Despite the best intentions, too much success may ultimately lead to failure as employees in well-established companies focus on maintaining the status quo and following procedures instead of looking for new opportunities. Executives ultimately get a wake-up call when a svelte competitor swoops in and seizes market share by capitalizing on an untapped opportunity.
“When things are going well, it’s natural for companies to thrive on their own logic and nurture a culture that resists change,” says Dr. Glen Taylor, director of MBA Programs for Global Innovation at California State University, East Bay. “But if you don’t consider new ideas and opportunities, eventually you’ll hit a dead end.”
Smart Business spoke with Taylor about the techniques that help executives infuse an entrepreneurial spirit into mature companies.
How can executives begin the journey toward an entrepreneurial culture?
Entrepreneurs are found in all types of organizations — small and large, business and government, whether people are paid or act as volunteers. If you act like an entrepreneur you are an entrepreneur. It is a behavior, not a job title. An entrepreneur is a person who is good at spotting opportunities, good at mobilizing resources to pursue an opportunity and willing to act on the opportunity. Finding opportunities requires a new frame of mind or attitude, thinking outside the box and challenging the status quo. Entrepreneurs shake things up by injecting different points of view into the organization and then leading the way to test the waters to see if there is real potential for something new.
Well-established companies can do many things to encourage entrepreneurial behavior. Managers can encourage divergent thinking by welcoming guest speakers who offer unorthodox ideas or impart pointed observations about the company and industry. For example, an outsider may propose a direct sales model in lieu of traditional distributors or using social media to embrace a new generation of customers. Managers can also initiate internal conversations that challenge employees to step outside their comfort zones and suggest new ideas. Insights about new opportunities can come from anywhere in the organization. Making room to discuss new opportunities can foster a spirit of collaboration and enthusiasm. But in the end, it takes more than ideas and talk. It takes a commitment of resources and a commitment to take action to achieve entrepreneurial results.
How can executives control expenses and still invest in new ideas?
Entrepreneurs are not loners. They usually do best when they build strong partnerships, sustained by a network of supporters who share the vision and who provide a sounding board that fuels the creative process. Small groups of dedicated employees who share a similar vision and are willing to support each other during the incubation process are the ones most likely to succeed in marshalling resources, building prototypes and conducting pilot tests to move forward in a relatively inexpensive and risk-free way to assess the merits of a new opportunity. Experimentation means failing early and often, and learning from the experience to keep moving forward.
Why is it necessary to modify organizational incentives?
In mature companies, the organization might be silently fostering competing agendas with incentives that discourage experimentation and impede the creative process. It’s up to executives to assure seamless support for innovation across the enterprise by recognizing and rewarding entrepreneurial behavior. This might require separating responsibilities for new initiatives. If entrepreneurial employees get frustrated and leave, the organization will soon be drained of its creative talent.
What other changes inspire innovation?
Unless companies embrace people with diverse views, the corporate culture will continue to support the dominant view and resist new ideas. People learn through experience that they have to act in a certain way or follow specific protocols to be successful. Entrepreneurs often feel like outsiders and seek greener pastures. Corporate cultures that embrace diverse values and perspectives can infuse an entrepreneurial spirit into the culture.
What else can executives do to support cultural transformation?
Trust is the engine that powers innovation, because, without it, employees will be reticent to suggest new ideas or worry that a failed venture may damage their careers. Executives are responsible for engendering trust by setting realistic expectations and time frames for pilots and experiments and by treating failure as a learning opportunity.
Unknowingly, executives often stifle creativity and reinforce the status quo through their actions and responses, so it’s critical that they set the tone by modifying their behaviors. Show support for the creative process by hosting executive forums or roundtable discussions where employees can share ideas. Since innovation is a social process, encourage collaboration by asking employees to talk about their endeavors in meetings and online forums. But do more than support talk — support action. Finally, generate enthusiasm and raise spirits by celebrating small wins, recognizing employees who suggest bold ideas and applauding cultural change.
Dr. Glen Taylor is the director of MBA Programs for Global Innovation at California State University, East Bay. Reach him at email@example.com or (808) 203-3818.
Cash is the lifeblood of any business, and most business owners experience the need for an occasional short-term infusion of capital to bridge cash flow gaps, finance bulk inventory purchases or to meet other working capital needs. But after the long recession and credit crisis, many owners are reluctant to take on debt that could prevent them from capitalizing on the rebounding economy.
The solution is a short-term line of credit, or STLOC, which is typically secured by business assets and provides owners a less expensive way to access capital versus other forms of capital such as additional equity injection from the owner or another investor.
“Although business owners should avoid excessive debt, an appropriate amount of short-term debt can help a company grow and allow the owners to maximize return on assets and equity,” says David Song, senior vice president and head of the Corporate Banking Group at Wilshire State Bank. “Despite lingering uncertainty in the overall economy, banks are willing to make short-term loans to well-run businesses.”
Smart Business spoke with Song about maximizing growth opportunities through a STLOC.
When should business owners consider a STLOC?
