Paul R. Harvey

Saturday, 26 July 2008 20:00

Double-edged education

Many Executive MBA graduates say their experience profoundly transformed both their professional and personal lives. And many look back at their EMBA journey as the most fulfilling period in their educational career, leading them to new challenges and preparing them for increased leadership responsibilities.

But what about the second constituency served by the Executive MBA degree — the employers?

“The challenge for all EMBA programs is to serve both constituencies with distinction,” says Dr. Michael Salvador, Ph.D., chairman, Department of Leadership and Executive Development, Coles College of Business, Kennesaw State University. “And the result should be a truly exceptional value opportunity for the contemporary EMBA student.”

Smart Business recently spoke with Salvador about how EMBA programs are addressing the specialized needs of experienced professionals seeking an MBA and building a pool of high performers ready to fill the needs of the business community as the baby boomers retire in record numbers.

How do EMBA programs differ from other advanced management degree programs?

EMBA programs are specialized venues for midcareer management training, differing from other advanced management degree programs mostly in the areas of curriculum content and delivery models. The first differentiator is the cohort class structure, meaning EMBA students typically join a single group of students at inception, called the cohort, which stays together as a group throughout the entire curriculum. Some programs additionally subdivide the cohorts into permanent teams.

The second difference is specialized curriculum. Because of the diversified background and level of work experience of its students, a typical EMBA program is expected to cover a wide range of business acumen learning and interpersonal skills development delivered in smaller, more compact teaching modules to fit the broad curriculum into weekend classes.

A third difference is a highly integrated curriculum to assure the students are gaining an executive perspective of the pedagogy.

Who is the typical EMBA candidate?

Unlike traditional MBA programs, the typical EMBA student averages 35 to 40 years of age, with 10 to 15 years of post-university work experience. Accordingly, attaining the skills required to effectively lead others is a primary element of the value proposition for the EMBA student-customer. This involves not only learning what has been codified about leadership, per se, but also acquiring the critical interpersonal skills associated with successful leadership execution.

What separates EMBA faculty from traditional MBA faculty?

The ideal EMBA faculty resources are educators with actual business experience to augment their academic credentials. Many EMBA programs supplement their academic faculty with members of the business community who serve as guest lecturers.

How are EMBA programs serving employers?

The case has never been clearer. Several factors have emerged in recent years to accentuate the relevance of EMBA programs to the strategic agenda of the business community. First, the globalization of business means employers will need a new breed of midmanagers conversant in the global enterprise, experienced in multinational virtual teaming and willing to continuously learn. Second, recent dramatic demographic population shifts, such as the retirement of the baby boomer generation, are creating a mentoring and coaching void in the workplace that EMBA students are being prepared to fill. Finally, the next generation of senior managers is far more likely to engage in career mobility than their predecessors, meaning that retention of high performers is a crucial initiative for organizations.

EMBA programs historically have been a proven way for an organization to support identified high-performing midmanagers whom the organization wishes to retain while, at the same time, influencing the selection of the particular program that best suits its own specific needs. In many parts of the world, some universities have even been engaged to deliver EMBA programs in-house to actualize this value proposition.

What is the greatest business challenge addressed by EMBA programs?

With succession planning having been identified in some business publications as one of the greatest challenges facing business in the new century, new senior managers need to be equipped to lead without the benefit of in-house mentors and coaches. And these new senior managers need to know how to mentor and coach others. Many EMBA programs are intensifying their focus on this critical ‘soft skill’ development.

Other trends are clearly just beginning to materialize, and their impact will be significant. While graduates of business schools around the world continue to populate the entry-level employee ranks with future managers via their traditional MBA programs, EMBA programs are uniquely positioned to create exceptional value for experienced managers, their current and future employers, and the business community at large.

DR. MICHAEL S. SALVADOR is chairman, Department of Leadership and Executive Development, Coles Executive Education Programs, Coles College of Business, Kennesaw State University. Reach him at (770) 499-3685 or Mike_Salvador@coles2.kennesaw.edu.

Wednesday, 25 June 2008 20:00

Motivational momentum

The euphoria and promise of a new employee’s first few weeks can be difficult to maintain. Recent studies have shown that, over time, nearly 70 percent of employees become disengaged with their organizations.

These numbers suggest a gap in leadership’s ability to build on the initial energy of a new hire. Workers always hit the ground running, but without a mix of motivation, inspiration and a clear vision of the big picture, they soon run out of steam. So how do the best leaders maintain motivational momentum?

“Every day, our employees leave us clues or triggers about what motivates them,” says Mark Paskowitz, senior consulting partner, The Ken Blanchard Companies® in Escon-dido. “We need to be aware of what they are.”

Smart Business recently spoke with Paskowitz about the perils of a one-size-fits-all motivational strategy and why the best leaders know how their followers are feeling when they come to work on Monday morning.

