Wayne Wilson on Companies in Transition

Brexit: a "test case for deglobalization"?

"...Britain outside the European Union will be less competitive. It will henceforth have to consume less and export more of what it makes. A lower currency and higher interest rates will bring that about....Brexit is thus turning out to be a useful test case for deglobalization."

-Greg Ip, in the WSJ

As the news media has recently reported, the case for Britain heading for a "hard" Brexit is growing. Whether the outcome of such a path will be good or bad for Britain in the long-run does not eliminate the need for companies doing business overseas to continually evaluate the political and economic risks emanating from each of the countries in which they do business.

The rules for business success are changing. Best to get prepared by:

• remaining vigilant for the trail signs of impending change
• improving operational and financial flexibility
• preparing to seize the new opportunities which volatility inevitably brings

Doing is everything

"What we think, or what we know, or what we believe is, in the end, of little consequence. The only consequence is what we do."
-- John Ruskin,
   British art critic, writer and philanthropist

Cash will always be king, queen, and crown prince

Financial accounting and reporting have become far too complicated and opaque, which is one of the reasons the Financial Accounting Foundation (FAF, the overseer of the FASB or Financial Accounting Standards Board) has approved the formation of a new Private Companies Council to set differences in U.S. generally accepted accounting principles (U.S. GAAP), where appropriate, for privately held companies.

Today's financial accounting often places too much importance on fleeting, point-in-time determinations of "fair value" which may have little or nothing to do with the ultimate realization of, or ability to pay out cash.

There are really only three questions about an asset that matter:

1. Can it be converted to cash?
2. When can / will it be converted to cash?
3. How much cash will there be when the dust settles?

The same can be said for liabilities or obligations:

1. Will cash be required?
2. How much? And
3. When?

Owner/CEOs could benefit from a tighter management focus on their sources and uses of cash: what do I need cash for and where will it come from?

David Petraeus on strategic leadership

A new book about General David Petraeus’ year as commander of NATO forces in Afghanistan [1] describes at one point four tasks which all strategic leaders - be they military, political, or business - must undertake if they are to be successful.

• First, “get the big ideas right”
• Second, communicate “those big ideas”
• Third, oversee “the implementation of those big ideas”, and
• Fourth, capture the “best practices and lessons” and use them to refine the ideas and process.

There is no magic here, but rather a virtuous circle of continuous improvement if the process is implemented correctly.

“Big ideas” are really about key themes - vision, mission, goals - and the strategies that the leader must develop and employ to move his/her thematic agenda forward. In business turnaround situations, these ideas usually involve an assessment of an organization’s capabilities and the market opportunities available to it coupled with a short list of carefully thought out strategies for actually making something out of the combination.

“Communicating the big ideas” often must begin even before the strategies have been formulated because the leader needs the insights, skills, and efforts of others in the organization to ensure that the hoped-for “big ideas” will actually work (a virtuous circle within a virtuous circle if you will).

None of this matters if the "big ideas" are not implemented. Choosing the right lieutenants, communicating with and through them constantly, setting a proper example, demonstrating your commitment to the “big ideas” through  the decisions you make - all of these are important to laying the groundwork for other associates down the line to actually carry out the work of transformation which they will only undertake once they are convinced that the leader is serious about his/her agenda.

And finally, capturing, distilling, communicating and re-enforcing “lessons learned” enables this process to repeat itself with increasing levels of productivity and effectiveness because successful turnarounds invariably require multiple cycles through this process to generate truly successful performance improvement.

If it were easy, organizations wouldn't need strategic leaders.

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[1] Paula Broadwell and Vernon Loeb. All In: The Education of General David Petraeus at amazon.com.

When failure is not failure

“A failure is not always a mistake, it may simply be the best one can do under the circumstances. The real mistake is to stop trying." -- B.F. Skinner, American psychologist, inventor and author

Failure is often the one thing people try to avoid – sometimes to their detriment. But should they? I prefer to think of failures in three varieties:

• “Bet the ranch” failures – generally to be avoided, they should only be undertaken in dire circumstances and with the full knowledge of owners or boards of directors. In the recent financial crisis many financial firms were “betting the ranch” without knowing or explicitly acknowledging the gravity of the business risks being undertaken.

• Costly failures – these business failures occur frequently and systemically have much in common with the first group: all of the risks of a given course of action have often not been properly recognized, evaluated, and/or communicated to the relevant owners or boards. Anticipating risks and planning for their mitigation is an integral part of minimizing costly failures.

• Learning failures – these are or should be the most common and should be encouraged in most organizations. Sometimes, we simply cannot know what will work until we try something. A great example of encouraging “learning failure” risk taking occurs in direct marketing where the mantra is “test, test, test” before rolling out a major marketing campaign. The goal is to incur lots of small failures while working out the campaign details before risking large amounts of money.

Maybe we should change the conversation – instead of “try and fail”, let’s call it “test, test, test.”

The yin and yang of social media

Everyone below the age of xx (pick a number) is raving about some form of social media these days. Twitter is big and facebook is massive, supposedly, and they are going to change the world.

In today's Lost in a digital world, Seth Godin talks about how easy it is to hide. We think we're networking, building relationships, developing business, etc., but if we lose all human contact, all we're doing is hiding.

Owner/CEOs know that businesses are built by building relationships. And building those relationships requires a certain minimum amount of face to face contact. A lot can be accomplished from a distance electronically once you've established that eyeball-to-eyeball substantive contact.

