Thinking Differently

Thinking differently - the foundation for effective business leadership

by Joseph DiVanna

Joseph DiVanna is an independent author, consultant and public speaker focusing on the nature and behaviour of business.

His books include "Redefining Financial Services", "Thinking beyond Technology" and "Strategic Thinking in Tactical Times" as well as the upcoming "People - The New Asset on the Balance Sheet" and "Managing the Process of Global Business."

Having inspired scientists at NESTA's Crucible Labs this spring, we asked him to share some of his insights into setting up a successful business today.

Corporations large and small operating in all parts of the world have asked for my opinion on their strategic plans. Typically, strategies contain industry jargon repeated by senior managers but rarely defined for employees. Recently, I began asking the employees to define in their own words the meaning of words used by senior management and industry gurus, and this is what they told me:

• Reorganising: 'We need to conserve cash and though we claim people to be our greatest asset, they are jettisoned to improve the bottom line.'
• Realigning: 'We need more cash.'
• Restructuring: 'We are telling our investors we need cash.
• Right Sizing: 'We really need cash.'
• Organic Growth: 'We haven't a clue; maybe nature will solve our problems.'
• Mushroom Management: 'Keep everyone in the dark, feed them a load of manure, hope something grows.'
• Outsourcing: 'We have given up on trying to control cost, maybe someone else can do it.'
• Insourcing: 'We outsourced and learned a valuable lesson.'

Especially given today's competitive marketplace - so dominated by management jargon - how a company starts is critical for its longevity.

It's in the early days of the company that the founders determine how the organisation and underlying business processes will deliver unique value to customers. Starting out with a strong focus in the right areas will help a business' leadership avoid so many of the standard traps and pitfalls, complete with their own confusing vocabulary.

Here are a number of the key areas I advise companies to focus on and use as grounding for actionable plans.

Relationships

First, change your perspective. Regard the company as a provider of value over a long-term relationship. Jettison the notion of selling transactions and focus on relationship building. Relationships require investments and occur on three levels: customer, supplier and employee.

The initial customer relationship begins with marketing, which sets the customers' expectations. Remember that first impressions are lasting and customer relationships are built on managed expectations. A key learning is that top-line revenue growth comes from new customers, while bottom line profit growth results from selling to existing customers - as they know what you can deliver, lowering the cost of sales.

The second relationship is suppliers, a great source of cost savings. Companies often treat suppliers as a mere commodity, changing suppliers at the first sight of a better deal. However, better relationships are built by treating suppliers as you want your customers to treat you. Information sharing forges partnerships that result in the lowering of a supplier's operating costs over time- and thus ultimately reducing your cost of production.

Employees are at the heart of the third relationship. Unlike tangible assets, people are the balance sheet's hidden asset because their knowledge is not reflected in any accounting method. The cumulative aspect of employee knowledge, skills and experience, is rarely measured, although employees' value is reflected in essential business activities, such as the creativity used in developing a new product.

Forward-looking companies establish creative environments realizing employees need periodic investment to hone abilities. Mentoring is a cost effective way to leverage the firm's greatest asset. A mentor's primary investment is time, which in turn builds intercompany relationships between mentors and apprentices while raising the competence of the firm. Simply, mentoring compounds the assets of the firm with no outlay of capital.

Organisational culture

Typically, start-up companies reflect the knowledge and experience of the founding management team, who establish a baseline of activities and, by accident, form a corporate culture. (This is one of the key places where management jargon can be jettisoned or retained.) As an organisation's culture directly influences the productivity of the firm, it's ironic that this least costly means of multiplying the value-generating potential of employees is left to happenstance.

Start-up organisations frequently have cultures that are fun and energetic. Leaders of start-ups encourage risk taking and reward the quick conversion of opportunities into revenue generating activities. As the company grows and matures, however the start-up energy is lost because of two fundamental errors: the management team fails to pass on that entrepreneurial spirit to new employees, and the organisation becomes more formalized. A key learning is that high-energy fun cultures must be engineered like a product, rather than being seen as continuing on their own volition.

Learning and unlearning

If you are coming from an existing organisation, the first thing to consider is to forget all you know about how a company works. Most business processes have evolved over time reflecting years of pre-existing problems inherited from previous generations of technologies. For example, why do we go through the process of closing out the books each month?

In prior decades, end-of-month account took days because the figures generated by people using adding machines had to be checked and rechecked for accuracy. Today, advanced software provides management with instantaneous data plotting 200-day moving averages on revenues, costs and other indicators. Managers who continue to use monthly reports to run the business are in effect driving by looking through the rear-view mirror.

Remember: the key is to unlearn the preconceived aspects of business and rethink what you are doing by employing a blank sheet of paper when designing how your business will work. A simple technique is to break business activities down into processes. For example, most firms fit this three-step model: buy stuff, do something to add value, distribute to customers.

Adding value

The uniqueness of any firm is how it adds value to the customer. As a word of caution: Don't make the mistake of thinking that you have to be the only player in your market. Uniqueness in the marketplace is very short-lived. It's how you add value that will differentiate you from the competition.

Flexibility

A start-up company's success often begins fading when they introduce formal systems. Suddenly, the firm becomes less profitable, more difficult to work in and overall more bureaucratic. Business processes have two evolutionary paths, which often reflect the management team's business philosophy: proactive (plan-execute-replan) or reactive (execute-react-replan-execute). A proactive approach is a well-thought out modular design that enables quick changes in a controlled manner. Reactive organisations develop lots of sub-processes, which make the business extraordinarily complex over time.

To survive in today's competitive climate a corporation must be agile and quick to adapt to changing business conditions. In my experience, companies that endure the test of time learned to reduce bureaucracies and business process rigidity. Reactive companies play "follow the leader"; proactive companies lead their markets.

Here is a checklist to know if you are on track:

1. Develop your relationship-building skills;
2. Manage customer expectations;
3. Build supplier partnerships for lower operating cost;
4. Value your employees;
5. When in doubt, mentor;
6. Design business processes for maximum agility;
7. Avoid bureaucratic rigidity;
8. Focus on and continually challenge how your business adds value.

Thinking differently requires assessing new ideas and applying them intelligently. In my career, I noticed that ideas flow easily from people to people in an environment where management has shifted from an approval mechanism to a resource used to place ideas into various scenarios for consideration. Communicating plans, ideas, objectives and how external factors impact the firm's operations in understandable terms are essential functions of the management team.

In the final analysis, today's competition causes us to rethink the role of the management team. Senior managers must stop functioning solely as the point of control and become instead a consultative resource that is used by the organisation in adapting to new business conditions. As senior managers, we must always ask ourselves what makes our businesses fundamentally different from the competitiors'. We must also ask ourselves the vital question of how we can best serve and enable our employees.

Joseph DiVanna