Category Archive for "Management"

Though the two words are often used interchangeably, there is a significant difference between an item’s “cost” and it’s “price”. In the strictest sense, an item’s “price” is the amount that the customer pays directly to the supplier, whereas the “cost” is the total amount expended to find, buy and use the item.

For instance, imagine a hypothetical manufacturer in Los Angeles that produces medical devices. While looking for a special type of bolt for one of their devices, they narrow their decision down to two options:

Option 1:             $0.55/unit, 1,000 unit minimum, 10 day lead-time required for delivery

Option 2:             $0.65/unit, 200 unit minimum, 5 day lead-time required for delivery

On the face of it, it appears that Option 1 is the better of the two. The lower per-unit cost is significant and the minimum purchase amount is reasonable. Option 2 has a shorter lead time and a lower unit minimum, but those two factors, even combined, are not likely enough to compete with the lower per-unit cost.

Clever purchasing manager and executives, however, would have a clear answer to the dilemma: “We don’t have enough information to make an informed choice”. The quality, return rate, customizability, inventory management capabilities and customer service of the two companies offering the bolts are undefined. These factors all comprise the true “cost” of a purchase.

Imagine, for instance, if the company offering Option 2 could also include outsourced inventory management for the purchasing company, automatic stock replacement, warehousing facilities, custom spec parts and >99% reliability rating for the parts themselves. In that case, the extra $0.10 per unit would be a bargain! Imagine the savings if the purchasing company didn’t have to monitor or warehouse their bolt inventory! If bolt inventory took two hours per week and the labor cost was $16/hour (approx $10/hour plus benefits and insurance) then the upfront savings is $1664. Factor in the cost of capital to warehouse and maintain the supply and the wages required to order, inspect and replace parts, and the purchasing company could well save >$20,000 on a simple bolt purchasing decision.

As such, the true “cost” of the second option may be dramatically lower than the first, “low price”, option.

When the British National Audit Office looked into the sick leave record of the 6,500 employees working for the Driver and Vehicle Licensing Agency in Swansea they knew something was wrong; drastically wrong. 

More than 1,000 DVLA employees took more than 21 days off sick. Average number of sick days used per employee stood at an astonishing 13.1 days a year. The average is 6 days in the British private sector.

The auditors said there was a correlation between “the levels of sick leave and relatively low paid, repetitive administrative tasks.”  The sick leave at the DVLA cost the British taxpayers £10.3m a year. 

The issue concerns administrators and business owners here in the United States as well.

The number of sick leaves reported by the U.S. Federal Employees Retirement System employees, for example, has been the subject of a Congressional Research Service study in 2004. 

There have been several proposals to improve sick leave management in the public and private sector. 

One is to allow a total number of paid days off for the employees and let them proportion it into vacation, sick leave and personal days. Anything beyond that total would be unpaid days, up to a certain limit. Violation of that limit would trigger an unscheduled performance review. 

Others have proposed cash payment for total unused sick leave days. A one-time payment formula developed by the Federal Managers Association proposed to pay 10 percent of the hourly rate of a retiree’s high-three salary for any sick leave balance over 500 hours. 

Another alternative is to ensure that employees with ailments like high-blood pressure receive good long-term care since short-term treatments rarely cure such problems, leading to frequent sick days off. 

All these solutions require a close harmonious working relationship between the management, HR and the employees since without full employee participation and good management incentives sick leave will continue to drain limited corporate resources.

A good business leader leads by example. That much is for sure. You have to reflect all the good qualities like timeliness, fairness, hard-work etc. that you’d like to see in your employees, colleagues and partners.

But that’s only the minimum necessary condition of leadership.

Another important condition is the ability to solve problems, if temporarily.

“There are no absolute solutions, just temporary ones” is a good mantra for any business leader.

What does it take to come up with solutions in every situation?

“Resourcefulness” is a top trait that all leaders should have. You should find new resources or marshal old ones that were not implemented before.