How can a motivational strategy backfire?

I remember early in my career as a new supervisor wanting to acknowledge one of my peak performers for a job well done. Since I was extroverted in my personality and communication style, I assumed that my employee would like to be acknowledged in front of 50 of her peers. Immediately after the public celebration, she pulled me aside and said, ‘Never do that again.’ She was an introvert and didn’t like public celebrations. As a new supervisor, it was an early wake-up call, which taught me one size doesn’t fit all. What motivates one person may not motivate another.

What practical tools and insights can managers apply immediately?

It starts when employees first join your organization. How do you maintain their initial excitement about joining the company? Their immediate manager can make all the difference in the world. I remember, before payroll automation, a manager who would leave positive comments regarding my performance attached to my paychecks. It was a small and simple thing, and yet, it was very powerful. People want four to five positive strokes to one redirect/reprimand. Redirection should be focused around keeping the energy positive and delivered while not punishing someone who is still learning. You learn a lot about organizational culture and leadership when people make mistakes. It is human nature to largely focus on people making mistakes instead of when they do a great job. Praise is one of the most underutilized skills that managers can always do more of.

What are some different forms of motivation?

Intrinsic motivation focuses on activities an employee enjoys doing that bring them meaning, fulfillment and enjoyment. The key is being able to tie the intrinsic needs of the person with critical performance indicators. Can this worker find fulfillment with what he or she is doing while providing value and high performance for the organization? The critical question to ask as leaders is how do our employees feel when they come to work on Monday morning?

Extrinsic motivation focuses on external rewards or outcomes an employee receives for doing a job well. Whether it’s a promotion or earning a well-deserved raise, the key is to build the person’s confidence and competence so he or she performs well on a day-to-day basis. The focus should remain on what we can do to help our employees achieve success.

What motivational methods are best from an organizational perspective?

One of the big motivational factors for organizations is having individuals understand how what they do is tied to something bigger or how what they do ties to the business strategy and organizational purpose. You must ask yourself, ‘Do people rally around the vision of our organization?’

Another best practice is to tie great performance into the performance management process. A lot of people fear the end of the year review because they aren’t sure what is coming. By having frequent and quality conversations, we ensure that employees are aware of what is going on. That way we celebrate having employees at the end of the year earning an A. The key is to develop a systematic process instead of an annual event.

How can leaders define a process for motivational strategies moving forward?

In partnering and coaching our employees, we must take the time to intimately get to know them — letting them know we care and continuously inquiring about their interests and well-being. The old saying, ‘People want to know you care before they care how much you know’ is so true. You should develop a series of courageous and compelling questions to help discern your workers’ motivations. Some questions to ask include: What brings them energy and fulfillment? What do they strive for in a great working relationship? How do they learn successfully on the job? Where do they see themselves going in the future? How can we best support them? These are a sampling of the questions we need to ask over time to maintain motivational momentum.

MARK PASKOWITZ is a senior consulting partner at The Ken Blanchard Companies. Reach him through The Ken Blanchard Companies Web site at www.kenblanchard.com/paskowitz.

Sunday, 24 February 2008 19:00

Boardroom basics

Aboard chairman of a multibillion-dollar company stood up in front of his peers at a dinner meeting and announced, “I don’t know what my job is.” A CEO of a Fortune 500 company made a similar confession to dozens of other CEOs, stating, “I sit on the board of five other companies, and I don’t know what I’m supposed to do as a director.”

With 150,000 individuals serving on boards in the United States, it begs the question: How many directors fully understand their duties and responsibilities?

“The confessions by the chairman and CEO surprised me, but I continue to hear the same thing from directors time and again,” says Paul Lapides, director, Corporate Governance Center, Coles College of Business, Kennesaw State University. “A few years ago, I argued that between 75 and 80 percent of directors do not know the purpose of the board, fully understand their duties or know how to execute those duties. Today, that number is much lower.”

Smart Business spoke with Lapides about the characteristics of a great board, the makeup of a dynamic director and how directors can monitor themselves for continuous improvement.

What are the benefits of assembling a board of directors?

Good boards have an interest in seeing the company succeed. With a diverse set of experiences, directors exercise their individual and collective knowledge, insight and judgment to increase the speed and improve the quality of decision-making by the CEO and other senior executives. Directors also come to the board with relationships that can benefit the company. For example, a director’s reputation can enhance the value of the company to shareholders, while also instilling confidence in employees and customers.

What are a board’s greatest responsibilities?

The board’s overriding responsibility is to promote and protect the best interests of the corporation and its stockholders, while considering the interests of other external and internal stakeholders, such as creditors and employees. Legally, the board does this by overseeing and directing the conduct of the company’s business affairs.

