Vistage best of leadership whitepapers


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Vistage best of leadership whitepapers

  1. 1. Select Whitepapers by Vistage International’s Experts Insights on Leadership Summer 2012© Vistage New York, 2012 Vistage New York * 31 East 32 Street (3rd Floor) * New York, NY 10016 * 646-290-7664
  2. 2. VISTAGE SELECT: LEADERSHIP INTRODUCTIONWelcome to Vistage Select, a collection of topic-specific whitepapers which were published byVistage International and curated for your convenience. This volume focuses on Leadership.Vistage International is the worlds’ leading Chief Executive Organization which focuses on leaderdevelopment. Its mission is to produce better leaders, making better decisions and produce betterresults. Vistage services 15,000 members, mostly CEOs, Presidents and business owners ofcompanies with $5 -$500 Million in revenues in the USA and 15 other countries.Vistage’s service program includes:• Peer Advisory Groups that meet monthly to gain fresh perspective and new insights, learn new skills, and hold each other accountable• 1000 business experts, who speak, consult and provide thousands of whitepapers and webinars• 1000 chairpersons – seasoned business professionals who facilitate the groups• Vistage Village – an extranet which allows members to connect with one another and resources.Vistage Select is an outgrowth of two ideas from Vistage members: how to save time sifting throughthousands of Vistage International’s documents to find some of the best articles and how to giveprospective members a taste for Vistage’s top-quality offerings.Harvard Business Review periodically compiles a “Best of HBR” edition to share some of its favoritearticles on a specific topic. Now, we are doing the same for Vistage members around the world, whointroduce prospective members for Vistage New York.The articles included in the Vistage Select series are available to Vistage International members onVistage Village™; their copyrights are reserved by Vistage International and their respective authors.For information on other volumes in the Vistage Select series, inquire at 2
  3. 3. VISTAGE SELECT: LEADERSHIP TABLE OF CONTENTS1. The 21st Century Organization: Being Competitive and Leading Edge2. Leaders Building Leaders3. How to Build a Strong Team4. Creating Business Value5. Turnaround Time: What to Do When the Wheels Come Off6. Mastering the Fear of Change7. Five Foolish Faux Pas of CEOs in Crisis8. Ten Leadership Lessons from Lincoln’s Life9. The Changing Role of Board Involvement in Corporate Strategy10. Ten Strategies to Make Your Board of Directors More Effective11. Three Common Exit Planning Mistakes (and Solutions)12. Leadership Habits: Pick your Top Three to Work On13. Twenty Years and Going Strong: An Interview14. About Vistage New York 3
  4. 4. VISTAGE SELECT: LEADERSHIP The 21st Century Organization: Being Competitive and Leading Edge by Pontish Yeramyan President and CEO of Gap International,Today’s business environment can be characterized by two primary influences. The first is theaccelerating pull towards commoditization, which requires organizations to continuously stretchand maneuver for differentiation. Almost anything an organization produces can be quickly imitatedor improved, and first-to-market advantages have short life-cycles if any at all. Digitalization,information sharing and vast productivity increases have evened the playing-field in many markets.Business leaders find themselves under pressure to compete purely on price as competitors beginto capture customers using different business models and innovative ways to create new value.The second influence is the continuous uncertainty in markets, along with the day-to-day game tosurvive in changing and unknown environments. The interconnected nature of countries, continentsand global markets underlies a delicate domino effect where local success or failure impacts thewhole system. Markets, competitors and customers all change quickly, and these changes continueto accelerate faster than organizations are able to formulate a response. Strategic plans quicklybecome stale or outdated. Decisions must be made with incomplete information. Furthermore,complexity makes it harder to discern what is truly critical. Successful firms face wholesale shifts intheir markets, where the entire reality has seemingly changed overnight and previously successfulactivities have to be completely reframed.Along with these macro-changes, the internal dynamics of most organizations have completelychanged as well. The modern employee no longer seeks one organization to sustain their career.The search for stability and longevity has been replaced with a hunger for interesting projects and athirst for meaning and fulfillment of far more importance than the reward of a paycheck. Theshorter attention span, fickle pursuits and self-interest of employees all compete with their abilityto focus their full energy on the success of the organization. In addition, leaders must managegenerational differences, the need to constantly build a variety of skill sets, diverse personalconcerns and the appeal of greener pastures. Therefore, competition for employee attention andfull engagement can be as intense as the competition for the best and most profitable customers.Every modern business leader is experiencing a higher level of ambiguity and uncertainty thanleaders of the past have faced, with the probability that this complexity will only continue toincrease. Consequently, organizations will need to bring a fresh approach to their markets, withunprecedented creativity and resilience to attract customers and talent in order to thrive.As a leader committed to creating and growing a successful 21st Century Organization, theimportant question becomes: What do you focus on now to be competitive and leading-edge? Wehave found that the following six pillars provide a useful framework to think about this question.Relentless InnovationProduct innovation alone will create insufficient competitive advantage. In looking at this, we arediscovering that leaders can substantially differentiate their organizations by developing anexpanded platform for relentless innovation. Rather than relying only on innovation departments to 4
  5. 5. VISTAGE SELECT: LEADERSHIPimprove product cycles, companies focused on relentless innovation foster this kind of thinking inall areas of the business. We have seen that unless leaders systematically innovate in every cornerof the business, including supply chain, talent development, sales process, strategic planning andcustomer engagement, the organization will not be able to keep up with market demands andcompetitive pressures.Relentless Innovation requires a new mindset – one that liberates everyone in the organization tobecome innovators and create differentiation, regardless of position or function. This includesmoving away from the idea that only a few creative types possess the special capability to innovate.Rather, consider that everyone can learn to be innovative in all aspects of the organization. An eyeon having everyone innovate everywhere opens the door for remarkable edge in the marketplace.Being PurposefulThe 21st Century Organization can also differentiate itself by operating within a bigger context thana vision or a mission, something more expansive. It’s not enough anymore to simply have a cleardirection – people must be able to throw their entire selves into the game to be successful, with fullengagement of heart and mind. We have found that when leaders leverage Purpose, it creates acompetitive advantage that’s difficult or even impossible to replicate. Purpose creates the ability forpeople to care about something much bigger than their personal concerns and fully apply theirtalent to meaningful endeavors.If you think about it, Being Purposeful creates the platform for organizational success, because ittaps into a reservoir of potential energy latent within the organization. When people’s orientationto their job transforms from performing work to that of making a difference, they becomeexponentially more effective at coming together to produce extraordinary results. It becomespossible to consistently produce results beyond what is predictable in the normal flow of business.Powerful strategies can be created and re-created when purpose is present.Purpose gives people a far more expansive space to create and grow, where creative, purpose-based thinking replaces crisis-based, firefighting thinking. An organization of people who haveconnected themselves to something bigger can thrive rather than simply survive – they can movefast together and nimbly adjust strategies and tactics to succeed.21st Century LeaderWe have seen that Relentless Innovation and Purpose position the organization for increasedsuccess, yet uncertainty and accelerating competition have also shaped the need for a new kind ofleader. It seems that past paradigms of leadership have begun to dissolve away, and thehierarchical, command-and-control boss who directs an organization’s activities from a point ofauthority will no longer be acceptable. In addition, merely building consensus also seems to belosing its effectiveness. A good question to ask then is what kind of leadership does my organizationneed from me? 5
  6. 6. VISTAGE SELECT: LEADERSHIPWe see the 21st Century Leader as someone who regularly takes bold stands and deliversextraordinary results, bringing everyone around them to a higher level of performance. They focuson connecting people to purpose and aligning multiple groups from every direction. They areauthentic and open. Leaders like this bring out the best performance, creativity and expression ineveryone.21st Century Leaders inspire their people and organizations to confidently take on the biggestchallenges in the marketplace, even when it’s not yet obvious how to win. They commit to goalsthey don’t know how to accomplish, which challenges people to change their thinking in order togrow and deliver. They see how their own growth connects to performance, and they demonstratehumility in knowing that they, just as everyone else, must constantly grow and expand themselvesto develop the next level of competitive edge.To thrive in the uncertainty, these leaders cultivate the capability to create amazing relationshipswith anyone, including customers, employees, regulatory institutions and shareholders. It’s excitingto be around this kind of leader and it’s just what the world needs – a leader who combines aresolve for amazing results with heart and humanity. These leaders attract the best people whowant to make a remarkable impact in the marketplace.Passion for GrowthIn our way of looking at it, truly everything can grow, and for a 21ST Century Organization, leaderscan benefit from attending to a wider view of what must grow. A mindset that we have found to becritical is what we call Passion for Growth, where everyone growing and breaking through limitsbecomes just as essential as growing the top and bottom line. In uncertain and changing markets,predictable sources of growth can instantly become unpredictable, so it is important fororganizations to find ways to stretch into uncharted territories for growth and bring a willingness totake on even the most hopeless challenges. If you think about it, at any moment an organization iseither growing or declining – there is no middle ground.Having a Passion for Growth opens the eyes of the organization to a vibrant view of the marketplace– seeing realities that need to be dismantled and re-created in order to compete. Instead of waitingfor current success to dwindle, leaders and organizations with Passion for Growth seek outopportunity everywhere, applying creativity and curiosity to all aspects of the business. Creating aPassion for Growth connects people to an exciting future – one that has endless possibilities topursue. In this environment, it becomes important for everyone to contribute to and grow eachother, having tapped into the inherent pride of being part of something amazing.This mindset of Passion for Growth underlies the mindset for being a leading-edge organization. 6
