The art of buzz: Reasons people talk about products and services and the best ways to seed discussionsWritten by Guy Kawasaki
Emanuel Rosen is the author of the national bestseller “The Anatomy of Buzz” (Doubleday, 2000) and “The Anatomy of Buzz Revisited: Real-life Lessons in Word-of-Mouth Marketing” (Doubleday, 2009). Prior to writing these books, he was vice president of marketing at Niles Software where he was responsible for launching and marketing the company’s flagship product, EndNote. He holds an MBA from the University of San Francisco. In this interview, he brings us up to speed on the techniques for generating buzz that every small business owner must master.
Q: Going back to fundamentals, why do people talk about products and services at all?
A: Buzzing is in our genes. We are programmed to share information with friends about where to find our next meal and about the tiger who’s about to have us as his next meal. We talk to connect, so when my daughter tells her friends about the new sweater she bought, she’s also establishing and maintaining her social ties. We buzz to talk about ourselves. If I tell you about a 10-day dog sledding trip in Alaska, I’m also telling you how adventurous I am.
Q: Which comes first, buzz or ink?
A: Usually it starts with some buzz that is followed by press coverage, which can take the buzz to a whole new level. Grassroots support can actually help you get ink — sometimes buzz is the best press release because it gives journalists this warm and fuzzy feeling that your story is for real and that there’s true excitement for it. Don’t get me wrong, if CNN calls you before your product is out, don’t tell them that you’re waiting for some grassroots buzz to build, but usually it doesn’t happen that way.
Q: Which comes first, buzz or sales?
A: There are some highly anticipated products — Halo 3 comes to mind — that get tons of buzz before a single sale. This is the exception. Since product recommendation usually starts with product experience, you need to have some people out there who use the product and hopefully get excited about it. How do you get these early customers? Part of it comes from word-of-mouth marketing methods, like seeding and sneak previews, but it also comes from traditional sales and marketing techniques. If your product is contagious in some way, then these early users will start buzzing about it.
Q: What are the essential elements of seeding a product?
A: The key point to understand is that although we’re all connected to each other, information about new products rarely spreads like a wild fire. Information tends to get stuck because we live in somewhat isolated social clusters. To accelerate buzz, companies seed their product in many different clusters. The ideal seeding campaign is done on a large scale and lets people have a firsthand experience with the product. You want to reduce the price barrier as much as possible, so the product is given for free or at a reduced price.
Q: How do you seed a website or free service?
A: The good news is that the price barrier doesn’t exist. The bad news is that the thing you’re seeding is less tangible. The basic idea is the same. You identify clusters of people by geography, area of interest, by academic discipline or whatever other classification makes sense in your case. You then approach some people in each cluster trying to engage them with the service. This is a challenge that is shared by other products. The fact that a publisher seeds the market with advance copies of a book doesn’t guarantee that people will read it. But with some follow up and encouragement and some buzz from fellow users, some more people eventually try the product and start buzzing about it too.
Q: What are the characteristics of a contagious product?
A: The best buzz comes not from publicity stunts but rather from the product itself. A product or service that makes you say, ‘Wow!’ when you use it for the first time is the classic contagious product. Other examples: products that evoke strong emotions — “The Blair Witch Project” — or reward you for talking about them — Facebook.
Products that are visible can be contagious as well — think of the first time you saw someone with an iPod. Even abstract ideas can become contagious this way. The idea of living with cancer was translated into the LiveStrong yellow wristband, which started millions of conversations about the topic.
Q: What can stop the spread of buzz?
A: Since I just mentioned LiveStrong, let me tell you about an interesting study. A research team at Stanford sold LiveStrong wristbands to students who lived in one dorm on campus. A week later, they started selling these wristbands in a neighboring dorm that had a reputation as a ‘geek’ dorm with a stronger academic focus.
What happened once the ‘geeks’ started wearing the wristbands? A week later, the research team measured a 32 percent drop in students wearing the bands at the first dorm. So sometimes, when we detect that ‘the wrong people’ are using your product, we stop using it and buzzing about it. This is true especially for products that have to do with our identity.
The most common forces that block buzz are noise, inertia and forgetting. We’re distracted by competing messages, we like to stick to ‘the good old way’ of doing things, and we forget what our friends told us. It is one reason why buzz needs to be accelerated. Even delighted customers might forget about your product and run out of opportunities to talk about it.
Q: What should you do if someone who has never used your product is bad mouthing it?
A: One of the things that surprised me most as I was working on the new edition of my book was that this type of negative buzz is quite common. One study found that 30 percent of negative word-of-mouth was by people who never owned the product. If you can identify the person who’s bad mouthing your brand, you might want to let them try the product. The problem is that you usually don’t know who they are, which brings us to another reason for why word-of-mouth marketing is so important. You have to counterbalance this constant trickle of negative comments with honest, positive recommendations from happy customers.
Q: What should you do if someone who has used your product is bad mouthing it?
A: First, listen to what they are saying. Our natural tendency when we’re attacked is to fight back, but negative comments may come from an actual bad experience. This gives you an opportunity to do two things. Solve that customer’s problem, which will often turn her from a detractor to a promoter. Even more important, it may help you identify a problem in your system, fix it and reduce negative buzz from others.
Q: Who is more likely in these Internet days to talk about your product: someone who’s had a good experience or a bad one?
A: There are two types of bad experience. There’s ‘I didn’t like this hotel too much,’ and there’s ‘The guy at the reception insulted me when I asked for towels and then sent up a dirty one.’ Frustrated customers are very likely to share their experience. However, it turns out that most buzz among consumers is positive. This may seem like a contradiction, but it has some simple explanations. One of them is that most of our experiences as consumers are actually positive.
Q: What is the role of old-fashioned advertising these days?
A: It is fashionable to say that advertising is dead, but I don’t agree. Very few products can live on buzz alone. Advertising can help a lot — at least good advertising can help a lot. First, in creating awareness and building the pool of people who can buzz about the product. Second, a good ad can prompt me to tell my friends about the product. Third, a good, authentic ad that brings in real people can stimulate buzz.
