Josh Harmsen

Josh Harmsen, principal, Solis Capital Partners

Often, business owners frame their own future in stark, binary terms — either I keep the business or I sell it. This binary thinking becomes most pronounced as business owners begin to contemplate retirement or an ownership transition. In reality, there are a variety of options that can span those two outcomes. For many business owners contemplating a retirement or transition event in the next five years, simply keeping or selling are suboptimal outcomes — either tying up critical value that could otherwise be used to diversify or foregoing the potential upside value in their business. In addition, these binary outcomes often overlook other important value drivers for business owners such as legacy, succession, well-being of current employees and the continuity of their current business. When evaluating which options to pursue, it is critical for business owners to first establish clear goals that define what they want to accomplish and when. This includes an honest assessment of their personal and professional desires and other value drivers (including those mentioned above). While these options each present unique opportunities and risks, they offer business owners a more tailored and optimized approach to achieving their future liquidity, retirement or transition objectives. Mezzanine debt recapitalization A mezzanine recapitalization will often allow business owners to seek partial liquidity or growth capital, without significantly diluting their ownership. Business owners can use the proceeds to diversify their holdings, while retaining equity control and the potential upside of the business. However, this option will add incremental, high coupon leverage to the business and could limit operational flexibility in periods of economic or business distress. ESOP — employee stock ownership plan ESOPs allow business owners a tax efficient roadmap toward partial or full liquidity while creating a mechanism for transferring ownership to employees. This allows business owners to maintain short-to-medium-term ownership and helps to preserve business consistency and legacy. It also rewards employees for their hard work and loyalty. However, once the ESOP has been established, it can significantly restrict ownership flexibility. MBO — management buyout MBOs allow business owners to achieve either partial or full liquidity while maintaining operational consistency throughout the organization. The MBO also rewards management’s loyalty and performance with the opportunity to acquire a significant stake in the business. However, MBOs often require management to partner with outside equity or debt providers — which can be time consuming and introduces new partners and influences on the business. Minority investment Minority investments from an outside investor (either institutional or individual) will allow business owners to seek partial liquidity, or growth capital, while maintaining a majority stake in the business going forward. The minority partner can bring valuable outside perspectives and skill sets to supplement your own. However, most minority investors tend to be only passively involved and often require onerous ratcheting provisions that could give them control if the business fails to meet operational objectives. Partnership transaction A partnership transaction will allow business owners to seek significant immediate liquidity while preserving some ownership and elements of control in the business going forward. Business owners can use the proceeds to diversify their assets, while maintaining potential upside in the business. The new partner can bring many valuable strategic and financial resources to bear to strengthen the business and pursue growth and value enhancement initiatives. However, new partners will seek elements of control and often utilize leverage to affect the partnership. Understanding the many options available to business owners will help lead to more tailored and optimal achievement of personal liquidity, retirement and transition objectives. Josh Harmsen is a principal at Solis Capital Partners (www.soliscapital.com), a private equity firm in Newport Beach, Calif. Solis focuses on disciplined investment in lower middle-market companies. Harmsen was previously with Morgan Stanley & Co. and holds an MBA from Harvard Business School.

David McKinnon – Why your company needs goals that are both clear and fluid in order to thrive

David McKinnon

David McKinnon, co-founder and chairman, Service Brands International

Most successful businesspeople agree with Benjamin Franklin’s famous quote when it comes to strategic planning, “By failing to prepare, you are preparing to fail.” A leader’s approach to strategic planning can vary greatly in length of time, measurement of progress, commitment and ultimately in the results.

I would argue that a detailed, strategic plan spanning longer than three years is too long to be relevant. Tactics identified too far in advance cannot keep up with the fast pace of changing technology, new information and changes in the economy to make the plan meaningful.

Here are my three essential elements to the strategic planning process:

Range of specifics

Leading an organization with an established three-year plan creates an environment where your internal team understands where you are going and what you must do to get there. In a franchise organization, this level of planning helps the franchisor foster confidence in franchisees that your plan is to drive revenue and profit — theirs and yours.

