All
businesses require processes for the creation of products and services. A
process is a collection of activities that consumes resources and adds value to
the consumer (in the form of products / services) with some form of benefit
paid to the producer. Additionally, all processes have variation – in business
we call this risk. As H. Edward Deming, pioneer in the field of quality
management, points out – If you can better understand variation in a process,
you can plan for it and do things to prevent it.
A collection of best practice articles to help grow companies with an emphasis on finance. The goal of the blog is to explain how these best practices work, enabling anyone to put these ideas to immediate use. Articles are written by Matt H. Evans, CPA, CMA, CFM
Thursday, January 28, 2016
Tuesday, January 19, 2016
Machines of Loving Grace
Machines
of Loving Grace is the title of a book written by John Markoff. Markoff is
a science writer for the New York Times who has followed technology for the
last 30 years. In the last few years, we have seen an escalation of
technologies, ranging from drones and robots to Artificial Intelligence and the
Internet of Things. This has prompted some of our best thinkers to challenge
what is happening. Stephen Hawking has remarked: “the development of full
artificial intelligence could spell the end of the human race.” Bill Gates and
Elon Musk have both voiced concerns about the birth of super intelligence or
machines that can think.
Thursday, January 7, 2016
Why Customer Retention is so Important to Growth
For many
businesses, the challenge of growth has become exceedingly difficult. Larger
companies seem to grow through acquisition since internal growth above 10% is
not possible. One of the keys to good internal growth is through retention.
Granted, it’s not easy, but if you can somehow retain your customers and get
them to come back, you have created a platform for growth that is much easier
to manage then a growth strategy predicated on acquiring other companies. Acquiring
and integrating other companies is very challenging and requires expertise that
most companies lack, not to mention the very low success rate even if you do
have outside help. Therefore, a growth strategy rooted in retention can be more
viable and sustainable over the long run.
Tuesday, December 29, 2015
Let's Define Best Practices
One of the
most overused terms in business has to be: Best Practices. It seems everyone
(including myself) is always labeling something as a “best practice.” Thanks to
Hackett Benchmarking, a common definition has emerged for best practices.
According to Hackett Benchmarking, a best practice must:
1) Place the
company in a top percentile ranking within its industry.
2) Leverage
and take advantage of technology.
3) Improve
quality and speed, and also lower costs.
4) Give
management more control and influence.
5) And
finally, it has to be working; i.e. it can't be planned but not implemented.
Friday, December 11, 2015
The Three Most Important Skills
It was said
some 20 years ago by the Education President, George H. W. Bush that everyone
should be able to: Speak, Write and
Think. These are the three most important skills everyone should have. Why
are these skills so important? Because they are the most transferable skills a
person will use throughout their life. These skills also create the widest
range of opportunities for people in a world where specific job related skills
can become obsolete. And if you don’t think you need transferable skills, then
consider that the average American will go through 10 to 14 jobs by the age of
38. One out of every four workers has been on the job one year or less
according to the Department of Labor.
Wednesday, December 2, 2015
Why Link Pay to Performance
If you
expect to attract and retain the best people, you must have market competitive
pay. Additionally, you have to be willing to accept some level of employee
turnover. The key is to design your pay so that you have targeted turnover;
i.e. you induce turnover of low performing personnel while re-enforcing a
culture of high performance, enabling you to retain top performers. This is why
every company should consider linking pay to performance.
The problem
for many companies is the minimal spread between high and low performers. Most
companies design their pay around a merit matrix that looks like this:
Performance Level | Highest | Above | Below | Lowest |
---|---|---|---|---|
Exceptional | 3.5% | 3.5% | 3.0% | 3.0% |
Exceeds Expectations | 3.0% | 3.0% | 3.0% | 3.0% |
Effective | 2.5% | 2.5% | 2.5% | 2.0% |
Development Needed | 2.5% | 2.5% | 2.0% | 2.0% |
Unacceptable/Poor | 2.5% | 2.0% | 2.0% | 2.0% |
In the above example, the spread between the best and worst performers is a mere 1.5%. In today’s world where companies are fighting to attract and retain top talent, you must be much more aggressive with your merit matrix so that it looks more like this:
Performance Level | Highest | Above | Below | Lowest |
---|---|---|---|---|
Exceptional | 6.5% | 5.5% | 5.0% | 4.0% |
Exceeds Expectations | 6.0% | 5.0% | 4.0% | 3.0% |
Effective | 5.0% | 4.0% | 3.0% | 2.0% |
Development Needed | 2.0% | 1.0% | 0.0% | 0.0% |
Unacceptable/Poor | 0.0% | 0.0% | 0.0% | 0.0% |
In this example, people who don’t perform get no increase. This sends a strong signal to everyone that performance matters and for those who do perform, you will get a serious merit increase. This is one of the most powerful statements any company can make when it comes to retaining the best people. You should also think about the limited money you have to spread around. You want to allocate your limited resources to those people who deliver results. A merit matrix that has distinct differences between low and high performance will do more to communicate and create a culture of high performance than any speech or memo you will issue.
