When the Decision is Made for You

My Oak & Apple partner Cal put up a post titled “Hat Trick” not too long ago about an unsatisfying experience at a lululemon store, highlighting how an absence of customer focus led him to decide to stop doing business with the retailer.  I also had an experience recently that demonstrated the power of a company’s customer focus, so much so that my decision was made for me.

I needed to sell my late mother’s house.  A friend strongly recommended a local realtor. I met the two principals of the firm (let’s call it Also-Ran Realty) who were perfectly nice, competent agents.  They recommended some renovations to the property and delivered an analysis supporting a listing price.  It was all very professional and I was ready to sign.

I saw a postcard from Prudential NJ Properties (“PNP”) in Verona.  I called PNP to confirm there weren’t any real differences. Then I’d go with Also-Ran.

Kerry from PNP visited and also made repair recommendations.  She excluded renovations that wouldn’t add to the house’s salability or price. Without being asked, she obtained bids from the trades – painting, floor installation, electrical, masonry, plumbing, cleaning – that were far less costly than mine.

Once I approved, Kerry scheduled and monitored each trade’s work, inspected and had work redone, all within weeks on time and on budget. She also referred a qualified, very reasonable attorney and provided, for free, a stager to decorate the house.  The total outlay was modest and a fraction of her $50,000 higher listing price. I’d heard nothing further from Also-Ran.

Six weeks in, Kerry asked to stop by to sign the listing contract.  I didn’t have to think about it, just set the meeting.  As for Also-Ran, they called 2 weeks after the house was listed to “check in;” by then, we had 3 offers at the asking price and were finalizing a contract (which closed a month later).

A company’s customer focus has two major components: (1) knowing one’s customer and (2) empowering front-line employees to do the right thing for the customer.  Kerry, PNP’s front-line employee, knew that home-sellers like me are generally unfamiliar with, and overwhelmed by, the process, and she handled all the details rather than burden me.  In addition, PNP clearly gave her the authority to do all that needed to be done to serve her customer.  I didn’t need to collect or analyze data; the power of those two elements combined made my decision for me.

Oh, by the way, Cal has asked for an introduction to Kerry and PNP to list a property he’ll be selling, which I’ll gladly do. That’s 2 decisions made by my realtor’s customer focus.

How does your business use customer focus to attract and retain business?  Please share with us what’s key to your customer focus.

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Nerves

Not too long ago the partners at Oak & Apple met to review client status. As we started the discussion, Bill, a scratch golfer, commented that in a recent tournament he hadn’t been able to settle down and play his game.  Bill’s not alone: think of all the professional golfers who can’t win a major because the events are fraught with high stress.  That led to an epiphany: even well-trained people think and behave differently under high stress compared to normal times.

In tracing how client decisions were made, we concluded that top executives revert to blinking; that is relying on past decisions that got them or their companies out of trouble. We have found that more favorable outcomes occur, in both turnaround and rapidly expanding environments, when chief executives are effective in collecting the right information about a situation, collaborating with members of their teams and advisors, challenging assumptions that drove previous major decisions, and expanding the number of options to consider in addressing a challenge.

These observations led us to develop a useful (and free) executive self-evaluation guide “Decision Making in The High-Stress Environment“. Executives tell us that, in the roughly fifteen minutes it takes to complete the guide, they gain insights into their behavior as leaders. The guide looks at both financial and other metrics used to measure performance – operational issues from how budgets are established and tracked, to leadership styles relied on generally or under rapidly evolving situations.

In addition to the critical tactical aspects of leading and managing businesses in fast-paced, changing times, the guide asks executives to reflect on strategic elements such as vision, mission and brand. Some company presidents ask their management teams to complete the guide separately and use the tool to run a reality check on how management performance is perceived, and then initiate efforts to address those management areas where there is the greatest disagreement.

Please let us know how you use insights gained from completing the guide. We are available to talk by phone or in person about your findings as well. Oh, and yes, Bill regained his golf stroke after working on the Decision Making Guide.