STLOCs are typically used to finance operating expenses until receivables are converted to cash or to finance inventory purchases until they’re sold and converted to cash. For example, as demand for goods and services rises during a recovery, manufacturers and wholesalers need cash to produce/purchase inventory and finance accounts receivable, while importers need lines to open letters of credit and purchase products from overseas suppliers. Retailers can use STLOC to make volume purchases ahead of a peak selling season, while professional service firms can use the funds to expand by hiring additional employees.
How does a STLOC differ from a long-term line of credit?
A STLOC is a revolving line that is typically used to finance short-term business assets for less than one year, whereas a long-term loan is used to finance long-term assets such as equipment, leasehold improvements and real estate. With STLOC, a borrower can draw on a line as needed within the allowed parameters of the borrowing arrangements and then pay down the debt as cash flow allows. Banks offer various types of STLOCs depending on the business needs, borrowers’ qualifications and industry characteristics.
- Nonformula line of credit. This line is similar to a credit card, because it can be advanced or paid down at the borrower’s discretion as long as the borrower is in compliance with loan terms and conditions.
- Trade cycle financing. This type of line is often reserved for importers that use the line to purchase goods from overseas suppliers. Under this arrangement, trade advances are used to finance individual import purchases, which must then be paid back within the pre-determined terms that are based on the operating cycle of the business.
- Asset-based line of credit (ABL). If a company is highly leveraged and/or growing quickly, bankers often suggest an asset-based line, which allows the business to borrow against a specified percentage of accounts receivable and inventory up to a predetermined amount. The amount available to borrow under this arrangement is referred to as a borrowing base.
Are there risks associated with a STLOC?
While a STLOC can provide access to needed capital, a business owner must be aware that there usually is a set of loan terms and conditions with which the business needs to comply. These terms and conditions require the business to submit certain financial information to a bank within a specified timeframe and maintain financial performance at a level that is acceptable to the bank. Obviously, required payments need to be made on time and it is also important to note that loan outstanding does not exceed the borrowing base in an ABL arrangement. If you stay on top of cash flow, and diligently manage accounts receivable and inventory turnover, you’ll maintain the integrity of your assets and boost your ability to borrow. Noncompliance with loan terms and conditions may adversely impact the business’s ability to borrow.
How can a business maintain the quality of its assets and increase borrowing capacity?
Typically, banks will not lend against receivables older than 90 days or stale inventory that hasn’t turned over within a year. Owners should have adequate staff to monitor collections and avoid excessive inventory build-up. Banks will also look at your customer base to see if sales are dispersed among a large base of customers or concentrated in a few accounts, which increases risk. They’ll also examine the credit worthiness of your accounts and they’ll be concerned if you’re shipping products to delinquent customers.
What do bankers consider when evaluating a request for a STLOC?
A business must demonstrate stable or growing trends, an acceptable track record of profitability, solid credit history and adequate cash flow to service the debt. Bankers will also look for a balance sheet that shows positive working capital and adequate equity levels without excessive leverage. A business will also be asked to provide accrual-based financial statements. Bankers will evaluate the requested STLOC amount and the company’s borrowing needs based upon the business’s operating cycle together with all other business and personal information provided to the bank. As a banker will rely on the accuracy of financial information provided by the business to make lending decisions, the quality of information provided to the bank is vital.
David Song is a senior vice president and head of the Corporate Banking Group at Wilshire State Bank. Reach him at (213) 365-3302 or firstname.lastname@example.org.
Plan sponsors have probably heard about the plight of baby boomers who haven’t saved enough for retirement or don’t understand the long-term impact of under-performing funds on retirement plan account balances. Unless sponsors wake up and address these issues, they could be blind-sided by a slew of new regulations or a class action lawsuit, since plan sponsors, as fiduciaries, are legally responsible for acting prudently and solely in the interest of the plan’s participants.
Despite the good intentions of plan sponsors, many participants are struggling to manage their investments and meet their savings objectives. So, savvy sponsors are simplifying plan design and investment options to make it easier for employees to participate in the plan, save more and make prudent choices.
“Employers not only have a moral and legal obligation to help employees retire with financial security, but fiduciaries and trustees can be held personally liable,” says Kyle Pifher, Principal and Practice Leader for Recordkeeping and Administration at Findley Davies. “Unless plan sponsors embrace their responsibilities and take action, they’re going to be bombarded by tough questions from their participants, particularly with respect to the new fee disclosure regulations coming out soon.”
Smart Business spoke with Pifher about the regulations affecting plan sponsors and how simplified plan design and tools can help employees meet their financial goals and retire with financial security.
What precipitated the new fee disclosure regulations?
Most plan sponsors, along with their participants, were challenged with determining the overall cost of the plan, both at the plan level and at the individual participant level. The Department of Labor’s ERISA Section 408(b)(2) regulations require providers of certain services (known as ‘covered service providers’) to disclose to plan fiduciaries certain information concerning the services and related compensation. In essence, the law requires covered service providers and employers to close the communication gap and provide greater transparency around the costs related to investments, recordkeeping and administration, trust and custody, investment advisory, and other plan-related fees and administrative charges associated with defined contribution plans.
How can plan sponsors improve communications and close the gap?