All three years of the strategic plan are not created equal. Here’s how plans are structured in my organization:

  • Current year: Have a one-year very detailed plan where everything is accounted for. Each objective must be specific and outline tactics, deadlines, human and financial resources involved and the method of measurement.
  • Year two: This plan has objectives with projected tactics and resources. The specifics will be incorporated during the annual planning process, where previous performance can be factored and available resources are clear.
  • Year three: Proposed objectives are the only details required for a three-year outlook. The annual objectives outlined help determine your course of action toward the previously stated five-year overall goal.

Monitor progress

Second to the importance of planning is tracking progress toward what you set out to accomplish. Quarterly, the board of directors assembles to receive updates from the divisions responsible for driving the collective success. The company’s leadership team has bi-weekly updates and each month, the entire organization gathers to understand the current status and how they can make an impact.

By building in regularly scheduled reviews, you are building the ability to be flexible into your business.

I’ve written about serendipity before as it relates to purchasing Mr. Handyman and being approached by an owner of PuroClean to join forces. Had our set plans been too rigid, we may have steered clear of these acquisitions due to imperfect timing and missed out on the chance to build our company’s holdings of in-demand professional home service franchises. There are times when it makes sense to adjust.

Embrace commitment

Teams must be completely committed to the annual strategic plan. It is the easy way out to simply change the plan when you don’t think you will make it. Finalize the plan, hold your people accountable to it and find ways to achieve what you set out to do.

Create incentives for your team to benefit when the shared goals are achieved. Years ago, we established a quarterly bonus program which has unified my team to work toward our revenue and store-count goals. Team members know what the company is trying to achieve, and they can also earn additional rewards for setting and meeting personal objectives in their area of influence.

As the assembly line inventor Henry Ford said, “If you think you can do a thing or think you can’t do a thing, you’re right.” Commit to your strategic plans and celebrate the successes of achieving them.

David McKinnon is the co-founder and chairman of Ann Arbor, Mich.-based Service Brands International, an umbrella organization that oversees home services brands, including Molly Maid, Mr. Handyman and ProTect Painters. To contact McKinnon, send him an email at [email protected]

2013 ERC / Smart Business Workplace Practices Survey: In pursuit of a better workplace

Pat Perry, President, ERC

Pat Perry, President, ERC

Workplace practices and policies ranging from innovative flexible work arrangements to the debate over the Affordable Care Act (ACA) were topics of this year’s ERC/Smart Business Workplace Practices Survey. Watching the discussions around these events unfold serves to reinforce the fact that the decisions we make as employers have the ability to significantly impact the well-being of both our individual employees and our organizations.

Now in its 14th year, the 2013 survey collaboration between ERC and Smart Business aims to shed light onto how employers in the region are effectively applying these practices, enhancing their workplaces and ensuring that they retain their top performers and attract new talent in the region.

So, whether you are pursuing the latest innovative trend or simply looking to meet the basic needs of your workforce, you are likely doing so for largely the same reason as the vast majority of other organizations in the area — to overcome the challenge of attracting and retaining the best and brightest employees here in Northeast Ohio.

Below are a few hot topics from this year’s survey. Also included are a few suggestions about how each can be used to help attract and retain top talent at your organization.

Benefits

Organizations are increasingly expressing concerns about health care costs with 42.6 percent of manufacturers and 28 percent of non-manufacturers reporting that they are “unsure” whether they will “‘pay” or “play” when the new ACA regulations take effect.

Two-thirds of organizations are choosing to “play” and will continue to offer health insurance to their employees. With many unknowns still on the horizon, try to understand the drivers of these costs for your business and explore new ways to manage them in the long-term. Investing in wellness initiatives helps manage costs and still allows you to provide the benefits that are most important to your workforce.

