reign supreme in all areas of life, from language, ideas to business and strategies. Yet, ironically, most people are attracted to complexity, thinking that simple efforts may be ridiculed as being obvious, simplistic or lazy. Very often, improving company performance is a matter of introducing simple ideas and making sure they get done. Success in business usually comes down to the ability to find a simple idea that separates your company from the competition. And the simplest way to invent a new product is to borrow and adapt an existing idea. Simplicity is at the heart of many success stories in business. Jack Welch, the chairman of General Electric, once said, “Insecure managers create complexity. … Real leaders don’t need clutter.” John Schnatter, founder of Papa John’s Pizza, which was voted as the “Best Pizza Chain in America” for two years running, had this to say about his success, “There are no secrets to our success. It is all about better ingredients and quality and good old-fashioned hard work. The biggest thing we do differently is that we keep things simple.”
The globalizing economy has had a tremendous influence on firms, forcing them to adapt to new mindsets. Firms have to face global competition from far away. Firms need to pursue new realities and cannot be expected to cope using the managerial philosophy from the past. The global mindset is required which understands a business, an industry or a particular market on a global rather than domestic basis. The Bible says: “Whatever a man thinketh, so is he.” If you can change your thinking, you can change your life. You want to go on the expressway of excellence, you think excellence. Everything starts with what you think. What you put in your mind, will lead you to the direction. The difference between a successful and unsuccessful person is the way he thinks. What we think determines who we are and who we are determines what we think.
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