That brings us to “creativity” as a must condition for superior leadership.

Remember the way Picasso created an ox head from a bicycle seat and steering handles? You can similarly put together “existing parts” (ideas, practices, modules, etc.) to create something totally new and appropriate to solve the issue at hand.

For example, let’s say you are losing productivity because most of your staffers are single parents who have to rush back home when their children are sick.

Can you commission the work to their homes? Can you open a kindergarden on premises? Can you stagger the work so that those with little children can take any shift they want? Perhaps some of the staffers might agree to taking care of each other’s children in return for longer solo shifts in the office?

Here is a story I’ve heard years ago…

Once upon a time a significant portion of the individually-packaged cube sugar that airlines used were going stale inside their air-tight wrappings. The airlines were upset because of all the packaged cube-sugar that had to be thrown out for waiting too long in the warehouse.

After trying hundreds of different wrappers with no result, someone came up with the idea that perhaps they needed to OPEN the packaging somehow and allow air to get in, instead of maintaining an air-tight design.

One executive came up with the idea of actually piercing each package with a pin and the problem was solved instantly!

Thanks to that simple “ventilation hole,” individually packaged cube-sugar gained a lot longer shelf-life, saving airlines money in the long run.

A leader must have the courage to “open up” things when everybody else is recommending “closing down,” or vice versa.

That’s why “courage” is yet another trait that a good leader must have to buck the common trends and take risks in order to arrive at satisfactory solutions.

Workplace harassment is something all small- and mid-sized companies should take seriously. It’s not only against ethical and human rights standards of our times but also a cause for high-cost litigation that can ruin a company’s reputation and empty its coffers.

But gone are the days when “harassment” only meant “sexual harassment.” That is still one of the most wide-spread forms but is not limited to it.

There are for example religion, ethnicity, national origin, and age-based forms of harassment too.

Here are some examples:

• Cracking a joke about the forehead marks with which some developers show up in office on Ash Wednesday.

• Making a sarcastic remark around the water cooler about the “curry eaters” and “onions heads” at the accounting department.

• Showing mock compassion for the “grandpa” at the shipping department who once complained about the weight of the outgoing packages.

The definition of the “sexual harassment” has been expanded as well.

Now it’s no longer necessary to have a physical or overt pass at another colleague to commit sexual harassment.

A risque screen-saver on one’s personal computer, for example, or a worker insisting that his friends look at his beach photos showing naked swimmers, would be enough to generate a serious harassment complaint.

There are other harassment modes like

• denying assistance and withholding crucial information and thus steering another colleague towards failure;
• constantly ridiculing someone;
• sending embarrassing or threatening messages through email or telephone;
• constantly criticizing petty matters and insignificant points;
• regular threats of dismissal or demotion without any apparent reason;
• etc.

It would be well advised to put all your new hires through a standard harassment training and issue them a certification when they successfully pass the test at the end. Most companies do that both to make their harassment policies crystal clear to all concerned and also to protect themselves against future law suits.

A column I’ve read recently on “business myths” got me thinking about the veracity of some of the most cherished business principles:

1) “You need to take a risk to become an entrepreneur.”

This is certainly true. But given the fact that almost 60% of new businesses close their doors within the first 3 years, it’s clear that just taking a risk is not enough to succeed in business life.

(”In a study in Columbus, Ohio, Professor H.G. Parsa of Ohio State University, tracked new restaurants from 1996-1999. In the first year, 26% closed. Another 19% closed the second year, and 14% the third. Collectively, 59% of new restaurants closed [within] those three years.” USA Today)

Perhaps one should change that to read “you need to take serial risks until you succeed.”

2) “You have to have a killer business plan.”

Sure, it wouldn’t hurt to have a “killer” of a business plan. But let’s face it: are we all offering “category killer” goods or services? How many times we have seen another sandwich shop opening right next to the four others already there?