“Variable pay budgets and spending have
nearly doubled in the last 20 years, subsequently emerging as the
pay-for-performance vehicle of choice now and for the foreseeable future. In a
more robust job market, competition for talent exists in every sector. As a
result, we are seeing industries that have traditionally shied away from
providing bonuses, such as agriculture, higher-education and the federal
government, realizing they must establish variable pay programs to compete for
and retain the best talent.” - Ken Abosch, Compensation Leader for Aon Hewitt.
Trying to
retain the best people is becoming increasingly difficult. According to a 2015 survey
conducted by WorldatWork, over 80% of the people surveyed indicated they plan
to leave their job. Contrast this to five years ago when the percentage was
60%. High performers are not going to stick around for the usual 3% raise while
others get 1%.
A final
point concerns the traditional performance review. If you link pay to
performance, you need to rely more on 360 degree feedback that has some
anonymity. This provides an objective, open and honest review process that
serves as your basis for administering your merit matrix. Additionally, your
review process has to be on-going and not just once a year. It should be a
cumulative reflection on how well someone has helped the company meet
department and company goals. And the review process should be both
quantitative and qualitative. For example, the Marketing Manager was able to
help the company meet its sales targets (quantitative), but he also mentored
and grew the capability of our marketing team (qualitative). If you can have a
robust back-end review process coupled with a serious merit matrix (as
described in this article) and combine this with a competitive benefits package,
then you have established the foundation that should enable a high performing workforce.
"It is very difficult, but not impossible, to put a price tag on losing key people and their smarts. As if to emphasize the intangible yet dire nature of these costs, some executives were unable to provide a dollar figure, but simply responded 'incalculable' or 'priceless.' So even if you can't quantify the costs of knowledge loss, you might agree that the cost is often a lot, enough that you would like some options to avoid or minimize these costs. Despite the acknowledged threat, a surprising number of organizations are doing nothing or little about it." - Critical Knowledge Tools by Dorothy Leonard, Walter Swap and Gavin Barton
Download PDF Copy of Article
"It is very difficult, but not impossible, to put a price tag on losing key people and their smarts. As if to emphasize the intangible yet dire nature of these costs, some executives were unable to provide a dollar figure, but simply responded 'incalculable' or 'priceless.' So even if you can't quantify the costs of knowledge loss, you might agree that the cost is often a lot, enough that you would like some options to avoid or minimize these costs. Despite the acknowledged threat, a surprising number of organizations are doing nothing or little about it." - Critical Knowledge Tools by Dorothy Leonard, Walter Swap and Gavin Barton
Download PDF Copy of Article
Tuesday, November 24, 2015
Recognizing Intellectual Capital
The
traditional accounting model with its financial statements is increasingly inadequate
in helping us understand what drives value in our business. These value drivers
are highly intangible and the accounting model is not setup to measure and
report these critical assets. Part of the problem is simple – it’s hard to
measure intangible drivers of value. They can include things like:
- Your ability to retain and have loyal customers
- The fact that your workforce is highly motivated and requires minimal supervision
- Having strong leadership that creates the right culture for performance
- Obtaining brand recognition that makes it harder for others to compete against your company
- Turning ideas into real product improvements for continued market leadership
- Leveraging your know-how against the assets of others in a shared economy
Thursday, November 12, 2015
A Better Way to Grow
The
consensus amongst most is that bigger is better. With increased pressure on our
natural capital (soil, water, oceans, etc.) and an ever increasing gap between
rich and poor, it’s time for all businesses to re-think what growth is really about.
Take for example inequality - the United States has the fourth-highest income
inequality among the world’s developed countries; only Chile, Mexico and Turkey
rank higher with trailing countries represented by Russia, Ukraine and Lebanon.
In their
book The Big Enough Company, authors Adelaide Lancaster and Amy Abrams
make the argument that owners should be true to themselves and grow a company
to a size where they can still enjoy running the company. You should not grow
just for growth’s sake. A “big enough” company delivers benefits to a broad
audience and continues to have a positive impact as the owners originally envisioned.
Monday, November 2, 2015
Is Knowledge Really Power?
We all
recognize (at least I hope most of us) that knowledge is instrumental to
value-creation and that knowledge as an asset is far more important than
traditional assets such as equipment, real estate or buildings. And to a great
extent, every organization must become a knowledge organization and every
employee must become a knowledge professional.
Thursday, October 22, 2015
Three Frameworks for Higher Productivity
Increasingly
we live in a world where we have to get a lot done and since no-one can change
time, the key is to get more out of the time we have available. The good news
is that several frameworks can rapidly increase your productivity. This article
will discuss three: 1) Eisenhower Box, 2) Lewin’s Equation, and 3) the
Zeigarnik Effect.
Certain
people seem to get a lot done in an effortless way. One such person was Dwight
Eisenhower, 34th President of the United States, serving two terms from 1953 to
1961. Eisenhower followed a simple principle based on what he once said: “What is important is seldom urgent and what
is urgent is seldom important.”
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