One of my clients (who publish monthly real estate books that market residential properties.) had a great comment about how he takes care of his customers, the real estate agents and brokers that buy the ads in his books. He asks them, 'Do you want me to be good to you, or good for you?'
Think about that question for a moment. Being good to the customer means you take care of them, give them great service, etc. But being good for the customer is different. It is helping them or enhancing their experience.
Sometimes it is easy to enhance an experience or increase the value of your products or services by just making suggestions or helping the customer. Other times you have to sell more. Up- selling sometimes scares sales people, but it has to be done. It is a disservice not to up-sell the customer when it is appropriate and necessary to the success of the product.
As mentioned above, my client sells advertising in a book. Being good for the customer means the sales person can help design the advertisement for the customer. They may even suggest a larger advertisement, not because it brings more revenue to the company, but because it will truly create better results for the customer. The sales rep is helping the customer receive maximum impact for the advertising dollars.
How about the server at a restaurant that suggests that the guest try the new appetizer? The server could just take the food order, but instead is suggesting something that might add to the enjoyment of the meal. Yes, it adds dollars to the check, but it also enhances the experience.
Recently at a retail golf store I saw the sales person sell some expensive golf clubs. What compelled the customer to buy the clubs on the spot was when the sales person said, 'I could sell you these clubs today and I know you would be happy with them. But I won't sell them to you until I make sure they are the right clubs for your golf swing. So, let's step over to our practice facility and make sure you are comfortable with these clubs. Fifteen minutes later the customer felt like they had a golf lesson – with clubs that would help improve the game. Sold!
Let's take the question a bit further. The question is really a philosophy. There really isn't a choice. The customer deserves to have both. We should be good to and for the customer. That is what my client intends. Posing it as a question is only for the benefit of the customer.
In conclusion, don't just take care of the customer. Help the customer. Don't just be good to the customer. Be good for the customer. Show value, create an experience and always strive to exceed their expectations.
Courtesy: Shep Hyken
Tuesday, July 27, 2004
Immortality - The Driving Force Behind the Legend!
The closest man comes to happiness is in the ardent pursuit of his passion!
Some achievers are not satisfied at being the best in their field. They stretch the limits of the possible and then go beyond that. They don't compete. They define and run their own race. They change the realms of possibility. They set new benchmarks. They strive to the point of absurdity. Their contributions and accomplishments defy description. Their accomplishments are treasured for centuries. They are revered long after their time!
What motivates this select group? Why do they strive so hard? What drives them?
Psychologists and Scientists who study success and its roots have come up with numerous reasons and factors that help drive a person to achievement. Dominant and affectionate mothers (Jack Welch, Lance Armstrong), a slightly insecure personality characterized by some degree of introversion, and an intense deep rooted desire to be appreciated and liked, have been some of the reasons used to explain the intense drive exhibited by high-achievers.
The purpose of this article is not to study or understand the factors that drive the high-achievers of our society, but an attempt to understand the factor that is most critical in the making of legends - i.e. high achievers whose achievements transcend generations.
Right from the biblical age (the forbidden fruit!), human beings have had a tendency to long for and go after what they can't or shouldn't have.
Said or unsaid, every one of us is fearful of his own mortality - the knowledge that each of our place and role on this planet is one of impermanence; a temporary small speck in the planet's long history. As a result, we long for a state of permanence or immortality, in some form or fashion.
This longing for a state of permanence manifests itself in several forms.
For most of us, this is manifested in the form of procreation. Most men feel the need for children, to carry on the family line and name. Most women feel fulfilled by nurturing and rearing their own children. Parents, to a great degree, see themselves in their children. They want their children to "carry on" and "live up to" the family name.
It is their way of leaving a mark in the world. Their progeny is a way of satisfying their need for permanence - a way to indicate their continued existence. It gives them a sense of satisfaction that has never been and probably never will be defined. So much so that a childless couple more often than not go through deep existential pain and trauma; to a degree that life becomes dull and purposeless. Coming to terms with the hard reality of childlessness is a challenge. Most childless couples never come to terms with it.
A more simplistic manifestation of the above "want / desire for permanence" is people striving to look good in their wedding photographs, for posterity. That is also the same reason why many people indulge in writing an Autobiography - to record their life and works for future generations - yet another way of trying to achieve some form of permanence.
In summary, our frailty makes us long for permanence. We are constantly striving for immortality. Till such time that scientist can concoct the eternal youth potent, we derive satisfaction by leaving some aspect of ourselves (progeny, ideas, company, nation, philosophy, invention, art, literature, etc.) behind, as we leave the world.
While many people view progeny as leaving some aspect of themselves for posterity; there are individuals who though driven by the same desire, their manner of leaving their footprints in the sands of time is not through their progeny but through their life's vocation or passion. These individuals could be poets, craftsmen, artists, inventors, entrepreneurs, scientists, politicians, business leaders or one of a host of other professions.
These high-achievers are driven by a desire to leave a mark. Their ardent endeavor is to leave an imprint that is as deep and permanent as possible in the sands of time, though they realize that any imprint they leave, irrespective of its impact, will never be permanent. This imprint could be in one of many different forms - work of art, literary classic, company, philosophy - thoughts - ideas - writings, nation building, sport, science etc.
These individuals pursue their chosen area with intense passion and single minded devotion - they are driven by an obsessive drive for perfection - to be the best - perhaps better than the best, to create / contribute something that will be recognized as unique, something that will last long after they are gone - that will stand the test of time and provide them and their feats an elevated place in history. They dedicate their body, mind and soul to their endeavor.
This ardent pursuit of their passion gives them a strong sense of purpose and satisfaction. The satisfaction obtained from pursuing this goes way beyond any material benefits or fame that may be obtained as byproducts of their journey.