Safety

Creating a physically safe work environment starts with putting specific policies on the books that will keep employees safe on a day-to-day basis. We’ve been fortunate to see very low rates of violence in the workplace in recent years among participating organizations, 77.5 percent of which prohibit firearms and other weapons. But safety isn’t always as cut-and-dry as having a policy in your handbook.

While violence has declined, incidents of bullying have actually risen to a high point of 19 percent in 2013. Creating an environment that encourages employees to speak out if they experience or see inappropriate behaviors can be challenging, but results in a healthier, safer workplace.

Work-life-balance

Respondents are making this popular concept into more than just a catchphrase. This year, flexible work arrangements rose to 68.9 percent — the highest level seen in the past 13 years. While we understand not every job is conducive to off-site work arrangements like telecommuting or work-from-home, even manufacturing organizations have some options. In fact, manufacturers in this year’s survey allow their employees some degree of flexibility with 34 percent allowing part-time schedules and 36.2 percent granting flextime.

Social Media

While social media use is seeing growth on the whole, the most prominent role it plays in organizations is in recruitment strategies. Half of respondents report using some type of social media tool for recruiting. But this year organizations made it abundantly clear that not all social media tools are created equally.

When it comes to finding the right employees, organizations appear to be taking their recruiting responsibilities more seriously, with 90.9 percent sticking to professional networking sites like LinkedIn. Facebook ranked second with only half that number of users at 45.5 percent.

Sincerest thanks to this year’s survey participants and to Smart Business magazine for 14 years of survey collaboration. In addition, we would like to acknowledge the NorthCoast 99 winners over the past 15 years (www.northcoast99.org) who also demonstrate excellence in the attraction and retention of top talent.

 

Pat Perry is president of ERC, Northeast Ohio’s largest organization dedicated to human resources and workplace programs, practices, training and consulting. Reach him at (440) 684-9700 or [email protected] For more information, visit www.ercnet.org.

Joe Kuklis: Lobbying for your business

Many CEOs, CFOs, investors and executives do not realize the impact federal, state and local government have on their organization, or the importance of maintaining a comprehensive government affairs strategy as part of their annual business planning process.

As a lobbyist, I act as a professional guide for my clients to a variety of federal, state and local elected officials. When businesses choose to interface with the government, many consider hiring a lobbying professional who can help develop a government affairs plan — just as you would hire an accountant for an Internal Revenue Service audit or a lawyer for a court case.

If you choose to start the process on your own, it is imperative that you determine what you want to accomplish as a business. Do you want to become an eligible vendor with a specific government agency? Are you looking to expand your business or are you seeking public incentives to help you with hiring new employees or training your workforce?

Maybe you just want government “not” to do something that may negatively impact your day-to-day operations. You must identify what it is that you want and be clear about it when meeting with agents of government.

Here are some tips for lobbying the government:

Identify your targets

First, make a list of legislators who could aid in your effort. Start by looking at the local officials who represent you, your business and your business’ employees geographically. They have the greatest reason for supporting your requests. They want to see your business succeed and hire more of their constituents as you grow, so they should be your Tier 1 targets.

Your Tier 2 targets should include legislators who are on the committees that have oversight of your issues, legislators who are in leadership positions and who may have a little more political gravity than most, and legislators who have expressed a public interest in your activities.

These champions will help augment your efforts with letters of support, calls into agencies to help arrange meetings, and inquiries to secretaries and agency directors when you are not getting the answers you want from government.

Arrange a meeting

Once you have a meeting with a legislator, arrive prepared and practiced. Usually, meetings only last between 10 and 20 minutes, so make sure you and your group are aware of the issues you need to cover and stick to them. Know your facts.

However, if a legislator or their staff asks a question for which you do not have the answer, don’t make something up on the fly. Take note of it and get back to them. And, if a legislator challenges you on something, answer the question honestly, but not argumentatively.

Know who you are meeting with, their goals and where they stand on the issues before your meeting.

