Review – Getting Started in Consulting

Getting Started in Consulting, 4th ed

by Alan Weiss, published 2019

Estimate costs to reasonably support yourself and your family for 1 full year and set this money aside as initial startup costs for consulting

10 Key Traits of Successful Consultants

  1. Humor and perspective
  2. Influence
  3. Confidence and self-esteem
  4. Fearlessness/honesty
  5. Rapid framing (identifying the problem)
  6. Value generation (offering ideas and resources without jealousy)
  7. Intellect
  8. Active listening
  9. Instantiation
  10. Responsiveness

Finding space

  • Needs to be dedicated, private, spacious; need to be able to leave your stuff
  • Don’t want to incur large expense; consider professional service firms with unused space for rent (accountants, lawyers, designers, marketing)
  • Minimize commute
  • Need access at all hours

Startup equipment

  • Laptop, speed and capability for 3 years minimum
  • Copier
  • Postage meter + scale, online Stamps account

Necessary specialist help with professional staff, entrepreneurial bent, accessible, resourceful, same risk-profile:

  • Legal; incorporation
  • Accounting, finance, tax; deductions of reasonable expenses such as medical fees, director’s fees, director’s meetings, salaries to household members for assistance, business credit, withholding and payroll tax strategy, office + equipment, memberships and subscriptions
  • Business banking; a relationship manager to handle questions, expedited banking services, small biz surfaces, SBA-related assistance and opportunities, manage the relationship with the banker and trade business opportunities
  • Designer; letterhead, logo, brochure + publicity materials, media kit, web design
  • Insurance broker; disability, E&O (malpractice), liability, property, major medical and health, term life insurance, umbrella liability, long-term care, etc.
  • Payroll assistance
  • Bookkeeping

Marketing, develop market gravity through:

  • Press kit
    • Client Results/Expected Benefits, what do they get?
    • Testimonials, what have people said about you?
    • Biographical sketch, who are you? accomplishments, credentials and background
    • Position papers/white papers, 2-6 pages outlining ideas or opinions on relevant topics to your consulting work (copyright it)
    • Reference list + contacts, try to fill a page
  • Stationary, letterhead, secondsheets, envelopes, address labels, business cards
  • Networking involves providing value to others to generate reciprocity and becoming interesting to others so they’ll direct others to you; try to do something networking-related at least once per week
    • Buyers
    • Media people
    • Key vendors
    • Mentors
    • Recommenders to buyers
    • Endorsers
    • Bankers
    • Key advisors
    • High profile biz people
    • Trade association execs
    • Community leaders
    • Execs planning conferences and meetings
  • Pro-bono work should be confined to visible, connected non-profits that engage you with potential paying clients who are also donating their time

Advanced marketing

  • Website, as credibility builder, not sales builder or ad
    • clear image about expertise
    • reasons to return (changing content, newsletter)
    • credibility of self and firm
    • personal contact
    • expected results
  • Commercial and self-publishing
    • find publications your target audience reads
  • Media interviews, print, web, radio, TV– PRLeads.com
  • Speaking engagements, National Trade and Professional Associations of the United States
  • Newsletters

Key principles of consulting sales

  • Clients come from relationships, not sales
  • Relationships exist with people, not organizations
  • Think from the buyer’s perspective
  • Focus on outcomes, not methodology
  • Trust comes from convincing people you have their interests at heart
  • Provide value to build trust

Gaining conceptual agreement

  1. What are the objectives to be achieved through this project?
    1. How would conditions improve as a result of this project?
    2. Ideally, what would you like to accomplish?
    3. What would be the difference in the organization if this was successful?
    4. How would your customers be better served?
    5. What is the ROI/ROE/ROA impact you seek?
    6. What is the shareholder impact you seek?
    7. How will you be evaluated in terms of the results of this project?
    8. What keeps you up at night?
    9. What are the top 3 priorities to accomplish?
  2. How will we measure progress and success?
    1. How will you know we’ve accomplished the objective?
    2. Who will be accountable for determining progress and how?
    3. What info would we need from customers, vendors and employees to measure our progress?
    4. How will the environment or culture be improved?
    5. How frequently should we assess progress and how?
    6. What is acceptable improvement? What is ideal improvement?
    7. How will you prove to others the objective has been met?
  3. What is the value or impact to the organization?
    1. What would be the impact if you did nothing at all?
    2. What would happen if this project failed?
    3. What does this mean to you personally?
    4. What is the difference for the organization’s customers/employees?
    5. How will this affect performance or productivity?
    6. How will this affect profitability/market share/competitive advantage?
    7. What is this currently costing you annually and what might you gain or save?

Focus on developing “small yeses”

  • Initial contact, hear background, read some material, agree to second contact
  • Second contact, brief meeting
  • Brief meeting, form relationship, substantiative meeting
  • Second meeting, conceptual agreement
  • Proposal, acceptance and initiation

7 Elements of Great Proposals

  1. Situation appraisal (linkage to previous discussions)
  2. Conceptual agreement components
    1. Objectives
    2. Measures of success
    3. Expression of value
  3. Methodologies and options (provide a menu)
  4. Timing, when does the project begin and end
  5. Joint accountabilities
  6. Terms and conditions
  7. Acceptance

Review – The Medici

The Medici: Power, Money and Ambition in the Italian Renaissance

by Paul Strathern, published 2017

The history of the Medici family might best be summarized with the phrase “from dust to dust.” As if to emphasize how they were destined for greatness and nobility, the family started out as a bunch of Tuscan hillbillies who could trace their lineage to a legendary knight of the Holy Roman Empire who settled near Florence in the 8th or 9th Century. From there and then, no one heard much of these people until some of the clan moved into Florence proper in the early 1300s and formed a small money-changing business.

Using conservative business practices and investing in roles of civic responsibility, eventually a Medici was elected to the position of gonfaloniere, the primus inter pares of the Florentine Republic. From this position the dice were carefully loaded in the favor of subsequent Medici generations by artfully forming governing coalitions that cemented their public position while creating leverage across their business and investment portfolio through the tactical use of subsidy, official privilege, insider information and regulatory capture wielded against competitors and opponents.

The story of the “overnight success” of the Medici begins here. The first great head of the Medici family and Medici bank, Giovanni de Medici, had jockeyed for favor with the newly appointed (anti-)Pope John XXIII in order to secure a role as the personal banker to the Papal Curia upon his ascendancy, which was then granted. For much of the 14th Century and Renaissance period in general, the papal revenues and banking needs were equivalent to managing the treasury function for the modern era’s most wealthy and complex multi-national corporations. To gain this trust was not only a measure of unique esteem valuable in and of itself, but a responsibility that carried with it priceless information and irreplaceable business franchises throughout European Christendom and even the Levant.

However, Pope John XXIII soon became embroiled in the Great Schism in which he and 2 other rival popes were called before the Holy Roman Emperor and summarily dismissed, to be replaced with his appointment, Pope Martin V. At his son Cosimo’s urging (whom he had sent to be his representative at the delegation attending the papal conference) the Medici’s continued to support the defrocked pope, even helping to pay his ransom for his release from imprisonment. Rather than being a financial disaster, this loyal support of the former pope led to a new lucrative banking relationship under Martin V, because in return for bartering his release the former Pope John XXIII agreed to support the nomination of Martin V and participate in the reconciliation of the Schism, leading to greater legitimacy for the new pope.

As a major political player on top of his business responsibilities, Giovanni left three apocryphal warnings for his descendants:

  1. focus on business, not politics
  2. do not be ostentatious
  3. don’t oppose popular will, unless it is aimed at disaster

It seems as if it should be unnecessary to say that in time this advice was forgotten and eventually, so, too, were the Medici.