Q: How has technology changed buzz and word-of-mouth marketing?
A: It hasn’t really changed what we talk about. We still talk about ourselves, we brag, we seek advice, we gossip, we connect. The Internet’s biggest effect is that it accelerates buzz. In addition, it doesn’t only let us tell our friends about the products we use, but also lets us show them these products through videos and photos. It has enabled aggregation tools such as Yelp or TripAdvisor. In essence, it gives more people more opportunities to share information with others, which directly translates to more buzz.
Q: How can a company effectively measure the buzz it’s generating?
A: The simplest method is to ask your customers how they heard about you. You can measure the daily mentions you get on blogs and on Twitter. You can supplement this with traditional marketing research to learn what customers who don’t use these services are saying. Whatever method you choose though, you need to measure on an ongoing basis, if you want to detect any effects. Companies such as ChatThreads, The Keller Fay Group and Nielsen Online provide buzz measuring services. WOMMA, the Word-of-Mouth Marketing Association, offers lots of resources on the subject.
Q: Do you believe that there are key influencers who companies should focus on because of their insight, power and prestige — that is, an ability to lead a market as their wisdom trickles down?
A: The importance of influencers varies by industry. I suspect that they are more important in the pharmaceutical industry than in the yo-yo industry. Regarding the ‘trickle-down’ theory — this is not the way that buzz flows — especially today, buzz flows in all directions. I use the term hubs to describe people who talk more than average, and I make a distinction between social hubs and expert hubs. Both can definitely help a company spread the word, but companies should encourage everyone to talk, not only hubs.
Q: Where do you draw the ethical line on generating buzz and word-of-mouth marketing?
A: One key idea here is disclosure. Word-of-mouth marketing is not about tricking people. It’s about openly inviting them to try the product and talk about it. WOMMA offers a code of ethics that can help. When you’re trying to build buzz, you want to push the envelope and think outside of the box. And when you look for original ideas, you can’t police your thoughts. But after the brainstorming, you have to change your attitude dramatically. This is best done the morning after — over some strong coffee. Think again about your wild new idea. Ask other people what they think. Ask your customers and people in the community if you are crossing the line.
Guy Kawasaki is the co-founder of Alltop.com, an “online magazine rack” of popular topics on the Web, and a founding partner at Garage Technology Ventures. Previously, he was the chief evangelist of Apple. Kawasaki is the author of 10 books including “Enchantment,” “Reality Check” and “The Art of the Start.” He appears courtesy of a partnership with HVACR Business, where this column was originally published. Reach Kawasaki through www.guykawasaki.com or at firstname.lastname@example.org.
There’s a classic line from the 1970 movie “Love Story” that has become a part of our popular culture. In the drama, the dying heroine played by Ali MacGraw says to her husband, played by actor Ryan O’Neal, “Love means never having to say you’re sorry” as he apologizes for his anger. It is certainly a memorable and tear-jerking line, but is saying, “You’re sorry” all that bad if it can soothe a wound caused by someone speaking or acting out before thinking?
Disagreements and anger are a reality in the workplace and in life in general. Various people react in different ways when under pressure. Some lose their cool completely and say things they instantly regret, while others launch into tormenting the perceived offender with the silent treatment. No matter the technique used to punish, all of these methods quickly become tiresome and, more importantly, adversely affect the workplace.
Too frequently in the work environment, many people just can’t suck it up and utter the two simple words, “I’m sorry,” even when they know they’re dead wrong. It’s not a macho thing either, as women don’t behave much differently when they feel put upon. What’s a boss to do when this stubbornness becomes problematic?
In a word: intervene. When not controlled, these unreasonable, obstinate antics can become time-consuming and disruptive. It could all start with an impetuous negative e-mail or a less-than-mature voice mail left in the heat of battle that cascades into a futile distraction, as otherwise effective and seemingly sensible employees act out as if they’re in a 20- or 30-year time warp, behaving as if they’re back in the third grade rather than adults in the workplace.
The most expeditious method that works with either the protagonist or antagonist in an office drama is to call a spade a spade, so to speak, and get the feuding parties together and cut to the chase, making each person agree to bury the hatchet but preferably not in each other’s skull. If employees’ anger management issues are left to fester, they can easily result in other people in the same work environment taking sides, and in short order, you will find yourself in the midst of a Civil War. The only thing guaranteed when this occurs is that there will be casualties. It is incumbent on the ruling manager to make sure that the company doesn’t wind up as the victim, incurring a loss of productivity and causing everyone around the two factions to feel as if they’re walking on pins and needles.
While many times it would be easier for the boss to ask one of the warring participants to approach the other to work out their differences, this tactic just takes too much time and the outcome can be iffy. It really doesn’t matter who is right or wrong but that the nonsense is stopped dead in its tracks. The best way to accomplish this is to make it more than abundantly clear that anger in the workplace is a nonstarter and could be a career-inhibitor.
Allowing employees to exhibit a lack of civility will cause a domino effect that will lead to no good. Civility does not just apply to peers. Instead, it’s applicable to all who must work together, including superiors, subordinates and even fellow board members. Don’t confuse civility with agreeing or disagreeing with someone. It also doesn’t mean one has to believe that someone is effective in his or her role. Instead, what must be required is that those within an organization, no matter what level, simply take the higher road and respect not necessarily the person but the role and make the assumption that everyone has a part in working toward shared goals, until it is proven otherwise.
Once everybody knows the rules of engagement, many times the negative engagement suddenly ends and it’s back to business as usual. When that doesn’t happen, it’s time for offenders to be forced to go to their respective corners so as not to do each other or the company any more harm.
To promote coexistence when no one wants to take the first step and say, “I’m sorry,” it’s up to the adult in the room — and that would be you, the boss — to step into the fray with your whistle to call a permanent timeout to these types of disruptive shenanigans.
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at email@example.com.
