There are many interdependencies between people and departments at most companies. At times, communication breakdowns or inabilities of processes can stymie the best intentions. It is often difficult to diagnose the issues. Just like many health issues of the body, sometimes we in business have to go back to our roots.
When done right, an organizational chart can be a tool of enormous benefit. Let’s look at a homeopathic approach to diagnosing and fixing problems within an organization using the organizational chart.
You may need to ask yourself the following questions if your company is experiencing inefficiencies, poor employee engagement, increased turnover, lack of responsibility for decisions, or bad communication.
- Who has too many direct reports?
- Where are the open positions?
- Which managers are using contractors, and where do they fit?
- Who has accountability?
- Are the right positions reporting to the right people?
An organizational chart is a visualization of the structure of your organization. When you can see information visually in the context of the structure of the organization, the understanding of that information can often be instantaneously clear and impactful.
Some organizations claim they don’t need or want an organizational chart because they work in teams. Unless all workflow for decision-making — expense reports, raises, promotions, disciplinary actions — are made across the entire team, then you likely have a hierarchy. Visualizing information about the reporting relationships in your organization can help you fix many issues.
There are a lot of issues that can come with the burden of too many direct reports. Managers can be stretched too thin to develop their direct reports, even if they can supervise that many people.
Your organizational chart should contain a roll-up of the headcounts. At a glance, you should be able to see how many direct reports and how many total reports a manager or executive has under his or her purview.
Companies often tout how flatly their organization is structured, but flatness can create painful consequences. Identify the span of control of your managers, and then analyze them for effectiveness.
When open positions are tracked inside of an organizational chart, a world of opportunity opens. This communication of open positions allows employees to see where there is potential for them to move into a new role.
Developmental moves that provide exposure to new experiences create better-qualified employees for promotions in the future.
Visible open positions allow employees to recommend people they know for the job. This is an enhancement to your culture because people are more engaged when they have friends working at the same company. Referrals also reduce the cost of hiring. So keep those open positions visible in the organizational chart and in front of the entire company. It will save you money and frustration.
Your workforce probably consists of more than employees. Most companies have some level of consultants and contractors. This is often a great way to expand your capabilities without making an employment commitment.
It is important to know where you are supplementing your staff with contractors. The use of contractors, often to work around rules and budgets established for hiring, could actually cost the company more money.
Using contractors can also create an employee engagement issue if prime experience is being blocked from employees due to contractors filling positions. Track your contractors in the organizational chart and hold your managers accountable for your plan in working with these resources alongside their developmental plans for their existing staff.
Who is accountable?
There is a reason that regulatory agencies often require an organizational chart. They need to be able to identify who was responsible for decisions. The organizational chart may not be the official map of communication trails, but it should represent who has authority, and thus accountability, for decisions within the organization.
It is also helpful inside an organization to identify where you can go for the authoritative assistance you might need.
When you are feeling pain within your organization, evaluate your real organizational chart. It may diagnosis the source of your symptoms and provide healing answers.
Lois Melbourne is co-founder and CEO of Aquire, a workforce planning and analytic solution company based in Irving, Texas. Visit www.aquire.com for more information.
Having enjoyed steady growth since Mike Hislop took the helm as CEO in 2006, Corner Bakery Cafe is now hitting the accelerator harder. The company has set its sights on doubling its footprint over the next four years. It’s a big undertaking that presents plenty of challenges, but Hislop is setting Corner Bakery on a course to achieve its goals by attacking the obstacles one by one.
“We’re looking to double the size of the brand pretty quickly, and we decided that in order to do that, we would have to get more heavily into franchising,” Hislop says. “We actually started franchising about four years ago, but up to this point, most of our growth has come from opening company-owned stores.”
Corner Bakery has 134 restaurants across the country: 104 are company-owned, the other 30 franchised. The company plans to increase both of those numbers, but the main emphasis will be on franchising, so that when Corner Bakery reaches its ultimate goal of doubling its size, the ratio of franchise locations to company-owned stores will be about 50-50.
But there are many hurdles the company must clear before it gets there. The main challenges, Hislop says, are finding excellent franchise partners while maintaining the company’s culture, and building its internal infrastructure so it can adequately support all of the new locations and all of the new franchise partners’ various needs.
“Getting more heavily into franchising, and into that kind of growth, there are some tough challenges that fall in line with that,” Hislop says. “A big one, obviously, is choosing the right partners to grow with.
“Another big challenge is maintaining our culture,” he says. “When you’ve built a great company like ours, and it’s been built on this culture that has evolved over 20 years, how do you make sure that culture is passed on to your new franchisees? How do you make sure you choose the right ones, and then how do you make sure that they become part of the fabric of what you’re trying to do?
“Then, building the infrastructure to handle the growth is the other big challenge we’re facing. You might think the infrastructure you have is adequate. But then you get into the thick of it and you’ve got design issues, you’ve got real estate, you’ve got construction, you’ve got product and menu development, you’ve got distribution. And you have all these franchisees you’re bringing in, each with different levels of experience and different needs. And as we’ve learned, one size doesn’t fit all.”
Choose partners carefully
So how does a CEO faced with a steep growth curve and the need to quickly bring in a lot of new partners go about doing that? Experience is one of the key requirements to look for.