For example, not all legislators support drilling for Marcellus Shale gas and if you are a driller walking into their office, you may be in for a hard time. Make sure your requests are realistic for each of your visits and always remain professional.

Lobbying is a contact sport. The more you contact a legislator and develop a rapport with them, the more inclined they will be to help. Realize that in doing this you are not working alone.

At the end of the day, the lobbying industry acts as a forum for conflict resolution among divergent interests. Whether you decided to go it alone, or hire a firm, know that an honest, succinct, positive and respectful approach will be effective. And remember that a successful lobbying effort takes time, resources and preparation.

 

Joe Kuklis is a political lobbyist and head of Duane Morris Government Strategies. He has built a successful career lobbying for organizations and businesses of all sizes and has helped raise $500 million for clients ranging from Fortune 500 corporations to one-person startups. His book, “The Robin Hood of D.C.,” is an insider’s guide to the government marketplace for small, mid-sized and large businesses. Visit www.robinhoodofdc.com for more information.

Paul Hammes – Five tips for a successful divestment strategy

Paul Hammes, Divestiture Advisory Services Leader for Transaction Advisory Services, EY

Paul Hammes, Divestiture Advisory Services Leader for Transaction Advisory Services, EY

Companies taking a “wait-and-see” approach to deal-making as economic uncertainty persists may be missing out on growth and value opportunities.

Many companies have looked to divestments to offset cash and credit challenges and to free up capital to drive growth. But this short-term thinking is shifting as companies plan for the long term and take a more strategic approach to divesting.

In a recent EY divestment study that surveyed almost 600 executives, 77 percent said they planned to accelerate divestments within the next two years, and 46 percent are planning to divest in the same time frame. As companies signal an increased appetite for divestitures, it’s important they understand and implement the appropriate steps to achieve greater value for shareholders.

Evidence from our study, combined with our work with clients, has shown that there are five leading practices that companies should follow in order to execute a successful divestment:

Conduct rigorous and regular portfolio management

Review your portfolio regularly. Companies can assess whether assets are contributing to strategic goals or if capital can be better used for other purposes.

Companies that use divestments as a strategic tool to enhance shareholder value or focus on core business strategies, rather than considering them as a reactive move to free up cash or pay down debt, tend to improve their divestment results.

Consider the full range of potential buyers

There is an intense amount of competition from buyers today for good, high-quality assets and they’re ready to transact. Appealing to a broad group of buyers can garner a price that exceeds expectations.

Companies should think about the buyer universe for a potential asset sale differently than they might have in the past, considering potential foreign buyers, buyers within different sectors and private equity firms. Each buyer may have different information needs that require a different planning process.

Articulate a compelling value and growth story

Sellers should provide tailored information about how an asset fits with the buyer’s business to help achieve strategic objectives. Develop an M&A plan for the asset or provide a view of synergy opportunities to buyers.

Prepare rigorously

Effective ongoing preparation can instill buyer confidence. As a result, companies can better control the process and realize greater speed and value. Half of the executives surveyed admit that certain changes to the preparation process could have made a significant difference during divestment.

Understand the importance of separation planning

Probably the most crucial aspect of a divestment is separation planning, yet 56 percent of respondents identified a clear separation road map as the most complex part of the divestment.

Other separation challenges include decisions regarding the completion mechanism, tax planning, estimating stand-alone costs and negotiating transition services agreements.

Every day a company waits to evaluate its capital strategy, someone else is making a change and gaining an advantage.

In heeding these five key practices, companies can take a more strategic and ultimately successful approach to divestments to ensure they get the most value possible and grow the bottom line.

Paul Hammes is the Divestiture Advisory Services Leader for Transaction Advisory Services at EY. Reach him at www.ey.com.

Matthew Figgie and Rick Solon: Energy and the future

Matthew Figgie, chairman, Clark-Reliance Corp.

Matthew Figgie, Chairman, Clark-Reliance Corp.