While plenty of them strive for posterity and become world famous during their life times, very few actually succeed in leaving a mark that transcends generations. A few names that come to mind include: Socrates - Logic / Philosophy, Gandhi - Non-Violent Movement / India, Albert Einstein - Theory Of Relativity / Physics, Leonardo da Vinci - Mona Lisa / Art!
Courtesy: Navin V. NagiahFriday, July 23, 2004
The ART of Transferring Risk
The ART of Transferring Risk From the University of Chicago: ''alternative risk transfers'' blur distinctions between insurance companies and banks.
Once upon a time, in the not-so-distant past, a finance chief could tell the difference between an insurance policy and a derivative contract.
It was really a no-brainer. An insurance policy was a signed agreement under which your company paid a premium. In exchange, the company got to transfer some of its risks — like fires or class-action lawsuits — to a property/casualty insurance company.
A derivative, on the other hand, was a security you bought from a banker or a dealer to hedge corporate financial risks or to bet on a good investment return.
In recent years, however, distinctions between the commercial insurance industry and the capital markets have blurred. Both camps are routinely lumped under the adroitly coined rubric of ART, short for "alternative risk transfer." The only common element? Risks are covered in nontraditional ways.
Indeed, it's hard to tell the players without a scorecard. Looking like investment bankers, some insurers and reinsurers now help clients issue securities — not necessarily to raise capital for a project, say, but to cover the client's risks. Carriers are also venturing into what was once exclusively capital-markets terrain by serving up hedging features in some P/C products.
For their part, some bankers can easily be mistaken for insurance executives. Like insurers, they take part in deals involving captive insurance companies — perhaps the oldest part of the ART scene. Further, capital-markets mainstays like Lehman Brothers and Goldman Sachs are players in the Bermuda reinsurance market.
Navigating such shifting — and often offshore — waters can be tough for CFOs with risks to cover and capital to protect. But if they're equipped with a coherent way to shop the ART market, they can find ways to cut risk-transfer costs, says Christopher Culp, who teaches
"Alternative Risk Transfer: The Convergence of Corporate Finance and Risk Management," an executive education course at the University of Chicago's Graduate School of Business.
What finance executives need is a methodical way to sort through the mounting numbers of alternative-risk offerings, according to Culp, an adjunct professor of finance who often consults for participants in the insurance and derivatives industries. While selecting alternative risk coverage might involve dicier decisions than choosing a breakfast cereal in a supermarket, he suggests, similar principles apply.
In the latter case, the professor asks, "wouldn't it be great if we had a more systematic way of knowing which box to go to?"
Between RAROC and a Hard Place: To be sure, the observation that corporate finance and risk management are melding is nothing new. Culp, however, says contends that his course has gained become especially important just now.
University administrators apparently agree: They began offering a version of the class as part of Chicago's regular MBA program for the first time last autumn and will offer two sections of it this fall. (Culp and a Swiss Re executive have recently taught similar courses open only to the reinsurer's client companies and its own executives, and Chicago will do the same for other interested companies.)
Convergence is an idea whose time has come, Culp believes — in part because the ART market is in the midst of a "revolution" in product offerings. Just a few years ago, the market consisted mainly of all-purpose, multiyear, multiline insurance policies and catastrophe-linked futures sold at the Chicago Board of Trade. Mainly because they were relatively pricey, the policies and the futures drew less-than-enthusiastic receptions from corporate buyers.
During the hard insurance markets of 2001 to 2003, however, traditional insurance made alternative products look cheap by comparison. As a result, the ART market took off. Among the most successful products, says Culp, are "multitrigger," business-interruption policies that pay off for a disaster only if one or more other bad things occur. One example of an added trigger might be a 20 percent drop in net cash flows.
Another hot product: "Finite risk" insurance and reinsurance policies. Under such policies, buyers typically plunk down premiums big enough to cover most expected losses over a period of as long as 10 years. Buyers often get rebates if losses are less than expected. It's the insurer for whom the risk is "finite," since the policyholder ponies up a hefty sum to help cover the risk.
Even though prices for traditional coverage have softened over the last year or so, the demand for ART products hasn't slowed, Culp observes. According to the professor, many commercial insureds have become accustomed to a more "holistic" way of financing risk and favor it over the "silo by silo" approach involved in purchasing a variety of insurance policies.
Besides the burgeoning of the ART market, executives' increasing caution about how to disperse capital has brought risk management and corporate finance closer together, says Culp. Senior managers have simply grown wary of making investments without having some idea of what the downside might be.
Using metrics like risk-adjusted return on capital (RAROC), executives are factoring operational risk into their calculations of the cost of capital projects, the professor adds. When companies deploy capital in new areas, he explains, they "demand a high risk-adjusted return."
In the course, Culp tries to show how deft ART-buying choices can help companies make more efficient use of such scarce capital. Normally, he notes, a corporation short on funds might issue stock or corporate bonds, for instance. But if the shortfall is triggered by a negative event like a drop in product demand, it might be hard to find willing investors or lenders.
In such cases, companies might more wisely have tapped the ART market beforehand and bought "contingent capital," according to Culp. Offered by insurers and reinsurers, the product enables a company to pick up quick capital by selling securities to the insurer at a preset price if a specified bad event happens.
That could make raising capital a whole lot cheaper. "Instead of having to issue common stock, you get it from a contingent-capital insurer that knows you better than the investor community does — and thus gives you a better price," he explains.
Hacking Through the Hype: To make such moves, however, finance executives need to know what the various ART products actually do. That's tricky, says Culp, since the products are often ill-named.
Among his examples of flashy, though unhelpful, terms of ART: "earnings-per-share insurance" (a policy including a number of different kinds of coverage) and "adverse-development coverage" (insurance for that part of a loss that exceeds what the buyer has self-insured).
Indeed, Culp thinks that much of his task in teaching the course is to help executives sort through puffery. To be astute consumers, they need to be able to "look at what the product itself is," he says, "rather than what somebody calls it in the marketing department."