There are three main areas of responsibility for a board of directors: hiring, retaining and monitoring the CEO and other senior executives; overseeing the corporation’s strategy and processes for managing the enterprise, including succession planning; and monitoring the corporation’s risk and internal controls, including the ethical tone. In executing these responsibilities, directors need to employ a healthy level of skepticism.

What are the top characteristics of the most effective board members?

The first is independence. An independent director has no current or prior professional or personal ties to the corporation or its management other than service as a director. Independent directors must be able and willing to be objective in their judgments. Directors should possess relevant business, industry, company and governance expertise, reflect a mix of backgrounds and perspectives, and have unblemished records of integrity. Other characteristics to consider include time availability, interest in the industry and business, functional experience, previous board experience, access to capital, and name recognition.

How can a board member monitor himself or herself for continuous improvement?

While I have been concerned about directors who know very little about their job, I have become even more concerned by directors who are overconfident, who say or believe they are ‘great’ directors. Those who know they don’t know can learn. The ‘great’ directors often get very sloppy. Being a director is not about greatness. It is about devoting time and attention to listening, learning, advising, adapting, inspecting and knowing when to say ‘no’ or ‘not now.’ With this in mind, all directors should receive detailed orientation and continuing education to assure they achieve and maintain the necessary level of expertise. Also, the board should have procedures in place to evaluate on an annual basis the board committees, the board as a whole and individual directors.

When should an entrepreneur form a board of directors?

The best time to start thinking about a board is when an individual or group of individuals is thinking about starting a business. While most people say they don’t know what they would do with a board, how to organize it or even what the business will be yet, this is still the right time to start thinking about a board. You may not need a ‘formal’ board of directors yet, but you could benefit from the wisdom of successful business executives, company founders, and leading experts in the industry or business you are considering entering or have just entered. When looked at this way, most people recognize that the time for seeking out knowledge, insight and judgment is much earlier. Maybe it will be from a few individuals, an ‘informal’ group of advisers, a more formal board of advisers, or a board of directors. Advisers and directors can make a tremendous contribution to your success. In business, as in life, wise counsel can help your plans succeed.

PAUL LAPIDES is director of Corporate Governance Center and a professor of management and entrepreneurship, Coles College of Business, Kennesaw State University. Reach him at (770) 423-6587 or plapides@kennesaw.edu.

Tuesday, 29 January 2008 19:00

The science of change

Today’s spotlight on business speed and agility is magnifying the shortcomings and frequency of poorly executed change initiatives. The truth is that nearly 70 percent of all change implementations never bear fruit. There are many documented reasons why change initiatives fail.

“Often, the people leading the change think that announcing change is the same as implementing it, so they don’t pay attention,” says Patricia Zigarmi, Ed.D., organizational change expert and Founding Associate of The Ken Blanchard Companies. “They don’t surface people’s concerns regarding change.”

Smart Business spoke with Zigarmi about how change elements are predictable and why leaders of successful change initiatives involve a broad-based team to address employee concerns on the front end.

Why do change efforts fail?

A big reason why change efforts fail is leaders often don’t surface people’s concerns. The immediate reaction when people are asked to change is, ‘What am I going to give up?’ They’re talking to each other about those concerns but not to the change sponsors. Leaders need to eavesdrop on the conversations about concerns people are having. Another big reason change fails is because the people who are asked to change are not involved in the planning for it. These employees feel closest to the customer, the work processes and the problems at hand, and they want to influence the changes that are being architected at the top.

Some initiatives fail when there is no communicated sense of urgency or when the business case for the change isn’t made clear. People need to see a gap between the what-is and the what’s-possible. People are smart — if you help them understand the change from the standpoint of the person deciding the change, they’ll come to the same conclusions about compelling reasons to change. Other factors for failure include misaligned systems within the company and change leaders who are not credible or trustworthy.

Are there predictable reactions to change?

Absolutely. People have predictable and sequential concerns with change. In the 1980s, I worked on a study to find out why a set of educational initiatives tested extremely well, but when they were rolled out, they didn’t achieve results on a mass basis. What we found out was that nobody had surfaced the concerns of the teachers with regard to the changes. We created a model and ended up proving in subsequent change efforts that reactions to change are indeed predictable and sequential.

How can change leaders apply this model?

The model delineated six buckets of concerns with change, and if leaders would only pay attention to the first three, the rest of the change would take care of itself. The first bucket is around information concerns. People don’t want to be sold on the change. They want to know what it is, what you are seeing and why things have to change. The second bucket involves personal concerns. They’re the most ignored because they sound like whining, but what they really are, are clues about resistance to the proposed change. People don’t want to know why the change is good for the company; they want to know why it’s good for them, and they want to know if they will be able to master the new skills the change requires. The third bucket is around the nitty-gritty implementation concerns like system alignment, best practices and the daily mechanics of making the change happen.

The remaining buckets of concern are impact concerns — does the change make a difference; collaboration concerns — who else needs to be on board; and refinement concerns — what’s even better than what you’re doing right now?

