Posted on Leave a comment

Business Basics 108 – Leaders

Sometimes a person can be a good manager but not a good leader, and vice versa. Managers work to produce order and stability, while leaders embrace and manage change. Leadership is creating a vision for others to follow, establishing corporate values and ethics, and transforming the way the organization does business, in order to improve its effectiveness and efficiency. Good leaders motivate workers and create the environment for them to motivate themselves. Management carries out the leader’s vision.

Leaders must communicate a vision and rally others around that vision. She should be open and sensitive to the concerns of followeres, give them responsibility and win their trust. To be a successful leader, she must influence the actions of others.

Leaders must establish corporate values, including concern for employees, customers, the environment, and the quality of the company’s products. When a company sets its business goals, it is also defining its values. The number one trait others look for in a leader is honesty, followed by the leader being forward looking.

Leaders must promote corporate ethics, including an unfailing demand for honesty and an insistence that everyone in the company be treated fairly. Ethical decision making is a key component of leadership.

Leaders must embrace change. The leader’s most important job may be to transform the way the company does business so that it is more effective and efficient, doing things better with fewer resources to accomplish the same objectives.

Leaders must stress accountability and responsibility. Leaders need to be held accountable and to feel responsible for their actions. A key word is transparent, presenting the company’s facts and figures in a way that is clear and apparent to all stakeholders.

Organizations need both leaders and employees who can help lead. Any employee can motivate others to work well, add to the company’s ethical environment, and report ethical lapses that may occur. There is no one set of traits that describe a leader, nor is there one leadership style that works best in all situations. Some of the more effective leadership styles include autocratic, participant (democratic) and free-rein leadership.

Autocratic leadership means making managerial decisions without consulting others. This style is effective in emergencies and when absolute followership is needed. This form of leadership is also sometimes effective with new, relatively unskilled workers who need clear direction and guidance. The participant (democratic) leadership style involves managers and employees working together to make decisions. Employee participation in decisions may not always increase effectiveness, but it usually increases job satisfaction. Organizations that value traits such as flexibility, good listening skills and empathy often favor the participant style of leadership. Employees meet to discuss and resolve management issues by giving everyone some opportunity to contribute to decisions. And in the free-rein style of leadership the managers set objectives and allow employees freedom to do whatever is appropriate to accomplish those objectives. This style is most successful in organizations in which managers supervise professionals, such as doctors, engineers and others. The traits managers need in such organizations include warmth, friendliness and understanding. There is a trend of more companies adopting this style of leadership with at least some of their employees.

Leadership is a continuum along which employee participation varies, from purely boss-centered leadership to employee-centered leadership. The best style for any particular organization depends on what its goals and values are, who is being led, and in what situation. For example, a manager may be autocratic but friendly with a new trainee, democratic with an experienced employee, and free-reining with a trusted long-term supervisor. There is no such thing as a leadership trait that is effective in all situations, or a leadership style that always works best. As such, a successful leader in one organization may not be successful in another. A truly successful leader has the ability to adapt her leadership style to what is most appropriate to the situation and employees.

Historically many organizations used the directing process of leadership, whereby leaders gave explicit instructions to workers, telling them what to do to meet the organization’s goals and objectives. This often included giving assignments, explaining routines, clarifying policies, and providing feedback on performance. Organizations that may still use this model include fast food restaurants and small retailers, where the employees do not have the skill or experience to work on their own, at least at first. More progressive leaders empower employees to make decisions on their own, giving employees the authority to make a decision without consulting the manager, and the responsibility to respond quickly to customer requests. Managers often resist the empowerment model, feeling reluctant to give up their decision-making power. However in companies that implement this concept, the manager’s role is less that of a boss and director and more that of a coach, assistant, counselor or team member. Enabling is the key to the success of empowerment, and gives workers the education and tools they need to make decisions. Without the right education, training, coaching and tools, workers cannot take on the responsibilities of decision-making roles that make empowerment work. Many high-tech and internet companies use the empowerment model.

Finding the right information, keeping it in a readily accessible place, and making it known to everyone in the firm together constitute the tasks of knowledge management, which is necessary in empowering employees. The first step of knowledge management is determining what knowledge is most important, after which the company sets out to find answers to those questions. Knowledge management tries to keep people from reinventing the wheel every time a decision must be made. Each person should ask what he still doesn’t know, and whom to ask for the information. It is as important to know what’s not working as it is to know what is working. The key to success is learning how to process information effectively and turn it into knowledge that everyone can use to improve processes and procedures.

Posted on Leave a comment

Business Basics 107 – Creating a Unified System

After planning a course of action, managers must organize the company to accomplish their goals, including allocating resources, assigning tasks and establishing procedures. The managerial heirarchy includes top management, the highest level such as the president and other key executives who develop strategic plans. This often includes the chief executive officer (CEO), chief operating officer (COO), chief financial officer (CFO) and chief information officeer (CIO), although it has become more commonplace to see companies eliminate the COO position.