Companies can begin by instituting a retirement plan committee comprised of HR and finance representatives, outside experts, select executives and perhaps a diverse group of associates. The committee’s charter is to make decisions that are in the best interest of the plan participants. Responsibilities include oversight of plan operation, plan design, investment selection and monitoring, participant education, and overall compliance with the rules and regulations that govern retirement plans. The ultimate goal of the plan sponsor and committee should be to help their employees reach a secure retirement. Like anything else, a communication and education campaign should begin with a focused strategy based on the demographics of the company.
How can employers promote financial literacy and ease investment decisions for employees?
Many employees don’t have the time, interest, or knowledge to engage in an educational process, particularly involving investments. Many sponsors are now simplifying investment options and leveraging planning tools that don’t require a lot of action from employees. Many sponsors are regularly reviewing fund performance and altering investment options, and many are promoting the use of retirement date-based and risk-based models, thereby simplifying the decision-making process for employees. Plan sponsors should place a great emphasis on the appropriate savings rate for the individual, achieving a realistic rate of return based on their risk level, understanding the gap that may exist between their current situation and their retirement goal, and what steps can be taken to close or eliminate that gap.
How can plan design encourage savings and promote financial independence?
Many employers have implemented automatic enrollment and automatic escalation of employee deferrals to boost participation and employee savings rates, since history shows that few employees opt out once they’re automatically enrolled in the plan. In fact, some experts speculate that enrollment and deferral rates may be regulated or mandated in the future. Statistics show that matching contributions also influence employee deferral rates. During 2008 and 2009 when some sponsors suspended their matching program, many participants ceased their deferrals. Since it’s clear that employers have a legal and moral obligation to help employees plan for their retirement, a continuous review of your plan’s design and employer contribution rates should be conducted to encourage positive behaviors.
What else can employers do to help employees retire with dignity?
Employees must understand the importance of saving early for retirement at a level that helps them reach their goal. Plan sponsors with successful retirement programs are proactive in communicating to their employees, and often leverage the expertise of professionals that deliver these services. Many employers engage independent investment advisers, retirement plan consultants, and communication specialists to design a communication and education program specific to their retirement plan. In addition, personalized communications can help tailor those messages for each employee to show them exactly what their retirement savings strategy means for them.
Kyle Pifher is a Principal and Practice Leader for Recordkeeping and Administration at Findley Davies, Inc. Reach him at (614) 458-1869 or email@example.com.
Downsizing and slashing funds for training and development can help executives boost the bottom line during a recession, but they know it’s bound to have an impact somewhere down the road.
The day of reckoning has finally arrived as companies face a shortage of managerial talent and bench depth, which may keep them from capitalizing on the rebounding economy.
In the Silicon Valley, the annual turnover rate eclipses 25 percent and tech giants have reignited the bidding war for elite technical talent. But companies don’t need to spend a fortune to reinvigorate in-house training programs or author new curriculums, when they can achieve the same results at a fraction of the cost by partnering with their local university.
“The talent shortage has reached the critical stage, especially in the Bay Area,” says Brian Cook, executive director of Continuing and International Education at California State University, East Bay. “The situation will only get worse, unless employers recommit themselves to developing and retaining valuable employees.”
Smart Business spoke with Cook about developing talent and building bench depth by tapping the expertise of your local university.
Why is there a critical talent shortage?
Retiring baby boomers, fewer workers entering the labor force and a series of recessions have created a nationwide shortage of employees with critical skills, but studies of employee preferences suggest the worst is yet to come. Gen X and Gen Y value training and professional development and they’re even willing to change companies to have a chance to build their careers in a learning environment. Given today’s business landscape, employers can’t afford to churn staff and continuously compete for scarce employees on the open market. One important way to stay competitive is by growing your own talent.
How can local universities assist employers with professional development?
Historically, local universities focused on the needs of full-time students who were pursuing undergraduate and graduate degrees. But today, most students are working professionals, so local universities have taken on an expanded role, which includes supporting the local business community and fulfilling the need for lifelong professional education. Most universities now offer flexible curriculums that cover everything from intensive MBAs to leadership development, corporate training, professional certifications and even functional expertise in areas like supply chain management and human resources.
Many university educators are working professionals and frequently work in the private sector or own consulting firms. Because instructors are of the business world, they understand modern challenges and bring real-world experience to the classroom.
Why are outsourced programs more cost-effective?
Instead of developing curriculums in-house, it’s possible to leverage the talent at taxpayer-assisted universities and offset some training costs by tapping government funds that are earmarked for work force development and tuition assistance. Annually, the federal government allocates $1 billion to alleviate critical skill shortages, especially in the tech industry, and even small businesses may qualify for the funds. In situations where the labor market demands are aligned to business needs, companies can partner with local universities to develop training programs utilizing work force investment funds. If companies find that leveraging internal staff is preferable or more cost-effective, the university can develop the program and train a staff member to teach the program (train the trainer).
How is the curriculum developed and tailored toward the company, industry and individual?
Although corporate training programs are customized, it’s not necessary to reinvent the wheel. Universities have the ability to harvest material from existing courses and tap current faculty or an extensive network of resources to accelerate the curriculum development process.