Deal making is a great example. Teams can strategize by conference call and email, but due diligence requires your team to be on the ground touring facilities and talking to people face to face. And while document exchanges and haggling over contract language have been greatly facilitated by email and electronic document rooms, hard negotiations on difficult subjects almost always require physical meetings.

Web-based retail and internet marketing might at first appear to be different. Just look at the success of amazon.com and other online businesses. But amazon's business development officers are likely not meeting with publishers on facebook. They're in New York, or wherever, pitching them in person.

Once all the hype dies down, social media will be like all the great, but now mundane, business tools which came before (think telegraph, telephone, email - you get the idea).

By all means, experiment, test, and incorporate social media tools in your business wherever they make sense. But don't get carried away. You still have to sell stuff and make a profit to create real long-term value.

Are you afraid of innovation?

Economic growth is often fueled by innovation. And innovation can be tricky to cultivate and manage. Most owner/CEOs have seen examples or heard stories about workers who resist innovation because they are afraid of change, afraid that they won't be able to keep up, or afraid that they just might lose their jobs.

Are CEOs immune to this fear?

Apparently not according to innovation consultant Jeffrey Phillips. Phillips says too many executives are uneasy with the notion of unpredictable routines and uncertain outcomes. The trouble results because of the differing skill sets required to foster innovation versus manage routine operations:

"Innovation requires ART not SCIENCE
Innovation requires QUALITATIVE insights not QUANTITATIVE statistics
Innovation requires HUNCHES not FACTS
Innovation requires RISKS not CERTAINTIES"

Learn about some of the techniques great companies such as Apple use to minimize innovation fear in Phillips' Why innovation makes executives uncomfortable.

Stop dawdling

Are you sitting on your hands rather than taking action on those issues, which you know aren’t going to solve themselves? Focus on the big three.

Building the team – Few companies’ management teams are as strong as they need to be to compete in today’s economy. Now is the time to recruit and build. Candidates are available. People are hungry for opportunity. Spend some of that cash and seek out those gems who can ignite your company’s future.

Righting spending – Not every company has adjusted its staffing and spending to the new realities. That doesn’t mean ramping up the layoffs. It does mean becoming brutally honest about whether that pet project or program of yours is every really going to pay off. Figuring out where to cut and where to hold is hard work, but no one else is going to do it for you.

Driving revenue – The future is all about revenue and revenue growth. That requires investing significant amounts of resources. Spend the time to analyze your opportunities and then place your bets. If your current business, product, or service is not a good bet, better start looking for another place to play.

Mushing through molasses

Driving revenue growth in this economy is a bit like mushing through molasses. Think about it: top speeds on the 1,000-mile-long Iditarod dog sled race are only about 18 mph across snow and ice. [1]

And then there is that matter of molasses. Molasses is full of starch, which is sticky and tends to glob together. And the lower the temperature, the slower the molasses pour. Our molasses economy needs a dose of Keynesian animal spirits [2] to raise the temperature and get the molasses flowing again.

What can we do in the meantime? Take a few CPR lessons from the mushers:

• Calories –Sled dogs on the Iditarod can consume as many as 10,000 calories per day. Likewise, owner/CEOs must keep their teams well fed. That includes the proper care and feeding of your people, as well as the proper maintenance and repair of all other important business assets. Now is not the time to skimp on maintaining your edge.

• Pacing – Mushers know that jumping the gun to get a head start on competitors can be self-defeating because it’s a long endurance race, not a sprint. Sprinting is for emergencies and the finish line. At all other times, the focus should be on quality, customer service and satisfaction – keep them and keep them coming back.

• Rest – That long, hard sledding requires periodic rest and restoration to prevent collapse. As a recovering workaholic, I can personally attest to the reality of diminishing returns, and that goes double for the other members of your team. Drive hard, but make those rest breaks real and refreshing. Otherwise, they are just a waste of time.

Be ready – those animal spirits will return.

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[1] Chicago musher takes on Alaska’s Iditarod - http://www.suntimes.com/lifestyles/travel/2093135,iditarod-alaska-dog-race-moon-031010.article

[2] “a spontaneous urge to action rather than inaction” often measured in terms of consumer confidence -  http://en.wikipedia.org/wiki/Animal_spirits_%28Keynes%29

Banking on banks?

Banking on banks could be hazardous to your health. A recent article in The Economist [1] reports new data indicating that small businesses are a drag on the employment rebound from the recession. Large firms have resumed hiring but small firms continue to shed jobs.

The culprit? According to The Economist, one of the biggest causes is tight credit. With banks still skittish about bad debts, only the most credit-worthy companies can qualify for new loans to expand their businesses – and hire more employees.

While lack of credit is a likely cause, subdued confidence in the future is also at work here. Entrepreneurs and other business owners are almost by definition optimists – who else would take the risks? But investing for the future also requires confidence in a stable business and economic environment. Such confidence has been in short supply.

Continuing upheaval in global financial markets, impending increases in government healthcare mandates, business regulation, and tax rates do little to inspire confidence that investments made today will result in reasonable prospects of returns on those investments in the future.

In this environment business owners must:

• Carefully evaluate current and future market opportunities

• Develop business plans based on conservative financial assumptions

• Establish and guard rainy day funds and backup lines of credit as if there business lives depended on them (which they might)
  

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[1] May 15, 2010, p. 38