“To me, and I’ve been in this for over 30 years, you need the right operators in there that have been there and done it,” Hislop says. “You need to make sure you’re choosing people that have worked extensively within your industry and that have been through growth before.
“Choosing the right partners is huge. We have 18 of them now, and it’s really important that they understand who we are, that they understand the culture, that they understand the complexity of what we do. Because Corner Bakery is a little bit different than the other cafes that are out there. A lot of people want to be in that fast casual bakery-cafe segment, but you need to make sure that they understand how to operate a restaurant, how to choose the real estate that’s needed, how much it’s going to cost to build, and that they understand the economic model you have and the type of intensity you need to have with management.”
Early on, selecting franchise partners was a hit-or-miss prospect for Corner Bakery Cafe.
“Going out and choosing the right partners was pretty difficult in the beginning,” Hislop says. “We found that we had to be choosy in making sure that the people we brought in ‘got’ it. One thing we found out the hard way is that, early on, we had a couple partners that we thought would be OK even though it was a little bit shaky, and it just didn’t work out.
“So then you have to make the decisions and learn from your mistakes on the partners that you’re choosing, and make sure they really get who we are and what makes us successful, and that they’re really passionate about doing more than just opening a restaurant. They have to be passionate about being part of the community and building something they can be proud of. Not just to build as many cafes as they can, but really understand what has made the brand successful over the past 20 years.”
Corner Bakery learned through trial and error to be more selective and careful in evaluating the new franchise partners it brings in.
“What we did differently is we made sure we’re taking more time with them, making sure that they’re coming out here and really meeting our entire team,” Hislop says. “We have a discovery day here where they come in and walk around, and they get to meet of VP of marketing, they get to meet of VP of human resources, they see our training material, they get to spend time with our designer, they get to spend time with construction and talk to them, and with financing to go through exactly what the economic model is and how it ends up working.”
Keep culture intact
Bringing in a large number of new partners over a short period of time posed tough challenges for Corner Bakery Cafe in terms of maintaining its company culture.
“For me, that was the toughest thing, because we have a culture that has evolved over 20 years,” Hislop says. “It’s not like this is some new hot concept. This is a great brand that has evolved over a period of time, and people feel really proud about it. And when you have a culture that has been geared to just building company stores, and then you start franchising and bringing in a lot of new people, it takes a lot of work to get them all on the same page.
“A lot of franchise companies open up just franchise stores, and they don’t have skin in the game. I think our franchisees love that we have skin in the game. I’m opening up 10 [company-owned] stores this year; they’re opening up 20 [franchise] stores this year. So we’re developing the prototype with them. We’re right in the middle of it, right next to them.”
Communication and recognition are key aspects of maintaining the company culture in the midst of the fast franchise-driven growth.
“We are constantly communicating and recognizing our key contributors, and that includes our new franchisees,” Hislop says. “We have a weekly newsletter, and every VP has regular awards that they give out. That’s a big part of the culture of what we do. And we make sure our franchisees are eligible to win those awards as much as anyone else.
“We have quarterly ‘get it’ meetings to keep everybody on the same page and keep everybody aligned as our culture continues to evolve. And we’ve created an advisory board that is made up of all the franchisees, to make sure that they’re in the middle of what we’re doing. We do a lot of product and menu development, and they want to be part of it, so we have them sit in with our culinary meetings, and we have them testing new dinner items.”
Build up support systems
Building the infrastructure to adequately support the primarily franchise-driven growth has also posed some tough challenges for Corner Bakery Cafe.
“You know, we thought we were ready,” Hislop says. “Then all of a sudden you sign up 10 franchisees in a year, and each one may be looking at four to five potential sites, and you might eventually be choosing one, maybe two of those sites. But at the same time you have to be doing plans and doing the schematics and all of the design for all of those.
“To tell you the truth, initially we were understaffed. We were sort of new at it, and I thought we had staffed up properly. But coming out of that recession, where you were not overly staffed at all, to where you just started to grow in building the infrastructure, when it came to design, we started to get a little backed up. And believe me, our franchisees let us know about it.”
Corner Bakery had to do some quick staffing and building up, and not just in the area of restaurant design, but also other areas of support for its franchisees like real estate, construction, information technology, human resources, marketing and distribution.
“Obviously, there’s a lot to it,” Hislop says. “We knew it would be difficult, but once you get right into the middle of it and find out that different groups, although all great and all having our same passion and ideals, need different support, you’ve got to be ready to do that — whether it be training, whether it be HR, whether it be real estate, distribution, etc. — all of the different challenges that we had to meet in order to be a first-class franchisor.
“Everything depends on the partners that you’re bringing in and on what they’re going to need in terms of support,” Hislop says.
Turning the corner
All the hard work is starting to pay off for Corner Bakery Cafe. Employee turnover rates are low. Corner Bakery is opening new locations this year at the rate of about one cafe every two weeks, and the company is establishing itself in new markets across the United States.
“Our turnover is probably the lowest in the industry,” Hislop says. “We’re floating at around 15 percent at the management level, and below 41 percent for hourly. For the segment we’re in, those are some of the best turnover ratios you’ll see. That shows that we do believe that the environment we create is important, and our franchisees love the fact that they’re not franchising with a brand that just started — they’re franchising with a brand that has evolved. There’s a lot of integrity in the brand, and I think they love seeing that we’ve gone through the tough times, we’ve gone through a recession, and we’ve been able to maintain the kind of value we have within the brand.