  7. 7. VISTAGE SELECT: LEADERSHIPCustomer OnenessAlong with leadership and growth, we are seeing that an entirely new mindset about customerrelationships is necessary for the 21st Century Organization – that of being one with the customer.Historically, the customer framework has mostly focused on customer service, fulfillment or evenobsession, where the company takes care of determining and fulfilling customer needs in the bestway possible. This frame of mind is limited by the ability of one entity to serve another. We suggestthat being one with the customer initiates a connection where no separation exists, and thereforeeverything consistently begins and ends with the customer.What’s different about Customer Oneness is it significantly expands the typical appreciation andunderstanding of the customer. Being the customer gives an organization a precise perspective, onethat is needed to create amazing products and services over and over. When an organization thinksand operates as its customer, the future is shaped as the customer, not just for the customer. It ispossible for any organization to create this kind of relationship – where customers naturally becomepart of creating new and desirable offerings, therefore accelerating innovation.Customers become drawn to and will stand for the success of organizations that operate withCustomer Oneness. Why wouldn’t you absolutely support an organization whose people think fromyour perspective and are so keenly in tune with your wants and needs? Embraced & institutionalizedthroughout the organization, this mindset generates a constant edge in the marketplace.Breakthrough EnvironmentFinally, successful 21st Century Organizations can reformulate their work environments intoBreakthrough Environments – environments which flex to support the rapid movement, speedydecision-making and alignment required to outperform competitors and regularly achieveextraordinary outcomes. We have seen that once leaders develop new access to creating alignmentamong leaders and teams, they can successfully navigate ambiguity at all levels and pursue thebiggest possibilities for the organization.The normal organizational approach focuses on generating outputs, such as profit and productivityfrom the environment. The intention to create a Breakthrough Environment expands the mindset tofocus on very specific inputs for the environment that result in extraordinary outputs.Well-nurtured internal interactions between leader and teams give a precious advantage withspeed, reliability, quality, engagement and innovation. The inputs to these are affinity, ownership,interdependence, purpose and risk. Any organization that measures and attends to these specificinputs over time can create a competitive platform for sustainable growth and performance.Having an environment where people can achieve their best performance, and challenge themselvesto grow, allows for an organization to be successful, attractive and edgy in the marketplace. 7
  8. 8. VISTAGE SELECT: LEADERSHIPWhere do we go from here?The competitive requirements of the 21ST Century will only continue to change and evolve intochallenges we aren’t necessarily ready for. We must consider together that what has made ussuccessful to this point will likely be insufficient for future success. The willingness to question theassumptions that have made us great will allow us to create greatness in the years to come.Incorporating the mindset of all Six Pillars as expressed above gives leaders access to generatingextraordinary performance in a changing world. Even the most daunting of circumstances give usall the opportunity to grow and perform at higher levels, and these pillars outline a pathway toapproach such challenges and building an amazing edge to compete and succeed in the marketplace.Knowledge emerges and alters, trends suddenly change, attitudes completely reverse and marketrealities give way to new realities. In all of this constant turmoil, the best organizations will continueto nurture their most precious asset – their people – with the unrelenting commitmentfor exceptional performance. Over time, the brilliance of the organization becomes increasinglyexpressed through new mindsets, environments and leadership.Understanding and integrating the next generation principles of Relentless Innovation, BeingPurposeful, 21st Century Leader, Passion for Growth, Customer Oneness and BreakthroughEnvironment will give 21st Century Organizations committed to producing amazing results theplatform to thrive into the future.It all starts with a leader taking a stand for an extraordinary organization, a choice that any leadercan make. 8
  9. 9. VISTAGE SELECT: LEADERSHIP Leaders Building Leaders by Vistage Librarian"I think its very difficult to lead today when people are not really truly participating in the decision. You wont be able to attract and retain great people if they dont feel like they are part of theauthorship of the strategy and the authorship of the really critical issues. If you dont give people an opportunity to really be engaged, they wont stay." Howard Schultz, Chairman and CEO, Starbucks Corporation Lessons from the Top: The Search for Americas Best Business LeadersThe Next Generation of LeadersIn addition to style, vision, communication and motivating others, one sure sign of strong leadershipis the desire to instill leadership traits in your executive management team. According to ourVistage Speakers, CEOs committed to building the next generation of leaders must develop andrefine their own skills while encouraging others to expand their leadership skills.Effective leaders promote an atmosphere that supports the efforts of others to broaden their skillsbase. "Enlist trusted employees to coordinate special projects or serve on problem-solving taskforces," advises Vistage Chair and Speaker Don Schmincke. "Help them learn more about steeringthe organization and reward the kind of behavior you want repeated."According to Vistage Speaker Ben Gill, certain factors make a leader-mentor credible to his or hersubordinates: • A demonstrated track record of success in a leadership role • Mentoring or coaching others to succeedWhat does a true mentor do? According to Vistage Speaker Lee Thayer, they: • Focus on the persons strengths and potential • Convince that person that he or she has greatness within • Put aside their own agendas to help this person express a unique talent • Understand they cant motivate the person, only help him or her motivate themselves"Leaders who want to instill the spirit of leadership in others must actively observe and listen," saysSchmincke. "They must be committed to praising and rewarding individuals for a job well done andhelping them over rough spots with understanding and patience."General guidelines to effective mentoring include: • A truly effective mentor relationship involves two people learning from each other - the apprentice from the leader and the other way around. • Mentoring relationships develop out of the unique personalities of the people involved. A formal structure isnt necessary for this relationship to succeed. • Depending on how the mentoring relationship evolves, the experience may be relatively short-term, but with long-lasting benefits. Its up to the individuals involved to make that determination. 9
  10. 10. VISTAGE SELECT: LEADERSHIPThe Benefits of MentoringThe benefits of mentoring for the individual depend on his or her particular needs and ambitions.There are tangible benefits for the organization as well. Here are some of these benefits, as outlinedby our Vistage Speakers: For the individual • Enhanced people management skills • Improved listening and empathizing skills • Ability to set and achieve performance-stretching goals • Gaining a broader perspective on ones own management style • The confidence to lead others and serve as an advocate for change For the organization • Greater resources for accelerating companywide change • Enlisting greater commitment to the CEOs vision • Assistance in managing any downside effects of change management • Assistance in maintaining performance during times of transition • Promoting organizational stability during periods of restructuring"In our time and for many years to come, organizations will be obliged to constantly reinventthemselves," Schmincke notes. "The effective leader understands that instilling leadership traits inothers is an essential part of making that reinvention successful." 10
  11. 11. VISTAGE SELECT: LEADERSHIP How to Build a Strong Team by Vistage LibrarianCharacteristics of High-Performing TeamsAs a key executive, one of the best ways to exercise leadership in your company is to put together atop-notch team of people working underneath you. According to Vistage speaker Lawrence King,high-performing teams share a number of important characteristics: • Clarity. Team members have total alignment around what you are trying to create and accomplish together. • Commitment. Everyone believes in and supports the goal. • Communication. Great teams openly discuss all the issues affecting the team. They dont hold back when it comes to putting sensitive issues on the table. • Absence of cynicism. Cynicism is a cancer that spreads throughout the organization and kills the team. • Diversity. Creativity does not come from sameness. Your team should reflect the customer base you are trying to serve. • Conflict. When people are committed & passionate about what youre trying to accomplish, they wont always agree. Your challenge as a leader is to turn the conflict into creativity. • Project-orientation. According to King, projects have a beginning, middle and end. Most important, they have a score card. As a leader, you constantly have to battle the feeling among employees that many things get started but nothing ever gets completed. Drive home the notion that you do complete projects and tasks. Out of that sense of completion comes the confidence to take on new tasks. • Scorecards. People need to know how they are doing. Make sure everyone is working off the same scorecard."When building your team, strive to create an environment of high-level adult play," advises King."Give people challenges, recognize their efforts and celebrate the wins. Talented people flock tothat kind of environment."Building a High-Performing TeamTo build a high-performing team, King recommends the following steps: 1. Using a scale of one to 10, assess the individuals on your current team according to their technical contribution, team playing ability, communication skills, hustle factor and interpersonal relationships. 2. Conduct a global rating of the team as a whole, using the same one to 10 scale. 3. List the strengths and weaknesses of each individual and your team. 4. Identify ways to build on the strengths and improve the weaknesses. 5. Set a goal of having a "9+" team and coach the players to improved performance."As the coach, you have two primary functions," explains King, "recognition and correction." Letyour top performers know -- specifically -- what theyre doing that makes such a positive differencefor the company and how much you appreciate it. Do the same with your good performers, but alsolet them know what they need to do to become truly excellent performers. Keep in mind that youcan never give too much recognition. 11