The CEO is often also the company’s president and is responsible for all top-level decision making, including introducing change to the company. Her tasks include structuring work, controlling operations and rewarding people to ensure that everyone works to carry out her vision. The CFO is responsible for obtaining funds, planning budgets, collecting funds and such. The CIO is responsible to get the right information to other managers so they can make correct decisions, and is more important than ever to the success of the company given the crucial role that information technology has come to play in every business.

Middle management includes general managers, division managers and branch and plant managers who are responsible for tactical planning and controlling. Many middle management positions have been eliminated in recent years due to cost cutting and down-sizing, and the companies have given the remaining managers more employees to supervise. Middle managers are an important role to most businesses.

Supervisory management includes those directly responsible for supervising workers and evaluating their daily performance, and are often known as first-line managers or supervisors.

People are typically not taught to be managers, but due to their skill move up the corporate ladder and become managers. They tend to become deeply involved in showing others how to do things, helping and supervising them, and generally being active in the operating task. The further up the ladder she moves, the less important her original job skills. At the top of the ladder, the need is for people who are visionaries, planners, organizers, coordinators, communicators, morale builders and motivators. A successful manager must have technical skills, human relations skills and conceptual skills.

Technical skills involve the ability to perform tasks in a specific discipline or department; human relations skills involve communication and motivation and enable managers to work through and with people, and also include skills associated with leadership; and conceptual skills involve the ability to see the organization as a whole and the relationship among its various parts. Conceptual skills are required in planning, organizing, controlling, systems development, problem analysis, decision making, coordinating and delegating. First-line managers need skills in all three areas, but spend most of their time on technical and human relations tasks, such as assisting operating personnel and giving directions. On the other hand, top managers need few technical skills and spend almost all of their time on human relations and conceptual tasks. Thus a person who is successful as a supervisor might not be competent at higher levels and vice versa.

Staffing is a management function that includes hiring, motivating and retaining the best people available to accomplish the company’s objectives. To get the right kind of people to staff an organization, the company has to offer the right kinds of incentives. Many people will not work for companies where they are not treated well or get fair pay. They may leave to find a better balance between work and home. A company with innovative and creative workers can go from a start-up to a major competitor in just a few years. Staffing has become an increased part of each manager’s assignment, and all managers need to cooperate with human resource management to get and keep good workers.

More recently, social media manager has become one of the fastest growing careers. Social media continues to grow in importance as it presents the face and voice of an organization. Social media managers need to be curious, able to adapt quickly, and understand the role social media plays in the organization’s goals. They also need skills in writing, graphic and video design, public speaking, customer service and community engagement, behavioral psychology, analyzing social media metrics and budgeting. Being proficient in some of these areas is more important than being strong in all of them.

Posted on Leave a comment

Business Basics 106 – Management and Leadership

Part 1 – The Manager

In the past, managers were called bosses and did their jobs by telling people what to do, watching over them to ensure they did it, and reprimanding those who did not. While some managers still behave this way, the role has evolved. Most managers today are more collaborative, emphasizing teams and team building. They tend to guide, train, support, motivate and coach employees rather than tell them what to do. They use cooperation rather than order giving and discipline. They give their employees enough independence to make their own informed decisions about how best to get the job done.

Managers must practice the art of getting things done through organizational resources, including workers, financial resources and equipment. They communicate strategy, help employees prioritize projects, facilitate cooperation and ensure that processes and systems align with company goals. Managers have evolved from years past. They are skilled communicators, team players, planners, organizers, motivators and leaders.

Management is the process used to accomplish organizational goals through planning, organizing, leading and controlling people and other organizational resources. These four functions are the heart of management.

Planning includes anticipating trends and determining the best strategies and tactics to achieve organizational goals and objectives. Planning is a key management function because accomplishing the other functions depends heavily on having a good plan. Organizing is a management function that includes designing the structure of the organization and creating conditions and systems in which everyone and everything work together to achieve the organization’s goals and objectives. Organizations must remain flexible and adaptable to meet changing customer needs, and it is the manager’s job to follow these trends and shift accordingly. Leading means creating a vision for the organization and communicating, guiding, training, coaching and motivating others to achieve goals and objectives in a timely manner. The trend is to empower employees by giving them freedom to become self-directed and self-motivated. Controlling is a management function that establishes clear standards to determine whether an organization is progressing toward its goals and objectives, rewarding people for a job well done and taking corrective action as appropriate.

Posted on Leave a comment

Business Basics 104

Part 4 – Corporate Expansion

A merger is when two companies combine into one, whereas an acquisition is one company purchasing the assets, or assets and liabilities, of another company.