“The other thing about this brand right now is that when people look at it, it’s highly successful in California, it’s highly successful in the mid-Atlantic, it’s highly successful in the middle of the country, in Texas, in Chicago, etc. It’s a unique brand with a great economic model. We have a strong management team. We’ve been able to prove that this economic model works in many different parts of the country. And we’re here with the systems and the processes that will make that easier for our partners.”
HOW TO REACH: Corner Bakery Cafe, (972) 619-4100, www.cornerbakerycafe.com
THE HISLOP FILE
Name: Mike Hislop
Company: Corner Bakery Cafe
Education: Bachelor’s degree in hotel and restaurant management from the University of Massachusetts
What was your first job, and what business lessons did you learn from it?
My first job within the restaurant industry was with TGI Friday’s. They had a very strong economic model at that time, and I learned a lot about the systems needed to run a company. At the same time, they understood how important the culture was, and the people. Everybody there loved working for the brand. It was a unique brand, and what really drove the guests in and why they came back so often was the food. It was great food. That’s the same thing I do with the brands I have now. It starts with the food and the people, and making sure that everybody understands what you’re trying to do and feels good about what you’re doing.
Do you have an overriding business philosophy that you use to guide you?
Throughout my career I’ve surrounded myself with bright people that are passionate about what they do. I don’t mind them being a little bit competitive, because I think some of the best operators out there are competitive. But they have to love working with people and pleasing people. If they do, they’re going to be successful in this business. Today, walking into a restaurant and seeing people happy and seeing the restaurant execute the way it should, I still get fired up about that. I’ve been doing this for 35, 40 years, and that’s still what drives me today.
What traits do you think are the most important for a CEO to have in order to be a successful leader?
Passion and conviction in what you’re doing, and the ability to make sure you can get the entire team aligned around that.
How do you define success in business?
Being able to grow a company and offer great career paths for everybody, so they can have a good balance at work and at home. And being able to make money at the store level while creating a fun, challenging environment for people to work in.
Being able to tell your story is critical in today’s fast-paced world, where cutting through the noise to be heard gets harder each day. With so many media options fighting for attention, it’s imperative to identify new channels where you can stand out.
That’s why as part of our expansion last year, we saw an opportunity to tell entrepreneurs’ stories in greater detail and share lessons learned by launching a book division.
Our book division is unlike traditional publishers, because we do all the work for you. We develop the story and outline, conduct the interviews with the author and other contributors, and then write the book and handle all of the other elements through publication of an e-book and hardback editions.
The time commitment from you is minimal. Once the story is determined, we will conduct a series of short interviews to get the information we need to write the book. You approve everything that goes into the story and have final say on every aspect of the project. We help you take an idea for a book and turn it into a reality that you can share with others.
As an example, last year, we worked with auto dealers Rick and Rita Case to produce “Our Customers, Our Friends.” In the book, the Cases lay out their theory that the secret to successful retail sales is through building long-lasting relationships with customers and treating them as you would your best friend.
Whether your goal is to use a book as a business card for your organization by sharing knowledge with others or to further a cause and help raise awareness for something you believe in, we work with our author-entrepreneurs to identify what makes them unique and what insight they can share with others. We also build an author’s website and set up social media channels to help them promote the book. And, we’ve recently established an authors’ speakers’ bureau that will help extend the reach of sharing that entrepreneur’s knowledge across the national footprint of Smart Business Network.
So far this year, we have eight books in various stages of production. Among them are books for the CEOs of three publicly traded companies on topics ranging from mergers and acquisitions to building sustainable businesses to how to conduct successful turnarounds. We’re also publishing books that introduce exciting new business theories, as well as one that explains how to lead with a philosophy of giving back to the community.
What direction your book takes is up to you. It can tell the story of how your business started small and grew into what it is today, or it can explain the details of what you see as the keys to being successful in business.
Breaking through the clutter of information is tricky, and writing a book is one way you can make yourself heard. It’s also a great way to explain your philosophies to employees, customers and your peers.
There’s a widespread belief that everyone has at least one book within them. In the business world, that’s even truer. If you think that’s you, we’d be happy to help you turn your ideas into reality.
If you are interested in learning more about publishing a book, please contact our publisher, Dustin Klein, at email@example.com or (440) 250-7026.
Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or firstname.lastname@example.org.
Not a day goes by when I don’t ask myself, “Why do smart companies do such dumb things?”
A sweeping answer is that companies are run by smart people, and smart people do dumb things. However, when smart people assemble in companies, they are still capable of doing dumb, if not even dumber, things. Here are some reasons why.
Consensus. When it comes to doing dumb things, the sum of the parts is less than the whole. Throwing more minds at the problem means more data, more perspectives, more possible solutions, more critiques of these solutions and more minds (and hands) implementing the solution, right?
Possibly, but there’s also the downside of more people: Once consensus starts to build, it’s harder to alter a decision. It’s one thing to argue against a few people; it’s much more difficult to argue against the wisdom of a crowd. Individuals who hold out, question or disagree are labeled as clueless, uncooperative and not team players.