  12. 12. VISTAGE SELECT: LEADERSHIP"To correct mediocre performance, sit down with each under-achiever and create a written 90-dayplan that states what they must do to improve. Review the plan on a weekly basis and documentprogress (or lack of) toward the goal. Before judging competency and commitment, however,always make sure you have clarity on the goals and objectives. People cant perform if they dontknow what you expect."Communicating with the TeamAccording to Vistage speaker Walter Sutton, one of the best ways to build relationships with teammembers is to communicate with them on an individual basis. He recommends monthly one-to-ones with the people who work for you, using the following guidelines: • Schedule each one-to-one in ink and stick to your commitments. • Each one-to-one should last 30 to 60 minutes. • Make it their one-to-one, not yours. This is an opportunity for the people who report to you to talk about anything they want. • Guarantee confidentiality. • Ask a lot of questions and listen carefully."Great one-to-ones do not consist of lectures from you," explains Sutton. "Instead, they involveasking a lot of open-ended questions and listening carefully to the answers. Be prepared to askappropriate personal open-ended questions. By doing so, you will have an engaging personalconversation and will build the relationship. More important, your people will work very hard foryou because you listen to them."Managing the TeamTo keep your team functioning like a precision instrument, King offers the following suggestions: • Conduct a team-centered strategic planning session. As the team leader, take your team away for a half-day, once a year. Conduct a SWOT (strengths, weaknesses, opportunities, threats) analysis and ask, "Where do we need to be as a team 12 months from today?" One by one, have your people stand up and declare their vision for the team, then post their visions on flip charts around the room. "Rather than dictating what they should do for the next 12 months, get your people to create the tactical plan to support the companys strategic plan," advises King. "Each person should leave the meeting with three to five major goals that they have publicly committed to. Remember that people will commit to implementing that which they help to create." • Conduct quarterly reviews of your annual plan. Bring the team together once a quarter to ask (relative to the plan): o What goals have we accomplished? o What goals are in progress? o What goals are no longer relevant? o What goals should we attack next? "Never do planning without regular reviews," cautions King. "Otherwise you create deadly cynicism." 12
  13. 13. VISTAGE SELECT: LEADERSHIP • Conduct an annual team review. Once a year, ask: o What are we doing that works as a team? o What are we doing that gets in the way? o What should we change? o What should we keep the same? • Use a scorecard. Never leave a planning session without creating a scorecard. Ask, "Other than sales and profits, what are the three most important things we measure consistently?" Answer this question for the company as a whole and for your area of responsibility. Make sure you have alignment around what you measure. • Tie compensation to team performance. Create a direct, obvious and compelling correlation between compensation and team performance. • Celebrate success. Celebrations represent symbolic compensation. Their purpose is to confirm completion. Look for methods to recognize, reward and reinforce performance in non-financial ways, such as plaques, ribbons, gold stars, diplomas, cards and hand-written letters from you. King offers three fundamental principles for celebrating: o Use more imagination than dollars o Get personally involved o Turn intensity into frequency (small & frequent are more effective than a big one)"Leadership is no longer about command and control," he explains. "To build strong teams intodays workplace, you have to sell and enroll. You have to win peoples hearts and minds. The markof a great team leader is the ability to sell people on the exciting vision and enroll them in theircontribution to making that vision a reality."Making Team DecisionsUltimately, all teams must make decisions. To improve this process, suggests Sutton, conductregular team decision-making meetings. Start these meetings by having each team member give apersonal update. Then ask, "What decisions do we have to make as a team this week?" Make a list,prioritize the items and discuss them one at a time.According to Sutton, three things can happen at this point: 1. You dont have enough information to make a decision, at which point you stop the discussion, decide who needs to get the information and move on to the next item. Never continue discussing an item if you dont have enough information to make a decision. 2. The team makes a consensus decision in which everyone agrees with the decision. 3. The team leader makes the decision after getting input from everybody.Once all the items have been covered, end the meeting. Do not in bring unrelated items."When you do annual planning, have regular reviews of the team and individuals, and conduct one-to-ones with your direct reports, it creates a clock that literally drives the team forward,"concludes Sutton. "By engaging in these short-, mid- and long-term activities on a regular basis, youshift from event-driven management to process-driven management. In event-driven management,the driving energy comes from the team leader commanding action with intensity. With process-driven management, the energy source shifts to frequency -- everyone showing up and doing whatneeds to be done day in and day out. The team performs at a much higher level and you spend farless time managing crises and putting out fires." 13
  14. 14. VISTAGE SELECT: LEADERSHIP Creating Business Value: By Patrick Shore President & CEO of IntelliThink LLC.What is value? And, more important, what is business value? Entering “value” in a Google searchwill return several academic definitions including, but not limited to: • “A numerical quantity measured, assigned or computed” • “The quality, positive or negative, that renders something desirable or valuable” • “The amount of money, goods or services considered to be a fair equivalent for something” • “Respect, or something one thinks highly of”According to Wikipedia, “business value” is an informal term that includes all forms of valuethat determines the health and well-being of the company in the long run. Business value expandsconcepts of value of the company beyond economic value to include employee value, suppliervalue, channel partner value and, most important, customer value.So how does a business owner or leader ensure value is being realized in every part of thebusiness? Where do you start? How is value computed? How can it be impacted? What factorscan tell you that value is being achieved? Here are five simplified focus areas designed to helpensure value is driven throughout your business.1. Customer Experience and ExpectationsWhat is customer value and how is it measured? This is the dilemma for many organizationsbecause they get confused between customer expectation and customer experience. Customerexpectation is measured by price, quality, quantity, durability, etc. Customer experience ismeasured through ease-of-use, interaction with the company, problem management, individualassistance, etc. Success is making sure both expectation and experience are met. When one orthe other suffers, the overall value is impacted. Here are some techniques to ensure alignment: • Define customer value measures coupled with how value is positively or negatively impacted • Understand customer wants and needs: conduct “I want” brainstorming sessions • Map the “I want” and customer value measures to natural customer interaction points • Define the desired or perceived experience at the natural customer interaction points • Insert data capture methods at each natural customer interaction point.2. Product/Service PerformanceNothing is more aggravating than to purchase a product, get it home and find out it cannot be useddue to missing or non-functioning parts. If it does not work or last, customer value has not beenachieved. Here are a few measures to help determine product/service performance duringdevelopment and post sale: • Defect Detection - Product issues during the design, construction and distribution process • Product Returns - Product return tickets with reason codes (defective, missing parts, etc.) • Product Testing - Measuring predicted usability and quality versus actual usability and quality • Product Sales - Trend lines associated with sales over time • Product Scorecard - Acquire customer feedback data on product/service results 14