- Needs analysis: It’s important to interview multiple stakeholders and executives to gain different perspectives, understand the current challenges and establish the course goals. A customized curriculum should dovetail with the business plan, reflect the culture and support existing training and performance management programs.
- Develop a prototype: The parties should work together to develop the curriculum, and make revisions using an iterative process. The learning modality is critical for working professionals, so consider offering online classes, streaming videos, on site or off site training or hybrid models to suit their schedules and preferences.
- Implementation and continuous improvement: Survey the participants after launching the course and continuously refine the curriculum. Since business conditions and individual needs change, the university should meet with members of the HR team each quarter to keep their finger on the pulse and evaluate feedback.
How can executives support the professional development process?
Executives are halfway home when they recognize the need for professional development. Studies show that investing in your employees and creating a continuous learning environment bolsters your employment brand and jump-starts innovation. And partnering with your local university offers other benefits, because companies build a network of resources and connect with experts who offer state-of-the-art skills. But, best of all, when executives show their commitment by investing in employees’ professional growth, employees return the favor by continuing to contribute at a higher level.
Brian Cook is the executive director of Continuing and International Education at California State University, East Bay. Reach him at (510) 885-7504 or firstname.lastname@example.org.
First e-commerce revised the need for brick and mortar, then Web 2.0 redefined the voice of the customer. Now the rise of mobile technology and online collaboration has killed the dream of work-life balance, which has a direct impact on employee engagement.
A study of 80 global companies, conducted by Paul DeYoung and Tracy Shamas and several colleagues from Towers Watson, reveals that employees need new competencies and behaviors to manage their personal obligations with the demands of today’s 24/7 work environment. Instead of striving for balance, employees must learn to harmonize work and play so companies can reap the benefits of our connected world without sacrificing employees’ discretionary effort.
“Compartmentalizing our activities doesn’t fit today’s digital world,” says Paul DeYoung, Southern California director of Talent Management and Organizational Alignment for Towers Watson. “Employees need to harmonize their work and personal pursuits, because doing so exponentially increases engagement and the bottom line.”
Smart Business spoke with DeYoung about the demise of work-life balance and how replacing it with harmonious integration can exponentially increase and sustain employee engagement.
What is exponential engagement (EE) and why is it important?
Thanks to a growing body of evidence, executives have embraced the notion that employee engagement has a significant impact on an organization’s financial results. But after combing through the data, we’ve identified two factors that influence an employee’s desire and willingness to contribute discretionary effort toward their job. The first is enablement, which exists when employees have the necessary support and tools to work efficiently and effectively over time; the second is energy, which comes from a healthful work environment that supports employees’ physical, social and emotional well-being. When these elements converge, the result is EE, which is capable of lifting a company to even greater financial heights.
How is EE impacted by harmonious integration?
Harmonious integration describes an employee’s ability to manage the demands of the modern work environment with his or her personal commitments, which is integral to emotional well-being. When companies are too focused on the bottom line and continue to raise the bar, the ensuing stress can sap employees’ energy, and, in our surveys, a better work environment and culture has supplanted compensation as the top reason for changing jobs among stressed employees. And when employees don’t have the financial resources or tools to sustain high levels of performance, frustration sets in and they ultimately burn out and check out.
How does EE influence business results?
Towers Watson studied the impact of engagement, enablement and energy across 50 global companies and found that those firms with EE had operating margins three times greater than companies optimizing only one of the contributing elements. To perform at their best, employees need positive and healthy working environments that help sustain high energy levels. For example, clear priorities, effective teams, respectful colleagues, and a balance between performance expectations and job pressures all contribute to employees’ sense of well-being on the job. In turn, positive well-being generates energy and supports sustained effort. On the other hand, motivation driven by the fear of losing your job or recessionary-induced pressures is unsustainable.
How can companies help employees learn the art of harmonious integration?
Employers can solicit feedback through employee opinion surveys and then initiate changes and offer courses to help employees increase their ability to deal with the pressure. But the best way to teach the behaviors that lead to harmonious integration is through mentoring and modeling. For example, our research shows that individuals who achieve harmony are good time managers, they know when it’s time to turn off the infiltration of e-mail and text messages and they have the ability to transition between work and personal commitments without getting frazzled. The best way to become effective at this new skill is to study others who are good at it and get feedback either through a coach or mentor. It’s also critical that executives recognize the problem and support change, before engagement erodes.
How can executives support, encourage and model harmonious integration?
Executives need to be cognizant of their own behaviors, because they impact everyone around them. In fact, based on our research, we’ve revised our executive Competency Atlas (Towers Watson’s competency dictionary) by adding ‘work and personal harmony’ to the list of must-have leadership characteristics and values. Let’s see how you stack up. First, do you send e-mails in the middle of the night? Do you require employees to be accessible on weekends or during vacations? Be conscious of the message you’re sending through your actions and respect others’ need for harmony when scheduling meetings and conference calls. Second, make sure your expectations are proportional and appropriate. It’s OK to have high expectations for your fellow executives, but don’t expect them to answer off-hour calls just because you happen to be available. Third, be a catalyst for change by endorsing training and mentoring programs and making cultural modifications based upon the feedback from employee surveys. Finally, if you’ve had the pedal to the metal during the recession, the early recovery period may be the perfect time to make additional hires and reduce organizational stress so employees can cope with the loss of work-life balance. And while doing that, don’t forget to take care of yourself.