Conviction. Consensus rears its ugly head during the decision-making process. The situation can get worse once implementation occurs because the organization marches along with a firm belief in what it’s doing. At that point, a decision takes on a sacred life of its own, and a company cannot see flaws. Conviction is not inherently bad, and truthfully, it’s an important component of success. The trick is to combine conviction with open eyes and open minds to reduce the likelihood of having a conviction in the wrong thing.
Experts. If there’s anything smart people worship it is other smart people. It’s tough to be strong enough to not defer to an expert. Most experts have a tough time accepting surprises that are outside of their comfort zone.
Good news. A company is constantly assaulted by its competition, customers, governments and schmexperts (schmucks + experts). Faced with this onslaught, good news is an addictive, illegal and dangerous drug. It makes you crave more good news, and you refuse to communicate bad news up the chain of command. Ultimately, it may even make you refuse to hear bad news at all.
Lofty ends. Lofty ends can justify all sorts of weird and inappropriate means. Look no further than the quests for peace that produce mayhem and violence. Or, the desire to make a profit (something that is genuinely good for shareholders and customers) that warps a company’s code of ethics even though the company is made up of smart, honest people. Companies trying to achieve a lofty goal can start believing that any means to achieve it is OK.
So what can you do to prevent doing dumb things?
• Say, believe and act in a way that convinces employees that differences of opinion and diversity of thoughts are good things. Frankly, a couple of curmudgeons is a good thing for a company.
• Don’t be in a rush to meet consensus. In particular CEOs should not rush into a decision even though the image of decisiveness is so seductive.
• Spell things out. It’s not enough to say, “Plug this leak in our company,” and assume that it will be done legally. You should say, “Plug this leak in our company by using only legal, ethical and reasonable methods.” That’s when you’re done.
• Move the crowns. When employees go around saying, “We need to do it this way because Bill/Steve/Carly/Larry wants it this way,” you’re in trouble. It means that employees are making decisions based on what they think will make kings and queens happy, as opposed to what’s right for the customer, employees or shareholders. Good CEOs put the crown on the heads of customers, not themselves.
• Restrict the use of experts to narrow areas. Never use experts to create your product roadmap or marketing plans unless you want MBAs who have never run anything larger than a school snack bar to decide your fate.
• Ask for bad news. Don’t assume it will find you — you have to find it. You should allocate a time that’s specifically for communicating bad news.
• Don’t shoot the messenger who brings the bad news unless he or she caused it.
• And finally, don’t reward the messenger who brings good news unless he or she caused it.
Guy Kawasaki is the co-founder of Alltop.com, an “online magazine rack” of popular topics on the Web, and a founding partner at Garage Technology Ventures. Previously, he was the chief evangelist of Apple. Kawasaki is the author of 10 books including “Enchantment,” “Reality Check” and “The Art of the Start.” He appears courtesy of a partnership with HVACR Business, where this column was originally published. Reach Kawasaki through www.guykawasaki.com or at email@example.com.
We’ve all seen it before, where co-workers in a company recognize a problem performer, but these same people can’t understand why the boss hasn’t yet taken action or has taken so long to come to grips with the issue.
Conversely, as the boss, how many times have you made what you considered to be an extremely difficult personnel decision and have done so only after protracted analysis, a fair measure of agony and more than an adequate amount of second guessing yourself?
Case in point: One of your top managers has hit the skids, and in your gut, you know that a change is needed. Fearing the worst, you play over and over in your mind the potential negative consequences that could occur if you were to fire this individual. Finally, after all else fails, you pull the trigger and decide to part ways with the onetime A player. Before you tell associates, you rehearse in your mind how you will explain your decision. Once you gather your lieutenants together and finally utter the previously unthinkable, the reaction is almost a unanimous, “What took you so long?”
After you breathe a sigh of relief, your team members start making not-so-subtle comments suggesting that they weren’t surprised, followed by a litany of examples of why your now fallen superstar wasn’t hacking it.
This begs a bigger question: Were you really the last one to realize that there was a problem? Furthermore, did it actually take you too long to make that final decision that, as they say in spy novels, this person was “beyond salvage”?
This provides a good opportunity for introspective analysis. The end result just might help you understand that you were not the last to know, but in fact, you may have been the first to recognize what was looming on the horizon.
Virtually every leader has to rely on experience, combined with instincts, to decide when to either cut and run or try to rectify a problem. Being an executive requires being a very good teacher. When a pupil is not measuring up, the first question is how can you help and what can you do to improve a person’s performance? Most everyone at one point in his or her career hits a rough spot, and with a bit of mentoring, a fair number of wayward employees can turn the corner and again blossom. Also, it’s more economical to at least try to turn someone around after investing time and money in developing the individual. After a certain period, the employee has gained valuable empirical knowledge about the ins and outs of the company and, just maybe, a little extra coaching can make the difference.
However, in some situations, your optimism for achieving Mother Teresa status through patient mentoring wanes, and you begin to come to grips with the fact that it’s time for a change. You then map out your what-if scenarios. Not only one but several. You ruminate over your game plan until you have the best probable solution locked and loaded in your mind for that moment when you have concluded that you’ve run out of road.
