How to impact Cash…
July 13, 2011
Cash is fuel. Without it, the engine of a business can’t run, the various moving parts can’t function, and eventually the business slows down and dies. But for businesses flush with cash, the engine keeps revving faster and faster. In a 1979 interview, Fred Smith the founder of Federal Express said, “People thought we were bananas. We were too ignorant to know that we weren’t supposed to be able to do certain things” (New York Times, January 7, 1979). Federal Express’s first two years were grim. In fact, on its first night of business, the fledgling company shipped only 186 packages onto its 14 Falcon jets routed to 22 cities. It was not uncommon for Federal Express drivers to dig into their own pockets to pay for gas. Despite Fred’s $84 million in start-up capital (another term for cash), Business Week reported that within a few months of delivering his first packages in March 1973, he was desperate for cash. The challenges and risks of starting a major global business were significant. Federal regulations were severely hampering his efforts to compete with the U.S. Postal Service. Suddenly, he didn’t have enough cash to cover a $24,000 jet fuel bill. So what did he do? He went to Las Vegas and played the blackjack tables. He won $27,000 and wired it back to headquarters. Fred’s company was the first American business to hit $10 billion in profits…and you know the rest of the story.
I wouldn’t recommend using this strategy (blackjack) to get cash for your business—or your life! But it’s tempting for people and businesses to take risks when they need cash now to ensure future survival.
Depending upon your role in your company, you will have different opportunities to impact cash. Just remember that fundamentally you can impact cash by increasing revenues (cash in) or reducing expenses (cash out). For example, if you’re in sales or marketing, you can help generate more cash faster by increasing sales revenue. If you work directly with customers, you can provide excellent service so that customers are more likely to continue buying from the company. If you’re in accounting, you might negotiate longer payment terms with suppliers (but be careful that you don’t negatively impact the relationship or give up discounts for early payment) to hold on to cash as long as possible. Or you might work to make sure more customers pay their bills on time or early. If you’re part of the financial management staff, you might be responsible for looking for better financing terms on loans for new equipment.
HR professionals need to be able to clearly articulate the relationship between their people strategy and the company’s financial strength. A study conducted by Cornell University suggests that employees that are managed with progressive HR best practices are more committed to the company, and that this commitment leads them to exhibit proper role behaviors (thus lower workers’ compensation costs, higher quality, and higher productivity) and not to engage in dysfunctional behaviors (that would result in shrinkage). HR professionals who see the big picture and know how to talk about their people initiatives within the context of strengthening the company’s cash position are seen as leaders in the HR field and earn a seat at the table of the big meetings.
No matter your role or your experience, you can work to contain expenses and reduce the outflow of cash by cutting down on all waste. You can get the most out of resources like computers. You can find ways to get jobs done more efficiently so that less money is spent. You can provide amazing service to those that drive revenues (you’re either selling or supporting those who do). If you can contribute to your company’s cash and cash flow, you’ll be valued as employee who practices business acumen – and you’ll help keep the motor running.
Business Acumen: 300% ROI
March 8, 2011
Recently a leader in the aerospace and defense industry hired MetrixGlobal (an independent Training ROI research firm) to evaluate their Building Business Acumen® course (that’s us). At the beginning of the course we asked the participants the same ten questions that we’ve been asking at the beginning of every course since 2002.
- How much cash is on hand?
- How much cash is generated from operating activities?
- What are total revenues (sales)?
- What is the net income?
- What is the net profit margin?
- What is your inventory turnover?
- What is your return on assets (ROA)?
- How much are sales growing year over year?
- How much is net income growing year over year?
- How much is earnings per share (EPS) growing year over year?
This little pop-quiz has probably been conducted tens of thousands of times to over 75,000 business people in over 20 different countries – and the results are pretty consistent: 80% of employees don’t know the answers. This client was no different.
So we got to work helping them understand why these measures are important, how to find the answers to these questions, and how to make better and faster decision based upon their understanding of these questions.
This sounds all very number-ish, but MetrixGlobal’s study didn’t evaluate a participant’s financial understanding, rather they measured how well participants applied what they learned and the impact these actions had on their organization.
The study found that overall two-thirds of participants applied what they learned, resulting in improved business performance, teamwork, collaboration, and communication. It went on to report that manager’s decision-making and people’s actions are now more tightly aligned to business priorities. The report estimated that these benefits produced more than a 300% return on investment (we’ll take that).
There’s no question that participants increased their financial literacy, but that wasn’t the end goal. The client was looking to…
- Increase bench strength
- Accelerate the development of their high-potentials
- Clearly communicate vision and strategy
- Address key business challenges
- Create alignment around their executive initiatives
They recognized business acumen as part of the solution and this study has validated their strategy. But the study also validates what we’ve been pushing for years, when you help employees understand the measures and teach them how to tap into the right people, processes, and corporate knowledge you get better results – you get people with business acumen – you get business leaders.