But the dissolution of the Medici was a ways away yet. After Giovanni came Cosimo as head of the family and the Medici bank. He faced a disastrous and unpopular war between Florence and Lucca (backed by Milan) which threatened to ruin the Florentine treasury and which had pitted the various leading families against one another. Subscribing to Rule #3, Cosimo opposed the conduct of the war and worked to hide the bank’s assets outside of Florence to avoid expropriation in the war’s aftermath.

For these maneuvers and others, Cosimo was recalled to Florence and imprisoned in the bell tower of the Palazzo Vecchio by a faction led by the rival Albizzi who had plans to execute him for treachery. However, Cosimo’s far flung banking business and participation in the geopolitics of Western Europe had led him to a series of alliances and power relationships with foreign entities such as the Venetian Republic and the Papal States which he utilized to create a kind of diplomatic protection for himself, pressuring his enemies to choose exile over execution as his fate.

In the meantime, he used bribes and the threat of invasion of the city by his own mercenary forces outside its walls to add to the diplomatic pressure and engineer a favorable outcome for himself, all while behind bars.

Shaken but not stirred, Cosimo came to rule Florence through the intervention of the Pope and Venice, but vowed that “he would rule, but he would not be seen to rule” going forward. He had learned his lesson about bearing personal responsibility when it came to matters of state. Further, he was coming to understand that it was easier to wield power when others weren’t watching.

According to one supporter, “Whenever he wished to achieve something, he saw to it, in order to escape envy as much as possible, that the initiative appeared to come from others and not from him.” One policy he pushed for through his crony network was the use of the “catasto”, which had originally been levied to pay for the war, as a punitive tool to crush his political and business opponents through ruinous taxation. While he was forcing his enemies into exile to avoid financial ruin, purchasing and redistributing their former property to his supporters on a bargain basis, he simultaneously used inflated personal balance sheets to hide his income and appear to be bearing the heaviest personal tax burden on a relative basis.

But Cosimo was far from poor:

Between 1434 and 1471, Cosimo spent 663,755 gold florins supporting public works, by comparison, total assets of the Peruzzi bank at its height were 103,000 florins from Western Europe to Cyprus and Beirut.

If he was able to spend 6X the total assets of a well-known competitor at the height of its powers on public works, his total assets and wealth must have been a multiple of that amount. Normal banking and family secrecy aside, the Medici wealth at this time seems to have been nearly incalculable. It is no wonder, then, that one of Cosimo’s key strategies in building and wielding power was to always return favors with favors.

Following Cosimo, who was once to have said that “Trade brings mankind together, and casts glory on those who venture into it” his son Piero and Piero’s son, Lorenzo began to venture the family increasingly beyond the scope of banking and business and into the realm of politics and social standing via nobility. Depending upon how you interpret the events that followed, Piero and Lorenzo were either some of the most “magnificent” leaders of the Medici banking and political enterprises or they were equivalent to the decadent dissipators of the true talent and generational thrift of their greater ancestors.

Either way, the local power of the Medici in and around Florence was successively traded for inter-regional power and influence within the royal families of Europe. As the Medici gained a queen mothership in France, they lost their rule over the Florentine Republic to foreign invasion and intervention and increasingly squandered the capital of their banking and related enterprises. By the early 18th Century the Medici had failed to produce a male heir and had ceded their Grand Duchy of Florence to the Holy Roman Emperor and ceased to be a meaningful business or political entity forever.

Review – American Icon

American Icon: Alan Mulally and the Fight to Save Ford Motor Company

by Bryce Hoffman, published 2013

As I read this book, three questions ran through my mind. The first question was “Was Ford Motor Company worth saving?”, the second question was “What do we mean by ‘save’ and what would have happened to Ford Motor Company if the effort was unsuccessful?” and the final question was “Why was Ford savable but GM and Chrysler were not?” But before I share my thoughts on those three questions I will try to summarize my understanding of how Alan Mulally did it.

Prior to being headhunted for the CEO role at Ford, Alan Mullaly had not spent any time in the international or US auto industries. While he had a nostalgic interest in Ford products rooted in his childhood memories like many Americans of his generation, Mullaly was an aeronautical engineer by education and trade and had made his name climbing the ranks of Boeing’s commercial aviation division. He was known as an able executive manager from that experience but many people inside the company and in the wider business world were skeptical that he’d be able to make an impact without understanding the unique intricacies of Ford’s automotive operations.

Besides questions about the applicability of his experience and skillset, Mulally faced the problem of the “bench”– by recruiting an outsider to run the company, Bill Ford was signaling that there was no one within the company who was up to the task. Further, there was a belief within the company and shared by other business strategists that Ford’s culture was broken and it couldn’t be fixed by continuing to employ the very leaders who were responsible for it being what it was. People expected Mulally to come in and make a number of dramatic public executions but no one could predict how he’d repopulate the executive ranks with fresh faces when the company was going through a crisis and faced a nightmare in attracting talent to a sinking ship.

Mulally’s solution, then, was both simple and unexpected. He treated his lack of industry knowledge as irrelevant in favor of installing proven management practices he developed at Boeing; and he endeavored to let the individual members of the leadership team come to their own conclusions as to whether they had what it took to change the culture and save the company– he created a new standard for performance and accountability and expected everyone to rise to the occasion or else fold under the pressure and leave on their own.

The cornerstone of his management practice was a weekly business plan review held on Thursdays with the global leadership team. Each VP was asked to run through a number of preformatted slides and color-coded KPIs in front of their peers, indicating the state of their operations against plan and projected five years out. The goal of the meetings was to publicly acknowledge challenges and to generate awareness that could lead to group problem-solving in follow-up special review meetings. Bringing visibility to problems created opportunities for the team to consider solutions that might originate outside a specific operating unit and it also allowed them to avoid compounding mistakes by adjusting operating plans in light of new challenges in related divisions.

This practice addressed one part of the corporate governance problem Ford had. The other part was addressed by restructuring roles and divisions themselves. Mulally implemented a matrix approach to management hierarchy and reporting which not only increased the number of VPs reporting directly to him, solving the problem of information silos or lack of accountability through problems hidden by bureaucracy, but it also organized more functions on a per-project basis which increased the likelihood of successful resource coordination within the boundaries of the project.

When most people think about strategy, they think about competitive strategy meaning what kinds of decisions does the company make with regard to its customers or its competition? But there is another layer of strategy which is often more important in a very large, very complex organization such as Ford, which is corporate strategy– how will the internal resources of the company be organized to maximize scale, efficiency and coordination? Mulally definitely made adjustments to Ford’s competitive strategy (such as his insight that their product lineup was too complex and fractured and needed to be radically simplified to fewer competitive models, or his commitment to raise the quality and durability of Ford’s products) but it appears the biggest impact was made through his corporate strategy rooted in new corporate governance initiatives.

Every social organization faces coordination problems. Without successfully solving these coordination problems, which are unique to each entity based upon its history, size and competitive position, there is chaos inside the company which results inwardly in waste and outwardly in a weakened competitive position. It is therefore entirely possible that something as simple as creating more effective meetings (which increase the quantity and quality of information-sharing across the organization, improving coordination) and restructuring roles and responsibilities (which empowers the “right” people to act on certain information, or else creates new responsibility for action that otherwise did not exist) can have a dramatic impact on the fortunes of a multi-billion enterprise.