Most times, trying yet failing is not a bad thing; actually, it is a good thing and the way a responsible leader must approach an important human resource decision. You can never forget that you’re dealing with the life and livelihood of a person and his or her family, which can be adversely affected by the decision. Many top employees who veer off course and don’t work out were, at one time, effective and loyal contributors to the organization. It’s mandatory to make the effort not only to try to stem the negative tide of poor performance, but also to develop an alternative replacement and transition strategy. This takes time and can be a very solitary task depending on the level of the person to be replaced.
In reality, the boss knows in his heart of hearts before most, if not all, others when something ultimately has to give. Being the boss requires making the difficult decisions after meaningful deliberation and then living with them and making them work.
The boss the last to know? Highly unlikely. Instead, he probably is the first to know when the time to act was finally right.
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at firstname.lastname@example.org.
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For banks involved in acquisitions, a changing regulatory landscape poses some potential pitfalls. The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in the wake of the recent economic downturn, stepped up regulatory oversight of banks and created a new federal regulator, the Consumer Financial Protection Bureau (CFPB), to protect consumers from financial fraud.
Together, the CFPB and other federal regulators are actively enforcing a wide range of safety and soundness rules, anti-money laundering regulations and consumer rules at financial institutions.
“As consolidation continues, more banks are struggling to combine regulatory risk methodologies,” says Dickie Heathcott, partner with Crowe Horwath LLP.
“When banks combine through a merger, acquisition, or joint venture, the target bank is incorporated into a larger organization, which then assumes the combined regulatory risks, both known and unknown,” he says. The process is further complicated by the task of bringing together two separate cultures, governance structures, risk environments and control environments. In addition, the regulatory risk of the acquiring bank increases along with the range of products, services, customers and locations.
“Acquiring a customer base that is more cash intensive, conducts more international activity or that is geographically dispersed can increase the newly combined entity’s risk related to money laundering,” Heathcott says.
Smart Business spoke with Heathcott about how banks can meet the challenges of assessing regulatory risk in a combined entity by merging methodologies and establishing a foundation for regulatory risk assessments.
What processes should be combined in order to increase regulatory risk assessment efficiency?
Compliance executives need to establish a shared language by explicitly defining risk and risk tolerance levels. Doing so will establish a definition of terms such as ‘moderate risk’ so they are better understood by process owners in individual business units. Consistency should be established for categorizing or rating risk so the combined organization uses a single rating system to indicate its severity.
As part of restructuring the newly combined company, people and financial resources should be aligned with governance and oversight to synchronize responsibility and reporting for regulatory compliance requirements.
How can a newly merged entity keep abreast of its post-acquisition risk?
A comprehensive regulatory risk assessment conducted immediately following the combination establishes an institutional baseline for identifying and measuring regulatory risk consistently in the future. This helps the acquiring bank better understand the nature of the risks it has taken on and establishes a framework for an ongoing regulatory compliance program. A post-acquisition risk assessment should define the scope of risk. Each new customer type, territory, product and service gained through the acquisition represents new risk that must be recognized and managed. Identifying the spectrum of actual and potential exposure is necessary in order to ramp up compliance in new areas of business.
In fair lending regulators look at data that spans counties and ZIP codes to make sure institutions are investing credit dollars appropriately and are not engaging in predatory lending or redlining. If the acquired organization has been operating in underserved areas, the combined entity might have to build additional branches or expand community outreach initiatives in order to meet the requirements of the Community Reinvestment Act.
Also, the acquiring bank can create a comprehensive regulatory risk inventory that documents the defensible universe of risk that the organization faces. Banks can define and prioritize the subsets of risk in the inventory document that apply to the combined organization and that may need to be assessed, managed and monitored. Once an inventory is compiled, the controls that are in place to mitigate exposures can be assessed and scored for effectiveness using the common language of the combined entity.
Furthermore, regulatory risk assessments should be documented and shared across the organization to make enterprisewide risk transparent. The results can be distributed widely, including to the highest levels, to support strategic decisions. They can also be distributed to the business-unit owners and areas, such as the risk, compliance or legal function, that can best manage the risk.
What are the critical areas for which action plans need to be developed?
Now that the newly combined organization has isolated its residual risk — the exposure that exists after establishing mitigating controls — by conducting a regulatory risk assessment, plans can be developed to close control gaps and strengthen regulatory compliance focus and clarity on the highest risk priorities.
The regulatory risk of a lending product, for example, offered by an acquired bank in a limited geographic area, should be assessed for Community Reinvestment Act compliance by quantifying the number of loans affected and the total dollar value of the loans to determine the residual risk of the loan product. If this assessment determines that 400 customers representing $14 million in assets of an acquired money services operation presents too high a residual risk, the newly combined financial institution could divest those customer relationships. Conversely, if the relative risk of maintaining those customers is low, the financial institution might consider a plan for extending those relationships.
In developing a process for assessing regulatory risk, an acquiring financial institution builds the foundation for a sustainable and transparent regulatory risk management program that is able to overcome the differences between entities and straddle the complexities of combining them. Once in place, the risk assessment methodology can be used repeatedly and consistently to assess enterprisewide regulatory risk in a way that is useful to process owners and defensible to regulators and the board of directors.