Courtesy: David M. Katz, CFO.com
Once upon a time, in the not-so-distant past, a finance chief could tell the difference between an insurance policy and a derivative contract.
It was really a no-brainer. An insurance policy was a signed agreement under which your company paid a premium. In exchange, the company got to transfer some of its risks — like fires or class-action lawsuits — to a property/casualty insurance company.
A derivative, on the other hand, was a security you bought from a banker or a dealer to hedge corporate financial risks or to bet on a good investment return.
In recent years, however, distinctions between the commercial insurance industry and the capital markets have blurred. Both camps are routinely lumped under the adroitly coined rubric of ART, short for "alternative risk transfer." The only common element? Risks are covered in nontraditional ways.
Indeed, it's hard to tell the players without a scorecard. Looking like investment bankers, some insurers and reinsurers now help clients issue securities — not necessarily to raise capital for a project, say, but to cover the client's risks. Carriers are also venturing into what was once exclusively capital-markets terrain by serving up hedging features in some P/C products.
For their part, some bankers can easily be mistaken for insurance executives. Like insurers, they take part in deals involving captive insurance companies — perhaps the oldest part of the ART scene. Further, capital-markets mainstays like Lehman Brothers and Goldman Sachs are players in the Bermuda reinsurance market.
Navigating such shifting — and often offshore — waters can be tough for CFOs with risks to cover and capital to protect. But if they're equipped with a coherent way to shop the ART market, they can find ways to cut risk-transfer costs, says Christopher Culp, who teaches
"Alternative Risk Transfer: The Convergence of Corporate Finance and Risk Management," an executive education course at the University of Chicago's Graduate School of Business.
What finance executives need is a methodical way to sort through the mounting numbers of alternative-risk offerings, according to Culp, an adjunct professor of finance who often consults for participants in the insurance and derivatives industries. While selecting alternative risk coverage might involve dicier decisions than choosing a breakfast cereal in a supermarket, he suggests, similar principles apply.
In the latter case, the professor asks, "wouldn't it be great if we had a more systematic way of knowing which box to go to?"
Between RAROC and a Hard Place: To be sure, the observation that corporate finance and risk management are melding is nothing new. Culp, however, says contends that his course has gained become especially important just now.
University administrators apparently agree: They began offering a version of the class as part of Chicago's regular MBA program for the first time last autumn and will offer two sections of it this fall. (Culp and a Swiss Re executive have recently taught similar courses open only to the reinsurer's client companies and its own executives, and Chicago will do the same for other interested companies.)
Convergence is an idea whose time has come, Culp believes — in part because the ART market is in the midst of a "revolution" in product offerings. Just a few years ago, the market consisted mainly of all-purpose, multiyear, multiline insurance policies and catastrophe-linked futures sold at the Chicago Board of Trade. Mainly because they were relatively pricey, the policies and the futures drew less-than-enthusiastic receptions from corporate buyers.
During the hard insurance markets of 2001 to 2003, however, traditional insurance made alternative products look cheap by comparison. As a result, the ART market took off. Among the most successful products, says Culp, are "multitrigger," business-interruption policies that pay off for a disaster only if one or more other bad things occur. One example of an added trigger might be a 20 percent drop in net cash flows.
Another hot product: "Finite risk" insurance and reinsurance policies. Under such policies, buyers typically plunk down premiums big enough to cover most expected losses over a period of as long as 10 years. Buyers often get rebates if losses are less than expected. It's the insurer for whom the risk is "finite," since the policyholder ponies up a hefty sum to help cover the risk.
Even though prices for traditional coverage have softened over the last year or so, the demand for ART products hasn't slowed, Culp observes. According to the professor, many commercial insureds have become accustomed to a more "holistic" way of financing risk and favor it over the "silo by silo" approach involved in purchasing a variety of insurance policies.
Besides the burgeoning of the ART market, executives' increasing caution about how to disperse capital has brought risk management and corporate finance closer together, says Culp. Senior managers have simply grown wary of making investments without having some idea of what the downside might be.
Using metrics like risk-adjusted return on capital (RAROC), executives are factoring operational risk into their calculations of the cost of capital projects, the professor adds. When companies deploy capital in new areas, he explains, they "demand a high risk-adjusted return."
In the course, Culp tries to show how deft ART-buying choices can help companies make more efficient use of such scarce capital. Normally, he notes, a corporation short on funds might issue stock or corporate bonds, for instance. But if the shortfall is triggered by a negative event like a drop in product demand, it might be hard to find willing investors or lenders.
In such cases, companies might more wisely have tapped the ART market beforehand and bought "contingent capital," according to Culp. Offered by insurers and reinsurers, the product enables a company to pick up quick capital by selling securities to the insurer at a preset price if a specified bad event happens.
That could make raising capital a whole lot cheaper. "Instead of having to issue common stock, you get it from a contingent-capital insurer that knows you better than the investor community does — and thus gives you a better price," he explains.
Hacking Through the Hype: To make such moves, however, finance executives need to know what the various ART products actually do. That's tricky, says Culp, since the products are often ill-named.
Among his examples of flashy, though unhelpful, terms of ART: "earnings-per-share insurance" (a policy including a number of different kinds of coverage) and "adverse-development coverage" (insurance for that part of a loss that exceeds what the buyer has self-insured).
Indeed, Culp thinks that much of his task in teaching the course is to help executives sort through puffery. To be astute consumers, they need to be able to "look at what the product itself is," he says, "rather than what somebody calls it in the marketing department."
Courtesy: David M. Katz, CFO.com
Sunday, July 18, 2004
What advice did the CEO give?
Morris had just been hired as the new CEO of a large high tech corporation.
The CEO who was stepping down met with him privately and presented him with three numbered envelopes....#1,#2,#3.