Of course there were other key initiatives that took place either at Mulally’s behest or on his watch which played critical roles in how the story turned out, including a major renegotiation of the company’s union contracts as well as a massive refinancing of the company’s debt and capital structure. But from my reading of the text, these things would’ve at best given the company a bit more rope with which to hang itself. Fixing corporate governance and leveraging the company’s corporate strategy was the real coup de grace that Mulally delivered. For an amateur executive manager such as myself it is both inspiring and a bit unnerving to think of how poorly managed so many major and minor enterprises alike are given this insight.

Now that I’ve offered my interpretation of how Mulally pulled it off, let’s explore the three higher level questions I wondered about as I was reading. I’ll take them in reverse order.

The book doesn’t make it clear why Ford could be saved while GM and Chrysler could not. (Along the lines of the “rope to hang with” logic, while Ford had an incipient existential crisis aggravated by the Global Financial Crisis of 2008, GM and Chrysler remained happily/deludedly oblivious to their own until the GFC arrived.) One answer might be that Ford still had significant private family ownership while GM and Chrysler had already been converted into unfamiliar, faceless corporate automatons by that point and so there was no individual impetus to save them. This reason, if true, represents a different kind of corporate governance problem that extends into the realm of social governance.

Another reason might be that GM’s and Chrysler’s problems were too deep. Even if someone was aware they needed saving, and wanted to save them, they couldn’t be. It would’ve been futile. So no one even tried. A final argument I considered is based upon scarcity. There was only one Alan Mulally in the world, he could only save one legacy American automobile manufacturer and so once he was called upon to save Ford there was no one left for the other two. I consider this to be the least likely circumstance but it could be true.

In any case, it might not be an important question to answer. We might consider why in trying to answer the second question, “What do we mean by ‘save’ and what would’ve happened if the effort was unsuccessful?” Things get sticky here. If Ford Motor Company collapsed, as many American and international nameplates collapsed over the years ahead of it, life would go on just as it did when the others fell. Some of the physical assets, such as plants and parts inventory, would be purchased by surviving manufacturing entities and others would be scrapped or abandoned. Some employees (and managers) would find work in the same field under different ownership and others would find work in new fields unrelated to automotive. Some of the brands, technology and IP of the company might be purchased by third parties and in that way the Ford brand might be “kept alive” indefinitely. Or it may have been the case that a failure of that magnitude killed the value of this historic franchise and the Blue Oval would be buried for good.

If anything Ford did had value and utility in the marketplace, it would likely continue to have such value and utility whether “Ford” was responsible for producing it or not. And to the extent it did not (in whole or in part) there’s really no reason why such activity should continue under Ford’s aegis if it wouldn’t under anyone else’s. Nostalgia by itself is only worth so much and it turns out that is not very much.

So “saving” Ford really means keeping a certain collection of assets under the control of a certain collection of financial and management interests and retaining certain contracts with employees and a certain ecosystem of vendors and distributors. There’s nothing magic or eternal to this and the evidence for this fact is contained by the knowledge that Ford itself had agglomerated into itself other foreign brands such as Volvo, Mazda and Jaguar-Land Rover. If some brands can die and others can live on under Ford’s ownership, certainly something similar could happen to the Ford brand and organization without cosmic repercussions. The dramatic tension of the story loses a bit of gusto when we consider all of this.

The final question is a moral question. It implies a “should”. Should Ford Motor Company have been saved? Asking about its worth begs the question “Worth to whom?” And you could insert many answers there: its employees, its suppliers, its customers, politicians with Ford operations in their districts, “society” at large, and so on. But because Ford Motor Company is and was a public company owned by a collection of shareholders and operated with the intent of earning a profit and thereby generating wealth, I want to focus this question on the members of the Ford family, who were its controlling shareholders and thus primarily responsible for the strategic governance of the company.

The book makes it clear that aside from Bill Ford and one or two other direct descendants of Henry Ford, the Ford family as shareholders were not deeply involved in the management or operations of the company and in fact many of them might be what are politely termed “trust fund layabouts.” That is, many of the existing Ford family members did little through their own efforts to contribute to the enhancement of the value of the Ford Motor Company nor any other personal enterprise they might be associated with and instead enjoyed a comfortable life of easy wealth and leisure thanks to the luck of being born into an inheritance.

Personally, I see no moral evil in that, though many people do. Some people will be rich and some people will be poor and the fact that some people are rich simply because they had a successful relative isn’t their fault. If anything, we should protect these privileges as a social obligation because the wealth they enjoy was rightfully created by one of their heirs and that individual, because they created it, has every right to do whatever it is they want to do with it up to and including giving it away to charity, giving it away to relatives or burying physical manifestations of it in a giant pit.

That being said, because it is not a moral evil for them to have it it’s also not a moral evil for them to lose it. They’re certainly not entitled to it and they don’t seem to have any real capability to make anything out of it beyond a means of personal amusement. Why Ford Motor Company should be “saved” to protect them from the follies of the world is a question with no objective answer. If it wasn’t them who owned this wealth it would be someone else, so why worry so much if their ownership claim dissolves in a pool of historical mismanagement and transfers to some other person or persons with a better idea of what to do with it? That sounds like progress, to me.

In fact, it sounds not just like progress, but like Thomas Jefferson. We might but repurpose a few words from his famous correspondence to have something rather fitting for this occasion, as seen here:

What signify a few fortunes lost in a century or two? The tree of economy must be refreshed from time to time with the wealth of trust fund layabouts & shiftless public shareholders. It is its natural manure.

Review – Corporate Strategy

Corporate Strategy: Tools for Analysis and Decision-Making

by Phanish Puranam, Bart Vanneste, published 2016

What is corporate strategy and how is it any different from business strategy? That was actually a distinction I hadn’t made in my own mind when I picked this title up. I was generally interested in exploring “strategy” in an economic or business competition sense and this book was one of many I selected for further research. It was a happy accident then to realize there is a difference and this book is all about explaining what it is and why it’s different.

Business strategy aims at creating competitive advantage in a firm-against-firm struggle within a given industry. It flows outward from customer behavior through organizational structure and management practice to policies and processes surrounding marketing, sales, production, distribution and customer service.

Corporate strategy aims at realizing synergies from the joint ownership of different businesses. Synergies can be realized between businesses competing in the same industry but with common ownership (and perhaps diverse geographic territories), the case of a “corporate HQ” utilizing economies of scale in back-end or administrative functions to lower their cost or raise their quality across the individual customer-facing businesses. Synergies can also be realized between businesses operating in distinct industries but where coordination between actors in these industries allows for new products or services to be bundled, consider a bank and an insurance company owned by one corporate parent which can then offer a full range of financial services to customers.

One interesting takeaway from the book is that all public equity investors who do not have 100% of their investments in a single company (ie, they own a portfolio of stocks) are engaged in corporate strategy. However, as the book advises, passive investors are not able to realize synergies which those in control of these businesses can through exerting influence over their management. So, a passive equity investor could have an insight about the unique value of owning a complimentary basket of businesses representing corporate advantage, but they do not have the means to act upon it unless they are able to successfully agitate for M&A activity or have enough resources to get voting control over the companies in which they can sway management to extract the synergies they’ve spotted.

Another concept that was interesting to me was the irony that by bringing businesses under common ownership, a corporation destroys its own best benchmark for valuation (ie, the individual market prices of each business) and thus it is trapped in a perpetual game of trying to evaluate whether it’s coordination of economic activity within the corporation is synergistic and creating value, or wasteful and destroying it.