Looking to the future, every business can benefit by seeing what the trends are in the energy market and how those trends ultimately may affect business. As societies advance, they will continue to need energy to power homes, business, industry, transportation and other services.

By assessing the trends in energy supply, demand and technology, companies can make strategic plans and long-term investments that underpin their business strategy. Several key findings are relevant for all companies to consider when looking at macroeconomic views of the energy markets. This view must not only look at today, but years in advance.

One basic theme is that the appetite for energy will grow immensely as everything will be more electronic and driven by where we get energy from. Companies need to assess their growth strategy to suit their present needs and future consumption.

Here are some fundamentals:

Population: The population between now and 2040 will grow by 25 percent. In 2040, we will have almost 9 billion people on earth and it is anticipated that 75 percent of the world’s population will reside in the Asia Pacific and Africa. A country’s working age population, people ages 15 to 64, represents the driver for its economic growth and energy demand. After 2030, India will have the largest population, and 70 percent of its population will be in the working age population range.

Rick Solon, President and CEO, Clark-Reliance Corp.

Rick Solon, President and CEO, Clark-Reliance Corp.

Energy: Efficiency will continue to play a key role in solving our energy challenges. Energy demands in developing nations will rise by 65 percent by 2040, reflecting growing prosperity and expanding economies. With all of this growth comes a greater demand for electricity.

Computers, smartphones, air conditioners, microwaves and washing machines — these things all depend on electricity to work. And as the number of homes and businesses across the world grows, so does the need for power. The fuels we use to power our world are also evolving, with natural gas and nuclear power generation in non-OECD countries increasing by 150 percent.

Residential: As economies and populations grow, so will energy needs. By 2040, residential and commercial demand is expected to rise approximately 50 percent.

This is being driven by developing countries. There are about 1.3 billion people today who do not have access to electricity, and while demand is anticipated to increase by 50 percent, energy use per person is actually declining thanks to energy-efficient buildings and appliances.

Transportation: Transportation-related energy demand will increase by more than 40 percent from 2010 to 2040. Most of this demand is driven by heavy-duty sources (freight trucks, buses, emergency vehicles and work trucks), but as personal vehicles are becoming significantly more energy-efficient, the demand will rise steadily.

More importantly, mpg will become more attractive, with anticipated mpg to increase from 27 to 47 mpg. The mpg increase is attributed to the use of improved engines and transmissions, along with lighter body and accessory parts, vehicle downsizing and increased use of hybrids.

Industrial: Industrial energy demand will grow by 30 percent. The fastest growing area for industrial demand comes from heavy industries. The most flourishing is the chemical industry.

These global considerations are important as you look to the future to find those things from a macroeconomic basis that should have an impact on your business. It is necessary to find a series of relevant statistics that will help you identify early warning indicators of what you should do in terms of product development and industry growth.

 

Matthew P. Figgie is chairman of Clark-Reliance, a global, multi-divisional manufacturing company with sales in more than 80 countries, serving the power generation petroleum, refining and chemical processing industries. He is also chairman of Figgie Capital and the Figgie Foundation, a member of the University Hospitals Board of Directors, corporate co-chairman for the 2013 Five Star Sensation and chairman of the National Kidney Walk.

Rick Solon is president and CEO of Clark-Reliance and has more than 35 years of experience in manufacturing and operating companies. He is also the chairman of the National Kidney Foundation Golf Outing.

Donna Rae Smith: Five proven habits to take control of stress

Donna Rae Smith, Founder and CEO, Bright Side Inc.

Donna Rae Smith, Founder and CEO, Bright Side Inc.

“The greatest weapon against stress is our ability to choose one thought over another.” — William James, American philosopher and psychologist

In an increasingly stressful world, William James’ remarks are just as accurate and relevant today as they were when he said them more than a century ago. We face countless stressful forces, most of them beyond our control — changing market conditions, economic uncertainty, new laws and regulations, and competition, to name just a few.