A merger might be of two companies operating in different parts of related businesses, putting their businesses together for an increased percentage of the supply chain. Or it might be two companies in the same industry combining in order to achieve economies of scale, or dominance in the market. Or it might be two companies in unrelated industries combining to diversify their business operations and investments.

Sometimes, with or without the owners’ approval, employees, management or a group of private investors will attempt to buy out the stockholders of a company, typically by borrowing the funds needed for such purchase. This is known as a leveraged buyout and, if successful, the employees, managers or investors, as applicable, become the new owners of the company.

The franchise is a specialized type of business operation. Some people are uncomfortable starting a business from scratch, preferring to join a business with a proven track record. A franchise agreement is an arrangement whereby someone with a good idea for a business, the franchisor, sells the rights to use the business’s name and sell its products or services to another, the franchisee, in a given territory. The franchisee can structure her business in any of the ways discussed previously, a sole proprietorship, a partnership or a corporation.

Advantages of a franchise include management and marketing assistance, personal ownership, nationally recognized name, financial advice and assistance, and lower failure rate. A franchisee usually has a greater chance of succeeding than a non-franchise start-up because she has an established product or service to sell, help choosing her phsyical location, and assistance in all phases of promotion and operation. Franchisors typically provide extensive training to their franchisees, so it is like having your own store but with consultants whenever you need them. Some franchisors also help with local marketing efforts rather than having its franchisees rely solely on national advertising. In addition, franchisees have a built in network of other franchisees with whom they can share their experiences and discuss similar problems they may be facing.

A franchise business is still your business , you are still your own boss, but you must follow more rules, regulations and procedures as required by the franchisor. With an established franchise, you get instant recognition and support from a product group with established customers nationally, or even internationally. Franchisees often get valuable assistance and advice from their franchisor, including in two of the most problematic areas for small business owners – arranging financing and learning to keep good records.

There are also disadvantages to the franchise model, including large start-up costs, shared profit, management regulation, coattail effects, restrictions on selling, and fraudulent franchisors.

Most franchisors require a fee for rights to the franchise, which might be as low as a few thousand dollars up to over a million dollars. In addition to purchasing the franchise rights, the franchisee typically pays a royalty either as a large share of the profits, or a percentage commission based on sales, not profit. Management assistance often has a way of becoming managerial orders, directives and limitations. Franchisees feeling burdened by the franchisor’s rules and regulations may lose the drive to run their own businesses. However, franchisees will often band together to resolve their grievances with the franchisor rather than wage their battles alone.

Unlike independent businesses, the actions of other franchisees impact each franchisee’s future growth and profitability. If fellow franchisees fail, this coattail effect could force the franchisee out of business even if her franchise has been profitable. In addition, unlike the owner of an independent businesses, who can sell her company to whomever she chooses and on whatever terms, many franchisees face restrictions on the resale of their franchises. Franchisors often insist on approving a new owner to ensure he meets its standards and as a measure of quality control. Many franchisors are small, even obscure companies that prospective franchisees know little about. Although most are honest, beware of franchisors that deliver little to nothing of what they promise.

Posted on Leave a comment

Business Basics 103

Part 3 – Corporate Social Responsibility

Corporate social responsibility (CSR) refers to companies as good citizens, concerned with the welfare of society and not just the owners. CSR is based on fairness, integrity and respect. While a company’s loyalty and obligation is to its owners, being a good corporate citizen can increase profitability in the long run. Companies with a good CSR reputation are cosidered ethical and often attract and retain better employees, enjoy greater employee loyalty, and draw more customers.

There are a variety of methods for CSR, including corporate philanthropy, corporate social initiatives, corporate responsibility and corporate policy. In addition to money, many companies allow their employees to volunteer during company time.

We know that companies have a responsibility to customers, pleasing them by offering real value. All things being equal, customers tend to favor the socially conscious company over its less socially conscious competitors. In fact, customers are often willing to pay more for goods from the socially responsible company. Thus CSR is also a tool to attract new customers. The question then becomes, how to make customers aware. Social media has become a low-cost, efficient way of conveying a company’s CSR efforts, allowing companies to reach and interact with a broad and diverse audience. However the company must live up to its hype or face dire consequences. If a company does not follow through on its CSR as claimed, it loses customers’ trust; customers do not want to do business with a company they don’t trust.

Many investors also believe that it makes financial sense to invest in companies engaged in CSR , and that ethical behavior adds to the bottom line.

Companies that treat their employees with respect usually earn the respect of their employees. This mutual respect can have a significant impact on the company’s profit. Retaining good employees saves money, is good for business and also good for morale. A disgruntled employee can wreak havoc on a business, thus loss of employee commitment, confidence and trust in the company can be extremely costly.

CSR has many benefits, each of which can increase a company’s profitability while also doing good for society as a whole.