Warren Buffett as a conglomerator par excellence is an interesting case because, at least nominally, he does not provide managerial oversight to operations of the businesses he owns and has never claimed he has purchased a business for synergistic reasons for corporate strategy. Rather, he purchases businesses ONLY because he considers them to be available on a bargain basis, that is, he thinks they are available for less than their intrinsic value.

The entire point of corporate strategy, according to the book, is to be able to pay market or “fair” prices for assets and businesses, but still realize a profit from owning them, because of the ability to manage or exploit them differently under a joint ownership structure. So, Buffett is NOT a corporate strategist, although he is a really great investor.

And if you can realize synergies AND buy at bargain prices (AND apply leverage safely…) then you are really cooking with gas!

One of the great ironies of the (public) business world is that many managers (they are hardly ever significant shareholders themselves) think they can spot synergies all over the place, which either they or their investment bankers use to rationalize their acquisition activity. But the data demonstrate that few synergies ever appear to be realized– acquiring companies usually overpay, their stock falls on the announcement of an acquisition and the target company’s stock rises. Further, these acquisitions are often followed years later by goodwill writeoffs or divestitures of the previously acquired business or assets.

On average, a corporate parent that divests a business increases shareholder value.

In fact, one of the strategic suggestions of the authors is the always be on the look out for someone who is a better owner of a business or asset than you (ie, willing to pay you more than it’s worth to you to continue owning it) and selling things seems to be one of the most reliable ways for corporate strategists to create corporate advantage. It’s a pity, then, that most corporate strategists are buyers, not sellers!

If some other corporate parent has even stronger synergies with a business than you do, you should consider divesting.

Divesting when you can, and not when you have to is usually preferable.

Imagine that, starting today, the two businesses would be moved into separate ownership and would be operated completely independently, with no communication or exchange of any kind between the two. How would the value of the businesses be effected?

If one thinks one is smart enough to beat the odds, the authors suggest four places to look for synergies from joint ownership and operations for corporate strategists:

  1. Consolidation, creating value by rationalization across similar resources from similar value chain activities by eliminating redundancies, affects mostly costs and invested capital
  2. Combination, creating value by pooling similar resources from similar value chain activities, such as combining purchasing to obtain volume discounts or acquiring a competitor then raising prices for customers, impacts either costs or revenues
  3. Customization, creating value by co-specializing dissimilar resources in order to create greater joint value, results in improved value in production or consumption and involves modification of resources, the transfer of best practices can create unique value
  4. Connection, generates value by simply pooling the output of dissimilar value chain activities, for example customers may value being able to buy a bundle of different products and services together, the product development of one business is being connected to the distribution channel of another

Here are some other major strategy risks that are common:

One common negative synergy is brand dilution, ie, does the brand apply? Another is complexity. Another is market rivalry, this is a significant concern in the advertising industry, where when two firms who serve rivals merge, the chances of keeping both their clients is low.

Governance costs act as taxes that eat into the potential benefits from synergies when they are attempted to be extracted. [ie, the price you pay to operate an acquired business effectively.]

When an autonomous business becomes a division within another, the incentives of the owner and managers are necessarily diluted.

Synergies likely to generate significant transaction costs are less likely to be successfully realized in arms length relationships between independent firms than under common ownership.

I particularly appreciated the discussion about the corporate advantage that can be achieved through thoughtful design of the organization and its management.

One should be able to read the corporate strategy of a company in its organization chart: what kinds of activities does the top management feel are essential to integrate?

While all organizational structures represent a unique combination, there are three “pure form” ways to structure the corporation and its management structure: by activity, by output, by user/customer.

The authors recommend that corporate strategists “Think about the multi-business corporation as a collection of value chain activities” and look for synergies accordingly. But, being economic entities, there are necessary tradeoffs to beware of with each choice:

Grouping similar activities together emphasizes economies of scale at the expense of economies of scope, whereas grouping different activities together does exactly the opposite.

Every grouping arrangement emphasizes certain interactions but excludes others, which show up as opportunity costs and bottlenecks.

Further, if the innovation literature and hundreds of years of business history haven’t beat it into your head yet, things change. That means that the “right” structure (the synergistic one) is likely to change over time. “No structure is permanent.” Corporate strategists should always be considering the possibility that the ideal economic structure for managing the company has changed in reflection of new competitive dynamics, customer tastes and habits or advancements in technology, culture and society. A good rule of thumb might be that the appropriateness of the corporate structure needs to be reconsidered every time a major acquisition or divestiture occurs.

There were two other nuggets of corporate strategy wisdom that stood out to me. One was that most multi-business firms have capital allocation decision-making on auto-pilot. Either every request gets granted, or every request gets denied, or every business gets to keep whatever it generates. The corporate strategist can grab some low-hanging fruit by being thoughtful about capital allocation decisions within the portfolio and providing a critical voice about whether capital should be redistributed amongst divisions or even outside the company (ie, dividend or acquisition activity).

The other was in the author’s description of the typical M&A process (which includes not just execution of the acquisition transaction but also successful completion of the post-merger integration process). The most overlooked, and final, step in the process is Evaluation, which “refers to a post-transaction review of what went right and wrong” and analyzes the economic impact of the transaction on the entire firm. Were synergies realized? In the amounts predicted? Did costs materialize that were surprising? Did any other kind of disruption or distraction that was not anticipated earlier occur during the course of the merger? From my personal experience, it is difficult for management teams to take the time to look into the rear-view mirror like this, and even harder for them to be honest about what they see!!

Notes – Corporate Strategy

The following are my unedited notes from my reading of Corporate Strategy:

Corporate strategy versus business strategy

Corporate advantage versus competitive advantage

Two ways of increasing competitive advantage:

1.) raise the price customers are willing to pay

2.) lower the price suppliers are willing to sell for

Maximizing corporate advantage may or may not be consistent with maximizing the competitive advantage of each individual business

Some businesses could give up competitive advantage in their business in order to enhance the competitive advantage of other businesses in the portfolio

Corporate strategy matters at least as much as the analysis of industry competition (implication for passive investment analysis)

A natural, minimal benchmark for a corporate strategist is a passive investor

Synergy is therefore the means through which corporate advantage is created relative to a typical investor who can select the same portfolio of investments

Portfolio assembly can be a corporate advantage in cases of private/restricted capital markets

By coming into existence, the multi-business firm in effect destroys its own best benchmark

The super-rich may treat their business group as their own mutual fund

Corporate advantage is defined in terms of jointly owning businesses and synergies in terms of jointly operating them.

While an investor could create corporate advantage, an investor cannot extract synergies.

