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Keys
to Avoiding A Killer Storm
Learning to Read the Telltale Signs of a Troubled Company
The
CEO just finished assuring you that the company is progressing
and the future is bright, yet you cannot get comfortable.
You feel uneasy about the company’s prospects.
The economy is slowing and you wonder if the company
can weather the storm.
There
are tell tale signs that a company is headed into turbulent
times. The signs are sometimes obvious, some companies live
from storm to storm, and some get caught in unexpected
tornadoes. This article will take a look at some likely
characteristics of companies that are headed for a storm or
live from storm to storm.
The following are warning signs that a storm is
brewing:
·
Employees are
overburdened
·
Constant fire drills
take place
·
Lack of communication
·
There is no
understanding of company’s mission, goals and objectives
·
There is no short and
long term planning
·
Good managers are
few, if any
·
No trust among
employees
·
Planning and
monitoring systems are weak or do not exist
·
Employees feel
insecure
·
Lack of perceived
direction
This fact
pattern reminds me of a recent client who had a building full
of administrators collecting compensation and absorbing
resources while adding little or no value.
No one was held accountable, goals and objectives were
non existent, daily fires were commonplace, and losses were
heavy. In
this case it was readily determined that the company was
spending excess money on overhead and staffing.
Those not essential to the manufacturing process were
superfluous. Forty-five days after streamlining non-essential
employees the company turned its first profit in two years via
holding employees accountable, and setting goals and
objectives.
Managers will typically complain that they have
responsibility, but no authority.
Employees may complain about the lack of direction or
feedback from their managers.
The company tends to promote good “doers” who lack
a manager’s tools and training.
The promoted doers will be unable to coordinate the
activities of others. Subordinates
may complain that they do not know what they are supposed to
accomplish. The
CEO “Boss” continues to function in his vacuum with
everyone singing hail to chief, at least at work that is.
The implementation of management systems is essential.
Theses systems should include planning, organizational
structure, management development and controls.
If the entrepreneur has not installed the controls then
it is up to the company’s advisors to help the CEO in
finding the appropriate resources to assist in this crucial
area. The company needs to move forward as a unified force. The control system should also provide direction and
motivation to employees in achieving organizational goals.
The Roles and Responsibilities of different management
positions require definition.
Lack of role definition will contribute to an
unwillingness to accept responsibility.
Some of the control systems you should consider include:
Who
is reviewing the CEO
– Most CEO’s talk a good game, but when it comes down to
it they do not want to be judged, reviewed, or otherwise
questioned. The development of a board of directors that
includes outside professionals can assist in this review
process and provide guidance for the company.
Planning
– As an
organization grows the need to plan is critical. A written
plan that outlines the financial and non-financial goals,
objectives, and targets of the organization is essential.
Finding a company’s core data will assist in
providing daily operating reports.
Monitoring
these plans during crisis is critical.
It is not uncommon to monitor results daily or weekly
with a focus on meeting monthly targets.
This allows for quick reaction to trends.
Use of activity-based methodology will provide a
clearer picture of the business segments with profit
potential.
Budgetary
and Accounting Systems
- An important component of a company’s planning process is
the preverbal annual budget. Strong budgeting and planning
allows the CEO to react to unexpected changes in a planned
systematic way. Management
requires accurate timely information they can trust and “believe”
for decision-making. Activity
based financial reporting can provide a clearer picture of
product line profitability and a better understanding of how
costs relate to activities.
This allows management to identify capacity issues,
activities consuming resources, and opportunities to maximize
profitability.
Goals
vs. Directive Style
– Building a company via goals and objectives while
empowering employees creates a more sustainable business model
than the directive style of old.
The
company needs to create a model in which:
The employee
understands the company’s mission / goals and their
individual objectives.
The employee needs to
have “bought into” their individual goals and be held
accountable.
Establish a system to
monitor the goals and objectives that provides timely feedback
to the employees.
Recently I came
across a situation where individual goals, objectives, and
accountability were non-existent.
The company had been trying to solve a customer service
issue for years. It
was interesting to note that after establishing goals,
objectives, and accountability it only took 30 days to solve
this issue. The
most rewarding part was seeing the team pull together to solve
the issues.
Performance
appraisal
- Very rarely in an entrepreneurial business do you find
formal systems for evaluating progress in terms of meeting
goals, for usually there is no goals to evaluate.
Positive feedback and suggestions for improving
performance are rarely given, reflecting a culture that
stresses conflict avoidance.
The CEO needs to coach his team to success.
Without goals and objectives you cannot keep score.
It is hard to coach someone to success when you cannot
quantify his or her progress.
Decision-making
– When a company is under financial stress managers at all
levels must make quick and decisive decisions.
Waiting to check the direction of the wind from the top
can be detrimental to the health of the business.
When
upper management makes all the decisions it decreases the
participation of other organization members in the
decision-making process.
This usually contributes to the lack of responsibility
/ empowerment resulting in non-decisions.
A directive top down management style may have been
successful in the early stage of the company’s economic life
cycle. This same
directive management style can and will stifle an organization
later in its life cycle.
Instead
of employees taking orders from above they must feel free to
be self directed with agreed upon goals to meet:
-
Deadlines
-
Productivity
goals
-
Quality
standards
-
Defining
priorities
Decisions
must be made at every level.
Employees must be empowered to make the tough call, and
employees must be held responsible.
Managing
for Success – During
turbulent times you need managers who can add value to the
organization. During crisis the entrepreneur sees through
tainted glasses, keeping the most loyal yes people close to
them.
In many entrepreneurial situations people are promoted for
longevity and loyalty. These
are not necessarily the characteristics of a good manager,
problem solver, and motivator. It is difficult for a company
to solve its problems with “yes” people.
People should feel free to solve problems and be
rewarded for their efforts. It is important that people are empowered to solve problems
instead of hiding out for fear of loosing their jobs.
Conclusion
To
operate an employee friendly company, motivating employees,
and working with the community does not mean you are not
professionally managed. The
Boston Globe on August 12, 1997 ran an article outlining
Lechmere’s success that was professionally managed into the
ground by Montgomery Ward.
Not surprising Montgomery Ward filed for Chapter 11
protection at the end of 2000. Cohen, one of the founders,
says business is more than a balance sheet.
Someone said Lechmere lost its sole, but the wonder is
that so many people believed Lechmere had a sole.
“What happened, Says Gentgry, a Lechmere senior
executive,… is that Montgomery Ward ripped the heart out of
Lechmere… We were losing customers.
The staff was becoming negative and quick with
customers. Lechmere
was a company without a future.”
Scala, a Lechmere senior executive, goes on to say that
“they changed a lot of systems, made the environment
difficult for employees…and trying to operate with less-
than-quality management made it difficult.”
We
have all encountered unexpected storms.
Markets shift, technology changes overnight, foreign
competition affect price points, and other issues develop
daily creating challenges for every company.
It is unnecessary for these challenges to turn into
storms. Professionally
managing the business by:
·
Focusing on goals and
objectives,
·
Good planning and
monitoring systems and,
·
Excellent reporting
systems,
that
empower line management will help avoid those unnecessary
storms.
Being
professionally managed does not mean that bigger is smarter,
more professional, or profitable. The outcome of the change to
a professionally managed firm is that profitability becomes
the measure of managerial success.
Reprinted
with permission from the American Bankruptcy Institute.
The
American Bankruptcy Institute is a multi-disciplinary,
non-partisan organization devoted to bankruptcy issues.
ABI
has over 8,000 members, representing all facets of the
insolvency field. For regular updates of bankruptcy
legislative activity and other insolvency news, as well as ABI
membership information, visit ABI World at
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