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Launching a new venture is probably one of the most thrilling moments for any entrepreneur. It’s a birth that often brings forth a long-standing dream for the founders and is steeped in joy, pride and egotism. However, for many new captains of industry, the dream vanishes like smoke shortly thereafter. In fact, just half of all businesses survive the first five years, and only one-third survive 10 years, according to U.S. Small Business Administration statistics. Thus, it’s worth investigating why projects fail.
In a large majority of cases, the business owners failed to raise sufficient capital to fund the labor, marketing, taxes, insurance, legal expenses, bookkeeping, supplies and costs of goods for the business. Oftentimes, they underestimated expenses and overestimated how quickly revenues would increase. In other cases, they knowingly entered the market with insufficient cash because of limited credit and savings.
Other failures are caused by an implosion from within. Specifically, the founding partners reach a point at which they disagree on how to build the business and then fail to come to a consensus that leaves all parties feeling invested in the project. Or the business develops naturally in a way that calls for the founding partners to take on roles they don't want to assume. In either scenario, the remaining partners must buy out the exiting partners in order to stay in business or fold up shop.
In the worst collapses, the venture was just poorly conceived. The founders developed a business concept based mostly on their own personal experiences or anecdotal evidence. They failed to conduct or acquire scientific research on whether there was sufficient demand for their proposed products or services. They made a cursory study of the competition. Or they made assumptions about what drives potential customers to buy when designing marketing campaigns, rather than collecting data that revealed true trends in buyer motivations.
In these cases, the founders could have mitigated their chances of failure with some thoughtful planning before the shingle was hung. Would-be entrepreneurs should clearly write out their vision with detailed specifications and the cash that will be needed to complete it. They should plan contingencies for overcoming potential obstacles.
They also should identify the strengths and weaknesses in any potential management team and seek out individuals who can fill the holes. For instance, a visionary leader who prefers to focus on the big picture will usually need someone on board who loves the details in order to ensure the project is thoroughly vetted and structured.
Patricia Adams is the CEO of Zeitgeist Expressions and the author of “ABCs of Change: Three Building Blocks to Happy Relationships.” In 2011, she was named one of Ernst & Young LLP’s Entrepreneurial Winning Women, one of Enterprising Women Magazine’s Enterprising Women of the Year Award and the SBA’s Small Business Person of the Year for Region VI. Her company, Zeitgeist Wellness Group, offers a full-service Employee Assistance Program to businesses in the San Antonio region. For more information, visit www.zwgroup.net.
Network reliability is vital for any business. With so many systems and departments being dependent on your company’s network, it’s vital that your systems are up 100 percent of the time.
As most of us already know, network outages can potentially cost a company thousands and, in some cases, millions of dollars. One way to prevent outages is by doing a proper network assessment and finding out where your network’s weaknesses are.
A company’s network architecture includes hardware, software, connectivity, communication protocols and the mode of transmission, such as wired or wireless. You need to assess your network architecture routinely to ensure that everything is current and in line with your ever-changing business model, says Mark Giles, wireless design engineer at PowerNet Global. If not, you’ll want to begin integrating changes to ensure your network is running efficiently. Conducting an assessment also allows you to see if your company’s security has been compromised, allowing you to fix any problems and prevent these breaches from happening in the future, he says.
“When you go through an assessment, you end up with good documentation and can find where your weak spots are,” says Giles. “A lot of companies have single points of failure, meaning there’s no redundancy if a portion of their network fails. A network assessment can help identify those single points of failure so that a plan can be put into place to fix these issues.”
Smart Business spoke with Giles about what you need to understand about a network architecture assessment and how to implement any changes.
What is involved in a network architecture assessment?
It starts with a site survey done by a network engineer or network consultant who will look at existing drawings and documentation of how the network is set up. Nine times out of 10, companies don’t have documentation or their documentation is outdated. This means the first step in the assessment will be to map out how the network is currently run.
Next, your network engineer or consultant will look at the current hardware and bandwidth utilization to see if your circuits are overloaded or your hardware is maxed out. Then they’ll review your routing to see if that’s being optimized and how your configuration is set up. This will help determine whether you need to upgrade or just optimize how traffic is flowing and configure your equipment accordingly.
Very often, it’s less likely that you need new hardware or circuits, and more likely that your current equipment needs to be configured more efficiently. This is where many companies fail to do a proper network assessment. They will pay top dollar for hardware but go cheap on the person configuring and maintaining the hardware. You could have the best hardware possible, but if the person configuring it has little to no experience, it will end up costing you more money in the long run.
What are some key items business leaders need to understand about their network architecture and implementing a plan?
A lot of it comes down to what your benefits will be and the costs associated with them to determine if it’s going to be worthwhile. If you’re going to be upgrading a piece of equipment, you need to understand why you are upgrading it and if the cost outweighs the benefit.
You’re also looking for service-impacting changes during the implementation portion while ensuring everything is designed well and that your implementation plan is solid. You should ask whether the network changes are going to be service or customer impacting. That’s the big one people want to know — who will be affected? Is there going to be an outage when you’re implementing or upgrading? How long is that outage going to be?
Who should be involved in the network architecture assessment and what are the costs?
Your network engineer or consultant should be the one doing the assessment and it should be conducted any time you’re coming into a new business environment or making changes. Then every six months to a year, depending on how rapidly your network is changing, you’ll want to go through it again. Check everything within your network and make sure the drawings and documentation are current. You’d be surprised how quickly things can change and become outdated.
The cost of an assessment depends on the size of your network and the accuracy of your documentation. It also depends on what you are looking to do. If you need new equipment, it might be more expensive than updating drawings. If you hire a consultant to run the assessment, the cost will typically range anywhere from $125 to $200 an hour.
How often should you implement changes to your network architecture and how should this be accomplished?
You should never stop making changes to your network; you should always try to improve it. According to CISCO’s model, you need to prepare your network, develop a plan to assess your company’s readiness to support any changes and create a detailed design to address any technical and business requirements. Then, implement any new technology, operate and maintain the most up-to-date network systems on a day-to-day basis, and optimize your network by making ongoing improvements to ensure that you have the most efficient network running.