Dickie Heathcott is a partner with Crowe Horwath LLP in the Dallas office. Reach him at email@example.com or (214) 574-1000.
Insights Accounting is brought to you by Crowe Horwath LLP
When selling your business, you may be thinking about scoring a quick payout and retiring.
But many buyers today want the person who built the business to continue to play a key role after the sale, and, as a result, leave you with a stake in the company. If the arrangement works, everyone benefits. But many times, sellers have difficulty adjusting to a new role where they no longer are in charge.
If you’ve negotiated the deal correctly, you can exit the deal with relatively little pain. But if you haven’t, it may cost you, says Bill Finkelstein, an attorney in Dykema Gossett PLLC’s Corporate Finance Practice Group.
“In today’s market, the buyer, often financial as opposed to strategic, is frequently not looking to buy the entire company,” Finkelstein says. “The buyer wants the investment, and control of the company, but it wants to keep the management team in place for its expertise, knowledge of the market, reputation and key relationships, and it wants to incentivize management to grow the business.”
Smart Business spoke with Finkelstein about how a put and call agreement can offer options to a seller.
How are buyers approaching the market today?
Traditionally, the buyer buys 100 percent of the company and puts the former owner under a management contract. However, after ‘cashing in’ the former owner may exhibit less drive and interest in running the company.
Today, it’s not unusual for smart investors — or strategic buyers who are in different markets — to want to retain and incentivize the management that got the company to where it is, and partner with them going forward. As a result, they buy a majority interest, but the former owner is still invested.
This is a smart play for the acquirer, but it makes the transaction more complicated. As the seller, you have concerns. Selling to a larger corporation gives you better access to capital markets, and funding sources should be better and less costly, allowing you to improve operations and grow your business. However, are you really going to be in control, or is corporate headquarters going to be pulling the strings?
It’s a difficult situation because the buyer is coming to the table with a lot money. The buyer is in control and ultimately will have the final say on major matters such as expansion, capital improvements, etc.
How can the seller plan for an appropriate exit strategy?
Oftentimes the solution is a buy/sell agreement, which might not be that attractive to the seller. Under a typical buy/sell, one party notifies the other that he or she will buy the other’s shares for a set amount, or under a formula or valuation process. The other side may elect to sell or, if the price is too low, buy. Frequently, the price is payable in cash, and as a seller, you don’t want to exercise the buy/sell agreement with the possibility you might be required to buy back your company.
The seller is often at an economic disadvantage. A buy/sell agreement is not going to scare a buyer that is a global company. It can say, ‘Fine, I’ll buy you out,’ and trigger a discounted price, knowing the seller took the money from the sale and used it. You worked your whole life to build a company turn it into cash and now you must sell your shares at a lower price or buy the company back.
What is the alternative?
From the seller’s perspective, you should try to negotiate an option, called a put and call, for the seller to require the other side to purchase your remaining shares, either all at once or staged out, or for the buyer to exercise the right to buy the remaining shares from the seller.
The put gives the seller an out if the situation becomes, ‘I tried, but I don’t like headquarters telling me what to do. We just don’t see eye-to-eye, so let’s part company.’ Moreover, the buyer can buy the rest of the seller’s shares if it wants total ownership later. An additional advantage is that a buyer who wants to retain management may think twice before vetoing management’s plans knowing you may exercise the put if disagreements or differences reach a certain level.
This is a very good tool if you can negotiate it. In order to ensure some degree of management stability or to allow the buyer to plan for the capital needed to buy the remainder of the shares, you may not be able to trigger the option for a reasonable period. A period of three to five years, beginning on the third anniversary of the sale, is not uncommon.
If you sell a majority interest in your company at a multiple of earnings or cash flow, you can say you want a put and called priced at the original sales price formula.
But if, at the time of the put, the company is more profitable, you don’t want to sell at today’s price, so you can negotiate the put and call price at the greater of today’s price or the same formula applied to the then trailing 12 months before the sale. Therefore, if the company is more profitable, the price of the buyout increases; this is fair because you could argue the additional value is due in large part to your efforts.
This formula also provides a guaranteed floor. You don’t want the put price to be lower than the original sales price because of the financial risk of a downturn in the economy or industry, or bad decisions by your new owner.
Having that exit strategy is crucial to ensure the reason you sold in the first place — to get liquidity — doesn’t vanish.
William B. Finkelstein is an attorney in Dykema Gossett PLLC’s Corporate Finance Practice Group. Reach him at (214) 462-6464 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Dykema Gossett PLLC
Sometimes it’s hard to focus on the basics. Technology changes on a daily basis, new competitors arise and the market is constant turmoil. It’s important, however, to slow down and take the pulse of your company. Are the fundamentals in place for a healthy balance sheet? A good place to start is making sure that you have a clear value proposition in place.
“A value proposition is a clear statement of the benefits a customer will receive from purchasing your products or services,” says Steve Carter, president and CEO of ii2P. “Essentially, it is your brand’s promise. A strong and differentiated value proposition can help your business capture your target market.”
Smart Business spoke with Carter about value propositions, the importance of focusing on current customers and how to keep your business in shape.
Why is it important for a company to have a value proposition?