How can leaders best communicate change?

I think the minute people sense a crack in senior leadership support for the change, they think they don’t have to get on board, or they believe they can wait around and see what happens. It’s really important for dialogue to happen around the change, at the top. What is the compelling case? What is the vision? What is the picture of the future if this change were to be successfully implemented?

The real need here is for leaders to speak with one voice, to communicate the same message, no matter who is communicating. Leaders must explain the priority of a change against all the other initiatives going on in the company. Leaders also should express trust and confidence in the decisions of their colleagues because if that doesn’t happen, the change is doomed from the front end.

What are the key steps to a successful change initiative?

Top-down change efforts appear to get off to a faster start, but many times, the reality is all of the details aren’t thought out and ultimately the change doesn’t get implemented. Leaders need to listen to people’s concerns and find ways to address them. They need to create a compelling business case and expand involvement and influence to gain the buy-in of those impacted by the change at all phases of the change process. A high-involvement, collaborative change effort dramatically increases the probability of a successful change initiative. <<

PATRICIA ZIGARMI, Ed.D., is an organizational change expert and Founding Associate of The Ken Blanchard Companies, a global leader in workplace learning, productivity, performance and leadership effectiveness. She can be reached through The Ken Blanchard Companies Web site at www.kenblanchard.com/patzigarmi.

Sunday, 26 August 2007 20:00

What&#x2019;s behind that wall?

All companies in the United States have pollution liability exposures. From construction to oil and gas exploration to banking, the potential for pollution issues that could affect a company’s bottom line is endless. Property owners are scrambling to mitigate these exposures.

“A major problem occurs when sales of valuable commercial real estate are hindered because of known, suspected, or unknown environmental conditions,” says Joseph Kulak, managing director, National Environmental Practice, Hilb, Rogal & Hobbs. “Environmental insurance coverage simplifies property transactions by removing difficult environmental issues from the negotiations.”

Smart Business spoke with Kulak about how the use of environmental insurance can alleviate pollution liability concerns and how new federal regulations are changing environmental liability reporting and accounting for public companies.

What are common and hidden environmental exposures?

Contractors have on-site operational exposures such as silt runoff and working around underground utilities and pipelines. The oil and gas business impacts the environment from drilling operations, ground-water contamination and waste stream mismanagement. Property managers and real estate portfolios have exposure from underground storage tanks and mold.

In the past few years there has been a large amount of publicity given to mold. So many claims have been filed in various state and federal courts that the insurance industry has specifically responded by excluding coverage for mold related claims.

What is the basis for mold concern?

The combination of the dramatic increase in construction defect litigation, the escalation of expenses for water damage, modern building materials, and increased public awareness of the health effects of mold exposure has resulted in a significant new liability for property owners to manage.

Building construction practices during the 1970s, ‘80s, and ‘90s resulted in buildings that are tightly sealed, but may lack adequate ventilation, potentially leading to moisture buildup.

How should a company safely approach a property transaction?

A Phase I Environmental investigation provides a glimpse into the history of a property but offers no protection. Companies are turning to real estate transaction coverage as a cost effective method to mitigate exposure for all types of commercial and industrial property transactions. It is most often utilized with transactions involving properties that have a higher risk of environmental exposure including those located in areas of former and existing commercial and industrial development.

How does insurance facilitate real estate transactions?

The risk of environmental liability stigmatizes property and makes developers, investors, and lenders uncomfortable or unwilling to acquire, finance, or redevelop the property. Transaction insurance coverage is utilized to promote sale, investment, and redevelopment by transferring environmental risks away from owners and purchasers to an insurance policy.

What are the benefits afforded by environmental insurance?

Environmental coverage provides broad protection against potential environmental liabilities including legal expenses and defense costs. Coverage is available for known and unknown environmental conditions, residual contamination following cleanup, and potential impacts from off-site sources.

This insurance also includes claims arising from federal, state, and local statutes including changes to existing laws and regulations made after the policy inception date. Additionally, insurance may substitute for or augment environmental indemnity agreements. Protections afforded by these policies are transferable to future property owners, thereby facilitating “full-value” future resale.

How are new environmental-related regulations altering certain accounting practices?

In the wake of numerous corporate financial scandals, Congress has begun to question the adequacy of existing SEC rules and policies. Investors need and deserve increased transparency. Corporations are being put on notice to establish protocols for identifying, tracking, estimating and judging the materiality of environmental matters. Sarbanes-Oxley requires that CEOs and CFOs submit written certifications of their company’s quarterly and annual SEC reports as well as the procedures for preparing and disclosing the required information. FAS 143 clarifies the need to recognize environmental related Asset Retirement Obligations (AROs). What is at stake? Shareholder suits, personal liability of directors and officers, financial re-statements, SEC investigation and violation of debt covenants. Clarifying environmental liability and risk may be a complex task, but it is a task worthy of the effort.