Once you find you’re at the optimization stage, go back to step one. You need to go through this process continuously to make sure your network is up to date and running efficiently.
Mark Giles is the wireless design engineer with PowerNet Global. Reach him at (866) 764-7329.
Insights Technology is brought to you by PowerNet Global
In Ohio, group and group retrospective ratings remain the highest discount programs offered by the Ohio Bureau of Workers’ Compensation (BWC) for employers to reduce their annual premiums. Sponsors of public and private employer workers’ compensation group rating, or group retrospective rating programs, are in the evaluation process to determine eligibility for the Jan. 1, 2013, policy year for public employers and the July 1, 2013, policy year for private employers.
“Now is the time to have your program evaluated,” says Mark MaGinn, vice president for CompManagement, Inc. “Employers should submit the BWC AC-3 form (Temporary Authorization to Review Information) to the workers’ compensation third party administrator of the sponsor’s program of interest to evaluate the many different discount programs available to impact their costs.”
Smart Business spoke with MaGinn about what an employer should consider regarding a sponsor’s group rating or group retrospective rating program before deciding to participate.
What is the discount range available for group rating and the refund percentage range for group retrospective rating?
Group rating discounts typically range between 15 percent to the maximum discount available from the Ohio BWC which, for policy year 2012, was 53 percent for private employers and 65 percent for public employers for the 2013 policy year (59 percent with break-even factor included). The BWC board of directors evaluates the maximum discount on an annual basis setting it typically in the fall for private employers for the upcoming July 1 policy year and in the spring for the upcoming public employer policy year that begins Jan. 1. For group retrospective rating, most groups can expect to save between 5 and 45 percent with claim costs included.
Why is past performance history of the sponsor’s group important?
Past group performance is a good indicator of future results. Asking about this will help determine if the projection provided in the quote will meet the performance of the group. A group sponsor should be able to produce a history of obtaining the quoted discount, versus just an estimate designed to attract business. Employers should be leery of sponsors that consistently overproject but fail to deliver, as this creates loss savings that would not be forecasted in your annual operational budget.
How does having a large number of policies in a group impact an organization?
Large groups offer stability and allow sponsors to achieve projected savings, which, in turn, delivers the maximum savings available to your organization. Be wary of programs that do not have a substantial number of enrolled policies in its group. A low number of policies in a group may impact the possibility of the group actually being formed, and therefore, force your organization to find another group sponsor before the BWC filing deadlines.
Why is it essential to understand how a company’s claims experience compares to that of other group members?
Proper placement within the correct savings level of a group program will ensure that your organization is getting the discount rate that it deserves. If your claims-to-payroll ratio is substantially better than other members in the group, your organization may not be properly placed and should be moved to a higher-discount tier. However, if your claims-to-payroll ratio is significantly lower than other members, the group savings quoted may suffer with your enrollment. If the sponsor allows other prospective group members to enroll with similar low ratios, the savings level that you have been quoted may not be realistic.
When comparing quotes, is it crucial to have the payroll estimates utilized be the same?
Payroll figures may vary based on when the information was received from BWC.
Because different payroll estimates can skew quoted savings, it is important to make sure that the payroll is consistent on all quotes. If the payroll estimates are not consistent or do not reflect future budget impacts, be sure to contact the program’s administrator for an updated quote before making your enrollment decision.
What other critical factors should be considered when choosing a group sponsor?
Group savings may be the first factor your organization looks at in determining which group to join. The maximum possible discount an employer in the group rating program may receive is 53 percent.
However, it is just as important to know what else is being offered to protect your eligibility for future discounts. Employers should ask questions regarding the sponsor’s chosen program administrator’s services and the average length of experience its colleagues have in the workers’ compensation industry.
Full-service administrators with an experienced staff offer far more beyond group formation, such as claims administration, cost containment strategies, hearing representation, data trending, online system access, and in-house safety and loss control services.
Can a company stack discounts on top of a group rating or group retrospective rating discount?
Recent changes made by the BWC allow for the following stacking options while participating in either group rating or group retrospective rating.
- Group Rating — Destination Excellence, Drug-Free Safety Program, $15K Medical Only Program, Early Payment and Safety Council (performance bonus only)
- Group Retrospective Rating — Safety Council (participation rebate only) and Early Payment
An employer should contact the group sponsor’s program administrator to evaluate the options and discount percentages allowed, as well as be informed of the different eligibility requirements and expectations to be met for continued participation in the programs.
Mark MaGinn is vice president of Ohio state fund program management and business development for CompManagement, Inc. Reach him at (800) 825-6755, ext. 8168, or Mark.MaGinn@sedgwickcms.com.
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Offense or defense? Which of these wins ball games? Sports fans have heard this question raised many times. If the offense scores a lot of points but the defense allows more, you lose. If the defense stands tough, allowing very few points but the offense scores none, you lose. The answer may be as random as the opening coin toss, says Dennis Swearingen, a business development representative at Sequent.
“Over the past few years, the economy has affected many businesses to the point that some have reduced their work force, while others have either closed their doors or sold their company,” says Swearingen. “The analysis of what to do has been difficult and the decisions have been twice as hard.”
He says that some executives chose to add sales representatives but slice the expense of advertising and marketing their product or services, while others made reductions in areas that they believed provided no revenue or profit opportunities. In a sense, executives have made a choice to take either an offensive or defensive strategy, and how they view the role of their HR department has played a large part in that.
Smart Business spoke with Swearingen about how to view your HR department and how it can help you increase the profitability of your organization.
Should the human resources function be considered a profit center or overhead?
When it came time for work force reductions, some owners or executives (depending on the size of the organization) started their cuts with the human resources department because it is typically viewed as an overhead function, not adding value to the organization. However that is not the case, and a strong HR department can be critical to the success of your business.