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Hat Trick

Do you find yourself analyzing businesses you deal with as both a customer and a senior manager of your company? I do, and recently what started as a routine shopping trip became a lesson that company presidents need to remember if they are truly passionate about growing a great business.

Here’s the truth. I made a mistake. While buying several hundred dollars of clothing, I bought a running hat without first trying it on and removed the tag at home only to discover it didn’t fit.  My error opened up an opportunity for the retailer –lululemon – to convert me into an ardent brand fan and customer.  Instead, the experience of trying to exchange the hat for the right size gave up secrets about lululemon management and brought into sharp focus critical lessons about empowerment of employees, real focus on the customer experience over outstanding salesmanship, and missed profit opportunities.

lululemon is a retailer of innovative athletic clothing and gear. Stores are merchandised well with delightful assortments of product.  The store’s sales team is engaging and knowledgeable.  But trying to return or exchange a hat provides real insight into how the company works.

First, I called to find out lululemon’s return policy and was greeted with a message that in essence said all employees were busy with customers. Leave a message and we will call you back. Translation: They want to control a conversation.

I went to the store the next day, literally with cap in hand, receipt and tag (but not attached to the hat). It was then I learned that the store’s apparel is all merchandised by size except for hats, which are displayed by color, and, mine was the only non-adjustable running or tennis hat. The conversation was simple: I picked up the wrong size hat and I’d like to exchange it.

Upon approaching the sales desk, the no-return policy for hats (and underwear), especially without tag attached, was revealed along with management secrets. I asked where the policy was posted. The response: It’s not, but exists anyway.  After attempting to helpfully prompt the enthusiastic sales associate about exceptions or other options, she said there was no way out. Absent an exchange or refund, I asked if she had a boyfriend she could give the hat to. No.  Another associate? No.  So I just thanked her, put the cap down and left.

Reflecting about the experience, I tried calling the store manager for fun. Seven times the store’s answering machine took my call. To me, this phone answering policy confirmed that lululemon’s management is not focused on creating exceptional customer experience but only generating the illusion of doing so.

Here are suggestions to lululemon’s managers on how to better the company:

  1. Empower employees to build relationships with customers one shopper at a time. It would have been simple to win a raving brand fan by stating the no return policy, then telling me mine was a unique experience.  Take the return, if need be with a restocking fee – the manufacturer most likely has a damage return credit policy so the store would win a fan and be cost neutral.
  2. Manage customer experiences, not transactions. Employees need to be accessible to customers and not hide behind unpublished policies and the digital walls of answering systems for both sales and after-sale service.
  3. Think customer segmentation and behave accordingly. All shoppers are not equal. By analysis, profile heavy buyers vs. price only customers. By asking questions during the sale, customers will open opportunities to sales associates (and the store) for maximizing revenue and profit.

Do you have experiences you’d like to share where you’ve casually analyzed company strategies based on your experiences as a customer?

Posted in Brand, Leadership, Management Practices, Performance & Profitability | Tagged , | 2 Comments

In Coming! Crisis in the Oval (or Corner) Office

The headlines from Washington are filled with reports of multiple investigations of government agencies, from the State Department due to the Benghazi attack and Justice for the seizure of AP reporters’ phone logs to allegations the IRS targeted selected organizations. Regardless of one’s political views, the President must respond and take action with respect to each of these situations.

All this public visibility of operating disruptions brings into focus an interesting question. As president of your company, what would you do if you found your company plastered all over the Internet and cable news because of events analogous to those being reported out of Washington today? What does how one responds to the news say about leadership and management?

If events like this occurred concurrently in your company – for example, rampant misappropriation of expense budgets , bogus orders from the Sales group to earn bonus awards, rapid increases in vendor chargebacks for purchase order violations, or errors in 401K funding and the IRS alleging tax underpayments – what would you do?

This is a time for reflection and learning complex, multi-level approaches to problem resolution.   How would you deal with simultaneous, diverse crises across multiple departments? Where do you focus and begin? How do you hold employees accountable?

Have you ever been in complex situations where you’ve doubted yourself or your ability to overcome such challenges? If so, what did you do?

Please share your thoughts.