When last week I offered to a client of mine to submit a 3- or 5-year plan to his banker, he shot back saying in his fast-changing market segment you’re lucky if you can put together even a ONE year plan; the conditions are changing that fast and the variables in his line of business are that hard to control.

3) “You need to have a strong USP – Unique Selling Proposition – to differentiate yourself from the herd and succeed.”

This is true of course. But sometimes this principle is confused with building a “brand,” which more often than not means at least a “national brand.”

The last time I checked, it takes anywhere from $10 to $100 millions dollars to build a nation-wide “recognition” for any new brand.

If that’s what it took to build a successful business, there would not be 24 million plus small businesses in America today. Obviously you can survive and do reasonably well even if your USP is not at the level of a “brand.”

4) “Entrepreneurs are born.”

Really? Does this mean “people cannot change”? How come Joshua Bell can learn to play the violin but Jane Smith cannot learn how to run a music store?

If you only follow the seminars held every month by cpSphere and make yourself available to the important lessons shared during those seminars you’d be far ahead than an entrepreneur who was “born” that way but never educated himself in the science and craft of entrepreneurship.

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Globalization is a fact.

We are living in an increasingly internationalized market place.

Thus it is important even for small- and medium-sized companies to attune themselves to the realities of doing business with partners and customers from other cultures.

In the United States, an outgoing and affable yet diversity-conscious and politically-correct approach is generally welcomed in business transactions. But that’s not the case in a number other countries.

What we call here “friendly banter” and “small talk” may come across as “lack of respect” and an unauthorized intrusion into someone’s personal space, for example.

Or too much deference to other person’s views and preferences may again be misinterpreted in some cultures as a lack of resolution and leadership.

Even the way you write the date in a contract, for example, may lead to confusion since not a lot of people write the month first. It would be safest to start with the day, then write the month as a word, followed by a comma and then the year. For example: 27 October, 2007.

Here is a fascinating list of the correct way to behave if you are doing business in Russia (The Wall Street Journal, Oct 27-28, 2007):

1) Practice authoritative, not authoritarian leadership.
2) Build a strong organizational culture with visible foreign element.
3) Work to create an empowered organization, step-by-step.
4) Respect local rules, but play your own game.
5) Stand firm on major goals and be flexible on details.
6) Learn to live and manage in a crisis.
7) Recognize that corruption is omnipresent in Russia and must be managed.
Cultivate relationships with government agencies at all levels.

Here is the link to the rest of this fascinating article:
http://online.wsj.com/article/SB119247792825759622.html

First, a finding from a recent market research…

Did you know that a mere 5% increase in customer satisfaction increases profits by 85% ! Amazing, isn’t it?

Then, a true story…

There’s this well-known restaurant franchise close to where I work. I (used to) stop by at least twice a week during lunch breaks to grab a quick sandwich or have a bowl of soup.

Although I was a loyal customer or perhaps because of it, I couldn’t help but notice how the service has slowly deteriorated over a period of six months.

The counter staff, for example, who prepared the sandwiches as you watched, started to ignore the customer requests.

They began either to include ingredients that you did not order or forget to include the ones that you did.

Then the guy at the cashier developed a habit of getting into arguments with the customers over the ingredients or the style of preparation.

Clearly, they were not paying attention. You could see they started to regard the customers as a long line of “cash cows” to be processed through the queue as quickly as possible.

Then the rest rooms started to go down the tubes.

It first started as the empty soap dispenser; followed by the empty paper towel dispenser. Trash on the floor was not too far behind.

When I tried to bring the deteriorating conditions to the attention of the shift manager (who also doubled up as the cashier) I was told that I needed to talk to the general manager who would stop by twice a day (and so good-luck to me).

The last time I stopped by there was such disgraceful filth in the rest room that I don’t even dare describe it in this public blog.

That was also the day when I realized that people who were serving my food were also using the very same rest room!