Let’s review some of the offensive strategies to the HR function. There are many facets of human resources that, if managed properly, can help increase the profitability of your organization. There are two basic ways to proactively impact your profits — either increase revenue or decrease expenses. Below are a examples of how a strong HR function can increase the profitability of your organization.
- Periodically review your outsourced vendors, such as your payroll processor and 401(k) provider, mandated by the Pension Protection Act, to determine if you have the best system and product for your organization that provides best service at a reasonable price.
- Evaluate not only your medical plan design and premiums but educate your employees on consumer-driven health decisions and the use of your preventive and wellness benefits.
- Manage the unemployment process closely. For example, if a company has 100 employees and its unemployment rate is reduced by 1 percentage point, it could save the company approximately $9,000 in state unemployment taxes the following year.
- Focus on employee retention. Depending on your industry, the cost avoidance of turnover can save your company thousands of dollars in hidden costs of retraining, production, efficiency and even customer retention.
What is the cost of noncompliance?
What about the defensive side of human resources? In other words, does your organization have a professional, certified HR person who is proactively implementing and managing the risk and compliance programs within your organization?
If you have eliminated or reduced your human resources staff, or have never had one, the probability of your company to be noncompliant in any area of HR is high. Over the past few years, there has been a substantial increase in the number of audits that have been conducted by the numerous agencies enforcing employment regulations.
Following are just some examples of where noncompliance can easily cost your bottom line, and even your company.
- Payroll tax filing with the IRS. If your provider fails to file your payroll taxes in a timely manner, it is likely that your company will pay the penalty. The IRS views nonpayment of payroll taxes as theft. Verify what certifications your vendor has obtained to protect your liability.
- Are your job descriptions classified properly as exempt or nonexempt under the Fair Labor Standards Act? If not, you could be liable for unpaid overtime and subject to fines up to $10,000 and possible imprisonment.
- Cross the I’s and dot the T’s on the I-9 Employment Eligibility Verification Form. Civil violations alone can range from $110 for each form out of compliance to $16,000 for each person hired knowing the individual is not authorized to work in the United States. Imprisonment could occur for criminal violations.
- The Department of Labor is monitoring 401(k) fiduciary liability more closely than ever. Whether the violations occur with the broker, investment advisor or third-party administrator, the ultimate responsibility may lie with the fiduciary, which often is the owner of the company. Penalties could reach hundreds of thousands of dollars.
Should the human resources function be managed in-house or outsourced?
The most common factor in determining when human resources should be managed internally is typically based on the number of employees a company has but is not the only basis. Additionally, there is not a magical cutoff when a company should hire a professional HR person. In order to provide the most efficient and compliant HR function, many factors must be considered.
With the economic challenges that we face today, cost will rank as one of the leading deciding factors. Another important component is how much valuable time is not being spent on increasing revenue and profitability for the future growth of your organization. So ask yourself whether human resources be managed in-house or outsourced. With the ever-changing compliance issues that employers face, the answer must be one or the other.
Dennis Swearingen is a business development representative at Sequent. For a free consultation, reach him at (513) 535-1970 or firstname.lastname@example.org.
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Over the past 18 to 24 months, Gary Heiman has had to overcome obstacles and challenges from seemingly every angle of the textile industry. The president and CEO of Standard Textile Co. Inc. has had to face fluctuations in raw materials cost, capacity and quality challenges, and the pressures of operating across the globe. It has taken a resilient leadership and company to maintain the kind of professionalism needed to not let those challenges get the better of the business.
Standard Textile Co. Inc. is a 4,200-employee global provider of total solutions in the industrial textiles and apparel markets that saw 2010 revenue of $750 million. Heiman has moved the company into new areas of business and has built up the company’s reputation.
“There are several areas of strength that we have as an organization,” Heiman says. “No. 1 would be our global supply chain. No. 2 is innovation and creativity, which is something that flows throughout the veins of everybody in our company. We’re trying to improve upon every process as well as product in order to be more efficient and effective both for our customers and for us.”
Heiman, who has been in his current role for 20 years, has prided himself on continuing to build a culture of excellent people, professionalism, trust and values, which has been the main solution to overcoming business challenges.
“If you don’t have the key building blocks of your organization in place and you come upon a period which presents real challenges, is a real crisis and you’re not ready for it – and you don’t have the organization that’s ready for it, it’s pretty tough to get through it,” Heiman says. “It’s tough to get through it as an organization that has all of the attributes and is ready and has worked together as a team in difficult situations in the past. If you don’t have that, it’s a tough situation.”
Here’s how Heiman and Standard Textile have maneuvered through the many obstacles in the textile industry.
Evaluate the challenges
As a manufacturer of linens and apparel, one of the most critical elements of Standard Textile’s business is raw materials such as cotton. The price and availability of raw materials have a ripple effect on business.
“There have been really violent swings in the costs of raw materials over the last 18 months-plus,” Heiman says. “You take those raw materials like cotton and oil, which would affect energy and electricity, freight and transportation, and they also affect all of our synthetic raw materials. We’ve also had to deal with raw material capacities and quality consistency throughout the supply chain. With all of that, we’ve always wanted to maintain, and needed to maintain, financial stability, which many other suppliers either couldn’t or didn’t.”
The price of cotton during this time fluctuated from $0.70 a pound to $2.40 a pound. Heiman and his team were committed to make the raw materials available and not make any change in them so there would be no alteration in quality, consistency, on-time delivery, or service levels.
“As part of that, it’s probably been the toughest period in balancing our work-in-process and finished goods inventory levels and to forecast,” he says. “Our customers expect on-time delivery and product consistency, but they either won’t or can’t give us realistic forecasts. We basically have to guess at that and make sure we have enough product and take into consideration that there will be shortages in markets that we’ve just come through. We need to be the company that can make up for those shortages.”
On top of those challenges, the company also has dealt with political and economic volatility as a global company.
“If you just take the U.S. and China relationship and the politics involved there and having plants in the United States, North America, and China, we’ve had to deal with those political issues which have affected us,” he says. “If you think about the fact that we have 24 manufacturing plants in 13 countries and we sell to over 60 countries today, currency exchange rates have been a real, real challenge for us over that period. We’ve really had to have our finger on the pulse all around the world almost on a daily basis in order to manage all these things.”