  15. 15. VISTAGE SELECT: LEADERSHIP3. Process PerformanceThe business process is the engine that produces customer value in the form of a product orservice. The business process is comprised of a set of business steps or functions performed bycompany employees, partners or vendors and the customer. For many organizations, the peopleperforming a process can be blurred; for example, taking an order versus self-serve orderplacement. Here are some tips to ensure business processes are performing and adding value: • RVA – Real Value Add - Activities to enable a customer to take action (placing order) • BVA – Business Value Add - Activities to improve a business process or output (cycle time) • NVA – Non-Value Add - Activities performed with little or no impact on customer value • Process Controls - Capture of data at predetermined process steps to manage outputs • Early Warning Signals - Systematic notification when a process/output is out of bounds.4. People PerformanceIn a global economy with fierce competition, a strong workforce can help companies tostand out from the crowd and differentiate themselves on a basis other than cost. The employeebase is now becoming the beacon for managing the company brand. Therefore it is vitallyimportant that all employees recognize and understand their roles as the brand ambassador todeliver customer value. Here are some tips to ensure alignment between employee roles andinstilling value at every touch point: • Brand Czars - Each employee must understand their role and impact in managing the brand • Customer Experience Behaviors - Educate & test for desired customer interaction behaviors • Watch For Flares - Actively observe and manage employee satisfaction and frustration levels • Human Network - Learn to use formal and informal human networking to deliver messages • Checks and Balances - Identify and eliminate layers of approvals and reviews • Enable the Customer - Identify areas to get the customer more engaged in the process.5. Partner PerformanceToday’s business landscape has evolved from a point where a single company performs allfunctions required to produce, sell and service a product or service into a plug-and-play set offunctions performed by several different organizations. This new business infrastructure expandsthe need to manage customer and business value across complementary and sometimescompeting organizations in order to produce and distribute the product or service. Therefore,partners and vendors must now be treated as an expansion of the company’s workforce. Here aresome tips to help ensure partners understand and deliver the appropriate customer value: • Brand Czars - Each partner must understand their role and impact in managing the brand • Partner Experience Behaviors - Educate and test for desired customer interaction behaviors Information Access - Enable the partner to access all critical information to do the job • Decision Boundaries - Define & implement preset approvals for making day-to-day decisions • Escalation & Notification - Establish preset policies to address day-to-day issue management • Partner Scorecard- A monthly operation review focused on quality, cost, responsiveness, etc.We no longer live in a world where having a good business reputation guarantees success.Customers are more business savvy and set higher demands for quality products and services atreasonable prices that meet or exceed expectations. To be successful, a company must focusattention on creating business process that delivers real customer value. 15
  16. 16. VISTAGE SELECT: LEADERSHIP Turnaround Time: What to Do When the Wheels Come Off By Vistage LibrarianSuppose reality exceeds your worst case scenario and you find yourself in serious financial trouble --what happens then? Vistage speaker John Zaepfel, who has rescued several companies from thebrink of disaster, offers a 10-point plan for recovery.How Did We Get Here?When a company finds itself in a life-threatening situation, the management team needs toimmediately ask four critical questions: • How did we get here? • How serious is the situation? • Do we have the correct leadership to fix the problem? • How much time do we have?According to Zaepfel, the answers to these questions will dictate how the company responds to thecrisis. "A financial crisis doesnt happen overnight," he explains. "When companies get in serioustrouble, internal and external erosion has been taking place for some time. Little problems continueto build, and eventually everything comes to a head and the company finds itself hanging on fordear life."Too often, the CEO and his or her management team downplay or deny the seriousness of thesituation. So the first step in any turnaround has to involve pulling your head out of the sand andtaking a hard look at how you got into the situation, how serious it is and what needs to be done inorder to reverse it."Righting the ShipOne you have accurately assessed the situation, Zaepfel recommends a 10-point plan to turn thecompany around. • Go into full crisis mode. Survival -- not growth, market share, return on investment or anything else -- must become the #1 priority for everyone in the company. This requires daily meetings with your management team, managing short-term issues and objectives, raising expectations and over-communicating with all stakeholders. • Protect and manage your cash flow. Identify where the money is going and what you have to do to stop the bleeding. The CEO should control the requisition process and sign checks. • Develop financial discipline. Identify the current break-even point of the business and where you need to take it. Make control of working capital (controlling receivables, payables and inventory) an immediate priority. • Attack the gross margins. Break down your business by product lines or services and conduct a careful margin analysis for each segment. Look for areas that need to be improved or can be improved, and jettison any product lines that are causing the red ink to flow. • Work with your bank and creditors. Present a clear, focused turnaround plan that explains in detail how you intend to restore the company to solid financial ground. Get your banks 16
  17. 17. VISTAGE SELECT: LEADERSHIP concurrence to support you through the workout. Do the same with creditors, especially your most critical suppliers."In a crisis situation, honesty is always the best policy," advises Zaepfel. "Tell your creditors whatyoure up against, what you intend to do about it and ask for their help and support. If you present asound plan and keep people in the loop, most will work with you because its in their best intereststo have you succeed." • Create a cost-control team. Put together a task force to analyze all SG&A costs and see where you can trim expenses. Give the team the power and authority to make the cuts. • Revise the organizational structure. Identify the jobs essential to the successful operation of the business and eliminate those that arent. • Protect your service and current accounts. Identify what must be done to maintain current service levels and keep from losing customers/accounts. • Focus on the core business. Identify the growth engine for the business. Ask, "What leverage do we have and what uniqueness can we bring to the marketplace?" Answer this question for existing customers and for prospects currently being serviced by weak competitors (assuming the economy has gone south). • Identify a new model for the business. Ask, "Who should we be selling to? What should we be selling? How should we sell it?" Compare your answers to the current model and identify the differences. This will tell you where to take the business in order to fix it."More than anything, a turnaround requires having the right leadership in place," says Zaepfel. "Ifnecessary, bring in a workout specialist or someone from the board of directors who can take thehelm for the short-term and implement the necessary changes."Maintaining Financial DisciplineOnce the immediate crisis has passed and the company has achieved a positive cash flow for theshort-term, the next step involves practicing ongoing financial discipline to achieve long-termprofitability. According to Zaepfel, this includes the following: • Strive to increase your cash buffer. The cash buffer (total cash on hand plus cash taken in each day divided by how much cash you use each day) represents how many days until you run out of cash. The smaller the number, the greater the risk of going out of business. Once your cash flow turns positive again, work to increase your cash buffer as much as possible. • Tighten up on accounts receivable. Put a high priority on collecting on all delinquent accounts, especially those over 60 days. In a real cash crunch, the CEO should personally collect on any accounts over 90 days. • Reduce inventory. Take a hard look at inventory -- strive for just-in-time delivery from your vendors. Turn your excess inventory into cash as fast as you can. • Liquidate underutilized assets. Look for underutilized machinery and equipment that can be liquidated into cash. 17
  18. 18. VISTAGE SELECT: LEADERSHIP • Extend payables. Payables come in three categories: essential to the business (usually sole suppliers), important but not essential, and commodity products you can obtain from any number of sources Prioritize your payables and pay accordingly -- 30 to 45 days for category one suppliers and 45 to 60 days for category two. Look for alternative sources for your most critical supplies. Dependence on a sole-source supplier gives them a lot of power over you. Stretch out category three suppliers to 120 days, knowing that you will lose some in the process. • Track key balance sheet ratios. Keep a close watch on the following ratios: • Current ratio. Calculated by dividing total current assets by total current liabilities, the current ratio measures your companys ability to service its current obligations. • Quick ratio. Also known as the "acid test," the quick ratio (cash equivalents plus accounts receivables divided by total current liabilities) measures your ability to pay short-term debt. The quick ratio closely resembles the cash buffer, but its a good idea to track both so you know exactly how much cash you have. • Debt-to-equity ratio. Calculated as total liabilities divided by total equity, debt-to-equity measures the amount of leverage and risk in the business. Banks pay very close attention to this number. • Receivables aging. Watch your receivables like a hawk. If necessary, personally go out and collect the money, starting with the largest accounts and working your way backward. • Continually reforecast sales. In a crisis situation, reforecast sales on a monthly basis. Upon return to health, once a quarter should suffice. "You cant control the cash unless you have a handle on sales," notes Zaepfel. "If sales start to go downhill fast, you need to know in advance so you can take swift action." • Keep a lid on cost of goods sold. Look at the contribution margin to see where you can reduce direct labor, direct materials and variable overhead costs. • Tighten credit. Stop loosening credit in order to make sales and start tightening the screws. Companies in trouble need cash, not shaky accounts receivables.Taking ActionThe biggest (and most common) mistake with companies in crisis? Failure of the CEO to take swiftand decisive action.According to Zaepfel, CEOs in a sharp downturn go through four distinct phases. First they minimizethe problem and start living on hope. Next, they rationalize the situation, because "every businessgoes through rough times once in a while." Then they deny that the problem exists, thinking, "thenumbers must be wrong" or some other implausible excuse. When they finally accept the gravity ofthe situation, most become paralyzed by fear and indecision.By this time, the company typically has only about 120 days of cash left. The stress level grows daily,everything starts to fall apart and the good people start to leave. Unless the CEO takes immediateand drastic action, the bank will step in with a workout team and the creditors could force thecompany into Chapter 11 bankruptcy. 18