Having a strong value proposition can sharpen your company’s focus and allow you to hone in on your greatest strengths. I call this principle ‘sticking to your knitting.’ You can’t be all things to everyone. You can be the very best at what you do, however. It’s important to know thyself. Understanding who you are allows you to refine your value proposition so you separate yourself from your competitors rather than trying to keep up with them. You will never succeed if you simply try to keep pace with your competitors. They will always stay one step ahead.
Make sure that your value proposition is concrete. If you get up every morning and try to convince yourself that you have a solid value proposition, then you probably don’t. A lot of companies make their value propositions complex. This is a big mistake. There is a misnomer that a proposition requires complexity in order for it to be valuable. The simple, easy-to-embrace proposition is much more effective. Rehearse the value proposition, understand those elements of your business, and market what you excel at. Your value proposition should serve as your anchor.
What are the benefits of focusing on current customers?
Being successful doesn’t mean going after every available customer; at some point, you won’t be able to service your clientele properly. It’s important to cherish each customer that you do have. The reputation you achieve from making your customers feel truly valued is how you grow your business.
Your current customers are your most important ones because they have laid the foundation for the success of your business. Building a reputation on the back of excellent service creates a solid platform for growth. Don’t grow your client base any further unless you are able to treat your new clients as intimately as the ones you first established.
What are the dangers of taking customers for granted?
Customers need to feel like you’re taking them to a higher level through the use of your products or services. Your job isn’t just to deliver your product and walk away; it’s about making sure that your product has value to them. Ultimately, this strengthens your relationships and allows you to grow your own business.
Customers in today’s environment are looking for leadership. They want you to maximize the benefits of your products and services into their core business. Too often, they are treated as ‘revenue inventory’ rather than ‘loyal assets.’ While it seems simple, you need to demonstrate to your customers that you are willing to fight for them, not against them. Your entire business and support model should be structured to demonstrate that you value your core customers.
It’s crucial that you listen to them and value their feedback. Otherwise, they’ll take their business somewhere else.
How can a business prosper by ‘staying in shape'?
You need to make certain that the investments you plug into your business are the kind that keep you lean and strong. In order to make wise decisions, you must listen to the market as it is changing. The demographics for end users are changing, and they are much different than they were five to 10 years ago. Their requirements have changed considerably. Support is a key element in retaining and growing your business.
Creating effective intimacy programs, backed by a market-driven support model, will keep your costs lower and your customer loyalty higher. If your support model is still equipped from a legacy standpoint, it’s imperative that you update it. Today’s consumers want and expect self-servicing support strategies.
No matter how good your product is, if you have a legacy support system behind it, you’re not serving as a leader. Institute a self-support model that is easy to navigate and provides value. Once such a system is in place, you need to pay attention to the feedback left by the end user. Staying in shape is not a one-time thing. You need to be disciplined and continually improve your processes. If you have that discipline within your business, your clients will see that you are always meeting or exceeding their needs.
How should businesses balance the need for convenience versus security?
In today’s society, people generally prefer convenience over security. There’s a tradeoff, however. The most effective strategy is to use a balanced approach that guards your intellectual property while enabling users access to the information they need.
Implementing the most up-to-date technologies, such as password management protection, protects the end user. Securing your information today is no more important than it was a decade ago, but it is more difficult.
Make sure you are implementing practices and solutions to keep data and identity access secure. It cannot be overstated: Your intellectual property and your competitive advantage are perfect targets for your competitors.
Steve Carter is president and CEO of ii2P. Reach him at (817) 442-9292 or email@example.com.
Insights Technology is brought to you by ii2P
Human beings find comfort in routine. As children, we gain a sense of security from knowing what will happen, when it will happen, for how long and how we are expected to react to each situation. As we mature, knowing that home and family will be where we left them allows us to go out and explore the world as young adults, secure in the knowledge that we can always come home if we need. However, as we age, this penchant for sticking to the routine can work to our detriment.
We begin to settle in at home more and more, often opting to camp in front of the television rather than venture into a new neighborhood or to try a new vocation. Our sedentary ways can have damaging health consequences, most significantly for that muscle that drives the body: the heart. To stay strong, the heart needs daily movement that includes periodic challenges (to force it to pump more oxygen than normal), foods that declog blood vessels and keep them flexible, limited preservatives and refined foods, and regular activities that relieve stress. But, once sedentary, inertia can make it seem as if changing our habits is an insurmountable task.
However, with concerted effort in three areas, what I call affect, behavior: and cognition – the ABCs of Change - we can break the cycle and embrace good cardiovascular practices.
First, start by tracking your moods, your activities and your thoughts in relation to heart-healthy activities such as walking, jogging or any other activity that works up a sweat. Jot down on paper how you are feeling and what you are thinking at the moment when you decide to engage in any act that undermines your heart.
Next, write down how you will change your behavior each time you feel yourself slipping into the unhealthy mindsets that precede unhealthy behaviors. Now, write down what things inspire you to get up and move or to make heart-healthy decisions.
Then, commit to doing at least one heart healthy activity each day and to modifying your environment as needed each time you feel yourself sliding into unhealthy practices.
Last, give yourself time. Generally, it takes 21 days of repeat activity to develop a new habit; however, you may slip up. They key is to review your strategy and recommit each time you fall. Ultimately, your heart will be the better for it.
