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A Few Thoughts About Executive Bonuses

Monday, November 16th, 2009

A Few Thoughts About Executive Bonuses

So now that we the people have given billions of dollars to financial institutions, the administration is talking about curtailing executive bonuses. If we have a financial stake in the results of these institutions, that’s not a good decision for us. If the institutions do well, we the taxpayers can be a big winner so we should want them to win.  I’m not saying that the current bonus system should be maintained. Absolutely not! Paying business leaders for piling up short-term financial wins only encourages manipulation and insures the eventual downfall of the institution. That’s how we got into this pickle.

 Robert S. Kaplan and David P. Norton published “The Balanced Scorecard” in 1992 and since then its teachings have been an important thought process for most businesses who want to insure long-term success. 

 The core of this school of thought is that there must be balance between focusing on short-term profit and investing for a longer strategic time period. There should be wins for all business’ stakeholders not just shareholders, but employees, business partners, and customers of the business. There must be balance between productivity and quality.  Any business can produce large amounts of a mediocre product, but making a first rate product takes a bit more effort.

 The key to insuring this balance is for each element to be carefully measured and economic rewards (bonuses) be made not for success only in one aspect of the business, but for balanced success. Simply, when you pay a CEO for attaining a short-term financial goal, it will most certainly do nothing for the long-term success of the organization. Kaplan & Norton would argue that you reward a balanced approach that recognizes the need for longer term success and represents the interests of all stakeholders, not just investors.

 So if we have a stake in the large institutions who we have “bailed out” to return to financial good health let’s not eliminate incentives, but rather let’s just insure that they are based on a balanced scorecard.  The American capitalism system thrives when success is rewarded financially. That’s a good thing, but let’s insure that the definition of success works today and tomorrow and that neither trumps the other and that innovation, quality, focusing on customer value and the employees and partners who make these possible are all included.

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What Causes Businesses to Fail

Monday, November 16th, 2009

Reprinted with permission of Evergreen Newspapers

What Causes Businesses to Fail?

When the economy turns down, there is always an increase in business failures. At the same time, there are always businesses which thrive even in tough times.  I have thought a great bit about why this dichotomy exists.

 I recently completed Jim Collins new book “How the Mighty Fail.” which studies the downfall of once mighty companies. He maps out a five stage formula to track the downfall and predict whether a turnaround is possible. Many smaller companies, don’t last through five stages, they simply go from viable to unable to make payroll as revenues are pushed down by a tough growth cycle.

 One of the key points Mr. Collins makes is that successful companies must understand what has made them successful.  That is, even in good times, what is it that attracts customers to the company?

 My observations convince me that if asked, “What is it that attracts customers to you and causes them to keep coming back” many CEO’s would struggle to give a clear answer.  Allow me some examples, please. Would the head of the post office know the answer, hmm probably not. How about Chrysler or Sears? I don’t think so. What about Southwest Airlines, Wall Mart or Fed Ex; you bet they know and they focus on the delivery every day.  

 So, the point is that all business owners should focus on maintaining whatever attracts and retains customer loyalty.   If you have the lowest prices and the best deals in your industry, raising prices is a formula for disaster. If you differentiate yourself with personal service, reducing your service offering will do you in. Would Wall Mart ever give up their absolute fixation on low prices or would Nordstrom lessen its clear focus on the customer and the service excellence strategy?

 In order to follow the simple idea of not giving up what makes you special, businesses must know what their differentiator is.  The weak economy may hasten business failure, but businesses that don’t understand and protect what’s special about them are on borrowed time anyway.

 As the economy improves, and business cycles dictate that it will, those businesses which strengthen what makes them special will recover faster and better.  The business cycle doesn’t define business success, the ability to deliver what makes a business special does.

 Jim Rohrer, Managing Partner of The Loyalty Partners is a business consultant and expert in loyalty

Posted in Customer Loyalty | 2 Comments »

Show Me The Jobs

Monday, November 16th, 2009

Reprinted with permission of Evergreen Newspapers

Show me the Jobs?

 When times are good and revenue is rising, employers are willing to add jobs. But whenever there is a dip in the economy, and growth is not there, the first way employers are able to cut variable expense is with job cuts. This time the economy is really bad and the cuts just seem to keep on coming. It’s clear that unemployment will top 10% for the first time since 1982. 

 Manufacturing jobs seem to have all but disappeared for good, and you might ask, “Will we ever start adding new jobs other than as fast food workers or Wall Mart greeters? 

 The truth is that this recession is tougher than most and employers will not be adding jobs until they see their revenues showing a strong pattern of growth.  Responsible businesspeople don’t like to implement layoffs any better than we like being on the receiving end, so they should be very slow to do anything which causes a repeat of the painful and expensive process of payroll cutbacks.

 New jobs will be created and although the timing is unclear, the need will insure that they will be added. Here’s how.

 This recession has really caused business leaders to take a long look at their enterprise. This has not been a normal business downturn. It has caused failure in businesses thought to be able to weather most recessions. Businesses have had to ponder how they will provide long term success with more scrutiny than normal. This introspection will uncover opportunities for long term improvement, and this process will cause individuals with special skills to be hired.

 Let me give a few examples. Let’s say that a company determines that their best opportunity for growth will be served by a better internet presence. They will find and hire someone who knows how to deliver that improvement for them. Let’s say that another company determines that they need strategically to bolster their service.   They will hire an experienced customer service manager and the resources to make the improvement.

 So the future jobs will be jobs that today don’t even exist, but are needed to strengthen the enterprise’s ability to get and retain customers. Look for employers to add some new staff, but they will do so only when they are convinced that the new person brings knowledge and proven expertise to help the company be more effective. A payback will be required and will likely be carefully measured.    

 The bottom line is that if you can’t demonstrate that you can help a potential new employer be better and more profitable, you aren’t going to get hired.   So here’s the headline. “If you add strategic value, you should be able to find a great new job.”  Employers have many choices, so if you want to be the one hired, you’ll have to bring some special promise.  “Ask not what the company can do for you; ask what you can do for the company.”

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