"Open these if you run up against a problem you don't think you can solve," the departing CEO said.
Well, things went along pretty smoothly, but six months later, sales took a downturn and Morris was really catching a lot of heat. About at his wit's end, he remembered the envelopes. He went to his drawer and took out the first envelope.
The message read, "Blame your predecessor."
Morris, the new CEO called a press conference and tactfully laid the blame at the feet of the previous CEO. Satisfied with his comments, the press -- and Wall Street -- responded positively, sales began to pick up and the problem was soon behind him.
About a year later, the company was again experiencing a slight dip in sales, combined with serious product problems. Having learned from his previous experience, the CEO quickly opened the second envelope.
The message read, "Reorganize."
This he did, and the company quickly rebounded. After several consecutive profitable quarters, the company once again fell on difficult times.
Morris went to his office, closed the door and opened the third envelope.
The message said, ..."Prepare three envelopes."
The CEO who was stepping down met with him privately and presented him with three numbered envelopes....#1,#2,#3.
"Open these if you run up against a problem you don't think you can solve," the departing CEO said.
Well, things went along pretty smoothly, but six months later, sales took a downturn and Morris was really catching a lot of heat. About at his wit's end, he remembered the envelopes. He went to his drawer and took out the first envelope.
The message read, "Blame your predecessor."
Morris, the new CEO called a press conference and tactfully laid the blame at the feet of the previous CEO. Satisfied with his comments, the press -- and Wall Street -- responded positively, sales began to pick up and the problem was soon behind him.
About a year later, the company was again experiencing a slight dip in sales, combined with serious product problems. Having learned from his previous experience, the CEO quickly opened the second envelope.
The message read, "Reorganize."
This he did, and the company quickly rebounded. After several consecutive profitable quarters, the company once again fell on difficult times.
Morris went to his office, closed the door and opened the third envelope.
The message said, ..."Prepare three envelopes."
How Tax system works?
You've heard the cry in the past "It's just a tax cut for the rich!", and it is accepted as fact. But what does that really mean?
The following explanation may help.
Suppose that every day, 10 men go out for dinner. The bill for all 10 comes to $100. They decided to pay their bill the way we pay our taxes, and it went like this:*
The first four men (the poorest) paid nothing.*
The fifth paid $1.*
The sixth $3.*
The seventh $7.*
The eighth $12.*
The ninth $18.*
The tenth man (the richest) paid $59.
All 10 were quite happy with the arrangement, until one day, the ownersaid: "Since you are all such good customers, I'm going to reduce the costof your daily meal by $20."
So now dinner for the 10 only cost $80. The group still wanted to pay their bill the way we pay our taxes.
The first four men were unaffected. They would still eat for free. But how should the other six, the paying customers, divvy up the $20 windfall so that everyone would get his "fair share"?They realised that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth and sixth men would each end up beingpaid to eat.
The restaurateur suggested reducing each man's bill by roughlythe same percentage, thus:
* The fifth man, like the first four, now paid nothing (100% saving).
* The sixth paid $2 instead of $3 (33% saving).
* The seventh paid $5 instead of $7 (28% saving).
* The eighth paid $9 instead of $12 (25% saving).
* The ninth paid $14 instead of £18 (22% saving).
* The tenth paid $49 instead of $59 (16% saving).
Each of the six was better off, and the first four continued to eat forfree, but outside the restaurant, the men began to compare their savings
."I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man "but he got $10!"
"That's right," exclaimed the fifth man. "Ionly saved a dollar too. It's unfair that he got ten times more than me!"
"That's true!" shouted the seventh man. "Why should he get $10 back when Igot only $2? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't getanything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for dinner. The nine sat downand ate without him, but when they came to pay the bill, they discovered that they didn't have enough money between all of them for evenhalf of it.
That, boys and girls, journalists and college professors, is how our taxsystem works.
The people who pay the highest taxes get the most benefit froma tax reduction. Tax them too much, attack them for being wealthy, and theyjust may not show up at the table anymore.
There are lots of good restaurants in Monaco and the Caribbean(tax saving havens)
Courtesy - David R. Kamerschen, Professor of Economics, University ofGeorgia.
The following explanation may help.
Suppose that every day, 10 men go out for dinner. The bill for all 10 comes to $100. They decided to pay their bill the way we pay our taxes, and it went like this:*
The first four men (the poorest) paid nothing.*
The fifth paid $1.*
The sixth $3.*
The seventh $7.*
The eighth $12.*
The ninth $18.*
The tenth man (the richest) paid $59.
All 10 were quite happy with the arrangement, until one day, the ownersaid: "Since you are all such good customers, I'm going to reduce the costof your daily meal by $20."
So now dinner for the 10 only cost $80. The group still wanted to pay their bill the way we pay our taxes.
The first four men were unaffected. They would still eat for free. But how should the other six, the paying customers, divvy up the $20 windfall so that everyone would get his "fair share"?They realised that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth and sixth men would each end up beingpaid to eat.
The restaurateur suggested reducing each man's bill by roughlythe same percentage, thus:
* The fifth man, like the first four, now paid nothing (100% saving).
* The sixth paid $2 instead of $3 (33% saving).
* The seventh paid $5 instead of $7 (28% saving).
* The eighth paid $9 instead of $12 (25% saving).
* The ninth paid $14 instead of £18 (22% saving).
* The tenth paid $49 instead of $59 (16% saving).
Each of the six was better off, and the first four continued to eat forfree, but outside the restaurant, the men began to compare their savings
."I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man "but he got $10!"
"That's right," exclaimed the fifth man. "Ionly saved a dollar too. It's unfair that he got ten times more than me!"
"That's true!" shouted the seventh man. "Why should he get $10 back when Igot only $2? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't getanything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for dinner. The nine sat downand ate without him, but when they came to pay the bill, they discovered that they didn't have enough money between all of them for evenhalf of it.