JOSEPH KULAK is managing director, National Environmental Practice, Hilb, Rogal & Hobbs, in Plymouth. He can be reached at (610) 203-5922 or joseph.kulak@hrh.com.

Sunday, 26 August 2007 20:00

A basis for worry

Prior to 1978, buildings and property in California were assessed each year based upon their fair market value.

Proposition 13 stopped that.

Approved in June 1978 by 65 percent of the California voters, Proposition 13 enacted Section 2 of Article XIIIA of the California Constitution and provided for a property acquisition value assessment system.

Under the revised system, property values are assessed upon market value when there is a change of ownership or by new construction. Thereafter, the taxable value of property can increase annually by no more than the rate of inflation or 2 percent, or whichever is less. The current tax rate fluctuates statewide between 1 percent and 1.2 percent.

“The biggest injustice of Proposition 13 to office market tenants is the real estate tax pass-through,” says Craig A. Irving, principal, Irving Hughes. “If your company moves into a building with a low tax basis and that building sells later at market, you’re exposing the company to a potentially huge increase in occupancy costs.”

Smart Business asked Irving to illustrate some of the facts about real estate tax pass-throughs and the devastating effects they could potentially have on office space lessees.

How are lease costs determined?

Typically a tenant signs a lease for a defined period of time — three-, five- and 10-year leases are most common. The first calendar year of the tenant's occupancy determines the base year for the operating expenses the landlord pays, and each subsequent year, the tenant pays additional rent for any incremental increases in expenses over the base year aggregate.

So as the cost of supplies, insurance, janitorial contracts, electricity and other maintenance expenses rise, the landlord passes those increases directly to the tenant. This is an inflationary hedge by the landlord. Never mind that a landlord likely collects 3 to 4 percent increases each year in the base rent and possibly parking revenue.

What is causing a large area of exposure for office tenants?

We represent tenants in office leasing and protect them in as many financial areas as possible. Rent and tenant improvements are the primary areas of focus for most tenants and brokers, but financial pitfalls lurk in many other areas of a lease transaction. None is more dangerous than the real estate tax pass-through.

How do real estate tax pass-throughs come into play?

Tenants pay rent and provide landlords the revenue to pay expenses, the mortgage and, in most cases, a return on their investment. Tenants, and the rent they pay, create the value in the buildings they occupy. The real estate tax pass-through creates a huge exposure for tenants because, under Proposition 13, every time a building is sold, it is reassessed for real estate tax purposes. The new value, and the new incremental tax base, gets passed directly through to the tenants. With buildings selling for higher and higher prices these days, tenants are getting hammered with significant real estate tax pass-throughs.

Can pass-throughs cripple an organization?

Here’s an example: Let’s assume a tenant signs a 10-year lease in 1999 for 20,000 square feet. The tenant receives a 1999 base year for operating expenses that totals $10 per foot per year in costs to operate the building, including property taxes of $1.80 per year based on an assessed building value of $150 per square foot. The fact that this tenant signed a lease for 10 years increases the value of the building and, five years into the lease, the landlord gets an offer to sell the building for $400 per foot. The seller makes a fortune and never looks back.

The new assessed property tax value after the sale is $4.80, and the difference between the base year assessed value and the new value is $3 per year, or 25 cents per square foot per month. This difference is now passed on to all the tenants in the building. In our example, the tenant will have to start paying an additional $60,000 per year for the remaining five years on the lease. This significant impact on the tenant's bottom line was probably never anticipated or expected.

What can be done about this?

Almost nothing. Proposition 13 tax protection is rarely negotiable unless a tenant has a lot of leverage from occupying a significant portion of a building, has exceptional credit and is in a tenant-favorable market. When weighing different options in the market, it’s important that tenants understand the cost basis of each building they are considering. Cost basis varies from building to building and submarket to submarket. A contingency must be considered if, on the surface, two buildings offer the same economic package, but one building has half the basis as another and Proposition 13 protection is not available. Tenants must understand the potential downside cost in the event their building is sold out from under them.

CRAIG A. IRVING is a principal at Irving Hughes in San Diego. Reach him at (619) 238-4393 or craig@irvinghughes.com.

Sunday, 26 August 2007 20:00

Online assessment

What does it mean to hold an online degree? This hot topic has been debated since the initial Internet-based educational programs debuted in the mid-1990s and began sending graduates into the work force.

Could these degrees someday be viewed as equal to traditional in-class educations or possibly become the preferred method for training high-potential employees?

“There’s nothing magical about a classroom education — it’s just the way we’ve always done things,” says Tim Blumentritt, Ph.D., online programs director, Kennesaw State University, Coles College of Business. “Considering the latest technologies, the ability to communicate with and educate students through an online course actually can be superior.”