Posted in Communications, Leadership, Management Practices, Performance & Profitability, Recent Events | Tagged , , | 1 Comment

Republican Head, Democratic Heart, and Bad Law

My spouse aptly characterizes me as having a Republican head and Democratic heart; she means that I think analytically but can let my compassion for those less fortunate than us govern my decision-making (consider me a centrist).  But a recent measure introduced in the NJ State Assembly causes no such conflict within me.  While I don’t usually write about politics, this bill regardless of its good intentions is bad law.

In short, the bill seeks to limit employer rights with with ex-employees by vitiating the enforcement of non-competition, non-solicitation and confidentiality agreements between companies and former employees who qualify for unemployment benefits.  If enacted, this legislation would be bad for both businesses and employees.

The rationale of the bill’s sponsors is that voiding these agreements would allow middle- and upper-level employees, freed of these constraints, to find work in their industries more readily, thereby reducing unemployment in the State.  In turn, this would reduce the cost of unemployment taxes to employers.  The sponsors cite stories of constituents that suggest they are being blocked from gaining new jobs because of these covenants.

My “Democratic heart” is all in favor of putting people back to work, but this bill, in my view, would almost certain fail to accomplish that.  My “Republican head” concludes that the consequences of this legislation would damage businesses significantly, limit ex-employees’ unemployment benefits, potentially cause greater unemployment, and yet could still reduce the unemployment tax rate to employers.

This issue affects businesses in more industries than just technology and life sciences/biotech where the importance of intellectual property and trade secrets are apparent, and it has broader effect than with just large companies or senior executives.  Consider the case of Thomas’ English Muffins, where one of seven key employees who knew the Company’s proprietary method of making those famous “nooks and crannies” is alleged to have taken that trade secret to a job with a new employer.  Or this – earlier in my career, I accepted employment as the #2 at a profitable, growing, mid-size NJ manufacturer.  When I arrived to start my job just 3 weeks later, the Company was 1/3 smaller and operating at a loss because an employee left, and armed with knowledge about the Company’s customers, product designs and pricing, took its largest customer to a competitor.

The damage to a business from this proposed legislation would dwarf any savings in unemployment taxes and could even undermine a company’s future profitability or existence.  That would put a lot more employees (at all levels) on unemployment, many more than would find employment because they no longer had to observe their obligations to former employers.  Unemployment in the State might actually increase!

Moreover, because the legislation is applicable specifically to individuals receiving unemployment benefits, you can bet that employers would be highly motivated to oppose ex-employees’ applications to qualify for such benefits. Ex-employees could find themselves terminated without even the modest safety net that unemployment provides. And if successful in prevailing over ex-employees in contested unemployment proceedings, the unemployment tax rate levied on a company might actually decrease.

The final argument of the bill’s sponsors is that ex-employees don’t have the means to fight unreasonable covenants in the courts.  I have two reactions.  First, the time for to negotiate (or decide on the acceptability of) employment conditions is before accepting employment with a company, not after leaving the company.  Prospective employees have a lot more leverage when being wooed by an employer to make such covenants reasonable.   Second, if any legislation is to be considered, perhaps an act that provides greater clarity on what is reasonable with respect to such covenants would be a better solution.  While it would be challenging to define what’s reasonable across all businesses and conditions, this approach would reduce future litigation and remove the issue as a “reason” for unemployment remaining stubbornly high.

Leaders, and especially political leaders, should look for rational solutions that consider society’s needs, not seek additional ways to make New Jersey an unattractive location for business.  That’s just wrong-headed for businesses and heartless for employees.

As a corporate leader, what would you do if this bill is enacted into law?

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What Makes Decisions Effective?

As president of your company, how do you assess how good your business performance is? Do you review financials, daily operations efficiency reports, SalesForce entries, cash flow? Do you begin by talking with your department heads or VPs? Do you call your customers and ask, “How are we doing?” And how do you make decisions based on that information?

McKinsey Quarterly just published “Making Great Decisions”.  In it authors Chip Heath and Olivier Sibony address improving decision processes through behavioral economics. While we recognize our own biases, they argue, we are not immune to them in making decisions. They argue against traditional decision-tree analysis because decisions end up in predictable patterns. It turns out that personal biases, politics and persuasion are the three p’s of decision making.