I decided to quit giving my business to that establishment and that was it. I don’t think I’ll ever go there again. If others felt the same way as I did and changed their lunch time destinations I wouldn’t be surprised at all.

Thinking back on it – what was the main attraction of that store in the first place?

Yes, the food was tasty and affordable as well.

But I realized I would have gladly paid a quarter or even fifty cents more per visit to have the serving staff really listen to me, plus to have access to spotless rest rooms.

I’m sure that store continues to cut the branch it’s sitting on by putting all its fragile eggs into the low-price basket.

When the general manager finds out what’s going on I’m afraid it’s going to be too late for the business.

Low price is not everything because there are millions of customers who are looking for a pleasant shopping or eating experience and they don’t mind paying a few cents extra for the service.

Once customer loyalty is lost, what’s left behind?

Here are some practical steps to conduct a successful business meeting…

Communicate the following information to all meeting participants well in advance and ask for their confirmation that they received the invitation and they will or will not participate in the meeting.

Optional: From those who decline to participate, you may ask the reason as well to help you plan the next meeting.

1) Decide

- who will be the meeting leader,
- what date and time the meeting will be held,
- location of the meeting (on-line or at a physical location),
- the length of the meeting.

Note: For tele- or video-conferences, or webinars, confirm connection information like telephone number, web site URL, entry password, etc. Make clear what the minimum technical requirements are for the hookup.

2) Decide on the agenda of the meeting, including its purpose and items to be discussed.

3) If there’ll be any voting, decide in advance what the voting rules will be. For elections, the names and bios of the candidates, as well as the ballots, must also be distributed well in advance to all the eligible voters.

4) If there are any presentations, reports or written, audio or video materials to be discussed, distribute them well in advance and ask the participants to study them before coming to the meeting.

5) As the meeting leader, be the first one to sign in, or show up in the meeting room to welcome the others. When participants show up first and wait for the meeting “leader,” it does not contribute to the group morale.

6) Recent studies show that, in general, up to 25% of the meeting time is spent on irrelevant issues. During the meeting try to prevent the participants from discussing matters not specified in the agenda.

Preparation before and control during a meeting are the two golden keys to a productive session.

Make sure do your homework in advance. And once the meeting is underway, try to maintain a calm and unemotional approach to reconcile the differences and reach a definite conclusion on every item specified in the agenda.

After the meeting, don’t forget to send a follow up report, listing those who have participated and thanking them for their time and effort, and summarizing the main results of the meeting.

Holding one’s tongue and not raising any objections is an organizational behavior entrenched in the minds of many business managers.

Avoiding the risk of being ridiculed while eliminating the possibility of upsetting the higher management is usually a good way to get promoted.

Unfortunately, it’s also a way to let the ship of business sail full steam towards the kind of rocks and icebergs that can be prevented with a little honest and healthy dissent, as noted in a recent Harvard Business School article.

Here is a short list of the disasters that could’ve been avoided had the upper-management encouraged and paid heed to dissent, according to the above mentioned article:

The 1961 Bay of Bigs fiasco, the death of two top-notch climbers to the summit of Mt. Everest in 1996, NASA’s Columbia shuttle disaster of 2003, Coca-Cola’s “New Coke” debacle, Detroit’s failure to detect the changing consumer sentiment for smaller and more efficient cars, etc.

So how can a business make sure that such dissent originate from the rank-and-file and make a difference at the highest levels of the decision-making pyramid?

Here are some suggestions:

The tolerance for dissent must start from the top. The leadership must insist that “the managers present each situation in objective terms, rather than with a positive spin.”

Those mavericks who dissent and raise points missed by the upper management must be acknowledged and at times promoted.

The organization must be able to entertain paradoxical ideas; learn to live both in the past and the future; must both exploit and explore, centralize and decentralize at the same time… which is “a relatively rare accomplishment.”

Click here to read the rest of this interesting article.