Confronted with circumstances and situations that we can’t change, our only hope is to affect what we can — our own thoughts and actions. Only by managing ourselves can we exert some control over our physical and mental health.

The first step is to change the way we think about stress. Rather than trying to take control by accomplishing more, we need a different tack — getting back to basics, with time-proven strategies like slowing down, truly connecting and living in the moment.

Why do these work? Because they tap into our fundamental need for purpose and meaning and help us remember what really matters. They allow us to put stress into perspective and truly gain control — not of what’s happening around us, but of ourselves.

Stay connected.

For most of us, staying connected means having around-the-clock access to our phones and email. However, nothing replaces face-to-face conversation, where you’re intently focusing on the person next to you and they’re doing the same. That kind of connectedness is a need we all share and it can’t be replaced with a screen or monitor.

Rather than constantly emailing the colleague next door, think about having more in-person, direct communication. Likewise, make a personal commitment to carve out meaningful time for the important people in your life.

Slow down.

The last thing you want to do when you’re stressed out is to slow down. But the reality is that even a short break for quiet and relaxation will reap you benefits tenfold.

Even 20 minutes to go for a walk on a tree-lined street or to sit on a park bench makes a difference.

Whatever you choose, making time to slow down won’t set you back — it will actually refresh you and give you more energy.

Have faith.

Having faith means different things for different people. If you have faith in a higher being, then you know it’s a source of strength.

Making time to read short meditations or prayers can center and rejuvenate you. Others find faith in themselves or in modern philosophers.

In either case, it’s important to find a source that fuels you when the going gets tough.

Find your fire.

A sure-fire way to relieve stress is to focus on something you truly love and feel passionate about. When you’re engaged in an activity you deeply enjoy, everything else recedes into the background.

Make time for activities you love and recapture that childhood enthusiasm.

Laugh it off. 

Research suggests that laughing has healthful effects. But we don’t need scientists to verify that laughing feels good. Let your guard down and laugh when the situation calls for it.

If you can’t laugh at your natural surroundings, then create a laugh break by watching or reading something you find funny. Or do an activity that’s sure to make you laugh — like miniature golf, bowling, an amusement park or karaoke. However you do it, make laughter and humor a routine part of your life, not a special occasion.

 

Donna Rae Smith is a guest blogger and columnist for Smart Business. She is the founder and CEO of Bright Side Inc.®, a transformational change catalyst company that has partnered with more than 250 of the world’s most influential companies. For more information, visit www.bright-side.com or contact Donna Rae Smith at [email protected]

Rodger Roeser: Get out of my social media sandbox

It’s a new marketing communications argument — which “discipline” should manage the new medium of social media? Should Twitter, Facebook and LinkedIn be handled by PR, advertising, HR or something else?

Agencies are springing up that specialize in social media management and any manner of blogging, tweeting, Facebooking and the like. It’s become a verb. We need more friends, more likes, more this and more that.

“Who” is managing your social media is far less important than “what” is being managed. You are trying to engage, to enlighten, to share. You are not trying to sell, although long term and softly that will be the ultimate reward. Social media, by its very definition, is controlled by those who are engaged and those who are sharing their thoughts and their views on any manner of issues or challenges we face as consumers or as businesses. So why the fight as to who “controls” it? Money and power.

The debate brews

Certainly, advertising agencies believe they should manage the discipline because it must be creative and part of your overall marketing mix of clever hooks and fresh ideas. However, your PR agency believes it should manage this as it is the master of sharing a story and providing clarity to your consumers in the written word. Both will invoice you fairly for their time, effort and strategy, and will provide good ideas and fresh thinking to drive traffic.

What you truly need is insight, and the confidence and ability to trust in yourself or that so-called “expert.” Who really “controls” social media? If you’re smart — it’s the 3Cs — clients, customers and constituents. You control your social media, whether you’re hiring a firm or you attempt to manage it in-house.

