The Happy Boss

June 25, 2009

While there are many books written on employee satisfaction, not much seems to be told about what makes bosses happy in their jobs. Maybe people assume that bosses are happy because they are bosses, or maybe they assume that bosses do not need to be happy.
Nice job!Yet, a satisfied and happy boss is very important for an organization, because the boss’s personality and mood is quite contagious. You can be sure that a bitter boss means lots of bitterness and tension on the work floor. Therefore, a happy boss is an absolute necessity in order for a company to achieve superior performance.
To get a happy boss, just think in reverse of what I have just said, and think what could be so contagious coming from employees that will make him/her feel great.
What is it that the boss really wants? He/she wants to look like a great boss! This means that he/she can show superior results and that people who get in contact with the company will say good things about it and about him/her. This were it gets tricky, because lousy bosses will never create such a momentum among their employees. In fact, being happy is the sign of a talented boss. Therefore, it will all start with the person at the top.
This is a person who has the ability to be self-motivated and with a positive attitude towards life and work. He/she brings this to the workplace and communicates it to the employees. The boss’s competence shows already in the choice of the staff. He/she wants to be surrounded by quality people, and because of their abilities, the leader knows that they can be trusted and that all they need is clear and stimulating instructions. By delegating to good people, the happy boss is able to obtain better results faster and make the company grow faster and stronger. This dynamics of success feeds itself, as everyone can see the results. Customers are more prone to do business with this company, and talented people are interested to work there.
No wonder the boss is happy!

Copyright 2009 The Happy Future Group Consulting Ltd.

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The only true Mission Statement

May 12, 2009

Nowadays, about every company has a Mission Statement. It has become part of the business culture and it is included in every business plan.
In many offices, you can even see it framed near the reception desk.
And yet, those mission statements, for as sophisticated as they may be, do not matter that much. OK, I already hear some denial, and I probably am just nothing else than an iconoclast.
Just ask your staff to tell you what the official mission statement of your company is, and you very quickly will see my point. Most employees, and that includes senior executives, simply do not know it! The reasons for that are many. The employee joined the company recently, there is a poor communication from the top, there is lack of interest for it, and in most cases: the statement is too long and too complicated to memorize.
Here is another disappointment for those who worked hard at formulating those magic words: your customers do not know your Mission Statement, either. Why? Because they care about their business first. Moreover, they have seen your Mission Statement in many variations at your competitors’ places, too.
Too many mission statements just sound all too familiar. They are all about your company being the first choice supplier of top quality that cherishes the customers to whom they add value, etc, etc.
When companies differentiate themselves in the same way, they just go back to square one: making themselves commodities.
So what is the only true Mission Statement? The answer is “To make money”! It is true, it is simple to remember by your employees, and the way to do it is to do all the right things right.
Simple, isn’t it?

Copyright 2009 The Happy Future Group Consulting Ltd.


Intelligent growth

April 4, 2009

Everybody in the business community will tell you: you must grow your business.
But what does this mean exactly? What do you grow? How do you grow?
For having seen the good, the bad and the ugly of growth, these questions are quite important.
My answer is: Grow your business intelligently! And of course, all business leaders do exactly this, don’t they?
Well…
So let’s get back to the basic questions first!

What to grow?
This is the tricky area.
The risk for a successful business is to think that growth will be linear. In other words, if you produce x units and make a profit of y, by growing to 2x you will make 2y profit. Sometimes you do, sometimes you don’t.
Good business people want to make money and what you should grow is your profit. There is no point of selling more if you do not make more profit, as that means that you do not make money on the extra sales. Then, why invest and hire and complicate your business if you do not have any marginal advantage in doing so? This sounds obvious and yet the number of companies that do exactly the wrong thing is amazing. Volume matters within certain limits but margin must come first.

How do you grow?
The first thing you need to know is how big is the market, who are your competitors, what do they plan to do and how do you compare with them. If they are stronger than you , maybe you should keep a low profile and not go into a frontal confrontation with them.
If you are the stronger player, as most CEO’s like to think of their companies, realize that this does not make you invincible.
The key is a sound and realistic business plan.
Start with the sales plan: how much more can you sell for a profit in the market? Then you have an idea about the required volume of your operations.
Then review all the costs implications that the new situation will create and look at the bottom line. Here the key is to not do any wishful thinking or to make the numbers match because your boss demanded some bold performance from you. A helpful rule of thumb is that you probably will sell only half of the extra volume for the profit you think you can make, and the extra costs will be double of what you expect. Enter these revised numbers in your P&L budget and see what comes out.
Base your assumptions on ambitious but realistic data, and while having a dream is nice, do not let you lead by vain objectives. It is nice to be the largest, only if it makes your company the richest, too. Market share is nice, but it is not an indicator of success, never forget that the force that will drive your ability to get the price you want is the law of offer and demand. Even if you had a market share of 90% but had grown the business beyond what the market can absorb, you will not be able to keep the prices high, and depending on the elasticity for your product, you can very well end up selling at a loss. Always be market-driven!
There is nothing wrong with being conservative. There is much wrong in having your organization taking too many risks.
Another key point in your growth plan is the phasing. You need a longer term view on where you want to be and set yearly goals for your growth plan. Be aware that you can go only one step at a time and that you cannot skip steps. Like with building a house, you start with the foundations, then build the floors one after another, and you do not build floor#2 before you have finished floor#1.
And finally, you have a choice of either growing organically or acquiring another company (see my previous article on M&A).