What’s at work here is our tendency as presidents (or, for that matter, our department heads) being unwilling to admit to not knowing or being unable to make a rock solid call.That tendency grows as decisions become more critical or need to be made under conditions of increasing stress. We need to show confident leadership which reintroduces our biases, rather than ackowledge that there is a great deal of uncertainty in the outcomes of actions we take.

We try to build better decision-making processes by understanding how skill and luck intersect to influence the outcome of decisions. We talked about two books (Success Equation and Black Swan) in an earlier blog that focus on luck, randomness and probabilities in determining outcomes. Strategies are richer if there is consideration of luck or randomly occurring events influencing outcomes instead of choosing to believe that we control performance based solely on our strategy and our team’s hard work.

One way to make superior decisions is to discuss the skill / luck continuum, and then conduct  a realistic strength, weakness, opportunity and threat (SWOT) analysis of one’s business. We suggest companies then review their key performance indicators (KPIs) to determine how they are really performing in advance of events hitting the income statement or balance sheet.

This process enables valuable role-play that provides second or third alternatives to first conclusions and improves the overall decision process. Messrs. Heath and Sibony cite a study that suggests decisions based on such key executive role-play turned out six times better than if only the first alternative was considered.

This decision process improvement is amplified when behavior biases of key executives are understood. Simple tools exist to help with this understanding, such as DISC. All in all, these processes help create or strengthen a culture where creative debate thrives and prepares companies to understand that outcomes will be below expectation, as expected or above expectation and allow plans to be developed accordingly. A wider range of options makes for more debate and builds a decision-making environment where reality testing of assumptions is a critical part of decision making.

It is also critical to get facts quickly and minimize confusing assumptions with facts on which major decisions are made. We work with companies to quickly get out of meetings and in front of customers to test ideas and get feedback quickly. Large corporations get bogged down in testing to statistical significance out of a greater need for risk aversion as a public entity. As entrepreneurs, we accept more risk, but at the same time minimize threats to our financial health and wealth.

As a business owner/entrepreneur, do you believe your abilities and those of your team to make decisions successfully and consistently over a long period can be improved substantially or not?

 

Posted in Books, Communications, Innovation, Leadership, Management Practices, Performance & Profitability | 1 Comment

GTO

When I was a kid, drag racing was king and The Beach Boys were on top with “Shut Down” and “409“. Ronnie & The Daytonas with weren’t far behind in the rankings with “Little GTO“. My friends Yewell, Eliezer, Cazel and I drag raced American Muscle cars around NY and NJ matching GTO’s with Chevy 409’s, ‘Vettes and Mustangs.

While we never thought about it, we were also dealing with “Black Swans“. Nicholas Taleb wrote about the consequences of improbable events – both positive and negative – that occur in the long tail of random events. While frequent, our small teen-age racing triumphs (and we ourselves) could have been wiped out by an improbable but catastrophic event like a crash.  It’s not dissimilar to the havoc and damage that MF Global, Enron, and Lehman wreaked on the American and world economies.

In his recent book “The Success Equation“, Michael Mauboussin expands Taleb’s ideas, analyzing outcomes of our actions within surrounding conditions. He termed random events over which we have no control but which influence the results of our efforts as “luck”. His insights pair the role of luck with skill. His book is significant for business owners, providing perspective on the environments in which decision-making occurs.

Environments vary. Some, like engineering, are dominated by high skill. Others are influenced more by luck, as in business acquisitions or new product launches. Critical to decision-making is understanding the intersecting impact of luck and skill. High achievement over time comes with correctly perceiving which environment we face and strategically dealing with how much it is that luck may influence the outcomes. Warning: reading the book is greatly aided by an understanding of statistical analysis; if you can deal with a narrative on statistics, then “The Success Equation” is a must read.

We – you and I – are American Muscle, owners and presidents of middle-market companies comparable to the GTO’s, Chevy 409’s, and Mustangs of my youth. But unlike those days, we now also face Porsches, BMW’s and even Acuras that run fast and hard. We compete in complex markets, now called asymmetrical markets, driven by global competition, vast arrays of regulation, big data, cloud computing and virtual relationships.