  19. 19. VISTAGE SELECT: LEADERSHIP"By the time it reaches this point, you probably need to bring in a turnaround specialist from theoutside," says Zaepfel. "You cant make tough decisions while still in denial or paralyzed. Plus, youneed a fresh perspective on the situation, someone who has no emotional attachment to theorganization and can reorganize and redirect where needed. Also, bringing in a turnaroundspecialist will usually buy you more time with the bank and other creditors.Ultimately, turnaround situations require intense focus from the person at the top. To keep thingsas simple as possible, suggests Zaepfel, focus on the following: • Control the cash • Get very clear on your market differentiators • Stay lean and mean • Raise expectation levels • Over-communicate with employees and customers"More than ever, your people will be looking to you for guidance and direction," concludes Zaepfel."So take charge, act swiftly and decisively, and lead the way!" 19
  20. 20. VISTAGE SELECT: LEADERSHIP Mastering the Fear of Change By Jane Adamson CEO and Founder of Phoenix-based Sherpa Advisory" ... instability is permanent, change is accelerating, disruption is common and we can neitherpredict nor govern events. We believe there will be no new normal. There will only be a continuousseries of not normal times ... "So write Jim Collins and Morten Hansen in their new book Great by Choice. They also take note ofthe fact that "the dominant pattern of history isnt stability, but instability and disruption."Change, then, is the status quo. The silent question that many CEOs and company leaders are askingthemselves in private moments is: "How do I get past the fear and embrace this challenge?"Its an honest and very real question. Leaders dont want to appear vulnerable. Or as not knowing allthe answers ... Or being wrong from time to time ... Or being indecisive ... Or lacking vision.Lets be honest: Its each persons powerful emotional brain causing the discomfort. Its not causedby the logical side of the brain, which knows that change is, by its nature, unpredictable andoftentimes stressful, and that no one has all the answers.Fear of the unknown isnt something that will just go away because we want it to. However, we canmitigate the negative effects of that fear by elevating the skills and best practices that are employedby strong leaders at all times (but especially during times like this).Strong Leaders: • Dont pretend to know all the answers. They do become very skillful in asking good questions and in listening. They ask questions of their customers, of their company, of their key leaders and managers, and of the market influencers outside the company. Great leaders ask, listen and learn with discipline and diligence. • Trust the gut, AND verify with empirical data. They dont blindly jump without gathering some degree of evidence as to what works and what doesnt. Strong leaders create a culture of gathering data, testing, making improvements and testing again. Strong leadership teams adopt a culture of consistently challenging assumptions without blame or judgment. Assumption testing is a team requirement. • Demand excellence in performance standards and in execution of those standards. If companies know how to execute, they are also adept at changing quickly and knowing when to change. Metrics guide them, and a clear process allows the company to adjust and transition without chaotic results. • Facilitate honest conversations. Strong leaders ensure that the real issues are raised, debated, and resolved. That means accepting criticism with an open mind. That means speaking the truth even when its uncomfortable. That means never, ever, shooting the messenger. • Create a process of periodic strategy reviews so that the company pauses long enough to make thoughtful adjustments to strategy based on changing conditions, while also still staying aligned and committed to results. 20
  21. 21. VISTAGE SELECT: LEADERSHIPWhen these practices are employed every day as part of the corporate culture, the whole companykeeps its collective eyes wide open and understands the importance of both staying focused on theshifting marketplace and being receptive to new ideas and approaches.A CEO embraces the challenge of disruption by accepting the concept that the future isunpredictable, and then puts practices into place to prepare for what cannot be predicted. 21
  22. 22. VISTAGE SELECT: LEADERSHIP 5 Foolish Faux Pas of CEOs in Crisis By Lee N. Katz The Turnaround AuthorityWhile preparing for my speech on "How Not to Hire a Guy Like Me: Lessons from Past CEOsMistakes," I realized that it was worth sharing a few of the biggest faux pas CEOs make along with afew of my more colorful anecdotes. What follows are the 5 things CEOs in crisis do that you want toavoid as the leader of your company or organization.1. They Act Like Deer in the HeadlightsIn crisis situations, it’s amazing how many CEOs and company leaders act like deer in the headlights.They just freeze up and wait for the impending SMACK! I was working with a guy whose companyhad entered a crisis. In the midst of this crisis, his very time-sensitive catalog that directly generates80% of his 65 million dollar annual revenue within 90 days had to go out. It was hours before thecatalogs had to be postmarked and mailed, but in order for this to happen we had to have $10,000immediately. In a cash crisis, this guy, worth a few million, wouldnt take $10,000 out of his ownpocket to pay the postage. If anything went wrong, he was personally guaranteed on 40 milliondollars. He would have been totally wiped out had he defaulted, and all he had to do was personallyput up $10,000. I was brought in within hours of the deadline and convinced him to put up the cash.This was the first of many critical decisions amongst endemic problems, but thankfully, this incidentestablished trust and a working relationship that led to a successful restructuring plan.2. Theyre Only as Smart as the Last Person They Talked toMany CEOs (and people for that matter) are only as smart as the last person they talked to -especially in a crisis. They cease being able to think for themselves, whether out of the hope ofbeing able to pass the buck or because anything and everything sounds better than what theyredoing. At a non-profit educational institution, the president was kicked out of office for various well-deserved reasons, resulting in a crisis of leadership, and the interim president kept changing therestructuring plan with every person to whom he spoke. Hed announce firings and closings almostdaily, and then backtrack when someone objected, subsequently calling those hed fired to tell themto disregard the two week notice theyd received. Back and forth hed go like this, only spouting thelast thing someone else said to him. The only smart thing he did without changing his mind was hireme - and I fired him six weeks later. In restructuring, you generally get one plan to move forwardwith - its a house of cards and you dont want it to fall from a lot of movement. Keep your planconservative and reasonable, and dont be as smart as the last guy you talked to.3. They Cant Check Their Egos at the Door to Admit MistakesThe president at an electronics parts manufacturer found some cost accounting discrepancies thatmeant he was selling products under cost. Though he didnt tell the bank, perhaps thinking that hisIvy League Ph.D.s would save him, the truth emerged a year later when his cash flow continued todeteriorate until the bank noticed. If hed set his ego aside, spoken to the bank and brought in aprofessional early, hed still be president, but the bank gave him the boot and brought me in. He losteverything because his ego got in the way. 22
  23. 23. VISTAGE SELECT: LEADERSHIPQueue the Dragon Lady of El Paso: his wife and executive VP. Upon arrival, my first goal was to buildloyalty and get buy in, and an opportunity dropped into my lap. The assistant immediately asked fortwenty bucks to buy coffee and toilet paper. "Huh?" I asked. Apparently, in the interest of thebudget, the company was rationing coffee and toilet paper. The Dragon Lady was losing millions onher left side while hoping to limit enough toilet paper and coffee for 60 people on her right side tobalance out the equation. I gave the assistant $100 and told her to buy the biggest can of coffee andpack of toilet paper she could find, telling the other employees, "compliments of Lee." From thenon, they loved me. I had full buy-in, no one lost his job and we sold the company six months later.4. They Dont Depend on Their Key SubordinateI hire people who are smarter than I am. I have no problem with people making more money than Ido or being smarter. I view myself as a catalyst for positive change. However, I was brought into acompany at which the CEO did not share this sentiment. The CEO had created a generous salescommission structure, and the Sales Manager did a great job for the company, meeting andexceeding goals. Resultantly, he made twice as much as the CEO in his first year on the job. Whenthe board refused to give the CEO a raise to exceed the Sales Managers salary, the CEO attemptedto lower the sales teams commission structure, thereby disincentivizing them, even though theyhad been very successful on behalf of the company. After the CEO forced a changed pay structure,the Sales Manager quit and went to work for a competitor. The board of directors found out andfired the CEO. While this echoes the sentiment of the ego problem, it also highlights the issue thatCEOs fail to utilize good talent and rely on key subordinates.5. They Dont Get Buy-InBuy-in is so important, and the CEO who isnt getting it is looking for trouble because nothing goesforward for long without buy-in. At WYNCOM the CEO didnt want any bad news, and he neverwanted to hear what anybody had to say. He therefore didnt have 100% of his teams focus tomake his wishes a reality. Subsequently, he lost 8 million dollars in 2 years. As a CEO its importantto know which way you want to go, and though a business is no voting democracy, you shouldnt behanding down dictates from on high either. Have a conversation with your people, and let them tellyou what they think. Even if they disagree and you still go the way you want to go, you canincorporate their feedback and by doing so, get their buy-in and support. All I did when I becameCEO of WYNCOM was act as a catalyst and seek others input, Thus, we went from an EBITDA ofnegative four million to positive four million in 12 months. In fact, we saved a half million dollars inpostage just because I listened to someone. 23