Paul DeYoung is the Southern California director of Talent Management and Organizational Alignment for Towers Watson. Reach him at (949) 253-5215 or email@example.com.
Even the owner of a successful business can encounter an occasional financial setback and cash-flow problems, which prevent them from making the scheduled payments on their commercial property loan. But unless they take immediate action at the first sign of distress, they could end up jeopardizing the future of their business and forgoing the equity in their property.
Fortunately, committed owners with a viable business model may qualify for a loan modification, which gives them a chance to regroup or wait out an economic downturn by temporarily lowering their loan payments. However, owners need to do their homework and research their options before reaching a decision.
“Modifications are a great tool, but they’re designed to relieve a temporary situation,” says Seung Hoon Kang, senior vice president and chief credit officer for Wilshire State Bank. “If things don’t improve and owners fail to make the modified payments, then banks have the right to foreclose on the property or force a short sale.”
Smart Business spoke with Kang about the options for commercial borrowers who undergo a financial setback and the best way to approach a lender about a loan modification.
When should borrowers consider a loan modification?
Borrowers who run short of cash because of the poor economy or a prolonged seasonal downturn may qualify for a temporary reduction in their mortgage payments by requesting a modification. Businesses and individuals who own commercial properties such as strip malls, gas stations, car washes, hotels, motels, apartments or office buildings will be considered. But remember that borrowers are required to pass along any reductions to tenants, so everyone has the opportunity to recover. If a loan officer grants your request, your payments may be reduced for up to six months so you can continue operations. However, you’ll be required to repay the concessions once the economy improves, which is why a modification is only an interim solution.
How does a loan modification differ from a short sale or foreclosure?
A loan modification is appropriate when an owner wants to continue the business and preserve any equity in the property. If the borrower owes more than the property is worth, or doesn’t want to revive the business, then a short sale or foreclosure may be the best option. A short sale requires the lender’s approval, and allows the owner to sell the property for an agreed upon amount that is usually less than what is owed. If the bank forecloses, it assumes the property and the borrower will be forced to vacate and concede any equity. In some cases, banks may be willing to permanently modify a commercial loan by extending the length of the note or reducing the interest rate, which is the best solution for situations that are expected to exceed six months.
What should property owners know about the modification process?
Be sure to contact your lender at the first sign of trouble, because the approval process takes about four weeks. Realistically assess your situation and your options, since you’ll have to substantiate your inability to make your payments and the reasons why your business will thrive once the economy improves. Remember that lenders will consider your ambition and sincerity as well as your business plan, because it’s hard to revive a struggling business and long-term survival requires a committed and enthusiastic owner.
What’s the best way to approach a lender about a loan modification?
Make an appointment to meet with your lender and be ready to present your case by bringing a copy of your business plan, P&L and your latest rent roll, if the property is tenant-occupied. You’ll also need to provide a hardship letter that explains your situation and the reasons you can’t make your payments. In many respects, requesting a modification is like applying for a loan, because lenders will be evaluating your business strategy and the competition and assessing your ability to run the business as well as the feasibility of your model.
Why do so many modifications fail and how can business owners avoid a similar fate?
Borrowers frequently overestimate their ability to bounce back from a downturn and what will happen if they fail to make the modified payments. At that point, they lose the ability to control their own destiny, because the bank has the right to immediately foreclose on the property or force a short sale. Sometimes the situation requires more than a short-term fix, in which case the owner should consider other options and attempt to refinance the loan or negotiate a permanent modification.
Do you have any other advice for commercial property owners?
Do your homework and beware of advertisements from firms offering loan modification assistance, because they may paint an unrealistic picture of your chances or provide misinformation just to earn a fee. Listen to your loan officer, because he or she will know the best course of action after assessing your situation. Ask how each option will affect your credit and consider the long-term implications when making your decision. Finally, don’t ignore a financial setback or letters from your lender, because the situation will not go away and ignoring communications gives your lender the false impression that you simply don’t care.
Seung Hoon Kang is a senior vice president and chief credit officer for Wilshire State Bank. Reach him at firstname.lastname@example.org.
When there’s a lot on the line, companies expect executives to be expert negotiators and finesse a delicate compromise with board members or close a vital but tenuous deal with a strategic business partner. But sometimes things go awry even for veteran participants, as evidenced by the infamous botched merger talks between Yahoo! and Microsoft a few years ago, when Microsoft walked away from the deal after the Yahoo! CEO set the price too high.
Negotiators can be afflicted by a winner’s curse, overestimate their abilities, or fall prey to the common misconceptions and mistakes that can derail an entire session. Executives must constantly refresh and refine their negotiation skills to prevail, because when the stakes are this high, the opponents are formidable.
“We live in a society where everything’s negotiable,” says Dr. Asha Rao, professor of management for the College of Business and Economics at California State University, East Bay. “So if you don’t play the game well, you’ll lose.”
Smart Business spoke with Rao about the techniques that lead to successful negotiations and the common misconceptions and mistakes that may derail executives.
What are common misconceptions about the negotiation process?