My advisors tell me not to “sell” in my posts but I will anyway. I’m the go-fast guy at Oak & Apple, Ken the partner charged with optimizing financial management and Bill the one who picks up the pieces (when luck runs out) and turns things around. We and our associates operate in the high-stress environments of very rapid growth or decline. Because we have all operated and/or led substantial private businesses or divisions of large enterprises, we understand the influence of stress on performance.

Let us know how you think luck benefited or penalized your company. Do you believe luck helped build your business? What do you see as the future of “American Muscle”?

Posted in Leadership, Management Practices, Performance & Profitability, Resources | Tagged | 2 Comments

In God We Trust. But Should We?

Should we trust in the role of US dollars as the measure of corporate success, that is. If not to optimize return on investment, what is the role of private enterprise in society? Or, as some politicians suggest, should we enter the world of no-margin business with private spending redirected to public interests versus shareholder value?

The financial industry serves its useful purpose of financing revolutionary companies that change the world, but just as most other businesses, they’ve forgotten that, because for the MBAs that run these institutions it’s solely about shareholder value, i.e. making money. If we think like that, then we may have begun to drift away from the deeper meaning of life’s purpose. This perception, that business and governments are all about personal money, is a cancer infecting society because so many of us have come to think that’s how they’re supposed to act. We cannot create a better society if everybody’s actions are strictly based on his or her own short term self-interest.

At the same time, it is also a fatal flaw to think that those who achieve significant success are obligated to provide equally high living standards for those less fortunate or less motivated members of society.

It’s sobering to realize that almost every institution in America has lost the trust of our citizens.  It’s the rare exception — in fact I challenge you to think of one that still has a high degree of trust. We don’t trust business or government. Businesses have a 19% approval rating – statistically equal to that of Congress. We don’t trust the educational system. We don’t trust institutional religion due to wide spread scandals. We don’t trust the health-care system. We don’t trust the judicial system.

Trust is at an all-time low in America. We don’t trust journalists.  Even the military is being questioned because of the absence of weapons of mass destruction in Iraq and length of the wars there and in Afghanistan. Every part of the system has got to rediscover its higher purpose.

As I mature in business, a euphemism for getting old, I know I believed maximizing return on invested capital was the key if not the sole driver of business decisions. Now I question that life long held proposition. As in my December blog Lone Ranger: Never Take Off The Mask we now have technology to be voyeurs on individual behaviors to optimize advertising and communication on a mass level down to the unique level of one. But is this healthy or an invasion of privacy? Is privacy even meaningful anymore? If there is no privacy, does trust even matter?

Yes it does. Leaders of complex businesses who make decisions under stress need to be mindful of their values and the core values of all stakeholders, and be responsible for all results and consequences. On the other hand, no-margin businesses cannot attract capital for growth and become vulnerable to swings in revenue, setting the terms of their own demise.

Tomasz Tunguz wrote a fun blog:  “How to Optimize Every Decision in Your Life and Accomplish Nothng”. Essentially, we can optimize every single decision but sub-optimize the whole of life unless we are guided by core beliefs. Starting with concepts like mission, vision and values along with brand strategies, companies can optimize every decision on its own merit by following an “In God We Trust” mentality but not fulfill meaningful purpose unless we trust in such greater purpose.

Your thoughts?

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My Boss Is an Idiot

My friend, a senior executive heading the US subsidiary of a foreign company, recently wrote me the following assessment of his current situation and especially his boss:

I am an executive working in a leadership capacity for an international company for more than a decade.  I am an intelligent, creative and capable leader with a proven and successful track record and, after many years of enjoying what I do, I am now very unhappy.

Our company has been struggling world-wide for a few years now and its performance continues to deteriorate.  The previous CEO lacked the vision, discipline and commitment to make the required decisions, so it is not surprising that the Board recently decided to replace him with a strong ‘Type A’ personality CEO. Maybe ‘Type AAA’ is more like it.