  24. 24. VISTAGE SELECT: LEADERSHIP Ten Leadership Lessons from Lincoln’s Life By Vistage LibrarianAs chief executive of the United States at a critical crossroads, Abraham Lincoln was thequintessential leader.Yet, he did not have a single day of executive experience when he took the job.Lincoln inherited a monumental turnaround situation from President James Buchanan--with sevendeep South states already seceded from a Union that teetered on the brink of total chaos.CEOs and other leaders can learn from Lincolns struggles and his success, says Vistage speakerGene Griessman , an ardent student of Lincolns leadership style. Griessman does a one-manportrayal of Lincoln that he has adapted for the Vistage audience. He has also compiled a book ofquotes called "The Words Lincoln Lived By."Interestingly, Lincoln wasnt "a natural" at most of the following characteristics that ultimately madehim successful as the countrys chief executive. He worked relentlessly to better himself. To learnmore about any of the traits below, click on the link, or read the entire sequence. • Lifelong learner • Methodical and analytical • Intellectually curious • Persistent • Decisive commander • Paragon of willpower • Effective communicator • Avoided personal quarrels • Master delegator • Protector of his inner spiritLincoln as a Lifelong LearnerLincoln was a student of the world who read voraciously. He used mentor relationships toaccelerate learning. He was a good listener. And he learned from mistakes and successes."Lincoln made some major mistakes that green CEOs often make," says Griessman.For instance, Lincoln chose people as generals and in his civilian government who performed poorlyand embarrassed him. But he learned from his mistakes, and grew from them.Lincoln used books as an entrée to the world of knowledge, whether it was Euclidian geometry ortomes on military strategy that records show he checked out of the U.S. Library of Congress."He also learned from other peoples experiences, and thats the Vistage philosophy: to shareexperiences. He did that constantly," says Griessman.A Methodical, Analytical MindLincoln understood that hard thinking is hard, said Griessman. The president used a rigorous,analytical approach in his deep--and slow--thinking about a subject. 24
  25. 25. VISTAGE SELECT: LEADERSHIPThe fact that Lincoln looked at a matter from every angle is evident in the quote: "Im never happywith an idea until I have bounded it north, bounded it south, bounded it east and bounded it west."This concept borrows from his experience as a surveyor--a profession that his idol, ThomasJefferson, also pursued once.Abundant Intellectual CuriosityLincoln was never satisfied with surface information; he wanted to know details.He read scientific books and is the only American president to hold a patent.As president, he needed to know what people were thinking, so he held what he called "publicopinion baths" to learn the details of what the public thought.On a certain day every week, he would open the White House to "ordinary people," who lined upwithout regard to rank or importance, and were ushered in to talk with him about what was ontheir minds.When a high-ranking military officer challenged this practice as a waste of time, Lincoln counteredthat it helped him avoid the insularity that comes with public office.Today, CEOs and executives can practice "management by walking around" to get unvarnishedinformation.The Virtue of Persistence"Lincoln understood that it can take a lot of nos on the way to a yes," says Griessman. "Hispersistence was legendary."The president combined strategy and tactics with his persistent behavior, though, understandingthat he could not approach accomplishing his goals in a single-minded fashion."He came at the issue as many ways as necessary to get there," Griessman explains.Decisive CommanderSome people who weigh an issue from every side then have difficulty making a decision. Lincoln wasnot one of them."He had the will to command, the capacity to be a take-charge guy," says Griessman. "The greatestdecision he made was the hardest -- whether to let the Union disintegrate peacefully or whether toengage in war to preserve it."Lincoln had this to say about decision-making: "The true rule in determining whether to accept orreject anything is not in whether it has any evil in it, or whether it has more of evil than of good.There are few things wholly good or wholly evil. Almost everything is a mixture of the two, so ourjudgment is required in determining the preponderance between them."Every tactic has its downside, Lincoln realized. "Its whether the benefits outweigh the negatives,"says Griessman. 25
  26. 26. VISTAGE SELECT: LEADERSHIPParagon of WillpowerAnother trait that he grew into was his ability to exert willpower in a situation."He believed willpower was like a muscle and it could become flabby or strong," says Griessman.Once a decision was made, Lincoln believed in acting with due speed. Resolving to change--but notdoing it--was disastrous for the character, he thought.Lincoln said, "Your own resolution to succeed is more important than any one thing."Communicator Par ExcellenceLincoln became a master at three forms of communication: • The one-on-one • Speeches • The written wordThe president was persuasive in person, whether speaking to an audience of one or hundreds. "Hewas a master of the stump speech, the kind used at political rallies. He was brilliant at that," saysGriessman. He also memorized Shakespeare, and recited from Macbeth only five days before hisassassination, after visiting the fallen capital of Richmond, Va.In addition, Lincoln understood how to use the media. The Gettysburg Address--which Lincoln wroteand delivered to explain why the nation was at war--was only two minutes long. Lincoln knew thatthe short speech was "newspaper length," and his brevity paid off. The address appeared in itsentirety on the front page of the New York Times the next day.Avoiding Personal Quarrels"This is terribly important for CEOs," says Griessman. "Its one thing to be competitive. Its anotherthing to personalize the opposition.""Many people despised Lincoln. Even within his own cabinet, there were those who regarded himwith contempt, including his Secretary of War who privately called him a gorilla and an imbecile,"Griessman relates.Lincoln, who overlooked much tension, also had the capacity to avoid turning opponents intoenemies--recognizing that an opponent may disagree with you, but like you; an enemy may agreewith you but hate you.He also learned how to avoid turning an argument into a quarrel, after his high-spirited and quick-tempered youth, when he once narrowly escaped a duel that he had accepted."As a practicing lawyer, he learned that your opponent on the other side of an issue might be yourally on another day. So in the very process of doing the law, he realized that the people he arguedwith in court were not his enemies," says Griessman. 26
  27. 27. VISTAGE SELECT: LEADERSHIPMaster DelegatorWinston Churchill once pointed out another Lincoln weakness that became a strength: the latepresidents propensity for firing generals after they made one mistake."CEOs need to understand that theres a learning curve with the people they delegate to. They willmake mistakes, and if they learn from them, thats acceptable progress," says Griessman.Some of the lieutenants Lincoln chose were not agreeable individuals. Edwin M. Stanton, theSecretary of War who disliked Lincoln, almost never laughed--although his boss was an inveteratejoke-teller."When he became president, Lincoln had never had a single day of executive experience, so heassembled around him a cabinet comprised of people who had executive experience. He always feltthe information he didnt have could be found."Protector of His Inner Spirit • Lincoln learned how to protect himself by: • Living one day at a time • Collecting jokes and telling funny stories • Attending theater • Reading recreationally • Making peace with himselfHis philosophy was: "I do the very best I can each day, as it comes."To follow Lincolns lead, its essential to make friends with yourself.As he said, "If at last, when I come to lay down the reins of powers I shall have lost every otherfriend on earth, I shall at least have one friend left, and that friend shall be deep inside of me."To learn more about Lincolns leadership legacy, visit Griessmans President Lincoln Website. 27
  28. 28. VISTAGE SELECT: LEADERSHIP The Changing Role of Board Involvement in Corporate Strategy By Joe Evans President and CEO of Method FrameworksUp until the early-2000s, corporate boards might have rubber-stamped their approval of the CEOsstrategic plan without the need for much involvement in its formulation.They were largely content with rewarding profitability or handing out consequences for losses -- allbased on the rear-view mirror perspective of financial performance. In the U.S., that changed withthe arrival of the Sarbanes-Oxley Act of 2002, which required board members to pay far moreattention than before to the goings on within their organizations.At that point, the stakes were raised in regard to board responsibly for managing the CEOs jobperformance, overseeing financial reporting and supervising risk management. Their legal liability toshareholders increased significantly. Board involvement in strategy has continued to change evenmore dramatically over the past five years, perhaps forever changing the board/managementworking relationship.From Bored Involvement to Board Involvement: Changing NormsBefore Sarbanes-Oxley (SOX), board members cared more about the performance of the company --indicated by the financials -- and less about the accuracy of the reports and how numbers wereobtained. Of course, that has changed.In 2008, as the Great Recession began, credit dried up and sales slumped for companies around theglobe. The risks and complexities of the business world grew as the economy worsened and strategymistakes that might have been overcome in the past began to magnify and severely damage or ruincompanies -- even those that had been financially strong and solid performers before this majorinflection point occurred.The norms for board of director involvement in strategy began to change again about that time.Corporate boards began commanding a view from behind the wheel -- with bright headlights.Corporate boards have always varied in their direct involvement in the formation of strategy andplanning process, but it became apparent that a hindsight view was not good enough to avoidcatastrophes from occurring. That would require more involvement up front -- in strategic planning.Where the strategy involved acquisitions and mergers to accomplish growth, boards havehistorically been very involved along with major shareholders. In todays environment, even whenthe strategy is built around more basic blocking and tackling maneuvers than a complex one 28