We believe in fairness. In negotiations, professionals sometimes equate this with equality and assume that a good deal offers similar benefits to the participants, but it’s rare that both parties are equal coming into the session, and insisting on equality can shut down the talks without producing an agreement. One party may get a lot more out of it than another, but as long as each side achieves its primary goal, the gains don’t have to be equal.
Another common misconception centers on the notion that he who speaks first loses. If you’re prepared, why not make the opening offer? Doing so gives you the power to anchor the session and set the direction for the talks. And it provides a strategic advantage because it forces the other party to counter your proposal.
How can negotiators avoid typical mistakes?
These frequent errors will work against you, so avoid them at all costs.
- Failing to do your homework. You need to take a position that’s supported by facts, and failing to understand the issues before you enter a session can lead to misplaced confidence. Fastidiously research the issues before you begin, because great negotiators never wing it.
- Failing to identify interests behind positions. It’s easier to reconcile your differences if both parties realize why the other party wants something, and then focus on their common needs and interests. Rallying the participants around a common goal is a great way to break a stalemate and it keeps complex talks on track when the going gets tough. With common interests, negotiations can reopen as in the new successful deal between Yahoo! and Microsoft, where they integrate their businesses and build on common interests to challenge the market leader Google Inc.
- Succumbing to the winner’s curse. You may get what you ask for! Setting your aspirations too low may get you what you ask for but you end up overpaying or leaving money on the table.
What are the fatal flaws that derail experienced negotiators?
Don’t stand on false principle or let your ego get in the way, because negotiations aren’t about validating your self worth or advocating your beliefs. Your purpose is to get a good deal. Another grave error is adopting a take-it-or-leave-it position. Because it’s not an effective use of power, it sets the stage for confrontation, ends the discussions and forces the other party to walk away.
So what are the best practices and most effective techniques?
First, explain the reasons behind your position. Some experts maintain that this isn’t an appropriate technique, but the other party benefits when they understand your logic, and the information you provide may encourage collaborative problem-solving and fuel a compromise. Second, focus on multiple issues, not just one, because it allows the participants to set aside difficult problems, consummate small wins and build on their success. Third, always contemplate multiple scenarios in advance and prepare a series of fall-back positions. Develop your BATNA — best alternative to a negotiated agreement. A BATNA helps you build power, negotiate with confidence and recognize a good deal when you’re in the midst of an intense session.
Are there special techniques that help executives negotiate with a large group or board?
Identify your allies and the opposition. You definitely want to map the power and interests of each member, develop a strategy for approaching key players and focus your efforts appropriately. Plant your ideas and negotiate with individual members before the agenda is submitted to the forum, otherwise a group session can quickly deteriorate into an auction.
Dr. Asha Rao is a professor of management for the College of Business and Economics at California State University, East Bay. Reach her at (510) 885-4517 or Asha.Rao@csueastbay.edu.
Executives frequently face gut-wrenching decisions while seeking alternatives to cash-guzzling call centers. Off-shoring the work is a popular choice, but it eliminates jobs for U.S. workers and alienates customers who have to overcome language and cultural barriers while conducting phone transactions with overseas agents. Some companies have even relocated centers to lower-cost states or counties, but they are dismayed to find that the move produces only a temporary reprieve from exorbitant turnover and growing labor expenses, as competitors often follow and ignite a recruiting war.
While most executives continue to grapple with the problem, a few innovative companies have solved it by quietly tapping underutilized pools of talent and allowing the employees to work from home.
“The benefits of this model far exceeded the expectations of most firms who participated in our recent study,” says Gloria Gowens, director of Towers Watson’s Rewards, Talent Management and Communications initiatives for call centers. “Retention was so much better that brick-and-mortar cost savings were just the icing on the cake.”
Smart Business spoke with Gowens about the unexpected benefits of deploying virtual contact centers.
What can we learn from studying the success of early adopters?
We surveyed 16 companies, most of which utilized the model for a period of one to six years and deployed 18 to 1,500 home-based workers each. They expected to reap savings from closing or repurposing facilities, but, surprisingly, 75 percent discovered that home-based workers outperformed their on-site counterparts as measured by key performance indicators such as productivity, work quality and customer satisfaction. And, 40 percent found the engagement scores for home-based workers were higher than the scores for their counterparts in brick-and-mortar operations. Turnover of home-based workers averaged just 5 percent to 28 percent, which was an improvement when compared to the attrition rate for on-site agents.
Why is the virtual model so advantageous for talent management?
Essentially there are no boundaries when recruiting home-based workers, so employers can tap less-competitive or even rural areas to source the best talent. In fact, employees only need reliable high-speed Internet service, a quiet space to work and a landline phone, so the talent pool is practically endless. Working from home also attracts non-traditional part-time employees who need flexible hours, like students, teachers and stay-at-home parents, and who often have a hard time finding suitable supplemental employment. Benefit cost for some at-home workers tends to be lower, because they average about 20 hours per week. A key satisfier for home-based workers is that they don’t incur the ancillary costs of working outside the home like commuting, parking and business attire.
Is it difficult to manage a remote work force?