Remember that the most important for a business is to keep existing, and growth is only one of the ways to achieve this.

Copyright 2009 The Happy Future Group Consulting Ltd.


Managing for profit

April 4, 2009

Every company has potential to improve results. Most of the time, sub-optimal performance is the result of not focusing enough on the most effective areas of their business. There can be many reasons why this happens, but short-time priority overriding long-term goals; too many projects given to staff, and lack of time generally are the main culprits.

As such the theory for managing for profit is simple.
Profit being the difference between the company revenue and its costs, many think that it is all about cutting costs and selling more. Well, it is not quite that simple, either. The key is management. It is the ability to organize, to motivate and to lead an organization in such a way that the P&L account be optimized.

Let’s have a look at the P&L account then, and let’s keep it simple.
+ Revenue
– Cost of Sales
= Gross Margin
– OPEX
= EBIT

From this, you can see one very important thing: money comes into a company from only one end: the revenue generated by sales.
Further, you can see that your gross margin must exceed your OPEX in order for your company to make a profit.
These are 2 extremely important points to always remember.
As a manager, you must work to maximize the gross margin while operating with the lowest possible fixed costs possible.
Read this very carefully! I did not say cut the costs and make as much gross margin as possible. This latter statement only leads you to the vicious circle of commoditization of your product, lower quality and service and eventually a mediocre reputation and definitely sub-optimal results.

So let’s get back to the proper statement: “maximize the gross margin while operating with the lowest possible fixed costs possible”.
This means that your focus is on 2 main areas:

  • Maximizing the gross margin
  • Keeping the OPEX at the lowest possible level, yet allowing you to achieve the highest margin.

To achieve this, your business plan is the basis. And your business plan must start by the sales plan, since this the area that will bring you the money to pay all your bills. The reason why your business not only exists but also stays alive and thrives is that you have satisfied customers who want to buy more from you. If you think differently about this, just imagine your company losing customers or getting bad publicity. Ok, now you agree with my statement.

Maximizing the gross margin

Here, too, just let’s have a look at what influences the gross margin:

  • Revenue = Volume x Unit Price
  • Cost of sales = variable costs needed to produce what you sell

To maximize the gross margin, you need to make sure that the selling and the costing are part of the same, since your sales force causes the cost of sales.

The gross margin is the indicator of the performance of your marketing. On the contrary to what many seem to think, it has very little to do with your Production department. This latter one just produces the orders on request of the Sales department.

And this is exactly where general management plays a crucial role: you must make your sales people accountable for the costs they create and for the consequences of their actions, and for them to justify their existence inside your company they must sell for profit, not just move volume, like unfortunately it is the case in many companies.

Sales people must be able to calculate a price that generate profit, and make sales plans that meet this very same objective. Too many sales people tend to prefer to say yes to the customer, because they are afraid of losing them. Loyal customers will not leave you if you disagree on the price, they will negotiate, and that is another area where you must train your sales people to be superior.

That is why any new contract also needs approval of other departments, such as Production and Procurement. This approval is not necessarily a recurrent act, but can also be determined for each line of product, for instance, no sale allowed for a price lower than so much. Deviation from this must be a concerted decision at management level.

Another extremely important item that must be the responsibility of your Sales department is the collection of accounts receivables. Since a transaction is an exchange of goods or services against money according to agreed terms, these goods and services are sold only when they are paid on time. And the best way to make sure that you have solvent and disciplined customers is to make sure that your sales people have done all their due diligence in this area before making a sale.

Minimizing the costs

As well for the cost of sales as for the OPEX, you must minimize the financial impact they have on your P&L account. To do so, you must focus on the following:

  • Negotiate the purchase of your materials and services at the lowest price possible for the quality you need to buy.
  • Buy what you need to have in inventory, but as much as possible try to limit your inventories at the lowest level possible.
  • Have efficient processes and operations. Beware of hidden costs such as too high maintenance and operational costs such as energy consumption
  • Have an efficient organization with as few and as talented people as possible. Do not go in any fancy expensive project unless it will bring you a profit return of at least 50% per year.
  • Offer a fair and motivating salary and benefit package to your employees. Motivated and satisfied employees are more efficient, get sick less and work harder than employees that are not, and this pays off.

Conclusion

To manage for profit, your sales department must be the driving force, they must focus on generating profitable business (“margin before volume”), they must act like entrepreneurs who have a responsibility to the activities they create in other departments, must keep a close eye on accounts receivables, and most of all know how to price what they sell.

To manage for profit you must set up and manage a lean and efficient organization. You must be cost efficient before being cheap. This latter will only work adversely on the efficiency of your company and will cost you a lot more in the end.

Copyright 2009 The Happy Future Group Consulting Ltd.