  29. 29. VISTAGE SELECT: LEADERSHIPinvolving M&A transactions, seeking council and input from the organizations directors is wise andbecoming more systematic.Corporate boards now want to be made comfortable about the planning process itself, insuring thatrisks are properly addressed in a standardized fashion via a robust strategic planning methodology.The Importance of a Great Board/Management Working RelationshipCEOs and their management teams often take the approach of tackling strategic planning internally,to the exclusion of board involvement. The strategic plan is updated or, in some cases, a newstrategy is born -- and only then is the finished planning product is related to the board at the nextdirectors meeting. This approach can backfire.Corporate boards no longer are demonstrating default buy-in of their CEOs strategies, especiallywhen they did not have a role in its development. Indeed, the trend is shifting to one of tightermanagement and board collaboration when it comes to strategy development and strategicplanning process design. Board members are increasingly seeking a more hands-on approach tosetting strategy with the CEO, offering their broad and deep expertise to shore-up gaps inexperience that might exist within the management team. Working in isolation (i.e., CEO andmanagement develop strategy and planning without board involvement) often creates re-work.Boards and management should be working closely together to set in place strategies that providegood working parameters for the CEO. The chief executive should be empowered to navigatesuccessfully in the execution of the organizations strategy, yet be encouraged, or required in somecases, to seek board approval on changes to strategy are being contemplated. With the stalledeconomic growth we are currently experiencing, another evolutionary step may soon be coming inregard to board involvement in strategy. Get ready to see a checkmark added in the "Plan" columnfor the "Board" role in the Evolution of the Board Role graphic. 29
  30. 30. VISTAGE SELECT: LEADERSHIP Ten Strategies to Make Your Board of Directors More Effective by Les Wallace President of Signature ResourcesWhile the Vistage community offers support and insight into business and personal growth, yourown personal board of directors -- advisory or investors -- can add a different value to your success.Boards become highly intimate with your business and its environment and as such become afocused sounding board for strategic decisions. Boards of directors also typically include businesspeople outside your realm of endeavor who bring expertise in strategy, finance, technology or someother dimension that can expand perspective on your specific marketplace.Finally, boards also become a monthly or quarterly set of business eyes to help you stay focused onthe most critical performance, growth, and success factors for your enterprise. As you convene andutilize boards, consider the following governance strategies to maximize value. 1. Measure organizational performance with "balanced measures." Progressive organizationsmeasure customer/client value and employee engagement equally with bottom-line financialresults. Boards that keep a close eye on each of the three categories have a full spectrum view ofenterprise performance.2. Create a simple set of dashboard indicators to review at each meeting. Employing balancedmeasures requires an easy-to-grasp reporting system. Information should be presented as a simpleset of indicators on a monthly basis. This report allows board members to quickly scan overallcompany performance and determine which area they want to inspect with more detail. The reportshould contain three to five indicators for each balanced measure.3. Tie at least 75 percent of each agenda to strategic plan objectives. If boards use a "consentagenda" they can accept numerous self-evident updates without wasting valuable time. A consentagenda is a single agenda item that includes standard actions (e.g. bank signature changes),informative correspondence, and general reports to the board that shouldnt require dialogue (e.g.renovations update, quarterly marketing/advertising plan, updates on corporate investmentsperformance). By accepting the consent agenda the board completes many minor transactions atonce, thereby leaving more time for one of the most important functions of governance: strategicthinking and planning. In todays fast-changing business environment, boards struggle to assureenough strategic change to remain relevant and successful. Investing more of each meeting instrategy discussion enhances a boards focus, performance and responsiveness in regards tostrategic issues.4. Conduct board member development at each meeting. Ongoing growth of board membercapabilities is a constant challenge. Limited free time and budgets make travel and professionalconference participation for continuing education a rare opportunity. One solution is to conduct asmall amount of development at each meeting. For example, boards can read and discuss an articleon governance to learn how to be a better board, listen to a presentation by an accountant toimprove financial oversight, or invite a customer/client to provide their explanation of your 30
  31. 31. VISTAGE SELECT: LEADERSHIPproduct/service value to promote greater board understanding of your value proposition. Thesebrief investments will contribute to the ongoing growth of governance capabilities.5. Hold a brief "product" or "service" tutorial at each meeting. A ten-minute update on one of yourorganizations products or services enables board members to stay current and maintain a "feel" forthe texture of the enterprise. This enhanced knowledge also offers the board a chance to interactbriefly with managers and program leaders as a means of evaluating the CEOs management andleadership influence.6. Create rules for board interaction. Seasoned board members are adept at decision-making,interpersonal relationships, and handling differences of opinion and conflict. Boards that definecommitment expectations and develop rules for interacting at board meetings and with companyofficers often function more effectively than before creating these guidelines.7. Job descriptions and commitment to serve signed by each member. Joining a board is frequentlyfraught with uncertainty about the required time commitment, conflict of interest guidelines, boarddevelopment commitments, representation and other duties. Just as a job description helps focusan employees work, a board member job description helps focus the potential memberscommitment and also discourages those who might consider joining for the wrong reasons. Boardmembers should sign their job description and conflict of interest statement as an additional step toraise awareness of the governance commitments expected.8. Conduct a board self-assessment at least once a year. Progressive boards engage in regular self-assessment. These can be limited or extensive. A limited evaluation might look at the quality ofmeetings, agenda management or perceptions of individual participation. A comprehensiveassessment would cover additional aspects of governance, such as strategy, board makeup,committee structure, and CEO feedback.9. Provide formal CEO feedback twice a year. Many boards fail to evaluate their CEO on a timelybasis. Boards should provide direct, formal feedback on their CEOs performance, twice a year. Thisdiscussion keeps expectations and performance calibrated and results in better organizational andboard performance.10. Plan an annual retreat to revisit organizational values and strategic plans. Progressive boardsfind time to "retreat" at least once a year, if only for a day, away from the pressures of a typicalagenda. Discussion at these retreats allows relaxed exploration of changing business conditions,shifting customer expectations, chronic challenges, expansion and a renewal of focus on strategy forthe governance body. Retreats range from one to three days. 31
  32. 32. VISTAGE SELECT: LEADERSHIP 3 Common Exit Planning Mistakes (and Solutions) By Patrick A. UngashickWhen it comes to exit planning and selling a business, all of the mistakes are made in advance—inthe many years the business operated without a well-informed exit game plan. Here are three ofthe most common mistakes that CEOs and business owners make when it comes to selling orpassing down the business.Mistake 1: Confusing Growth with ValueOwners and CEOs of closely held businesses often believe that business growth equates to a highervaluation when it comes time to sell the business. A growing business is not necessarily morevaluable. It’s how the business grows that determines the value. Here are a couple of examples: 1. ABC Manufacturing has grown its revenue by a double-digit rate for several years in a row, but the revenue increase (and 40 percent of total revenue) came from a single, large customer. At exit, a buyer or successor will likely have concerns about losing this major customer and may either reduce the price, or place onerous terms on ABC’s owners at sale. The business grew, but the way it grew presents risk to the buyer. 2. XYZ Consulting has achieved growth rates above its competitors in recent years, but most of its success is attributed to the skills of a few key employees. Little effort has been made to capture the business methods used by these employees, cross train other employees or create a strong management bench. While the growth is real, a potential buyer or successor may not see a way to create sustainable long-term growth beyond the talents of those few top employees.Solution: Focus not only on growing the business, but also creating “transferable value,” whichmeans creating business factors that reduce the risk of possible revenue loss for the buyer orsuccessor.Mistake 2: Focusing Solely on the Top-Line Sale Price of Your BusinessMost owners have the same goal when exiting their business—financial independence, or thefreedom to never need a paycheck again. To attain such independence many owners focus only ongetting the “maximum value” for the business at exit, meaning they want to sell it for the highestpossible price. When examined closely, this approach is misguided for several reasons:There is no connection between the business’s maximum sale price and the net amount the ownerneeds from the business at exit to achieve financial freedom. For example, the maximum value of abusiness might be $5 million, and the selling owner nets $3 million after costs, debt and taxes. If heor she needed $4 million to reach financial freedom, then maximum value was not enough. In thiscase selling for the maximum sale price does not necessarily provide for a successful exit. 1. With multiple-owner businesses, getting maximum value at sale may leave some owners smiling and others crying. For example, assume a business has three owners: Owner A owns 60 percent, Owner B owns 30 percent and Owner C has the remaining 10 percent. Assume 32