Contrary to popular belief, the data shows that remote workers don’t need constant supervision and in-person bonding opportunities to thrive and, though it sounds like a cliché, these employees have lower absenteeism and are more productive because working from home suits their lifestyle and preferences. New workers can be trained in the brick-and-mortar site, or in a virtual classroom. Thin client technology and automatic call distribution makes it easy to monitor agent activity, add or delete users, and route calls to home-based workers; in fact agents can even bump difficult calls to supervisors. Managers enjoy greater span of control since they communicate with employees via chat rooms, instant messaging and traditional conference calls; in fact, one innovative manager engages his group by holding virtual donut-eating contests. Best of all, some firms found it’s easier to staff difficult split shifts and they no longer worry about phone coverage on snow days.
How can executives assess the viability of transitioning to a virtual model?
Employers should conduct a feasibility study that considers the critical success factors and lessons learned by those with successful deployment experience; include these factors:
- Structural considerations. Develop the work force configuration model, deployment strategy and the projected costs.
- People considerations. Establish the desired candidate profile, recruiting and selection strategy, compensation and benefits structure and the performance expectations for remote workers.
- Process considerations. Consider employee training, scheduling, agent career paths and the communication process.
- Technology considerations. Assess the equipment requirements, tech support needs and the protocol for system downtime.
- Management considerations. How will team leaders coach the agents and keep them motivated and engaged?
What are the next steps once the feasibility study is completed?
Employers could launch a pilot program, assess the outcomes and refine the model before scheduling full deployment. Early adopters found that hiring new employees wasn’t the best way to test the model, because it compared the performance of rookies with veterans. Instead, allow experienced agents to work from home during the pilot and slowly integrate new hires, because it simulates a realistic scenario. They also resoundingly endorse the need for structured deployment, as it allows companies to optimize savings by strategically shuttering one call center at a time.
Gloria Gowens is director of Rewards, Talent Management and Communications at Towers Watson. Reach her at (949) 735-2933 or email@example.com.
After taking a turn for the worse during the recession, it appears that L.A.’s commercial real estate market is finally poised for a rebound. Banks are cautiously considering new loans, life insurance companies and institutional investors are wading back into the market and the FDIC plans to close its Irvine office in early 2012, which points to the improving health of the region’s banking industry.
But high unemployment, rent concessions and shifting consumer preferences could sabotage uninformed investors who inadvertently venture into unstable submarkets. It seems that while investors were napping, the rules changed, and big returns in commercial real estate are no longer guaranteed.
“Overall, commercial real estate is heading in the right direction, but it’s not the heyday of 2005 to 2006 when virtually every investment paid off,” says Rocco Pirrotta, senior vice president and manager of the Commercial Real Estate Group for Wilshire State Bank. “Investors need to do their homework and partner with a creative banker because, this time, your mistakes will definitely come back to haunt you.”
Smart Business spoke with Pirrotta about the opportunities and pitfalls awaiting local investors in today’s commercial real estate market.
Which submarkets offer the best deals?
After falling precipitously during the recession, several submarkets are starting to gain traction. First, the recession virtually halted the construction of new apartment buildings and condos, so apartment vacancies are starting to decline and rents are inching up, which will ultimately increase owner cash flow and may even boost property values.
Second, retail sales were up in the fourth quarter and landlords are granting fewer rent concessions, but consumers now prefer the convenience of one-stop retail centers and success hinges on local demographics as well as tenant mix and longevity. Industrial properties have been steady performers and container volume continues to rise at our local ports, but investors should be cautious about purchasing office buildings, as companies are still reluctant to hire, vacancy rates are high and experts say it will take two to three years to absorb the existing excess space.
Finally, avoid the hospitality sector, car washes and gas stations, because many of these businesses are still struggling.
What’s the key to evaluating prospective deals?
Investors can’t rely on superficial analysis; they must review data and confirm anecdotal market intelligence supplied by owners and brokers to accurately estimate their ROI.
- Rent rolls. Review a six-month collection history to see if tenants are making their scheduled payments and to expose disparities between scheduled and collected rents, which may indicate concessions. On the one hand, investors may be able to boost cash flow as rent concessions expire, but on the other hand, financially strapped tenants may be unable to pay the higher rents and they might request additional concessions if economic conditions don’t improve.
- Tenants. Are apartment dwellers working? Are suitable jobs available in the local area? Do retail centers have financially sound anchor tenants like banks and grocery stores that draw traffic and provide critical services? Centers could be in trouble if tenants rely on discretionary consumer spending, especially in economically depressed areas. Consider the local demographics along with each tenant’s business model and customer base as these underlying factors influence a property’s return.
- Lease terms. Banks have historically preferred long-term leases when evaluating commercial deals, because tenant longevity favors the buyer. Now most commercial leases average one to two years, which could be advantageous if tenants renew at higher rates, but short-term leases also allow viable tenants to negotiate a better deal or shop the competition and defect to other properties.
What else should investors consider before making a commitment?
Investors should ignore the national trends and focus on local economic conditions that directly impact commercial real estate submarkets, since our recovery is lagging behind other parts of the country. They should also spend an entire day at the property to assess the neighborhood, traffic flow, vacancies and competing projects to see if the property attracts an ample number of customers and prospective tenants. Finally, examine the owner’s recent marketing expenditures, because abundant giveaways and free rent could be a sign of a troubled property.