Smart Business spoke with Blumentritt about how technology, connectivity and a generation of Internet-savvy collegians may soon be the key to removing the stigma attached to online education.

What recent advancements have increased the popularity of online degrees?

Adult learners have become more comfortable with this type of communication and are willing to depend on it for managing finances and communication with friends. Also, the available technology is so much cheaper, and the Internet has become so much faster and more efficient that we’ve been able to create far more robust teaching tools, like Web conferencing and captured presentations.

Does a stigma exist regarding online degrees?

I believe there still is and, in some respects, for good reasons. The Net has created tremendous opportunities for people to provide nontraditional forms of education. While I respect all efforts to offer and pursue further education, some of the first online education providers were not all that substantive. But people love the convenience of online learning and are becoming increasingly familiar with technology. Traditional universities have begun waking up to these possibilities.

We are now transitioning to combining this somewhat novel way of distributing education and engaging students with the same level of rigor traditionally associated with in-class degrees. There are some very smart people from established institutions who believe this can work, but until we get a substantial population of graduates out there doing good work, we’re not there yet.

How do employers view today’s online degrees?

Some people still hold the view that if you have on your resume an online degree, it will be devalued. That’s just the way it is. But most schools, including ours, are attempting to differentiate the idea of getting an online degree from getting a degree through online courses. That’s a small difference in terminology but a big difference in meaning. If our institution can offer degrees with the full affiliation of the Board of Regents of the University of Georgia, for example, and the full backing of the AACSB International — the most rigorous accreditation process in business education — then we can suggest that the delivery method is somewhat irrelevant.

Who are prime candidates for online degrees and certifications?

The first are the traditional college-aged students who are most comfortable communicating through Internet-based mechanisms. They’re likely to intermingle online courses with in-class courses. The second group consists of people who are completing degrees, those who started their education some years ago and had to stop their education prior to getting a degree. A third group is the relatively small population of people looking for a full online education.

For businesses, online courses are an excellent method for developing high-potential employees who simply lack the appropriate degree. It’s a credible way for them to complete those degrees without upsetting their normal time commitments to their employers.

Can an online education actually top a traditional classroom experience?

Absolutely. Instructors are assumed to be experts. But the key for a good education is knowledge transfer. One of my favorite quotes is, ‘The most serious error in communication is the illusion that it has taken place.’ The idea being that simply because one person in a group is smart, and they are leading the discussion, that everybody else will be smart thereafter.

The latest iteration of online education uses much more powerful levels of communication. Voice recordings can be added to PowerPoint presentations, so students get the same content as a traditional lecture. New software can capture screen shots of Web pages and integrate active Excel sheets that are synced with the professor’s notes and other course content. Plus, all of this material can be posted to a course Web site, so it can be accessed as many times as necessary for the student to learn the material.

How will online training change the future business environment?

Tradition is often a desirable characteristic for universities. But distance communications and online activities are absolutely standard in almost every industry. This suggests that business schools should be training future managers to be successful in an online world. We have to make sure our educational systems prepare people to work in electronic environments.

TIM BLUMENTRITT, Ph.D., is online programs director, Kennesaw State University, Coles College of Business. Reach him at (678) 797-2075 or tblument@kennesaw.edu.

Wednesday, 28 February 2007 19:00

Energy envisioned

Energy is a finite commodity affected by a multitude of trends. As a result of economic growth, increasing third-world needs, changes in weather patterns and expanding government policies, it’s clear that both energy providers and consumers must learn how to squeeze more power out of less product.

While the growth of biofuels, nonhydroelectric renewable energy sources and construction of additional nuclear power plants will impact future energy demand, the U.S. Energy Information Administration (EIA) projects that — instead of shrinking — oil, coal and natural gas will provide roughly the same share of the total U.S. primary energy supply in 2030 that they did in 2005.

“We are going to see a continuation of energy prices going up 10 percent to 20 percent every two years,” says John Barnes, chairman and CEO of B&R Energy LLC, “and the movement of energy-intensive activities to where these commodities are less costly.”

Smart Business spoke with Barnes about the current and emerging trends that will shape the future of energy in the United States and worldwide.

What is the projected demand for gas, oil, and alternative fuels by 2030?

It is projected that we’ll need 120 million barrels of oil per day, up from the current 85 million. Oil demand increases at about 2.5 percent per year. Gas demand goes up at approximately the same rate, but to some extent, is affected by price. With gas and oil expected to supply an estimated 85 percent share of the 2030 energy market, it’s going to be tough for renewable energies and alternative fuels to do much more than hang on to their current share.

How will weather trends impact energy production and demand?

There are still a multitude of weather factors that we can neither accurately predict nor understand. For example, global warming advocates and weather forecast models predicted that 2006 would prove to be the worst hurricane season in the history of mankind. But, basically, there weren’t any. And in spite of those who would like there to be, there simply is neither scientific consensus nor scientific proof that global warming is a reality.