That, boys and girls, journalists and college professors, is how our taxsystem works.
The people who pay the highest taxes get the most benefit froma tax reduction. Tax them too much, attack them for being wealthy, and theyjust may not show up at the table anymore.
There are lots of good restaurants in Monaco and the Caribbean(tax saving havens)
Courtesy - David R. Kamerschen, Professor of Economics, University ofGeorgia.
Wednesday, July 07, 2004
Executive Charisma: Can It Be Learned?
Ask for adjectives describing a finance chief,and ''charismatic'' doesn't normally leap to mind.
When hiring, companies tend to value the candidate "who is appropriately serious and sober, and a big listener at the right time in the conversation," says John Wilson, whose San Francisco-based recruit firm, J.C. Wilson Associates, San Francisco-based recruiting firm, J.C. Wilson Associates, specializes in finance executives. That's true even more these days, perhaps, when "personal magic"—part of Webster's definition of charisma—could get a CFO into trouble in the boardroom.
But in a world where finance-department executives have become strategic corporate players and must communicate their goals to executives in other departments, some management experts suggest that a little leadership magnetism and charm are qualities CFOs should nurture. And a few think that charisma can be taught, at least to some degree.
With the right approach, all executives can up their charisma quotients, says Debra A. Benton, a Fort Collins, Colorado-based executive career counselor. "Technical brilliance is necessary, but what will take you farther is an understanding of how to deal with people," she says. "It might require learning to do more with your natural personality."
The challenge is tougher in finance, where executives are often pegged as quiet types. "I don't think their training encourages" charisma, she says. "And they can get away with not having it," since solid finance ability is indeed the traditional bedrock of most positions in the field. Yet those finance officers who have both the technical skills and a compelling persona can stand out from their generally reserved peers—in a good way, according to Benton.
Her recent book, Executive Charisma: Six Steps to Mastering the Art of Leadership (McGraw-Hill), presents a game plan for developing one's ability to command loyal troops. Benton quotes one executive who describes a bell curve in which executive charisma is found between temerity on one side and uncontrolled hubris on the other. "You want to be in the center and high on that scale," says the executive. Benton names such qualities for the midpoint as confident (but not arrogant) and tough (but not bullying). Her six steps, while often pretty obvious ("stand tall, straight, and smile"), are supposed to map out a route to the peak of that curve.
Over at Harvard Business School, though, assistant professor Rakesh Khurana shudders at the idea that charisma is a key to business success. He traces the word back to its roots as a religious term meaning "the gift of grace" or "the ability to speak with God." And therein lies its danger, says Khurana. "Charisma has always been attractive to people," he says, "because it offers a simple answer: suspend disbelief and follow blindly, and everything will be all right."
A Vision Salesman
Professor Khurana, author of last year's Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs (Princeton University Press), proposes that loyalty to a charismatic leader may be among the explanations for why Enron employees followed the lead of former CFO Andrew Fastow. "What we're looking for in a CFO is trust and rationality," says Khurana. "The CFO is supposed to be a counterbalance to the charismatic CEO."
Indeed, those who do see charisma as a valuable commodity believe it could help turn today's finance leader into a chief executive. "What separates the cream from the rest of the crop is the ability to sell a vision, and to get people working for you," says Natalie Laackman, Chicago-based senior finance officer and vice president of the ConAgra Foods Deli division of ConAgra Foods Inc. She cites the ability to relate personally to staffers as another aspect of charisma—a characteristic she associates with Jack Greenberg, the recently retired McDonald's Corp. chairman and CEO who once served as the company's CFO. Laackman worked closely with Greenberg at McDonald's before arriving at ConAgra in April. "He'll focus on the person who's talking to him, not just on the business agenda, and that has really endeared him to people and caused them to be very loyal," says Laackman. "He treats you like you're the most important person in the room."
Any list of charisma-blessed executives in the CFO arena is likely to include names of some who have moved on to lead companies or take positions of responsibility outside finance, like Hilton Hotels CEO Stephen Bollenbach; former Dell Computer CFO Tom Meredith, now an angel investor and philanthropist; Continental Airlines president and COO Larry Kellner; and PepsiCo president and CFO Indra K. Nooyi.
"The CFO will always be the numbers guy or gal," says Craig Watson, CEO of Opti-Pay Technologies LLC, an electronic-payment management company, and former CFO at Pepsi Central Co., which ran PepsiCo's Midwest beverage unit. "But I think it's up to CFOs to break the mold and demonstrate that they are first and foremost effective businesspeople." Watson, who has worked with Benton to improve his own style, believes her suggestions are especially helpful in promoting interdisciplinary contacts.
"The CFO really needs to cultivate the respect and support of the line managers," he says. "To do that, you have to have the capability to interact with people."
While Watson agrees that some executives can become too involved in creating a dynamic persona, he doesn't think there's much danger for finance officers. "What helps save a CFO from being hung up on his or her charisma," he says, "is that at the end of the day, the numbers have to make sense."
Courtesy - Kate O'Sullivan, CFO Magazine
When hiring, companies tend to value the candidate "who is appropriately serious and sober, and a big listener at the right time in the conversation," says John Wilson, whose San Francisco-based recruit firm, J.C. Wilson Associates, San Francisco-based recruiting firm, J.C. Wilson Associates, specializes in finance executives. That's true even more these days, perhaps, when "personal magic"—part of Webster's definition of charisma—could get a CFO into trouble in the boardroom.
But in a world where finance-department executives have become strategic corporate players and must communicate their goals to executives in other departments, some management experts suggest that a little leadership magnetism and charm are qualities CFOs should nurture. And a few think that charisma can be taught, at least to some degree.
With the right approach, all executives can up their charisma quotients, says Debra A. Benton, a Fort Collins, Colorado-based executive career counselor. "Technical brilliance is necessary, but what will take you farther is an understanding of how to deal with people," she says. "It might require learning to do more with your natural personality."
