2011, while certainly better then the previous 3 years in many respects, still represents great challenges for many businesses. Great business lead- ers de ne their own reality and adapt, shift, and innovate. Poor leaders don’t. There are critical indicators that good business leaders react to. However, four key common categories can be found in businesses that ounder, strug- gle mightily, or even fail along with a number of residual issues within those categories. These issues run through companies of all sizes and shapes but are most acute in the middle market that makes up most of Louisville.
The key categories will not surprise anyone. They are as old as the test of time and have been written about for years. The factors inside them may however surprise you. As you read this article if you nd yourself identifying with more then 4 issues you may be in trouble and should probably consult with a professional, more then 6 reach for the phone - you need immediate help, more then 8 you may want to start to circle the wagons and call in the lawyers. As you read below ask yourself – does this remind me of anything, have I had this conversation lately, do we as a company engage in these types of behaviors.
Leadership is where it all begins and ends. Leadership emanates from the Board, the CEO or President, and team leaders. It can be as simple as al- lowing the appearance of the work environment to deteriorate to the point of being almost lthy, allowing boxes to accumulate, les and papers to pile up, and general appearances to become like an episode of hoarders. Everyday leaders ask their people to care and go beyond the obvious yet force them to operate within disorganization. This sends a message of lack of respect, lack of caring, and neglect. We have all seen children who go to school unkempt and dirty and understand the impression it makes. Poor leaders allow their employees and teammates to experience an environment of neglect and create a perpetual culture that re ects this and permeates and transcends all activities. It is documented that 55% of all communication is visual – is this the message the organization wants to send its people? Leadership is all about communication, written, oral and visual. Too often there is a lack of transparency within a company as evidenced by the withholding of infor- mation. It is a culture that starts at the top of the house. Key symptoms of this are feelings of mistrust, frustration, lack of clear direction, reactionary behavior, back channel conversations, or inconsistency. Leadership is about controlling the things that you can so you can work through the inevitable things you can’t. Communication in all forms is one of those controllable items.
Cultural lack of inspection is another major failure of leadership. How of- ten do we see responsibility assigned with no real authority to enforce, no systematic inspection of results (endless meetings with no real outcomes) or once inspected the inability of management to put stakes in the ground thus generating a corporate culture of moving targets and lack of accountability. Leadership also fails when it lacks courage. Companies become hostage to employees, vendors, customers, or CEO ego. Fear of loss causes inconsis- tency, perception of favorites, or bending of the business model. This key indicator of potential business failure runs counterintuitive to every success- ful business that sets standards and sticks to them. Flexibility within those standards is acceptable but when modi cation becomes the rule rather then the exception the business is doomed. The courage to take control of its own destiny can prevent many of the issues that destroy businesses.
Financial Control is the second key critical factor. Too often companies lack the discipline necessary and begin to make soft decisions around hard facts. Items like true cash ow, budgets, top line forecast, inability to make hard decisions, and lack of sensitivity to reality can result in systemic failure. This systemic failure can take down the entire business as the lifeblood of the business fails. The number one warning sign is a lack of a cash ow model that incorporates both xed and variable expenses coupled with a strong manager who recognizes that it is a zero sum game. Businesses and leaders can and often do mistake optimism and hope for reality. Top line budgetary processes are a sure re way to fool yourself into cash ow problems.
Key indicators of cash ow delusion include using your vendors as an off- shore bank. Companies continue to build their AP until they many times have a greater liability to their supply chain then they do to their primary credit facility. They play kick the can down the road however unlike congress they do not have an unlimited credit line. Once promises to vendors are broken, or communication with them closes down as the collection calls escalate, the cycle will accelerate until the company nds itself on COD plus percentage. At the same time customers are paying in 45-60 days and the company has become a bank with no capital.
Internal pricing and cost accounting miscalculation is another key symp- tom of nancial control issues. Pricing to customers without proper allocation of true overhead and variable cost integration are common issues in troubled companies. Many companies for some reason deny the reality and stand fast in their belief that they have pro tability with certain key customers but just can’t gure out why they have issues nancially. Many times companies price goods and services relative to competitors or perceived market prices without regard to the true cost they incur to provide them.
People at the end of the day are the key resource that a company can rely on. Without the right people in the right seat the company will suffer and often experience many of the issues discussed above. Longevity and loyalty are often used as rationale for retention. The issue is that companies need to invest in their people to keep them current and skill sets relevant as the world changes. Often companies do not invest in their people with new train- ing and the result is individuals who 10, 20 or even 30 years ago were very good at what they did but today are outdated and relatively unskilled for their position. The talent pool of yesterday is just not adequate for the challenge of today.
Silos are another symptom of a company in trouble. It relates to leadership as decisions are pushed down into silos without regard for their impact on the whole. In one case we had a client whose production, sales, nance, and purchasing department were not cognizant of the others current condition. Operational isolation led to a lack of interconnectivity in all aspects of the company and ultimately impacted every other facet of the business including corporate strategy or lack of.
Corporate Focus is the culmination of the impact of failure in the other categories. Many companies in trouble have no plan so they plan to fail. These are organizations that often have a misunderstanding of who they truly are and will reach further then their grasp. Multiple initiatives commenced, production commitments unable to be ful lled, multiple directions, and lack of a clearly articulated mission are just some of the outputs. The obvious signs may be as simple as what one client has coined the Snow Globe ef- fect. Snow Globes are nice collections that look good on a shelf but until you shake them up they really don’t do anything except collect dust. Companies often times collect these in the form of software, payroll systems, of ce sup- plies, production equipment, and other items that were must have at some point but never were put into use due to lack of investment in training, a customer that never materialized, the person with the skill set left company, or some other initiative or driver that is no longer relevant.
These are the issues and symptoms. The solution is slow and holistic. It begins with a courageous leader that is willing to set aside ego and truly look at all things with a fresh set of eyes, eliminate sacred cows, and purge all historical understandings. It is not easy but in the current economy there is no choice. Take an honest look into your company and see how many of the issues highlighted you are experiencing.