To combat the consistent uncertainties and challenges that the industry presents, Heiman and his team have one annual and three quarterly strategic supply chain meetings that they conduct all over the world.
“In our last meeting we actually had 275 initiatives for lowering our cost and dealing with the challenges,” he says. “Of those 275 initiatives, 100 were accepted. We as a company are really committed to a lean continuous improvement process. As part of that, we’re always out there looking at new countries, new nations and new places where our next plant will be and the plant after that because it’s a continuous process. We have an aggressive and vigorous process that we follow in these supply chain meetings. Everything is put on the table. Anybody can bring up anything and there are no silos and that’s the only way that we are going to truly achieve continuous improvement.”
Build a professional culture
Adopting a culture of continuous improvement and building a company that is prepared for the challenges and obstacles that an industry can throw at you is a tough task, but a necessary one.
“There really are no easy answers,” Heiman says. “I’ve been CEO here for 20 years and I’m the third one. Our company is 72 years old and we’ve built up a culture of excellent people, professionalism, trust, and a whole system of values and respect, and it’s very hard to say to another CEO who hasn’t built this up over a period of decades to just do this, this and this. The one thing that we do and we find we can’t do enough of is communicate.”
The company is always communicating what is being done, why things are being done, and the results that are being achieved through those efforts.
“You can’t communicate enough and you can’t get the message across enough,” he says. “We also engage in continuous research so that the messages that we’re communicating to both our customers and our associates are things that have been researched. We show them charts and trends, and our customers have learned to trust what we tell them.”
Standard Textile’s global capabilities and presence allow the company to know what’s occurring in the market worldwide and gives customers a better understanding of their business in return.
“Because we’re diversified around the world, we know what’s happening in China, Europe, the Middle East, and what’s happening in North America and South America,” he says. “We can bring all of that together and they’ve gained a lot of trust over these many decades about what we tell them because they know that we know what we’re talking about.”
That trust is not just built up over a period of time, but due to a history of getting the right information and helping customers make sound decisions.
“You have to build an organization of excellence in every respect,” Heiman says. “You need an organization that has the best professionals in marketing, in sales, in both process and product innovation, in supply chain, in finance, and really every aspect of the organization. Your job as CEO is to find the best people and the best associates for all of those key areas. For the next level down, it’s their job to find the best people under them so that the organization becomes continuously strengthened.”
Building this kind of organization relies heavily on the CEO being able to identify where the company is going and what it needs to become in order to flourish.
“The primary role of the CEO is to No. 1, communicate a clear vision to all associates and to all of the customers that are around the company,” he says. “No. 2 is people and being responsible for interviewing and having the final decision-making on the key people in the organization. A CEO wants people that buy in to the vision, into the strategy, into the values and into the culture.
“In addition, it’s putting together the strategy and the values that you want to have in your organization and the culture. That’s something that takes years to build and it’s something that has to be continuously reinforced and you need to communicate the message about what your values are and about the culture of the organization at every possible opportunity. You have to demonstrate it yourself, you have to speak about it, and you have to live it.”
Be innovative and diverse
Having a clearly defined vision, strategy and culture for employees to operate in allows them to be creative and innovative at a diverse company.
“You have to make a commitment to total organizational innovation, both product and process innovation,” Heiman says. “You’ve got to look at global diversification, both in raw materials and in manufacturing. If you have global customers who want to have global standards, you need to create a company that can service these customers around the world with the exact same standards and specifications in quality wherever they might be.”
To achieve that you need one culture and one set of values and those should be built around your customers and around your associates.
“Whether it’s local or global, every part of the company has to share and compare what their challenges are, what their opportunities are, and what their risk and exposure is in order to come together around best practices which they can then use as part of the company,” he says. “That type of training and continuous training is essential for creating a strong organization.”
One of the biggest success factors for Standard Textile has been its global supply chain which has allowed the company to be diverse and to innovate.
“In today’s world, you almost have to have a globally diversified supply chain,” he says. “The best and safest way to manage that supply chain is if you own your own supply chain. You’ve got to get out and you’ve got to travel the world and meet other suppliers because you’re going to have to use them. If you’re intending to work only through agents and just stay in the United States and not get out, you’re going to miss the bigger picture. It’s really important for a CEO to understand the bigger picture of what’s happening around the world.”
These continuous efforts to build a stronger, better company have led to industry-leading innovations in product development and cost.
“If you take a towel, you understand that 99 percent of people that dry themselves with towels will use the middle 50 or 60 percent of the towel,” Heiman says. “Because they want to improve the product, we’ll put more weight in the 60 percent of the center of the towel and reduce the weight on the 20 percent of the two sides. Or we’ll keep the weight used in that 60 percent in the middle and lower the weight on the 20 percent on each side, so you can actually reduce the weight of your product and therefore reduce the cost of your product.”
The company has also introduced technologies such as Centium Core Technology which is a patented weaving technology in the core of the product.
“The guest or patient or whoever is lying on the bed is effectively lying on cotton, but in the core of the product there is a synthetic product which actually weighs less. The specific gravity of the synthetic fiber weighs less, but the overall fabric will have over 200 percent more durability.
“Because the core weighs less it will dry faster and cut your energy costs and overall laundering costs. We’re developing products that last significantly longer and we’re creating products that process in a less expensive way.”
While Standard Textile has seen numerous challenges during the course of the past two years, the company has been able to roll with the changes and has come out of it as a stronger organization.
“Throughout this period we’ve gotten bigger because of the increase in pricing, but we’ve also gained about 19 percent in unit growth because we have taken market share from others that couldn’t supply or were supplying sub-par product,” Heiman says. “We’re bigger, stronger, and more recognized for having a truly professional team of people.
“We’ve gained the trust of our customers and we’ve come through it in a strong financial situation. We also have the trust and full confidence of our associates because they’ve seen where other companies have gone under or are struggling to survive. We’re flourishing in this environment.”