For a corporate strategist to create corporate advantage over what an investor can achieve in efficient capital markets, there must at least be some form of synergy between two businesses in the portfolio

To find synergies, construct a value chain for each business/division and look for opportunities to coordinate or economize activity

Forms of synergy

  1. Consolidation, creating value by rationalization across similar resources from similar value chain activities by eliminating redundancies, affects mostly costs and invested capital
  2. Combination, creating value by pooling similar resources from similar value chain activities, such as combining purchasing to obtain volume discounts or acquiring a competitor then raising prices for customers, impacts either costs or revenues
  3. Customization, creating value by co-specializing dissimilar resources in order to create greater joint value, results in improved value in production or consumption and involves modification of resources, the transfer of best practices can create unique value
  4. Connection, generates value by simply pooling the output of dissimilar value chain activities, for example customers may value being able to buy a bundle of different products and services together, the product development of one business is being connected to the distribution channel of another

One common negative synergy is brand dilution, ie, does the brand apply? Another is complexity. Another is market rivalry, this is a significant concern in the advertising industry, where when two firms who serve rivals merge, the chances of keeping both their clients is low

Governance costs act as taxes that eat into the potential benefits from synergies when they are attempted to be extracted

When an autonomous business becomes a division within another, the incentives of the owner and managers are necessarily diluted

Synergies are likely to generate significant transaction costs are less likely to be successfully realized in arms length relationships between independent firms than under common ownership

A management services firm is a kind of non-equity alliance

The more mature and efficient the capital markets in which a company operates, the greater the pressure on the company to engage in diversification primarily on the basis of potential synergies between existing and new businesses

The CEO should be spending the shareholders’ money on entry into new businesses only to extract value that the shareholder could not by investing directly in such a business on her own

In the absence of bargains, passing the synergy test is necessary but not sufficient to pass the diversification test

If some other corporate parent has even stronger synergies with a business than you do, you should consider divesting

An active policy of looking for divestiture opportunities is sensible

On average, a corporate parent that divests a business increases shareholder value

Imagine that, starting today, the two businesses would be moved into separate ownership and would be operated completely independently, with no communication or exchange of any kind between the two. How would the value of the businesses be effected?

Divesting when you can, and not when you have to is usually preferable

Outsourcing often carries significant transaction costs

Think about the multi-business corporation as a collection of value chain activities

One should be able to read the corporate strategy of a company in its organization chart: what kinds of activities does the top management feel are essential to integrate?

Pure forms of organization: by activity, by output, by user/customer

Grouping similar activities together emphasizes economies of scale at the expense of economies of scope, whereas grouping different activities together does exactly the opposite

Every grouping arrangement emphasizes certain interactions but excludes others, which show up as opportunity costs and bottlenecks

No structure is permanent

Don’t forget about how to integrate activities while you’re thinking about ways to partition them up

Corporate management functions:

  • Treasury
  • Risk management
  • Taxation
  • Financial reporting
  • Company secretary
  • Legal counsel
  • Government relations
  • Investor relations

The goal of resource allocation in the portfolio is thus to push businesses further away from the origin toward the top and right, away from the investment threshold (pg 212)

One low hanging fruit for multi-business firms in terms of corporate strategy is to actually give thoughtful consideration to capital allocation decisions within the portfolio

In the M&A and Post-merger Integration process, Evaluation refers to a post-transaction review of what went right and wrong

On average, acquirers do not benefit (in terms of market cap) from an acquisition; most target shareholders benefit from an acquisition

The ICSA Company Secretary’s Handbook, resource for corporate management

Review – Leader Effectiveness Training

Leader Effectiveness Training

by Dr. Thomas Gordon, published 1977, 2001

Introduction

I find this book to be interesting as a potential “handbook of general management practices” and as such, I made extensive notes throughout the text as I read. There are many sections of the book that I copied in whole into my notes. My plan for this review, unlike other reviews focused on pithiness and synthesizing my impressions into a summary, is to keep more of these notes and direct transcriptions from the book in tact so that I have a good resource in the future.

What is leadership effectiveness?

How to influence people without using power is the key to leader effectiveness.

A revolution has started– a human relations revolution of great significance. People want to be treated with respect and with dignity; people are demanding to have a strong voice in their own working lives; people are less willing to be coerced and exploited; people want the right to achieve self-respect in their work and have work that is meaningful and rewarding; people are rebelling against inhuman working environments in very human ways — by jobhopping, absenteeism, apathetic attitudes, antagonism and malicious mischief.

While workplace regulation and government interference don’t help the capitalist or manager in this regard, the shift in workplace expectations is cultural and -psycho-intellectual-progressive (not political-progressive!) and gone are the days, real or imagined, of early industrialism in this country in which the business had all the power and could dictate, like a “captain” how would would be performed or else. Today, the dignity of the organization’s members is paramount to leadership effectiveness and great managers both a.) leave their associates feeling heard and understood and b.) offer them agreeable reasons to do the company’s work that serve their own self-interests.

Seems simple enough, so why does workplace and managerial conflict persist?

People come naturally to these built-in patterns of negative responses; they learned them when they were children. The leader inherits each group member’s “inner child of the past.”

[…]

Because group members at first perceive most leaders as probable controllers and dominators, that’s the way they will respond to her, even though the leader may have no intention of using power and authority.

It is vogue to ask of people to “leave your personal problems at home.” But this proves naive because it is the same person having problems at home who comes to work– there is no way to cleave one’s personality into two halves, work and personal. Further, people wish to believe that personality dynamics are mysterious or pertain only to events and developments occurring in the present, adult life. However, just as it is the same person at work and at home, it is also the same person who is an adult now but was a child in the past! A manager need not become people’s personal therapists, but they do need to understand that many of the negative, “childish” behaviors they witness in workplace conflict are in fact a result of unmet childhood needs and failed coping strategies developed in childhood adversity and trauma.

Being the leader doesn’t make you one, because leaders don’t automatically get the respect and acceptance of their group members; so in order to earn the leadership of their group and have a positive influence on the group members, leaders must learn some specific skills and methods.

How leaders acquire followers

There is a set of principles rooted in human evolutionary biology and the logic of economic scarcity that informs social organization development and leadership roles therein:

  1. Every individual is engaged in a struggle to survive by meeting needs and relieving tensions
  2. Means are necessary to survival
  3. Most means are acquired through relationships with other people; therefore people and the groups they form become the means of survival
  4. People seek out relationships in which others are seen as the means of survival
  5. People join groups with the goal of satisfying their needs and ensuring their own survival
  6. People follow a leader and permit them to direct their activities whom they believe will help them get what they need and want to survive

Organizational needs are primarily for increased productivity and efficiency, while the group members needs are sometimes those that motivate them to resist pressure for increased production and efficiency.

An effective leader cannot be only a “human relations specialist” nor only a “productivity specialist”, they must be both.

A job must provide opportunity for growth, responsibility, recognition and advancement if it is to be satisfying; it is not enough to simply remove dissatisfying items from a job.

Expecting people to show up for work just to earn a paycheck is not enough. People also want a sense of personal satisfaction and meaning from doing work they consider important and doing it well.

The principle function of a group leader is to facilitate problem-solving; in somewhat different times, it is to maximize productive work time and achieve mutual need satisfaction.

Effective leaders must behave in such a way that they come to be perceived almost as another group member; at the same time they must help all group members feel as free as the leader to make contributions and perform needed functions in the group.

Group members draw away from leaders who make them feel inadequate or lower their self-esteem.

When leaders achieve this “another member” status, they actually increase the contributions they can make to the group, because their ideas will get evaluated like those of other members.

An effective group leader, then, does not need to solve problems, but to see to it that they get solved.

A 6-step process for effective problem solving

  1. Identifying and defining the problem
  2. Generating alternative solutions
  3. Evaluating alternative solutions
  4. Decision-making
  5. Implementing the decision
  6. Following up to evaluate the solution

Observant leaders can use “signaling behavior” to become alert to the existence of a problem:

  • being unusually uncommunicative
  • sulking
  • avoiding you
  • excessive absenteeism
  • being unusually irritable
  • not smiling as much as usual
  • daydreaming
  • tardiness
  • looking downcast or depressed
  • being sarcastic
  • walking slower (or faster)
  • slouching in their chairs

Once alert to a problem, a leader can follow the problem-solving process to resolve it and thus allow the team member to return to their productive functioning within their organizational role.

As a rule, people don’t get down to the real problem until after they have first ventilated a feeling or sent some opening message.