A good agency, regardless of being PR or advertising, will advise you to craft a solid brand and brand communications strategy, then utilize the virtually unlimited universe of social media and its many outlets to share that brand and tell your story. From there you engage your publics to some desired form of action or activity.

Manage the infinite?

Managing social media is, by my definition, attempting to manage the infinite. Rather, you must discuss what your end goal is and how that particular social media tactic will fit into, support and drive content from your overall marketing communications objective. It is not the answer; it is an option.

Should your business, regardless of what that business is, “do” social media? Of course! The question and the strategy is why are we doing social media and what exactly are we trying to achieve. How does it support our branding initiatives? How does it help our sales team? How does it make our candidate or our issue more accessible?

Social media allows you to fulfill the most basic and sacred tenant of public relations — the ability to have open, ongoing and one-to-one communications directly with your publics in an attempt to foster a shared conversation and engagement.

You want to hear from an unhappy customer so you can fix it, not spin it. You want to offer ideas and specials and promotions to those that value it most. You want your business to be the best it can be so you value the ideas, conversations and suggestions of your target publics and foster that.

Stop worrying about who manages your social media. Most likely it’s you. It is your choice to do or not do, to engage or let others talk about your business without your response. Social media happens regardless of whether you want it to or not. If you lack a social media strategy, it’s time to get a social media plan of action.

 

Rodger Roeser is owner, president and CEO of The Eisen Agency. He is also the national chairman of The Public Relations Agency Owner’s Association and works with other PR firms across the country to assist in their operations and profitability. He can be reached at [email protected]

Stephan Liozu: Managing this, that and the other thing

Stephan Liozu, Founder, Value Innoruption Advisors LLC

Stephan Liozu, Founder, Value Innoruption Advisors LLC

A 2010 global survey of more than 1,500 CEOs conducted by IBM revealed that 60 percent of top executives face an increased amount of complexity in their business. Seventy-nine percent of them expect an even greater level of complexity over the next five years and only 49 percent of them estimate that they will be ready for it.

The questions then become: Are you ready to face more complexity? How good are you at managing complexity? Can you leverage this complexity to create differentiation and competitive advantage?

Complexity can be good and bad at the same time. There are four types of complexity in business and it is important to break them down to be able to understand them and eventually address them:

Imposed complexity is coming from regulations and mandatory compliance guidelines both at industry and governmental levels. It is typically not controllable and manageable so it is best to prepare for it and find a way to minimize its impact on the business.

Inherent complexity is structural complexity, which is inherited and well rooted in the business. It can be addressed by making deep structural changes that might be painful but beneficial to the future of the business.

Designed complexity is based on purposefully designed strategies and programs to support the long-term vision for the firm. This complexity is based on managerial choices aimed at creating competitive advantage.

Unnecessary complexity is the result of legacy management design and structure that might not have been updated, eliminated or refreshed. It is unnecessary because it brings no value to the business and it solely exists because no one is paying attention to it.

As a leader of your organization and in the face of resource constraints, I highly recommend you start paying attention to these four types of complexity. Assemble a process and team to review complexity and engage in the design of strategies that will leverage complexity to bring differentiation to the market. Here are some quick tips on how to do this:

Design positive complexity to create differentiation.

This should be the main focus of your critical actions and priorities. Can you create complexity that differentiates your supply chain processes, your customer service experience levels and your digital marketing strategies without overwhelming your customers? Can you create unique value selling propositions based on unique internal designs and systems?

Quickly kill unnecessary complexity while reassigning resources and skills.

Unnecessary complexity might be inherited from legacy management designs or decisions. They might bring zero business value and need eradication. Be decisive and free up resources for something else.

Transform internal complexity into simple value propositions.

Remember that internal complexity has to be transformed into simple offerings for customers. If you propose something to your customers, do it by absorbing complexity and acting as a consultant for your customers.

Focus on pockets of value-creating complexity for customers.

It is all about value. Complex designs have to bring value to customers. If not, they should not be implemented. As a leader, make sure value is real and can be monetized through pricing. You might have the best supply chain management process, but will customers see the value in it and be willing to pay for some of the services?