Patricia Adams is the CEO of Zeitgeist Expressions and the author of “ABCs of Change: Three Building Blocks to Happy Relationships.” In 2011, she was named one of Ernst & Young LLP’s Entrepreneurial Winning Women, one of Enterprising Women Magazine’s Enterprising Women of the Year Award and the SBA’s Small Business Person of the Year for Region VI. Her company, Zeitgeist Wellness Group, offers a full-service Employee Assistance Program to businesses in the San Antonio region. For more information, visit www.zwgroup.net.
In business, confidence is key. I would say that it is foundational. All other factors, such as motivation, training, drive and leadership, depend upon a core of inner confidence.
Whether you work for someone else or run your own business, tapping into your inner confidence is vital in order to succeed. A few people do this with the greatest of ease, but for most of us it is a daily challenge that takes hard work and determination.
Here are four “tools” that will help you to find and tap into your inner confidence in order to propel your business forward:
First: Refuse to give consent.
I pull this idea from a saying of Eleanor Roosevelt: “No one can make you feel inferior without your consent.”
Refusing to give consent to feeling inferior is the jumping off point for the daily challenge of using confidence in business. Here is what I mean:
Your first step into tapping your inner confidence is to refuse to see yourself as less, no matter what anyone else might say. This refusal forces you to take a stand and begin to think differently about yourself.
Dr. Wayne Dyer says reminds us here that: “Self-worth comes from one thing – thinking you are worthy.”
When you take this first step, it awakens your inner confidence. It stirs it up and gets the ball rolling. It becomes active in the process of your success.
Quite simply - it empowers you.
In business, being empowered leads to the desire to grow, the ability to step outside your comfort zone and the determination to act. I have discovered through coaching others that empowered, powerful people do powerful things.
Tapping into your inner confidence requires you to step up refuse to see yourself as inferior, less or wanting.
Second: Be willing to change.
Unwillingness towards change holds you and your business captive. It takes the wheels right out from under you and stifles vision and action. It halts growth.
I believe that fear of change is a problem of confidence. Most business people who struggle with change are, at the root, struggling with confidence. For some, it is easier to stay stuck and inactive.
They do not realize that being willing to change frees up your inner confidence. The willingness becomes the catalyst to move past the fear. It frees you up and drives you forward.
What kind of change must you be willing to consider? You must be willing to change your thinking.
Having the same thought patterns over and over again is not beneficial to your success. The problem is that the same old thoughts lead to the same old behaviors and, in the end, the same old results.
Albert Einstein said it this way: “We can’t solve problems by using the same kind of thinking we used when we created them.”
In order to propel your business forward, tap into your inner confidence by being willing to change your thinking.
Third: Envision the end result.
This tool is about making choices.
In his book, “Hostage at the Table: How Leaders Can Overcome Conflict, Influence Others,” George Kohlrieser talked about these choices when describing successful athletes:
“The power of imagination is incredible. Often we see athletes achieving unbelievable results and wonder how they did it. One of the tools they use is visualization or mental imagery….they made the choice to create their destinies and visualized their achievements before they ultimately succeeded.”
Story after story has been told about athletes, race car drivers and men and women in business who have taken the challenge of looking into their mind’s eye and envisioning the end result they desire. They “made a choice to create their destinies.”
In my opinion, visualization is the tool that sets your inner confidence in stone. Tapping into this well is a sign for all to see that you have the confidence needed to achieve your desired result, whatever it might be.
Fourth: Practice positive self –talk.
Over the years, I have encountered two very distinct groups of people when it comes to self-talk. The first is the over-the-top, fake, often arrogant folks who can’t stop talking about themselves – always with a positive “I’ve done that and better than you” attitude.
The second is the self-humiliating, always down on their luck, also fake folks who can’t find one good thing about themselves.
Both groups are uncomfortable to be around. Neither group will work well in business.
The ability to speak to yourself in kind and affirming ways builds up the well of inner confidence and keeps it alive and well. This ability is necessary to energize yourself as you encounter the ups and downs of life and business.
Positive self-talk is the maintenance tool. It keeps everything running smoothly.
There you have it – four distinct and powerful tools. Refusing to give consent, together with a willingness to change, the ability to envision the end result and positive self-talk, will allow you to tap into your inner self confidence and propel your business forward.
I wish you all the best on your journey.
DeLores Pressley, motivational speaker and personal power expert, is one of the most respected and sought-after experts on success, motivation, confidence and personal power. She is an international keynote speaker, author, life coach and the founder of the Born Successful Institute and DeLores Pressley Worldwide. She helps individuals utilize personal power, increase confidence and live a life of significance. Her story has been touted in The Washington Post, Black Enterprise, First for Women, Essence, New York Daily News, Ebony and Marie Claire. She is a frequent media guest and has been interviewed on every major network – ABC, NBC, CBS and FOX – including America’s top rated shows OPRAH and Entertainment Tonight.
She is the author of “Oh Yes You Can,” “Clean Out the Closet of Your Life” and “Believe in the Power of You.” To book her as a speaker or coach, contact her office at 330.649.9809 or via email firstname.lastname@example.org or visit her website at www.delorespressley.com.