Hurricanes have up-cycles and down-cycles every 20 years. We’re currently in an up-cycle, so we’ll have some hurricanes. With 20 percent of our natural gas products and quite a bit of oil production taking place in the Gulf of Mexico, we will have scenarios like Katrina and Rita when our offshore production is impaired, which will reduce some domestic supply for a period of time.

What role will the government play in future energy trends?

There’s a lot of discussion in Congress about the tax relief that was granted to big companies so they could invest in highly speculative deepwater drilling in the Gulf of Mexico. Now that they’ve found more oil there, some politicians are saying, ‘We didn’t really mean that!’ The government will have to provide more tax relief and incentives for exploration and drilling, or we are going to head toward more foreign dependency and higher prices. Companies can’t drill for oil and gas with money they don’t have. It’s that simple.

The government also must encourage energy economies and efficiencies, although the price of energy is doing that by itself. There are very few businesses and buildings that have not implemented energy-efficient lighting, heating and cooling to reduce their energy costs, and many state public utility commissions are introducing legislation to further drive those efforts.

How will technology impact oil and gas trends?

Advances in natural gas production are unlocking large areas of unconventional gas, like the gas fields discovered in north Texas’ Barnett Shale. More than half of the growth in natural gas over the next 30 years will likely come from Barnett and other yet-untapped unconventional reservoirs.

Some additional trends include liquefied natural gas (LNG) and the reappearance of a fuel technology called Fischer-Tropsch that helped Germany fight World War II. Countries like Iran, Algeria and Australia have plentiful natural gas but soft natural gas markets. LNG plants in those countries, costing several hundred million dollars, can liquefy natural gas so it can be shipped abroad in extremely expensive ships. It is then deliquefied and placed into pipelines. Of course, this only adds to our foreign energy imbalance.

Fischer-Tropsch is a method of turning coal into gasoline and diesel. South Africa did extensive research on it during its economic embargo during the apartheid years. Considering that the U.S. is the Saudi Arabia of coal, there will probably be some domestic research and government funding for harnessing this technology for expanded applications.

JOHN BARNES is chairman and CEO of B&R Energy LLC. Reach him at john_barnes@BandREnergy.com or (214) 445-6808.

Wednesday, 31 January 2007 19:00

The benefits of outsourcing

As companies sink their teeth into the new year, it may be time to perform a profitability review. The competition is heating up, and many mid-size companies are consolidating costs and streamlining operations to compete with larger organizations. When was the last time you took a close look at the functions of each department in your operation?

A thorough review may identify departments that are perennial cost centers, departments that have transitioned from a profit center to a cost center, or functions like financial and SEC reporting may be perfect candidates for an outsourcing partnership. “It’s an opportunity to find a partner who has the ability to help you achieve your strategic objectives without having to worry about back-office functions,” says Cathy Thomas, a partner with Armanino McKenna LLP in San Ramon, San Francisco and San Jose. “Outsourcing allows companies to control costs and focus on their core competencies.”

Smart Business spoke with Thomas about how to identify and implement an outsourcing program that provides flexibility, expertise and cost benefits.

How can a company best determine if it would be more cost-effective to outsource?

Typically, a company would perform the analysis to determine if a function requires an in-house skill set to keep the operations going. An emerging example of this is the SEC reporting required for public companies under Sarbanes-Oxley. A lot of activity happens each quarter and at year-end, but many times not a lot goes on in-between. Many companies are choosing to outsource that expertise because they don’t need a full-time person. It’s more cost-effective for them to use an outside source that is trained to handle these functions every day. The cost savings and effectiveness of this partnership can be dramatic.

What other departments can benefit from an outsourcing partnership?

Payroll outsourcing has been around for a long time. It is usually one of the first areas a growing company looks to outsource. Tax and financial accounting positions and IT functions are all areas that can benefit from outsourcing.

IT outsourcing can be extremely effective. Often, a company needs a well-trained technician for a certain number of hours to deal with a specific issue but may not need a full-time employee. It can be difficult and costly for companies to keep an in-house IT programmer trained and competent at all the systems they have running, because of their specialized nature.

There is also a continuing trend toward outsourcing a piece, or even the entire function, of the HR department. For years, companies have been tapping boutique HR firms to handle certain specialties within that department with great success.

How do clients respond to outsourced departments?

It depends on the service line, but it’s like any other client service — there are always skeptics. Some people are more willing than others to work with consultants. Outsourcing within the U.S. can be successful if the executives that are fostering the change state it up-front. If the tone at the top is well conveyed to the service group that the outsource company will be assisting, there is usually a fair amount of support.

Outsourcing can also raise many political and security issues that have to be addressed.

What are the key benefits of using an outside firm?