It has not been an evolutionarily-successful social strategy for human beings to be directly confrontational. As a result, most people learn in childhood to show they are hurt or have a problem without specifying what it is upfront. This necessitates the leader engaging in an exploratory process to help the person with the problem feel comfortable revealing what their problem actually is.

The “helpee” usually will not move into the problem-solving process unless the listener sends an invitation– opens the door for the helpee:

  • “Would you like to talk about it?”
  • “Can I be of any help with this problem?”
  • “I’d be interested to hear how you feel.”
  • “Would it help to talk about it?”

Active Listening as a tool for building trust and leader engagement

Active Listening involves establishing equilibrium between the expression of the person needing help and the impression being received by the one trying to help them. Frequent and continuous feedback of the results of the receiver’s decoding is what “Active Listening” is all about. Listeners need only restate, in their own language, their impression of the expression of the sender. It’s a check: is my impression acceptable to the sender?

At least two ingredients are necessary in any relationship of one person fostering growth and psychological health in another– empathy and acceptance. Empathy is the capacity to put oneself in the shoes of the others and understand their “personal world of meaning.” Acceptance is feeling good about what a person is doing.

The 12 Roadblocks to Communication

There are 12 common roadblocks to effective, empathetic communication between leaders and followers and almost every leader makes the mistake of running into one of these roadblocks at some time or other in the course of carrying out their leadership duties.

  1. Ordering, Directing, Commanding
  2. Warning, Admonishing, Threatening
  3. Moralizing, Preaching, Imploring
  4. Advising, Giving Suggestions or Solutions
  5. Persuading with Logic, Lecturing, Arguing
  6. Judging, Criticizing, Disagreeing, Blaming
  7. Praising, Agreeing, Evaluating Positively, Buttering Up
  8. Name-calling, Ridiculing, Shaming
  9. Interpreting, Analyzing, Diagnosing
  10. Reassuring, Sympathizing, Consoling, Supporting
  11. Probing, Questioning, Interrogating
  12. Distracting, Diverting, Kidding

What makes these roadblocks ineffective tools of communication?

Implicit in these 12 categories of listener responses is the desire or intent to change rather than accept the sender, acting as vehicles for communicating unacceptance. A climate of unacceptance is very unconducive to personal growth, development and psychological health.

Listening helps keep the responsibility for problem-solving with the member. The 12 Roadblocks tend to grab responsibility away from the owner of the problem and deposit it in the hands of the leader.

Part of demonstrating acceptance is being willing to hear the WHOLE person, not just the part of the person we enjoy being around or working with. Feelings, even negative feelings, are part of everyone’s total reality and existence and will be a necessary part of an effective leader’s daily experience.

Contrary to the “feelings don’t belong here” belief, there is evidence that expressing feelings actually increases a group’s effectiveness and productivity. Openness in expressing feelings serves very much the same function for a group as pain does for one’s organism.

Leaders should treat feelings as “friendly”, not dangerous. Feelings should be welcomed because they are cues and clues that some problem exists.

Negative feelings can be quite transitory. People purposely select strong negative feelings as codes to communicate “I want to make sure I get your full attention” or “I want you to know how bad you’ve made me feel.”

However, don’t confuse the simple expression of a negative emotion as the start and end point of the problem to be explored. Sometimes people don’t know what the real reason is for their discomfort and need help finding it, and other times they just aren’t comfortable saying what it is.

People’s problems are like onions– they come in layers.

This is not unlike a child’s temper tantrum, and, as parents know full well, the best strategy is to wait for the feelings to dissipate.

Leaders do a lot of teaching– giving instructions, explaining new policies or procedures, doing on-the-job training. Yet very few leaders have received special training to carry out this important function.

Little or no learning is going to occur until you acknowledge the team member’s feelings and help him work through them somehow. Your teaching has to stop until you get evidence that he is again ready to learn. This is the most important principle of effective teaching. Just as you can’t be a leader without followers, you can’t be a teacher without learners.

Getting learners more actively involved and participating in the learning process is the mark of an effective teacher.

It’s also naive to believe that problems can simply be ignored or avoided.

The price unassertive leaders pay is that the problems rarely go away; they suffer in silent martyrdom or build up feelings of resentment toward the person causing the problem.

The difference between “I-Messages” and “You-Messages”

You-Messages carry a high risk of damaging relationships because:

  • they make people feel guilty
  • they may be felt as blame, put-downs, criticism or rejection
  • they may communicate a lack of respect for the other person
  • they often cause reactive or retaliatory behavior
  • they may be damaging to the recipient’s self-esteem
  • they can produce resistance, rather than openness, to change
  • they may make a person feel hurt and later, resentful
  • they are often felt as punitive

People are seldom aware their behavior is unacceptable to another. Their behavior is usually motivated only by a desire to meet their own needs, not by a deliberate intent to interfere with the needs of others. When you send a You-Message, you communicate “You are bad for doing something to meet your needs.”

I-Messages are less confrontational because they represent a plea for help from one person to the other. Most people are willing to be of service to others when asked for their help.

The Three Components of a Complete I-Message:

  1. a brief, non-blameful description of the behavior you find unacceptable
  2. your honest feelings
  3. the tangible and concrete effect of the behavior on you (the consequences)

BEHAVIOR + FEELINGS + EFFECT

When people resist changing, it is generally useless to keep hammering at them with subsequent I-Messages; what is called for at such times is a quick shift to Active Listening.

The “diagnostic model” is the fashionable management belief that a leader’s job is to figure out what kind of person each of their team members is and then to speak “their language.”

The assumption implicit in the diagnostic model is that it is the leader who assumes responsibility for producing changes in the group members, and the more leaders know about their team, the cleverer they will be in selecting methods for changing them. This is ultimately a method of manipulation.

This is the “language of control” versus the “language of influence” in the confrontive model, where the leader cares more about knowing how people feel than why they feel that way.

With the confrontive model, leaders need only understand their own feelings and how to communicate them in a nonblameful way; then they need to put listening skills to work so they and their group members can work out mutually acceptable solutions. This is simpler than trying to “figure people out” to manipulate them into doing what you want done.

The role of meetings for effective leaders

There are two kinds of meetings, each with a distinct purpose: informational and problem-solving.

Informational meetings are for such purposes as personal growth, continuing education, keeping informed about what other group members are doing (including the leader). Should problems arise, they should be put on the agenda for the next Problem-Solving Meeting. Problem-Solving meetings have 6 types, following the six step process for problem-solving outlined above.

An organization without many problems is one that is not growing, changing, adapting. Expect problems, and embrace them as vehicles to making organizational progress!

Leadership effectiveness requires regularly scheduled meetings for problem-solving and decision-making with your management team. “Show me an ineffective organization or group and I’ll give you a leader who either does not have management meetings at all or who conducts them poorly.”