The challenge is tougher in finance, where executives are often pegged as quiet types. "I don't think their training encourages" charisma, she says. "And they can get away with not having it," since solid finance ability is indeed the traditional bedrock of most positions in the field. Yet those finance officers who have both the technical skills and a compelling persona can stand out from their generally reserved peers—in a good way, according to Benton.
Her recent book, Executive Charisma: Six Steps to Mastering the Art of Leadership (McGraw-Hill), presents a game plan for developing one's ability to command loyal troops. Benton quotes one executive who describes a bell curve in which executive charisma is found between temerity on one side and uncontrolled hubris on the other. "You want to be in the center and high on that scale," says the executive. Benton names such qualities for the midpoint as confident (but not arrogant) and tough (but not bullying). Her six steps, while often pretty obvious ("stand tall, straight, and smile"), are supposed to map out a route to the peak of that curve.
Over at Harvard Business School, though, assistant professor Rakesh Khurana shudders at the idea that charisma is a key to business success. He traces the word back to its roots as a religious term meaning "the gift of grace" or "the ability to speak with God." And therein lies its danger, says Khurana. "Charisma has always been attractive to people," he says, "because it offers a simple answer: suspend disbelief and follow blindly, and everything will be all right."
A Vision Salesman
Professor Khurana, author of last year's Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs (Princeton University Press), proposes that loyalty to a charismatic leader may be among the explanations for why Enron employees followed the lead of former CFO Andrew Fastow. "What we're looking for in a CFO is trust and rationality," says Khurana. "The CFO is supposed to be a counterbalance to the charismatic CEO."
Indeed, those who do see charisma as a valuable commodity believe it could help turn today's finance leader into a chief executive. "What separates the cream from the rest of the crop is the ability to sell a vision, and to get people working for you," says Natalie Laackman, Chicago-based senior finance officer and vice president of the ConAgra Foods Deli division of ConAgra Foods Inc. She cites the ability to relate personally to staffers as another aspect of charisma—a characteristic she associates with Jack Greenberg, the recently retired McDonald's Corp. chairman and CEO who once served as the company's CFO. Laackman worked closely with Greenberg at McDonald's before arriving at ConAgra in April. "He'll focus on the person who's talking to him, not just on the business agenda, and that has really endeared him to people and caused them to be very loyal," says Laackman. "He treats you like you're the most important person in the room."
Any list of charisma-blessed executives in the CFO arena is likely to include names of some who have moved on to lead companies or take positions of responsibility outside finance, like Hilton Hotels CEO Stephen Bollenbach; former Dell Computer CFO Tom Meredith, now an angel investor and philanthropist; Continental Airlines president and COO Larry Kellner; and PepsiCo president and CFO Indra K. Nooyi.
"The CFO will always be the numbers guy or gal," says Craig Watson, CEO of Opti-Pay Technologies LLC, an electronic-payment management company, and former CFO at Pepsi Central Co., which ran PepsiCo's Midwest beverage unit. "But I think it's up to CFOs to break the mold and demonstrate that they are first and foremost effective businesspeople." Watson, who has worked with Benton to improve his own style, believes her suggestions are especially helpful in promoting interdisciplinary contacts.
"The CFO really needs to cultivate the respect and support of the line managers," he says. "To do that, you have to have the capability to interact with people."
While Watson agrees that some executives can become too involved in creating a dynamic persona, he doesn't think there's much danger for finance officers. "What helps save a CFO from being hung up on his or her charisma," he says, "is that at the end of the day, the numbers have to make sense."
Courtesy - Kate O'Sullivan, CFO Magazine
Manage Your Suppliers as a Resource
Jonathan Byrnes says you should invite your best suppliers to suggest innovative ways to develop new customer-supplier business efficiencies. by Jonathan Byrnes
Several years ago, I visited Camco, GE's appliance manufacturing and distribution business unit in Canada. Camco was the site of one of the earliest, most successful, make-to-order manufacturing systems in the world. Through insight and innovation, Camco's managers developed a manufacturing process that was widely followed.
I recall the manager of the manufacturing unit telling me that their suppliers were one of their most valuable resources, but they had not realized it until they engaged them in the new system. To the surprise of Camco's managers, many of their most important suppliers quickly adopted the make-to-order system in their own businesses, significantly compressing cycle time throughout the channel, and offered powerful new process innovations that helped Camco in its own business.
This discussion came to mind recently when I met with the purchasing group of a major equipment manufacturer. They had identified a number of opportunities to coordinate with their suppliers in mutually beneficial ways. They felt stuck, however, because they did not have the resources to develop these initiatives to the point where they could engage the suppliers in the many opportunities they identified.
During the course of the meeting, the purchasing group came to realize that they were not using their suppliers as a resource. Instead, they were tacitly assuming that they would have to create projects to develop ways to instruct the suppliers on how to coordinate with them.
By the end of the meeting, a more powerful alternative became clear. Rather than developing their own intercompany processes for their suppliers, they could manage the suppliers and use them as a resource. This involved focusing their efforts on defining clearly what their needs were, and what flexibility they had in their own internal processes. Then, they could invite their best suppliers to engage with them, having the suppliers suggest innovative ways to develop new customer-supplier business efficiencies.
This equipment manufacturer was a very important account for many of its most significant suppliers. The suppliers had ample resources to devote to improving their operating ties with this important customer. By using these suppliers as a resource, the company gained an opportunity to leverage its limited supplier management resources, and both the company and its suppliers faced new possibilities for huge mutual gain.
Many companies have supplier relationships that are tacitly adversarial. Some have developed supplier management programs which specify expected supplier performance in areas such as on-time deliveries and order-fill rate. These typically involve penalties for deficient performance. But few companies are willing to go through the process of identifying and removing obstacles to efficient joint business processes on both sides of the relationship.