HOW TO REACH: Standard Textile Co. Inc., www.standardtextile.com
The Heiman File
President and CEO
Standard Textile Co. Inc.
Education: Received degrees in history and engineering from Washington University
What was your very first job and what did you take away from it?
As a teenager I worked at everything from mowing lawns to being a lifeguard to installing window unit air conditioners. The things that I took away from those jobs were being responsible, working hard, and trying to find better ways to do whatever I was doing more efficiently and effectively so my customer would be satisfied.
Whom do you admire in business?
I admire Jack Welch because of the issues that he dealt with regarding innovation, people, marketing, and sales on a global basis. Those were the things that I was dealing with.
What is your favorite thing about the textile industry?
The textile industry has been described as being a traditional industry, but there is nothing about it today that is traditional. All of the machinery that we use, all of the processes that we use are all high-tech, robotic and computerized. So whether you are in this business or another business, you are being challenged in the same ways. You’re being challenged in marketing, sales and manufacturing. So whether I’m producing a chip for a computer or a surgical gown, you still have the same types of challenges and same types of tools that you would use in getting to the best possible product. I really enjoy that part of the business which is built around innovation and creating new product that will better serve the customer in every way possible.
If you weren’t a CEO, what is something you would want to do?
I would like to be involved in innovation and product and process development of some type. Creativity and innovation is something that I really enjoy and really thrive on.
Mary Miller oversees a company that is responsible for cleaning 10 million square feet of office space in the Cincinnati area every night. To get that much business, you have to not only do a great job, but you have to differentiate your business from your competition. That is exactly what the CEO of Jancoa Janitorial Services Inc., a 320-employee commercial cleaning company that services large office buildings, is doing.
“Our business is better today than it was three years ago,” Miller says. “Back in the mid-’90s when employment was really low and we were short 38 full-time people, we knew we had to be more creative and ask different questions. You can’t just look at things and say, ‘This used to work yesterday.’ Nothing stays the same forever.”
It was this kind of thinking that led Miller and her team to create new programs that would differentiate Jancoa from its competitors.
Smart Business spoke to Miller about how to make innovation a part of your business.
Visualize the end in your mind.
Everybody has the ability to think of things they really want and to visualize how to see the future. At the same time, life brings opposition into our lives with walls to negotiate. The difference is taking the time to ponder the issue and devise ways to break through, climb over, go around or dig under — but to work through that opposition is when transformation takes place. It’s having the faith that knowing tomorrow absolutely can be better than today and being willing to do what it takes.
The more people ask the question, ‘What do I know that can create value for a company or for an individual?’ — that’s what really gets that motivation going and success starts happening. Too many people are sitting and waiting for people to give something to them and for things just to happen instead of going after it.
You have to begin with the end in mind. What is it you really want? If we were meeting a year from now or three years from now, what has to happen to be really happy? When you begin with the end in mind, look backward, ask those types of questions and you look at the dangers that you’re dealing with and different obstacles that are getting in your way, you start asking, ‘What would it look like if that wasn’t an obstacle or if we were to overcome that and moved on?’
Triumph over obstacles.
We look at obstacles or complaints that come in from customers or requests or suggestions that customers have to see what we can do to prevent that problem from happening again or what we can do to make it better to increase our productivity. You start breaking them down and looking at the results that you really want to have. What does that look like when you achieve that goal? You have to make a list of all the obstacles that are preventing that from happening and take those obstacles one by one and start putting things into place to overcome them.
Most of my people on my team have better answers on how to prevail over things or how to tweak our systems than I do, but so many employees think the owners or the bosses have all the answers. As management or a leader of a company it’s so important to ask questions and to shut up and listen to what your people have to say and to listen to what concerns they have because when you hear what’s really happening out there, there are a lot of possibilities for making things better and that’s when you change things from your competition.
Have a clear plan.
The challenge that comes is that it’s so easy to be seduced into possibilities that can lead you into areas that can get you into trouble. It’s so important to stop and have a plan. Every quarter we take the time to plan out what we want to have happen over the next 90 days. We also take a look at the previous 90 days and reflect on what we want replicated and what we never want to happen again. That’s a really important piece is to be able to take time to stop and have perspective and plan out what you want to have happen.
You also have to build a team of people that you trust are working within their talents and their skills that really creates an energy source of working together to achieve the results that you want to have.
HOW TO REACH: Jancoa Janitorial Services Inc., (513) 351-7200 or www.jancoa.com
Golf is a sport that forces the athletes participating to relax and calculate how a shot might be affected by the traps and slopes of the fairway or on the green of a course. There’s a measure of self-doubt and anxiety that can creep in very easily while you’re selecting the correct club, assessing how the wind might affect your shot and preparing to swing, but to become a winner, one has to cope with these challenges and remain confident in their abilities.
What makes anxiety so bad?
Anxiety develops and grows in the human faculty of the subconscious. It heavily affects and agitates various emotions. Since the subconscious and emotions are nonreasoning or non-intellectual human faculties, logic or reasoning are inadequate means to manage or assuage anxieties. Experience, self-discipline, self-control and other means of coping are necessary aids in successfully dealing with the torments of anxiety that can be debilitating and even paralyzing to human thought and action.
Learning from golf
The world of sports and athletic competition is widely followed precisely because of the uncertainty involved and the anxiety produced. However, anxiety generates not only interest and emotional experiences for fans or supporters, but can also influence outcomes or results for participants who may have self-doubts about their capacity to cope with the challenges.
This anxiety is perhaps most readily seen in professional golf, especially in the major championships.
In such situations, the desire to achieve and the pressure to perform are at their peak. Moreover, the more real the opportunity to win, the greater the risk of the emotional distress the anxiety inevitably causes.
It often happens that the most proficient golfers who have shot great rounds in the beginning of a tournament may succumb to the anxiety of having the talent, desire and finally, the real potential of winning. They may shoot their worst rounds of the tournament on the final day, allowing golfers who may not be early contenders due to poor first round scores to overtake the original leaders.