Guidelines for effective management team meetings:

  1. Frequency of meetings; it is important to meet at the same time, day and place on a regularly scheduled basis, with or without the leader
  2. Duration of meetings; meetings should start and end at rigidly enforced times, and include a break if meeting for longer than two hours; it is better to have multiple meetings than one that is too long
  3. Priority of meetings; ideally the meeting should have priority over other organizational responsibilities and people should be prepared to be fully present during the meeting
  4. Alternates for members; if a member can not attend, he can designate an alternate with authority to act on his behalf
  5. Place of meeting; conference rooms with sufficient privacy, quiet, seating and comfort are preferable to offsite lunches or dinners
  6. Physical arrangements; white boards, chart pads and other note-taking instruments should be present, members should be seated and have tables for writing on and refreshments for relaxing; the meeting leader should not necessarily sit at the head of the table
  7. The recording function; the leader should not be the recorder as they must be free to perform other functions; the recorder can be a designated person or a rotating responsibility; the recorder should capture decisions, plans for dealing with unresolved problems, problems emerging from the discussion to be placed on future agendas, task assignments and follow-up actions; a brief formula is a statement of the problem and who is to do what by when; meeting notes should be distributed to attendees after the meeting
  8. Developing the Agenda; the group should own its own agenda, not the leader; the agenda can be collected and formed before the meeting or at the beginning; discussion should wait until the agenda is complete
  9. Establishing priorities for the agenda; the most critical items should be discussed first
  10. Rules for speaking; effective groups usually function informally; the leader can be most helpful not in setting rules, but in ensuring each attendee has a chance to provide input
  11. Kinds of problems appropriate for the group; typically appropriate problems are those which require data from the group to solve, and whose solutions require the group members to implement or which effect the members of the group
  12. Kinds of problems inappropriate for meetings; never use group time to solve problems affecting only some of the members, that are too unimportant for that level of the group, that require study and preliminary data gathering (without conducting this first), or that are outside the authority of the group
  13. Rules for decision-making; ideally, all members of the group should agree on the solution and the problem should be discussed until all members are able to voluntarily buy in; voting should only be used to help the group understand which direction members are leaning, not to settle upon the solution and make a decision; when time does not permit further discussion, decision-making can be delegated to one, two or three members acting as a subgroup
  14. Confidentiality of Group Meetings; the procedures of the group should be kept in confidence to encourage open sharing, and only the decisions of the group should be shared publicly, not how they were arrived at
  15. Disposition of Agenda Items; every agenda item should be disposed of by reaching a solution, delegating the problem for further study outside the group, delegating the problem to an individual or subgroup for a recommendation, being placed on the agenda of a future meeting, taking the problem off the agenda by the person submitting it, or having the problem redefined in new terms; no problem should be left hanging
  16. Record of the Meeting; notes should be distributed promptly and cover all decisions made by the group, the disposition of all agenda items and all task assignments with due dates including WHO does WHAT by WHEN
  17. Procedures for Continual Evaluation of Group Effectiveness; the group can improve the functioning of its meetings by periodically reflecting upon itself and evaluating its own performance by written or oral evaluation and feedback

Some leaders pride themselves on having a problem-free workplace. They ask and expect people to “forgive and forget” or, worse, to not bring up problems in the first place. They pay a heavy price for this attitude of enforced ignorance.

The absence of conflict may be symptomatic of an organization or group that is not functioning effectively– not growing, changing, adapting, improving or creatively meeting new challenges. The number of conflicts in groups (including families) is not at all indicative of how “healthy” they are. The true index is whether the conflicts get resolved and by what method they get resolved.

I have heard executives proudly describe their groups or organizations: “We’re just a big happy family around here– we get along, no problems.” I am always suspicious of such leaders, as I am suspicious of husbands and wives who say, “We’ve been married for twenty years and we’ve never had a fight.” Usually that means that their conflicts are not allowed to surface and be faced.

Beware also of team members who avoid bringing up conflicts in order to earn rewards and avoid punishment.

In relationships with leaders who rely heavily on reward and punishment, group members selectively send messages that they think will only bring rewards, avoiding messages that might invite punishment.

These leaders, too, believe they are operating without problems or conflict, but are usually unpleasantly surprised to learn something major has simply been hidden from them out of view!

It gets a lot of mocking treatment amongst pundits and the entertainment industry, but it’s nonetheless worth reiterating the The No-Lose Method of Conflict Resolution: we will work together to find a solution to this problem that respects both our needs. For organizations which fear reward and punishment-based leadership, this can be an effective means of building trust that problems can be talked about because they will be solved to everyone’s satisfaction.

An additional concept is the “Principle of Participation” which states that those who are responsible for helping to shape a decision, feel responsible for seeing that it works. Utilizing the PoP, leaders can avoid the temptation to dictate solutions to problems that are brought to their attention and instead get their team members involvement in finding a resolution that they will actively support.

The Periodic Planning Conference Concept

People who believe they ARE the organization will want to contribute to its success, this means people need:

  1. Work that is meaningful and provides need-fulfilling experiences
  2. Their ideas and contributions are valued and needed
  3. Guidance for how to grow and develop so they can enjoy the satisfaction of being more competent over time
  4. A feeling of freedom and self-determination through improving their own performance

The Periodic Planning Conference (PPC) is an instrumental practice in soliciting their ideas, providing guidance and giving them a sense of self-determination in improving their performance such that ultimately work becomes more meaningful and need-fulfilling because the person is creating their own work.

The PPC is an alternative to the annual performance appraisal and is instead a regularly scheduled conference, generally every six months, with each group member. It may be as short as a half hour, averages two hours but may involve several meetings stretched over a period of days.

Items for discussion:

  • Group member’s ideas for improving performance in the next six months
  • Ideas for developing new skills
  • Plans to institute changes in carrying out functions of the job
  • Discuss ways the group leader can help the group member accomplish their goals in the next six months
  • Discuss with group leader ANY problem or concern impacting their job performance, job satisfaction or future with the company

It focuses on FUTURE performance (what can be done) rather than PAST performance (what has been done). It has no scores and focuses on job functions rather than personal characteristics or qualities. It is a two-way conference.

The rationale:

  • It is the leaders’ responsibility to help the individual member improve their performance
  • Provides useful organizational by-products:
    • Identifying qualified candidates for each level of management
    • Providing means for systematic follow-up and development of people
    • Focus on job performance instead of personality traits (de-personalize management)
    • Help people to help themselves grow in the job and the org
  • Builds a relationship between leader and group member where free discussion can exist and problems can become visible and addressed
  • Focuses on the future, engages with positive behaviors to make improvements
  • Group members become more engaged in their work by suggesting solutions to their own problems
  • Provides an opportunity to resolve conflicts when they arise, creating a mutually rewarding relationship

Important assumptions to discuss and keep in mind during a PPC:

  • Companies face competition and must make constant progress to avoid being surpassed by competitors; for the company to grow, people must grow; most people don’t like standing still
  • There is ALWAYS a better way of doing things
  • No one is EVER working at 100% of capacity
  • Change, growth and modification are an inevitable part of effective organizations
  • People are strongly motivated to accomplish goals they set themselves, not goals set for them by others
  • People are happier when given a chance to accomplish more

Steps to prepare for a PPC

  1. Prepare your people
    1. Explain the deficiencies of traditional performance-rating systems
    2. Explain the rationale of the PPC and its assumptions
    3. Listen to the feelings of team members
    4. Influence them to try the new PPC system on an experimental basis
  2. Get mutual agreement on job functions; what is the team member expected to contribute to the organization? What do they do in return for their wage/salary?
    1. What do you do to contribute to the organization?
    2. What do you do that warrants the organization paying you a salary?
    3. Why does your job exist? What is it supposed to contribute?
    4. When you feel you are doing a good job, what are you actually accomplishing for the organization?
    5. Procedure
      1. Explain the definition of a job function as opposed to a job duty
      2. Ask the team member to develop his own list
      3. Developer your own list as the leader
      4. Review them together
  3. Get mutual agreement on how performance is to be measured
    1. Reduces misunderstandings
    2. Points out what data will be needed for the group member to evaluate their own performance

Conducting the PPC

  1. Set the date for the PPC in advance, preferably by 1 week minimum
  2. Ask your team member to prepare goals in preparation for the conference
  3. Provide an opportunity to ask questions about the PPC
  4. Explain that the focus of the PPC is on the future, not the past, and that the team member is expected to “carry the ball” in presenting goals
  5. Explain your own goals for the work group, so the team member understands the larger context

Potential questions to prompt the team member in preparing for the PPC:

  • What do you want to accomplish in the coming year?
  • In which of your job functions do you feel the need for improvement?
  • What are your goals for doing a more effective job?
  • What help will you need from the organization to attain this goal?
  • What is your program this year for improving your performance or the performance of your work group?
  • What benchmark will let you know that you have improved?