  33. 33. VISTAGE SELECT: LEADERSHIP this business sells for a maximum value of $30 million. Owner A grosses $18 million (60 percent of $30 million), Owner B grosses $9 million, while Owner C grosses $3 million. After costs, debt and taxes each might take home only a half of the gross amount. While one or two million in the checking account sounds nice, it might fall far short of creating financial freedom for that particular owner. In our experience Owners A and B may regret selling the business if the outcome results in their partner and friend falling short of personal financial freedom. 2. Maximum value often produces maximum taxes. Many tactics that reduce taxes at exit involve reducing the nominal value of the business, and bringing into the picture other means of compensating the seller, such as consulting agreements, employment contracts, and other devices. In most cases, taxes are the greatest cost at exit and it pays to focus on the net result not the top-line sale price. 3. The owner may sell for maximum value, but that does not mean the owner will ever see all of that money. When a small to mid-sized business is sold, one cannot pay attention simply to the sale price. Beyond the gross price, the timing and terms of the deal are critically important. For example, a business sale for $20 million price might include $5 million in cash and the balance in any combination of the buyer’s stock, earn out provisions, deferred payments, seller financing, and other mechanisms. The selling owner may need some or all of those deferred or contingent dollars to achieve financial freedom, but may never see some or all of it. For example, the buyer may default, the earn-out targets may never be reached, or the seller’s stock may crash. Any dollars not received by the seller at the closing table are at risk. 4. Maximum value for family business transfers can mean maximum financial burden on the children and maximum exposure to estate or gift taxes. Likewise, owners who intend to sell their business to key employees/internal buyers often forgo maximum value in favor of other considerations such as creating their business legacy and rewarding employee loyalty.Solution: Determine how much capital an owner needs to receive from the business between nowand the exit to achieve personal financial freedom. Analyzing the Exit Magic Number™ calculation,focuses an owner on how much they need from the business, not what the business is worth. If theowner wants financial freedom, then the exit plan must measure and reach a predefined outcome.Before going after “maximum value,” owners should consider the best path to financial freedom,with minimum risk and taxes.Mistake 3: Planning Three to Five Years OutThe third most common mistake is waiting too long to plan an exit. Many owners do not beginplanning until three to five years before they are ready to exit. Often they think the best thing to dois to build up the business and sales in the last three to five years with an exit timeframe or date inmind. This approach to exit planning can lead to missed opportunities for several reasons:Three to five years is too little time to create transferable value, which requires proactive actionssuch as: developing strong successor management, creating intellectual property, deploying 33
  34. 34. VISTAGE SELECT: LEADERSHIPscalable systems and reducing owner dependency. If these strategies are not in place, they oftentake longer than 36 to 60 months to fully achieve. 1. Cyclical external factors such as economic cycles, interest rates, stock market conditions, liquidity levels and other factors beyond an owner’s control have a large impact on business sale price and terms. Many of these factors move in five- to 10-year cycles. Owners should consider aligning their exit timetable with these external forces. 2. Others may put owners “in play” first. CEOs and owners often do not control the timing of their exit. Somebody may pass away or get sick, or a potential buyer or successor may put that owner “in play” before reaching his or her ideal timetable. Many businesses are sold after the owner gets a call from a competitor, strategic buyer or private equity group. Businesses that are not ready at any given moment for the owner’s exit, typically have a serious weakness.Solution: CEOs and owners need to define a vision and goals for a successful exit, and then make allbusiness decisions accordingly. Too many simply do not know if the decisions they make today helpor hurt their success at exit. If exit success is undefined, then any positive outcomes down the roadwill largely be attributable to luck. When it comes to exit planning keep in mind author StephenCovey’s second habit of highly effective people--they “begin with the end in mind.” Owners need toknow where they are going and how their choices and actions today help or hinder their effort toget there. Owners might consider factoring in exit goals with strategic business plans to connectshort-term growth objectives to the fulfillment of financial freedom. 34
  35. 35. VISTAGE SELECT: LEADERSHIP Leadership Habits: Pick your Top Three to Work On by Marshall GoldsmithThere is a difference between success that happens because of our behavior, success that happensby luck, and success that happens in spite of our behavior.Marshall Goldsmith is one of the most successful of corporate Americas celebrity coaches -- hetypically makes upwards of a quarter-million dollars for a year or so of work with each individualclient -- and is also one of the best. The Wall Street Journal ranks him among the top 10 executiveeducators.Goldsmiths primary insight is that good manners are good management, that bad habits keephighly successful people from succeeding even more. What differentiates the one from the other,he observes, has nothing to do with ones abilities, experience and training -- and everything to dowith behavior. Simply put, Goldsmith explains, successful people often limit themselves withbehavioral tics that they dont even know they have. Likewise, successful people tend to assumethat the behaviors that got them this far will, in time, get them further still. They are delusional onthis last count, failing to realize either that their success has come in spite of their behavioral flaws,or that their behavior prevents them from realizing their potential, not only at work, but also in life.Everyone has a few Bad Habits: Twenty Habits That Hold You Back:1. Winning too much: Goldsmith notes that the hypercompetitive need to best others "underlies nearly every other behavioral problem."2. Adding too much value: This is when you cant stop yourself from tinkering with your subordinates already viable ideas. "It’s extremely difficult," Goldsmith observes, "for successful people to listen to other people tell them something where we believe we know a better way or can improve on their idea. The fallacy is that, while it may slightly improve an idea, it drastically reduces the other persons commitment.3. Passing judgment: Its not appropriate to pass judgment when we specifically ask people to voice their opinions ... have you found yourself rating their answer? Goldsmith recommends "hiring" a friend to bill you $10 for each episode of needless judgment.4. Making destructive comments: We are all tempted to be snarky or even mean from time to time. But when we feel the urge to criticize, we should realize that needless negative comments can harm our working relationships. "The question is not, Is it true? but rather, Is it worth it?"5. Starting with "No," "But," or "However": Almost all of us do this, and most of us are totally unaware of it. But Goldsmith says if you watch out for it, "youll see how people inflict these words on others to gain or consolidate power. Youll also see how intensely people resent it, consciously or not, and how it stifles rather than opens up discussion." This is another habit that may take fines to break.6. Telling the world how smart we are: Driven by our need to win, we let people know “I already knew that” or “I’m five steps ahead of you”. Being smart turns people on; announcing it turns them off. 35
  36. 36. VISTAGE SELECT: LEADERSHIP7. Speaking when angry: When you get angry, you are usually out of control. And you may justify it as a “management tool.”8. Negativity or "Let me explain why that wont work": Goldsmith calls this "pure unadulterated negativity under the guise of being helpful."9. Withholding information: This one is all about power. "We do this when we are too busy to get back to someone with valuable information. We do this when we forget to include someone in our discussions or meetings. We do this when we delegate a task to our subordinates but dont take the time to show them exactly how we want it done."10. Failing to give recognition: When we don’t take the time or remember to do this, we deprive people of the emotional payoff that comes with success. We may not realize how important it is to them.11. Claiming credit we dont deserve: To catch ourselves doing this, Goldsmith recommends listing all the times we mentally congratulate ourselves in a given day, and then reviewing the list to see if we really deserved all the credit we gave ourselves. Who else made that success possible?12. Making excuses: We do this both bluntly (by blaming our failings on traffic, or the secretary, or something else outside ourselves) and subtly (with self-deprecating comments about our inherent tendency to procrastinate, or to lose our temper, that send the message, "Thats just the way I am").13. Clinging to the past: "Understanding the past is perfectly admissible if your issue is accepting the past. But if your issue is changing the future, understanding will not take you there." Goldsmith notes that quite often we dwell on the past because it allows us to blame others for things that have gone wrong in our lives.14. Playing favorites: This behavior creates suck-ups; rewarding suck-ups creates hollow leaders. We all believe we don’t like suck-ups, but maybe it’s just the obvious suck-ups we don’t like.15. Refusing to express regret: When you say, Im sorry, you turn people into your allies, even your partners. The first thing Goldsmith teaches his clients is "to apologize -- face to face -- to every coworker who has agreed to help them get better."16. Not listening: This behavior says, "I dont care about you," "I dont understand you," "Youre wrong," "Youre stupid," and "Youre wasting my time."17. Failing to express gratitude: "Gratitude is not a limited resource, nor is it costly. It is abundant as air. We breathe it in but forget to exhale." Goldsmith advises breaking the habit of failing to say thank you by saying it -- to as many people as we can, over and over again.18. Punishing the messenger: This habit is a nasty hybrid of 10, 11, 19, 4, 16, 17, with a strong dose of anger added ….. like the difference between asking the person “what went wrong?” and asking “what the ____ went wrong?”. It’s also the small annoyed responses we make throughout the day when we are inconvenienced or don’t like the news we are hearing.19. Passing the buck: "This is the behavioral flaw by which we judge our leaders -- as important a negative attribute as positive qualities such as brainpower, courage, and resourcefulness." 36
  37. 37. VISTAGE SELECT: LEADERSHIP20. An excessive need to be "me": Making a "virtue of our flaws" because they express who we are amounts to misplaced loyalty -- and can be "one of the toughest obstacles to making positive long-term change in our behavior." Bonus bad habit: Goal obsession, or getting so caught up in our drive to achieve that we lose track of why we are working so hard and what really matters in life.We can change our future by changing how we act. The key to a better future likewise comes fromlearning to listen to what others have to tell us about our behavior. We learn best if the lessonsothers have for us come not in the form of "feedback" -- which focuses on an irrecoverable past,centers on judgment, and makes us defensive -- but on "feed-forward," which is constructivelycentered on the future, and takes the form of helpful advice about things we have the power tochange. 37