The new CEO comes with a strong background: he is intelligent, experienced, articulate, and a charismatic speaker.  He is not an idiot; he simply acts like one.

The new CEO ‘knows it all’ and leads the company with a style that fairly screams, “I say, you do”. I’ve never worked for this type of leader in the past and I can’t say that I am enjoying it. Maybe if I worked for a genius like Steve Jobs I might feel  differently and be willing to tolerate this arrogant approach. In this case, I see the CEO making some good and some bad choices, but none of which are strategic and changing the direction of the company.  All of them so far are tactical and won’t move the needle on the company’s future, so I don’t think that I will stay in this environment for the long haul.

Since the new CEO arrived, I see a damaging impact on morale at virtually all levels of the organization. It underscores that negative energy is as contagious as positive inspiration, maybe more so.

Ruling out the option to simply quit this job, I have decided to stick around, at least for the short-term, to execute our subsidiary’s plans to the best of my capabilities.   Not for the new CEO’s success but for my own.

 I do have to remind myself continually to be self- motivated to execute.  The following are my main reasons:

1.  I had good reasons, beyond compensation and opportunity, to join this company in the first place. These ideas and ideals have not changed. I can still do well by them.

2.  The organization has been more than fair to me. Even the new CEO has already tried to promote me and offered me a position to work closer to him in a more strategic capacity. I tactfully declined his offer.

3. The organization needs me now more than ever and there are people and families that depend on my ability to execute.

4.  It is easier to observe mistakes and learn from wrong decisions and negative actions. For one reason or another, learning from one’s mistakes is an easier task than learning from people doing the right things, so I’m learning fast (what not to do).

5. It is somewhat hard to admit, but the new CEO also has good sides and positive attributes in both his character and execution, so I try to observe and learn from these experiences, too.

6. Strong performance buys me time to decide about my future and certainly gives me more options. I will also be remembered and supported by this organization differently depending on how I perform today.

7. There is a good probability that the new CEO will fail.  I certainly do not want to be the person or the reason for his failure. He will have others to blame. And, if I stick around and perform at a high level, I may find myself with the opportunity to succeed him one of these (not too distant) days.

As long as I am here, and at this point it is becoming less clear how long that is, I am going to continue to execute. The more challenging element, which may require further digging inside my soul, is to find somehow more happiness at the same time.

I think my friend nailed it.  What would you do in this executive’s shoes?

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Brand Crazy

People familiar with Oak & Apple know we emphasize the importance of developing a thorough brand strategy for companies and their sibling product lines. The basis for placing so heavy a burden on having a well defined brand strategy is that brand is focused on the customer…brand states what is promised and delivered every day to customers, profitably.

Brand is to business what a constitution is to countries. Developing brand strategies forms a platform for engaging top management in the thoughtful, deliberate statement of what a business or product family stands for in customers’ minds, both end-consumers and distribution partners.

The essential elements of brand development are:

a)    sharp definition of who the customers are, including distribution partners, and what behaviors define them

b)     the unique reasons a company or its product delivers emotional benefit to those customers better than competitors

c)    product/service performance superiority or top reasons for purchase

d)    proof of claim or reason to believe superiority statements, and

e)    a brand character – a style guide in developing the look and feel of all communication.

Once established, brand platforms become reference points and organizing forums for how decisions are made. Decisions that not only pertain to advertising and sales collateral, but also standards for defining acquisition targets, leadership themes and even in the high stress environment during a crisis.

Without the organizing concept of brand, tactical decisions tend to be disjointed and often conflicting.  Compare (1) the disarray at financial companies brought about by focus on executive compensation versus real fiduciary attention to satisfying customers’ needs;    (2) J&J during the Tylenol crisis when Burke (Chairman) asked “What does our brand stand for?”. Reply: “Trust”. That conclusion led to the most massive product recall in history, saved J&J and Tylenol, and led to a decade of market share increases across all product lines.

Please share your stories about how you use brand strategy to lead your company or call us to discuss developing a comprehensive brand and leadership strategy with you.

Posted in Brand, Communications, Leadership, Management Practices | Tagged , , , | 1 Comment