Adding value to the bottom line

In this ever-changing marketplace,
the bottom line is not always the bottom line. Companies flourish in the long run when they operate under
clearly stated values and when decision-makers and subordinates share
those values.

All too often, executives, managers
and employees are pressured to
improve the bottom line in the short
term at all costs, says Randolph A.
Pohlman, dean of the H. Wayne
Huizenga School of Business and
Entrepreneurship at Nova Southeastern
University.

This can result in situations — as with
Enron, Arthur Andersen, WorldCom
and other companies in recent years —
in which the lack of focus on long-term
value creation creates difficulties.

“Solid customer service, accurate
reporting and an informed decision-making process suffer when executives
are not focused on value creation,” says
Pohlman. “Ultimately, the push for
short-term profits can sabotage the
very success executives are aiming for.

“Putting a companywide focus on
principles that lead to profit — rather
than short-term pseudo-profit — can
prevent another Enron-like situation.”

Smart Business spoke with Pohlman
about how CEOs can create and maximize value over time for their organizations and the importance of hiring the
right people.

How do CEOs start maximizing value for their
company?

Company decision-makers need to
begin with the values of their customers,
then measure the values of the organization against a laundry list of other interests, including distributors, unions, government regulators and the constantly
changing mores of the communities in
which they operate.

This is easier said than done. But
weighing all these interests when making decisions creates value over time.

Without creating value, you put your
business at risk of being replaced by
businesses that do.

Where should the focus be?

One key element is trust. Companies
spend time and money cultivating trust
within their organization and with the public. But that trust can be gone in an instant.

That was the case at Enron, where
financial scandal toppled one of the
most powerful energy companies in the
nation. The lesson? A company’s reputation can disintegrate if employees at
every level are not focused on creating
value over time.

So at its core this is a people issue?

It’s vital for executives to surround
themselves with people who are more
than just capable. Employees must also
share a company’s values and take full
responsibility for their roles in the company’s success. Employee seminars are a
good tool, but it starts with hiring the
right people, because we know that people’s values drive their actions.

How should the hiring process be used to
accomplish this?

When screening applicants for a job, in
addition to assessing levels of competency, interviewers — using behavioral-style
interviewing — should set up hypothetical scenarios to determine how applicants would react in certain situations.
Since past behaviors are the best predictors of future behavior, behavioral-style
interviewing can be quite effective.

For example, if you were searching for
a technical support specialist at a university, instead of just asking an applicant if
he or she knows how to fix a computer,
ask which would be a priority — a workstation in a classroom which malfunctioned minutes before a class was to
begin or a dean’s personal computer
which broke down. The correct answer
would depend on the circumstances and
what led to the greatest value creation.

Who should be ultimately responsible for
communicating the company’s values?

Once an employee is hired, managers
share the task of ensuring he or she
understands the company’s values,
which ultimately lies with the employee.
Teaching employees through formal
classes is helpful, but a good leader
leads by example and spends a lot of
time coaching employees.

A good leader understands there are
competing values and is able to balance
all of those when making decisions or
taking action. In the end, the focus has
to remain on long-term value creation.

RANDOLPH A. POHLMAN, Ph.D., is dean of the H. Wayne
Huizenga School of Business and Entrepreneurship at Nova
Southeastern University. A former senior executive at Koch
Industries, the second largest privately held company in the
United States, Pohlman authored a 2000 American Management
Association book, “Value Driven Management,” which explains
how decision-makers can create and maximize value over time for
the ultimate success of their organizations. Reach him at
[email protected], www.huizenga.nova.edu or (954)
262-5001.

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