Posted on Leave a comment

Force Majeure Contract Clauses

COVID-19 has caused us to take a deeper look at many of our business practices, including the physical workplace, business plans, and emergency contingency plans. Business contracts are another area that need review.

Business agreements routinely include boiler plate language, such as a force majeure clause. This language protects the parties in the event of an unlikely circumstance that would significantly impair either or both parties’ ability to perform, such as fire, war, flooding, earthquake and the like. While these clauses have rarely been relevant, the pandemic requires us to take another look.

One of the benefits of force majeure clauses is that they protect a party that is unable to perform from claims of breach of contract and related damages resulting from non-performance. The events listed in force majeure clauses differ from a breach of contract scenario because the party did not choose to not perform, rather circumstances beyond its control caused its inability and thus failure to perform.

If your business cannot perform under a contract due to COVID-19, either because of the virus itself or the government’s response to it (shelter in place orders, quarantine or other governmental restraints), look at your existing contracts to determine whether each has a force majeure clause and, if so, whether it is broad enough to include the current pandemic, and how the parties agreed to proceed in the event the clause is triggered. If there is no force majeure clause, or if it is not broad enough to cover COVID-19, there are other legal defenses that can help you, such as frustration of purpose and impracticability.

And while force majeure clauses and other defenses may be available, the best first strategy is to communicate with the other party to the agreement. Using common sense, issues related to non-performance or inability to perfom can hopefully be resolved without resorting to legal action.

Until now, virus, pandemic, quarantine and the like have not typically been listed in force majeure clauses. Many businesses are taking the time now to update their contracts to include such circumstances as a hedge against future unknowns.

Posted on Leave a comment

Business Basics – 103

Part 1 -The responsibility of businesses to their stakeholders: customers, investors, employees and society

Mover/entrepreneur Aaron Steed recognizes that “it [isn’t] so much about how we moved furniture, it was about how we made our clients feel.” This young man understands that the customers’ experience is critical, and in fact it is that same attitude that has led to the huge success of his moving company.

Aaron and his brother, Evan, of Meathead Movers, early in their young business, began moving women out of domestic abuse situations for free. They also implemented a policy of hiring student athletes: respectful, clean-cut, drug-free. These ethical entrepreneurs are moved by each call they receive from a domestic abuse survivor thanking them for turning something so bad into a celebration of moving to their new homes and new lives. And this, in turn, has led executives and employees of domestic abuse centers to recommend Meathead Movers throughout their local non-profit community, resulting in huge growth for the business.

Ethics is more than legality. A society gets into trouble when people consider only what is illegal and not also what is unethical. Ethics and legality are two very different things. Although following the law is an important first step, behaving ethically requires more than that. Ethics reflects people’s proper relationships with one another: How should we treat others? What responsibility should we feel for others? Legality is narrower; it refers to laws we have written to protect ourselves from fraud, theft and violence. Many immoral and unethical acts are legal nonethless.

We define ethics as society’s accepted standards of moral behavior; behaviors accepted by society as right rather than wrong. Many people have few moral absolutes, deciding on a situation by situation basis. They seem to think that what is right is whatever works best for them, that each person has to work out for himself the difference between right and wrong. This thinking may be part of the behavior that has led to scandals in both government and business.

This is not the way it always was. In the United States, for example, with so many diverse cultures, it might seem impossible to identify common standards of ethical behavior. But this is not true. Common statements of moral values include integrity, respect for human life, self-control, honesty, courage and self-sacrifice. Cheating, cowardice and cruelty are commonly deemed wrong. And of course there is Golden Rule: Do unto others as you would have them do unto you.

Ethics begins with each of us. It is easy to criticize business and political leaders for moral and ethical shortcomings. Managers and workers often cite low managerial ethics as a major cause of US businesses’ competitive problems. But employees also frequently violate safety standards, or goof off during the work week. Adults in general are not always as honest or honorable as they should be. Even though volunteerism is at an all time high, 75% of our population do not give any time to the community in which they live. Plagiarism is the most common form of cheating today. And while most teens believe they are prepared to make ethical decisions in the workplace, more than half of high school students admit they have cheated on tests in the past year. Studies have found a strong relationship between academic dishonesty and workplace dishonesty.

Choices are not always easy, and the obvious ethical solution may have personal or professional drawbacks. Aaron and Evan Steed were young entrepreneurs, scraping by, yet due to their sense of right and wrong decided to offer free services to domestic abuse survivors. Non-paying customers certainly pose drawbacks, especially for a new enterprise. But their ethical convictions not only lead them to doing good, it also resulted in them doing well.

It can be difficult to balance ethics with other goals, such as pleasing stakeholders or advancing your career. These three questions may help: Is my proposed action legal; does it violate any law or company policy? Is it balanced; am I acting fairly; would I want to be treated this way; will I win at the expense of another? And how will it make me feel about myself?

Remember, doing well by doing good is a good thing.