How can investors partner with bankers to secure a loan?
In this age of cautious underwriting, investors need a creative financial partner who understands the need for liquidity and is willing to consider options that satisfy the needs of both parties. For example, bankers used to consider future cash flow when determining funding limits, because they assumed the owner could raise rents to cover the increased debt. Now, bankers may need to offer a smaller loan, such as an earn-out loan, where future time-sensitive benchmarks allow them to increase the loan as occupancy rates or rents rise. The lender usually agrees to fund future loan increases at today’s rates, which protects investors in a rising rate environment. Collaborative evaluations and creative financing protect both investors and lenders in this new world of commercial real estate, where not every deal is a guaranteed winner.
Rocco Pirrotta is senior vice president and manager of the Commercial Real Estate Group for Wilshire State Bank. Reach him at (213) 427-6592 or firstname.lastname@example.org.
Executives were so busy slashing costs and meticulously revising the business plan to survive the debilitating recession, many of them overlooked the need to create a complementary talent management strategy.
Now their efforts to capitalize on the long-awaited economic rebound could be thwarted by employee defections and talent shortfalls, unless executives take immediate steps to align the disparate strategies.
“When employers institute furloughs and pay freezes and shift benefits costs onto employees it empties their emotional buckets,” says Rob Rogers, a Principal with Findley Davies, Inc. “The impact of reductions in rewards and talent management often goes undetected, until the damage is done.”
Smart Business spoke with Rogers about the process of realigning talent management with the business plan, before the window of economic opportunity closes.
Why should executives revise the current talent management strategy?
Now that the labor market is improving, top performers and workers with critical skills will be reviewing their recessionary experience and making stay or go decisions. They’ll consider whether they were treated fairly or if the company’s revised rewards continue to justify their energy, loyalty and trust. If the emotional damage is too great or the total rewards are too small, employees who possess critical skills or key institutional knowledge may be vulnerable to overtures from competitors. And since talent management refers to the holistic process of selecting, developing and rewarding human capital, it’s highly possible that many retained employees lack the necessary skills or knowledge to achieve the revised business plan or thrive in an increasingly demanding environment. To solve these challenges, employers must revitalize training and development programs and recalibrate total rewards to make sure the company’s talent management strategy complements the current business plan.
How can employers achieve emotional and intellectual realignment?
Assess the ability, willingness and motivation of your work force to thrive in the new economy by taking a series of pulse surveys to assess these critical areas:
- Intellectual readiness. Do employees possess the appropriate skills and competencies to help the company compete and meet evolving customer demands for new products and services? Can they help the company do more with less?
- Emotional readiness. Do employees understand the new business model and revised expectations? Have they embraced the need to sustain recessionary cost reductions and lower operating expenses? Are they engaged and ready to meet new challenges?
- Employee value proposition (EVP) effectiveness. Does the current EVP match employee preferences? Does the compensation program reward and motivate employees to achieve the revised business goals? Will the company maximize the ROI for rewards expenditures under the current structure?
How can employers close the gaps?
While it’s traditional to address proficiency shortfalls through employee training, mentoring and other educational programs, increased accountability is the only way to incite and sustain permanent change. Reformat the existing performance management system and employee goal-setting process to include the attainment of new skills and competencies. There is a tremendous opportunity for technology solutions to assist in this process. Don’t overlook the role of line managers in facilitating the change management process. Require supervisors to model new behaviors and actively support the evolutionary process. Although executives often hesitate to increase investments in training and development in an uncertain economy, the challenging environment provides an ideal opportunity to retool your work force. Research shows that employees consider opportunities for professional development to be an important component of EVP.
How can employers motivate employees by aligning rewards with business outcomes?
Since employees consider monetary and non-monetary rewards when assessing the return for their contributions, create a complete inventory of rewards and gauge their effectiveness by mapping each component to the goals in the business plan. This will not only expose gaps and troublesome misalignment but also allow employers to ascertain whether the rewards are capable of inciting goal-oriented behaviors and activities. For example, employers may want to offer bonuses for improving customer service or reducing R&D costs if these goals are critical to achieving vital business outcomes. Be sure to involve employees in the rewards discussion, because our research shows that employees are capable of making prudent choices when they are armed with the facts and employers are often surprised to find that low-cost benefits like flexible schedules or telecommuting do a better job of motivating and retaining employees than higher-cost perks.
How can executives support realignment?
Closing gaps and bolstering engagement requires an inclusive and holistic communications program that starts at the top of the organization. Executives must provide a road map so employees can align their efforts with the company’s goals. The leadership must clearly articulate the new expectations and the need for fresh behaviors, so employees don’t revert to old habits as the economy improves. Finally, be on the lookout for change, so you can recognize new habits and refill employees’ emotional buckets. Remember, a misaligned talent management strategy can be temporarily camouflaged by a rebounding economy and, by the time it surfaces, it’s often too late to prevent the departure of valuable resources.
Rob Rogers is a Principal with Findley Davies, Inc. Reach him at email@example.com or (216) 875-1900.