Key points to remember about the PPC:

  • It’s the team member’s ball. Get his ideas and feelings out first. Active Listening.
  • Remember to keep the discussion forward-looking, the past is gone.
  • When it’s your turn to talk, be candid, honest and open. Send I-Messages.
  • Secure agreement on the goals to be accomplished. Keep their number to a workable size. Use Method III.
  • As a leader you want to have a clear understanding of how your team member plans to reach each goal– what actions are planned.
  • Share ideas when you think there is an opportunity or need
  • Maintain a climate that is warm, friendly and informal, but task-oriented.
  • Setting goals is a commitment to change, some may resist sticking their necks out
  • Review and put into writing goals agreed upon, with a copy for each participant (and, can share with the group)

Implementing the decisions of a PPC

  1. Provide data needed to evaluate progress
  2. Provide material, financial or personnel resources required to accomplish goals
  3. Make yourself available as a counselor or facilitator of problem-solving (use the Six Step process)

Expected benefits of the PPC

  1. Team members respond to trust by becoming more responsible and less dependent
  2. Higher motivation in your team members
  3. Greater self-fulfillment and satisfaction from team members
  4. You will spend less time supervising and overseeing
  5. Witness continuous improvement in job performance; doing things better will become the norm

Deeper issues for leaders

Just as the adults before us are grown versions of the children they once were, and a person at work is the same person he is at home, leaders must reflect on how their choices and actions will extend and reverberate beyond the narrow confines of the workplace. These personal philosophical inquiries may be of benefit for the leader in contemplating his place in society at large and, more importantly, what kind of impact he wants to have on that society:

  • What kind of person do you want to be? How you behave as a leader will shape you as a person
  • What kind of relationship do you want? How you behave as a leader will determine the kinds of relationships you have with others
  • What kind of organization do you want? Organizations are made of people in relationships, so the kinds of people and the types of relationships they have determine the type of organization they form
  • What kind of society do you want? An open society requires open leaders running open organizations where the members are allowed to exercise their own talents and wills

Notes – What Is Jobs To Be Done (JTBD) Theory?

Several months ago, a friend of mine introduced me to “Jobs To Be Done Theory” (JTBD) via the free work of an entrepreneur named Alan Klement called When Coffee and Kale Compete. The JTBD framework is part of a growing base of entrepreneurial knowledge in the innovation space with key similarities to things like disruptive innovation (The Innovator’s Dilemma by Christensen) and Design Thinking practice. These approaches to entrepreneurship focus on empathy as a methodology for understanding the psychological motivations and needs of a potential customer rather than on their demographic characteristics or profile data. Solutions are designed to help the customer make progress rather than being built around features or functions; in this way business people might be surprised to find out that “coffee” and “kale” can be competitors in helping a person make progress on “get my morning started right”, whereas in the traditional product design space an entrepreneur might be more focused on “how to build a better cup of coffee for 18-35 year old women.”

As Klement says in the introduction,

I want to help my customers evolve themselves. I shouldn’t study what customers want in a product. I need to study why customers want.

He describes a JTBD as consisting of three elements:

  1. job is your struggle to make a change for the better
  2. The to be part denotes that overcoming that struggle is an evolutionary process; it happens over time
  3. The change is done when you overcome that struggle and have changed for the better; there are things you can do now, that you couldn’t do before

These jobs originate inside people, not inside things. They have to do with motivations or states of mind, that is, they are psychic not material in nature. And there are many potential strategies for helping a person to accomplish that transition from one state to another, which is why it is possible to envision disruptive solutions that redefine the categories by which product or service competition occur.

Klement helpfully summarizes some principles of JTBD theory:

  • Customers don’t want your product or what it does; they want help making their lives better
  • People have Jobs; things don’t
  • Competition is defined in the minds of customers, and they use progress as their criteria
  • When customers start using a solution for a JTBD, they stop using something else
  • Innovation opportunities exist when customers exhibit compensatory behaviors
  • Solutions come and go, while Jobs stay largely the same
  • Favor progress over outcomes or goals
  • Progress defines value; contrast reveals value
  • Solutions for Jobs deliver value beyond the moment of use
  • Producers, consumers, solutions and Jobs, should be thought of as parts of a system that work together to evolve markets

He works through a number of case studies to illustrate these principles. The methodology in each case study focuses on interviewing customers to get verbatims about how they reason about what problem they’re trying to solve and what solutions they’ve tried in the past and present. The emphasis is on revealed preference, determined by actions, rather than stated preference, determined by marketing surveys or hypothetical scenarios. By unpacking these statements rather than making assumptions, the entrepreneur can work to understand the mindset of the customer and how he sees himself struggling to make progress in a particular part of his life.

Klement later discusses two well-known case studies in the disruptive innovation literature, Kodak and Apple (iPhone vs. iPod), and reinterprets the story through the JTBD framework. With this, we see that Kodak’s business was annihilated not because they were complacent and didn’t see how technology would make their product irrelevant, but because their focus was on optimizing a particular solution (traditional film) for a particular JTBD rather than focusing on that JTBD itself and trying to ask what is the best way to help customers make progress on that in light of changing technology. In contrast, Apple took a very profitable product, the iPod, and thought about what kind of job it was fulfilling and what was a better way to do that job, the iPhone, rather than thinking about how to build a better iPod. This is because “no solution for a JTBD is permanent.”

One thing I found challenging in trying to digest this new framework was identifying the JTBD itself. Klement offers a few guidelines for deciding if you do NOT have a JTBD defined properly:

  • Does it describe an action?
  • Can you visualize somebody doing this?
  • Does it describe “how” or “what” and not why?

If the answer is yes, it is likely not a JTBD because JTBDs are emotional and represent psychic states. They are ways people experience their own existence and how they progress from one state of existence to another, they are not the thing that makes the progress themselves. Sometimes these JTBDs are exceedingly obvious. But a lot of the time, they’re subtle and can only be defined with confidence after a long, empathy-driven process of interviewing and conversing with customers to better understand what they think they’re trying to do. This is hard work! The JTBD framework is certainly not a quick or easy fix to the dilemma of how someone with an entrepreneurial bent can design great new products and services that meet peoples needs.

The book is chock full of case studies and deeper explanations of the basic components summarized above. I highlighted and underlined various meaningful passages that I won’t bother typing into these notes because they’d be too out of context to add clear meaning to a reader; besides, I read this book earlier this year and didn’t get to write up my notes until now, so I can’t even remember with some of them why I found them impactful at the time.

Alan Klement offers free consultation services and aspires to help people on a paid basis as well. I have spoken to him a number of times as I have read his book and attended the Design Thinking Bootcamp to share thoughts and ideas about the JTBD framework, especially as it applies to personal design challenges I am exploring in my own business. He informed me that he is working on a revised and re-organized 2nd edition which he plans to release soon. I will likely revisit the book then and consider publishing further notes and thoughts about the JTBD framework as I become more familiar with it and even work to use it in my own design challenges in the future.