It is often not fair to say that these golfers lost their tournaments more than the other golfers, not affected by the same anxieties, who were able to play at their normal, high-quality level of performance.
What does it all mean?
What does all of this professional golf analysis have to do with business? It most certainly is not meant to criticize any athlete who has suffered anguish from unsuccessfully coping with anxiety. Rather, it is meant to show that while skills, talents and desires are important to gaining success, the personal control of the psychological and emotional factors that anxiety produces is also of immense importance. This anxiety is similar for anyone who seeks to achieve success in virtually every field of endeavor.
While personal anxiety may be largely self-induced, it is also contagious. The fears and doubts of one salesperson can easily be transmitted because they come from the subconscious. If one person begins to doubt, everyone can begin to doubt very quickly. Not allowing this fear to creep in is pivotal in a business to create a supportive, encouraging environment. Debilitated, discouraged and disheartened persons and organizations very quickly become disoriented and disabled.
Build on it
Human strength and character must be developed to be able to usefully and positively manage anxieties rather than allow the anxieties to debilitate and paralyze persons or organizations. The self-confidence that enables a person or an organization to perform each necessary execution as though they have already achieved success — even before that stage is reached — is vital.
Everyone in a business must concentrate on developing the skills necessary to compete at the highest levels to be able to excel in competitive environments.
Thomas M. Nies is the founder and CEO of Cincom Systems Inc. Since its founding in 1968, Cincom has matured into one of the largest international, independent software companies in the world. Cincom’s client base spans communications, financial services, education, government, manufacturing, retail, health care and insurance. For more information, visit tomnies.cincom.com/about/
Risk management is the process of identifying and assessing risk, then prioritizing resources to minimize the impact of losses. But what is the true cost of risk management?
Jonathan Theders, president of Clark-Theders Insurance Agency, previously addressed the assessment process with the 1-5 rating scale for risk severity and frequency in the April 2012 issue of Smart Business.
“Focusing on a risk management approach can earn better pricing, reduce out-of-pocket costs and provide a more stable environment for your employees and customers,” Theders says. “But most important is that it helps you prepare for things that might happen before they happen.”
Smart Business spoke with Theders about how to minimize losses and monitor your exposures.
What are the components of risk management, and how can a business determine which components to use?
There are four components to risk management: risk avoidance, risk mitigation, risk retention and risk transfer.
Risk avoidance is when something is too risky, so you decide not to do it. You don’t have the right capabilities to handle it, so you avoid that practice entirely. For instance, if you are concerned about hurricanes, locate your business in an area in which hurricanes do not occur — at least not typically. There is no reason to insure against that risk because you’ve avoided it.
Next is risk mitigation, or prevention. Once you know what could potentially happen, determine if there are tools, steps, procedures or policies you can use for prevention, or at least reduce its damages.
Then there is risk retention. Every day you assume some risk that is uninsured but decide you’re OK with bearing it yourself. Sometimes when you implement a mitigation or prevention program, you realize those programs have limited the occurrence of that particular risk to such a minute amount that even if it did happen, you feel comfortable retaining it.
Finally, there is risk transfer, which is sending the risk to somebody else. Insurance is a common tool of risk transfer. If your $5 million building burned down, you do not necessarily want to put that on your company’s balance sheet. So you contract with an insurance company to transfer the $5 million of risk to it and you pay a premium for it to assume that. You paid the premium, it bears the risk.
How can mitigating risk benefit a business?
Different insurance companies look at the transfer of risk differently, and the price can fluctuate. That’s why it’s so important to communicate to the insurance company what you’ve done to minimize risk. If you have implemented a fire suppression system, disaster recovery plan or something else to mitigate risk, explaining those mitigation techniques will give the insurance company underwriter greater comfort.
Many companies and their agents poorly communicate to their insurance company what they do to prevent risk. They offer information about the construction type, geographic location and the value of the building and it may stop there. Those factors result in the computer tabulating a cost. What the computer doesn’t know are the risk management techniques that you have in place. It does not know that you have a policy that prevents employees from smoking on premises, or that all combustibles are stored in UL-approved storage containers.
If you are doing things to prevent a major catastrophe, the underwriter can provide a lower price.
What else can be done to transfer risk?
You can also transfer risk through releases or waivers. We’ve all done something that is risky, whether it’s parachuting, bungee jumping or riding a horse, where you sign a form that releases the company from liability. You are saying, ‘I know I am going to ride a horse. It is risky, and I am assuming all liability if I get hurt.’
What is the true cost of risk, and how is it affected by the components of risk management?
Your true cost of risk is not only the premium you pay but all of the out-of-pocket costs. It’s the downtime of your business if something were to happen, the loss of an employee or the fact that you’re out of business for two months. Maybe you bought insurance to replace your income while your business is out of commission, but your key employees have gone to a competitor because they have to work.
If your $500,000 building burns down, you don’t just lose $500,000. You lose significantly more. In fact, the building may only be 15 to 20 percent of the total loss.
If your business goes down, can your product or service be easily replaced? Your cost of risk is higher if you are easily replaced. However, if you are the only source of a particular product or your competitors are at full capacity and can’t take more work, your cost of risk is lower.
Take, for example, a business that makes its own glass. But glass is only a small component of its overall product. It takes raw materials and heats them, but competitors can make the glass cheaper and more efficiently than it does.
With that operation comes extreme heat and propensity for damage to the building. At the time, it made the glass because it couldn’t get anyone to make the quality it wanted for its product.
Now, the product is readily available, so it decided to transfer the risk by buying that product from someone else. It decided the risk and the reward of having its own glass-making line no longer made sense.
From an insurance standpoint, the benefit is that one of its riskiest propensities for fire is being eliminated. At that point, the policy is re-evaluated and because the overall fire risk is lower, there would be additional savings or credits.
Jonathan Theders is president of Clark-Theders Insurance Agency Inc. Reach him at (513) 779-2800 or email@example.com
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