You can download the report here: MetrixGlobal Business Acumen Evaluation
Focus on your customer now… more than ever. Period.
February 14, 2011
Consumers are spending less, and therefore businesses can’t spend as much. And when businesses can’t spend as much, they have to make cuts to maintain profits (profits being the largest driver of stock-price…and stock price going up is what shareholders and boards are demanding). Customers recognize these cuts when their service diminishes (the business reduced headcount), store locations shut down (the business consolidated locations), or when products lack innovations and standout features (the business pushed projects out). These cuts impact a business’s long-term ability to be relevant to the very customers that they’re trying to sell to. Kind of a vicious cycle, isn’t it?
This cycle is justified by businesses who tell themselves,“we just have to white-knuckle our way through this in the short-term,” or “these cuts won’t really hurt the customer.” Others feel as though their hands are tied,“our shareholders are demanding cuts so we don’t have a choice.”
The temptation is to rationalize that a small cut here – a little slice there – won’t hurt a business’s ability to get and keep the customers that they desperately need to achieve sales growth. Such myopic thinking misses the point… the customer is the way out of this cycle.
So, what now? What can you do to help maintain the exact thing that will keep a company viable, a shareholder happy, and actually help a company grow with so little growing these days?
Focus on your customer now…
more than ever. Period.
Here’s one idea: On a monthly, maybe even weekly, basis take an inventory of your ability to exceeded your customer’s expectations by answering four questions:
- Who’s your most important customer?
Write it down and post it on your wall where you can see it. - What do they most want from you?
Write that down too. Share your answer to this question with your customer (or ask your customer to answer this question for you). - How are you doing currently?
Grade yourself on how you are doing on #2 and ask your customer to give you a grade too. See how close your assessment is to theirs. - What will you do from here?
Write-down 2 action items that you will do this month to improve your score (and if you don’t have answers for #2 and #3, then getting those answers should be your starting point).
Answering these 4 questions consistently will help you win in a time when there aren’t many winners. Today, it’s not enough to merely meet a customer’s expectations – you have to exceed them, and even anticipate them. As Drucker famously wrote, “The purpose of business is to create and keep a customer.”This adage is as true today as it has ever been, and it’s a sure-fire way to practice your business acumen to gain and sustain sales growth in a down economy.
People: The Center of Financial Success
September 1, 2010
Selecting the right priorities, understanding the laws of business (the Five Business Drivers), and knowing instinctively how to make money is one thing. But making it happen is something else. Leaders have to deliver results day in, and day out, over the long haul. And profitable and sustainable growth, according to Ram Charan, is what gives an organization energy, builds confidence, and generates the resources to go forward; but none of this happens without people (customers and employees).
Whether you’re a CEO, the head of your department, or just getting your business career started, you must be a leader of the business and a leader of people. Think about it, unless you’re a one-man or one-woman shop, you cannot possibly execute all of your priorities by yourself. A leader of the business knows what to do. A leader of people knows how to get it done. It’s no wonder that at the center of our Five Business Drivers model is People.
Jack Breen is an excellent example of an executive who recognized the importance of a strong people strategy. In 1978 Jack moved from the industrial sector to become the Chief Executive of The Sherwin-Williams Company, a position he would hold for more than twenty years. Jack began his tenure faced with major problems, sales figures had been steadily declining; increased market competition was taking its toll at both the retail and executive levels; and the company was fighting a takeover. After 112 years in the business, it seemed as though the company was on the verge of losing its identity.
“When I came to Sherwin-Williams, the company was in very dire financial straits,” said Breen. “I helped preserve the independence of the company and its determination to remain autonomous.”
There’s no doubt that Jack likely outlined priorities on sales figures, cost savings, cash generation, and other financial measures, but there’s a lesson to be learned from one of his top priorities… spend a full month working in Sherwin-Williams stores. Jack knew that he had to first learn the business, and the way to do this was to visit with customers, then talk to employees and learn from their eyes what they thought were the issues. Jack’s early efforts to connect with his customers and employees helped him sort out and sift out where to focus his energy.
So how did things work out for Jack? When he retired in 2000 the company had this to say about him, “His tenure has been marked by his unquestioned commitment to delivering quality products to the market place (customers), strong rewards to investors (customers & employees), and career enhancing and wealth building opportunities to employees (employees – duh).”
And the proof is in the numbers, under his leadership, the Company achieved twenty-two consecutive years of earnings improvement. Revenues grew from $1.1 billion to over $5.0 billion in 1999 and net income improved from $5 million to $304 million. Sherwin-Williams’ stock price (adjusted for five stock splits) increased from 62.5 cents per share to $27.00 per share.
While it’s true that business acumen has a lot to do with numbers and reports, don’t forget that people are at the center of cash, profits, assets, and growth. Those who understand how to exercise their business acumen to harness the efforts of other people will have an edge – an edge that will help them execute the right business priorities – priorities that will generate financial success.