Innovative supplier management, using your suppliers as a resource, allows both companies to move past the traditional adversarial relationship toward a partnership with deep mutual value creation.
Innovative supplier management
In Japan, supplier management is viewed as an essential management function. Suppliers are viewed as the "hidden factory." This perspective is largely missing in all too many companies.
In many companies, the cost of materials and components exceeds the internal value-added through manufacturing or assembly. Yet the fundamental nature of staffing and process improvement for internal projects versus external, supplier-related projects is often hugely different.
Few companies are willing to go through the process of identifying and removing obstacles to efficient joint business processes on both sides of the relationship.
Internal process improvement projects are generally well staffed, and develop knowledge systematically through techniques like process mapping. Supplier management projects, by contrast, tend to be inadequately staffed, somewhat ad hoc, and rife with assumptions rather than systematic knowledge development.
In a few industries, such as those that provide consumer products to major retailers, innovative suppliers have stepped up to the challenge. (See Supply Chain Management in a Wal-Mart World.) These innovative suppliers have even gone a step further, offering different levels of customer integration to different sets of accounts, depending on account importance and account willingness and ability to innovate.
In these sophisticated relationships, the best suppliers implicitly penalize accounts that are stuck in adversarial mode and favor those that are adept at creating win-win relationships. The best suppliers seek situations where they can be managed as a resource, creating innovations that benefit both customer and supplier; they shun situations where supplier management is a one-sided affair.
Key success factors
Three factors are especially important in developing an effective supplier management process: partner selection, relationship-building, and contracting.
Many supplier management projects fail because adequate care is not taken in selecting the right supplier partners. In order for a deep, innovative partnership to develop, five key factors must be present:
Real new value—this value must be measured, observed by both companies, and fairly divided, a process that is essential to keep the partnership vital, even if the original sponsoring managers exit.
Complementary specialties and capabilities—there must be a good fit and adequate flexibility that will endure over a considerable period of time.
Strategic alignment—developing a deep partnership with a major supplier often changes the relationship with competing suppliers, and the converse is true for the supplier.
Willingness to partner—there must be a lack of internal organizational conflict on both sides of the relationship.
Ability to implement—both companies need to qualify each other to ensure that they both have the ability to follow through on their intentions over a significant period of time.
All too often, companies actually initiate supplier partnership programs with the first supplier that approaches them, whether the supplier fits and is well-qualified to follow through or not. Partner selection is far too important not to be managed proactively.
Relationship-building requires finesse. Often, it takes a few months to get past festering old issues. A channel map is a key analytical instrument at this stage. It provides a broad view of the customer-supplier product flow patterns, and actual channel performance by tracing the product flow through the channel.
A channel map has three components: (1) a diagram of the information and product flow at each channel stage, including handling, storage, moving, processing, etc.; (2) a quantitative analysis, or representative model, of product accumulation and movement over a typical time period; and (3) rough estimates of the costs at each stage.
With the view that a channel map provides, you and your supplier can identify the biggest obstacles to efficient product flow between the companies. This is important because a few well-designed intercompany process links usually can provide a large portion of the potential benefits.
"Showcase" projects are particularly effective at this stage. These differ from pilot projects in important ways. A showcase offers the opportunity to experiment with a program that is only roughly defined, learning by doing in the process. A pilot project, on the other hand, is designed to "try out" a program that was previously analyzed and approved. Once you develop a working model of a new customer-supplier relationship in showcase mode, it is much easier to sell it into both organizations.
Start small
Often, managers think first of developing supplier innovations with their most important suppliers. This is generally a mistake. The most effective place to start is to work with a relatively small, very capable, innovative supplier for whom your company is an extremely important customer. This situation has the conditions most favorable for creating new innovations that can later be scaled throughout your supplier base. Major suppliers, on the other hand, often are more difficult to work with and innovation is more risky with so much at stake.
Once an innovation is developed, contracting is very important. This is a complex topic, but a few underlying principles provide directional guidance. A good contract will have effective incentives for both parties to continue to deepen the relationship and to find new ways to create mutual value over time. In addition, the contract should have a "migration out" provision that will specify how to restore the status quo if the relationship ends and a new partner needs to be obtained.
Developing an effective contract is as much an art as a science, because a productive relationship should and will evolve in new, mutually-beneficial ways. Effective contracts are liberating, not confining.
Your suppliers can be your most valuable hidden resource. If your supplier management function is adversarial in tone, your suppliers will respond in kind. But, if your supplier management function sets its sights on innovation and value creation, you can find a clear pathway to success.
Courtesy - In HBS Working Knowledge by Jonathan Byrnes is a Senior Lecturer at MIT and President of Jonathan Byrnes & Co., a focused consulting company. He earned a doctorate from Harvard Business School in 1980 and can be reached at jlbyrnes@mit.edu.
Several years ago, I visited Camco, GE's appliance manufacturing and distribution business unit in Canada. Camco was the site of one of the earliest, most successful, make-to-order manufacturing systems in the world. Through insight and innovation, Camco's managers developed a manufacturing process that was widely followed.
I recall the manager of the manufacturing unit telling me that their suppliers were one of their most valuable resources, but they had not realized it until they engaged them in the new system. To the surprise of Camco's managers, many of their most important suppliers quickly adopted the make-to-order system in their own businesses, significantly compressing cycle time throughout the channel, and offered powerful new process innovations that helped Camco in its own business.
This discussion came to mind recently when I met with the purchasing group of a major equipment manufacturer. They had identified a number of opportunities to coordinate with their suppliers in mutually beneficial ways. They felt stuck, however, because they did not have the resources to develop these initiatives to the point where they could engage the suppliers in the many opportunities they identified.
During the course of the meeting, the purchasing group came to realize that they were not using their suppliers as a resource. Instead, they were tacitly assuming that they would have to create projects to develop ways to instruct the suppliers on how to coordinate with them.