The main benefit to the client is having somebody on call that is trained and technically competent but doesn’t have to be compensated on a full-time basis. It’s the provider’s job to be fully trained and up to speed on the necessary skill set. The client is getting the best of both worlds in terms of cost and competency.

In the end, if you add up the salaries, benefits, and the cost of training, it’s generally cheaper to use outsourcing — and usually you get a better product.

What steps should be taken to switch a service to an outside firm?

Initially, it is important for management to assess who will be impacted by an outsourcing plan. The communication and the reasons given for the outsourcing should be made in a very thoughtful manner. Employees will react differently depending on whether or not they’ll be long-term players with the firm. It really depends on how it affects their lives.

From our standpoint, we first go in to assess everything that needs to get done and put a plan in place. We then go back to management and make sure the plan is in line with their strategic objectives. We typically sit down with the client every three months, as well as annually, to get an assessment of our work, and to ensure the plan is working and meeting both partners’ objectives.

CATHY THOMAS is partner in-charge of consulting with Armanino McKenna LLP in San Ramon. Reach her at (925) 790-2656, or cathyt@amllp.com.

Sunday, 31 December 2006 19:00

Insurance crisis

There’s no doubt that Florida’s insurance crisis is having a chilling affect on many aspects of business, including manufacturing, contracting and real estate.

Hurricane damage, litigiousness and the slumping economy are combining to create what may become one of the biggest challenges ever faced by the insurance industry. From 1980 through the hurricanes of 2005, the U.S. suffered more than $500 billion in overall inflation-adjusted damages and costs due to extreme weather events, according to the National Climatic Data Center.

Insurance providers find themselves caught in the middle of a delicate balance. While massive claims continue to squeeze profits within the state and nationally, providers must continue to provide clients with high-level services at reasonable rates.

Smart Business spoke with Grant Connor Mehlich, producer for Hilb, Rogal & Hobbs, about the ongoing insurance crisis, and how business owners and insurance providers can work together for sustainable solutions.

What exposures are unique to manufacturing and utility contractors?
Manufacturers and utility contractors have inherent products liability exposure that must be addressed and properly covered. Utility contractors that perform services like sewer construction utilize multiple manufactured materials. These materials can present additional product liability exposure, in conjunction with the standard exposures in the construction trades. It is imperative to understand for what, where and how the insured’s final product will be used.

What crucial gaps can exist in insurance policies for manufacturers?
Let’s say Company X contracts with ABC Manufacturing to make a small plastic screw. Company X then turns around and sells the product to an airplane manufacturer, who uses the screws for a noncritical component — such as the trays on the seat. If the plane were to have an accident, guess who gets thrown into the lawsuit? ABC Manufacturing.

Regardless of the fact that its product was in no means used for critical applications, ABC would still get thrown into the lawsuit due to the litigious nature of today’s business community. By law, the insurance carrier must defend the insured, if their general liability policy will respond. For this scenario, if there is a specific endorsement that excludes ‘aircraft products’ on the policy, the insured will be left alone to defend itself in court, as the general liability policy will not respond.

The legal community has been paying close attention to construction litigation. How has this impacted insurance for utility contractors?
Utility contractors such as water, sewer and conduit construction contractors have been getting sued at an alarming rate. From general contractors walking off jobs to subcontractors having inadequate limits of insurance, utility contractors need to know that they are fully covered and their general liability policy will effectively cover their exposures. Another key dynamic is the contractor’s workers’ compensation insurance. If one of their subcontractors does not carry workers’ compensation insurance and their employee gets injured, the utility contractor could be held liable.

As with manufacturers, I cannot stress how critical it is to pay attention to specific endorsements and/or having the carrier waive common exclusions.

How have insurance providers helped clients attain proper coverage at an affordable price?
While property coverage in Florida is a mess, there are still viable solutions available. Experienced insurance providers with strong relationships in a plethora of markets exist that can work with companies to generate workable insurance solutions.

Through my work as an underwriter, I’ve seen how learning and understanding specific endorsements can greatly affect the rates available to clients. The single most important dynamic for a client/provider relationship is trust. Relationships are simple when times are good. Take a look at how the provider reacts to a small claim or, more importantly, catastrophic events like our recent hurricanes.

What steps can property owners take to help reduce their insurance rates?
First, it is imperative that the company you are using has access to essentially all of the available property markets. Next would be to see where certain endorsements could apply. For example, let’s say you have heavy machinery that is bolted down (fixed) in a factory. If a specific endorsement is used, you can get a rate discount on the equipment policy, since it is considered a fixed item. Fixed items qualify for lower rates than stand-alone equipment.

Hurricane protection is another major issue to be addressed. Certain carriers are now offering credits to business owners who use impact-resistant glass and proper hurricane protection.

GRANT CONNOR MEHLICH is a producer at Hilb, Rogal & Hobbs in Tampa. Reach him at (813) 261-7982 or Grant.Mehlich@HRH.com.