Assign your best talent to manage complex problems and initiatives.

Complex problems need mindful problem-solving. The business world is changing in front of our eyes. What are you doing to change with it while remaining nimble, easy to do business with and focused on value? Are you leveraging complexity to create sustainable competitive advantage?

 

Stephan Liozu is the founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation, pricing and value management.  He earned a doctorate in management at Case Western Reserve University and can be reached at
[email protected] For more information, visit www.stephanliozu.com.

The value of being the man or woman behind the curtain

MIchael Feuer

MIchael Feuer

One of my favorite business books, which also made it as a Broadway play and a big-screen movie, is “The Wonderful Wizard of Oz,” written by L. Frank Baum in 1900. My hero in this story is not the young orphaned Dorothy, nor the Cowardly Lion, the desperately in-need-of-some WD-40 Tin Man, nor even the Scarecrow in search of a brain.

Instead it is the Wizard. To understand why the dubious Wizard is my favorite character, one must get past the portrayal of him as scheming, phony and at times nasty.

To appreciate the man behind the curtain, recognize that he is a very effective presenter, though at times this ex-circus performer behaved a bit threatening. OK, he was a jerk, but the point of this column is to take you down the yellow brick road on the way to the enchanted Emerald City and corporate success.

From this tale there is a lesson that one can say all sorts of things, not be visible, and yet still have a meaningful impact.

Another takeaway is that playing this role provides plausible deniability. This absence of visual recognition is particularly beneficial in negotiating when you, as the boss, use a vicar, aka a mouthpiece, to speak on your behalf. This allows you to have things said to others that you as the head honcho could never utter without backing yourself into a corner.

Another plus is you can always throw your mouthpiece under the bus if necessary, of course, with his or her upfront understanding that sometimes there must be a sacrificial lamb. This is not only character-building for your stand-in, but also many times presents an unprecedented opportunity for him or her to learn in real time.

Perhaps the Wizard was the first behind-the-curtain decision-maker, but today this role is used frequently in business and government. In a similar vein, the “voice” of Charlie from the well-known 1970s TV series “Charlie’s Angels” was always heard, but he was never seen.

Frequently there is much to be said for using anonymity to float a trial balloon just to get a reaction. Think about a son having his mom test the waters by talking to dad before the son tells him he wants to drop out of junior high school to join the circus. Maybe that’s even how our former circus-drifter-turned-Wizard-of-Oz got his start.

In the negotiating process it is important to have a fallback when the talks hit a rough patch by instructing your vicar to backpedal, saying that he or she has just talked to the chief and the benevolent boss said, “I was overreaching with my request.”

This also serves to build a persona for the boss-behind-the-curtain as someone who is fair-minded and flexible. All the while, of course, it’s the boss who is calling the shots and maneuvering through the process without getting his or her hands dirty.

The value of using this clean-hands technique is that it enables the real decision-maker to come in as the closer who projects the voice of reason, instead of the overeager hard charger who at times seems to have gone rogue.

It actually takes a bigger person to play a secondary role behind the curtain rather than always be in the limelight. It also takes a hands-on coach and counselor to maneuver a protégé through the minefields to achieve the objective.

However, accomplishing the difficult tasks through others is true management and the No. 1 job of a leader who must be a master teacher.

After you have guided a handful of up-and-comers a few times through thorny negotiations, you will gain much more satisfaction than if you had done it yourself, while engendering the respect and gratitude of your pupils. They in turn will have learned by doing, even though they were not really steering the ship alone.

The final step is to let the subordinate take credit for getting the big job done. This will also elevate you to rock star status, at least in his or her eyes. Soon those who you’ve taught will emerge as teachers too, and the big benefit is that you will populate your organization with a stellar team of doers, not just watchers.

So, forget about the Wicked Witch of the West and move backstage for the greater good of the organization.