By the end of the meeting, a more powerful alternative became clear. Rather than developing their own intercompany processes for their suppliers, they could manage the suppliers and use them as a resource. This involved focusing their efforts on defining clearly what their needs were, and what flexibility they had in their own internal processes. Then, they could invite their best suppliers to engage with them, having the suppliers suggest innovative ways to develop new customer-supplier business efficiencies.
This equipment manufacturer was a very important account for many of its most significant suppliers. The suppliers had ample resources to devote to improving their operating ties with this important customer. By using these suppliers as a resource, the company gained an opportunity to leverage its limited supplier management resources, and both the company and its suppliers faced new possibilities for huge mutual gain.
Many companies have supplier relationships that are tacitly adversarial. Some have developed supplier management programs which specify expected supplier performance in areas such as on-time deliveries and order-fill rate. These typically involve penalties for deficient performance. But few companies are willing to go through the process of identifying and removing obstacles to efficient joint business processes on both sides of the relationship.
Innovative supplier management, using your suppliers as a resource, allows both companies to move past the traditional adversarial relationship toward a partnership with deep mutual value creation.
Innovative supplier management
In Japan, supplier management is viewed as an essential management function. Suppliers are viewed as the "hidden factory." This perspective is largely missing in all too many companies.
In many companies, the cost of materials and components exceeds the internal value-added through manufacturing or assembly. Yet the fundamental nature of staffing and process improvement for internal projects versus external, supplier-related projects is often hugely different.
Few companies are willing to go through the process of identifying and removing obstacles to efficient joint business processes on both sides of the relationship.
Internal process improvement projects are generally well staffed, and develop knowledge systematically through techniques like process mapping. Supplier management projects, by contrast, tend to be inadequately staffed, somewhat ad hoc, and rife with assumptions rather than systematic knowledge development.
In a few industries, such as those that provide consumer products to major retailers, innovative suppliers have stepped up to the challenge. (See Supply Chain Management in a Wal-Mart World.) These innovative suppliers have even gone a step further, offering different levels of customer integration to different sets of accounts, depending on account importance and account willingness and ability to innovate.
In these sophisticated relationships, the best suppliers implicitly penalize accounts that are stuck in adversarial mode and favor those that are adept at creating win-win relationships. The best suppliers seek situations where they can be managed as a resource, creating innovations that benefit both customer and supplier; they shun situations where supplier management is a one-sided affair.
Key success factors
Three factors are especially important in developing an effective supplier management process: partner selection, relationship-building, and contracting.
Many supplier management projects fail because adequate care is not taken in selecting the right supplier partners. In order for a deep, innovative partnership to develop, five key factors must be present:
Real new value—this value must be measured, observed by both companies, and fairly divided, a process that is essential to keep the partnership vital, even if the original sponsoring managers exit.
Complementary specialties and capabilities—there must be a good fit and adequate flexibility that will endure over a considerable period of time.
Strategic alignment—developing a deep partnership with a major supplier often changes the relationship with competing suppliers, and the converse is true for the supplier.
Willingness to partner—there must be a lack of internal organizational conflict on both sides of the relationship.
Ability to implement—both companies need to qualify each other to ensure that they both have the ability to follow through on their intentions over a significant period of time.
All too often, companies actually initiate supplier partnership programs with the first supplier that approaches them, whether the supplier fits and is well-qualified to follow through or not. Partner selection is far too important not to be managed proactively.
Relationship-building requires finesse. Often, it takes a few months to get past festering old issues. A channel map is a key analytical instrument at this stage. It provides a broad view of the customer-supplier product flow patterns, and actual channel performance by tracing the product flow through the channel.
A channel map has three components: (1) a diagram of the information and product flow at each channel stage, including handling, storage, moving, processing, etc.; (2) a quantitative analysis, or representative model, of product accumulation and movement over a typical time period; and (3) rough estimates of the costs at each stage.
With the view that a channel map provides, you and your supplier can identify the biggest obstacles to efficient product flow between the companies. This is important because a few well-designed intercompany process links usually can provide a large portion of the potential benefits.
"Showcase" projects are particularly effective at this stage. These differ from pilot projects in important ways. A showcase offers the opportunity to experiment with a program that is only roughly defined, learning by doing in the process. A pilot project, on the other hand, is designed to "try out" a program that was previously analyzed and approved. Once you develop a working model of a new customer-supplier relationship in showcase mode, it is much easier to sell it into both organizations.
Start small
Often, managers think first of developing supplier innovations with their most important suppliers. This is generally a mistake. The most effective place to start is to work with a relatively small, very capable, innovative supplier for whom your company is an extremely important customer. This situation has the conditions most favorable for creating new innovations that can later be scaled throughout your supplier base. Major suppliers, on the other hand, often are more difficult to work with and innovation is more risky with so much at stake.
Once an innovation is developed, contracting is very important. This is a complex topic, but a few underlying principles provide directional guidance. A good contract will have effective incentives for both parties to continue to deepen the relationship and to find new ways to create mutual value over time. In addition, the contract should have a "migration out" provision that will specify how to restore the status quo if the relationship ends and a new partner needs to be obtained.
Developing an effective contract is as much an art as a science, because a productive relationship should and will evolve in new, mutually-beneficial ways. Effective contracts are liberating, not confining.
Your suppliers can be your most valuable hidden resource. If your supplier management function is adversarial in tone, your suppliers will respond in kind. But, if your supplier management function sets its sights on innovation and value creation, you can find a clear pathway to success.
Courtesy - In HBS Working Knowledge by Jonathan Byrnes is a Senior Lecturer at MIT and President of Jonathan Byrnes & Co., a focused consulting company. He earned a doctorate from Harvard Business School in 1980 and can be reached at jlbyrnes@mit.edu.
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