With the advent of Check 21, you might want to consider a new way of handling the checks you receive from your customers. Check 21 is short for the “Check Clearing for the 21st Century Act” which went into effect on Oct. 28, 2004. Instead of checks physically being taken from your facility to your bank, through a Federal Reserve bank, to your customer’s bank and then to the customer, they only leave after being electronically processed and eventually shredded.
“With the rollout of Check 21, there are significant savings and efficiency benefits to financial institutions and commercial customers, with the use of merchant capture,” says Tracy L. Marshall, vice president of treasury management at ViewPoint Bank in Plano. “By working closely with your business banker or treasury management professional, you can determine if merchant capture is right for your business.”
Smart Business talked with Marshall to gain more insight on this process.
What is merchant capture?
Merchant capture is a system between a merchant and his bank whereby the merchant captures or scans his customer’s checks and makes his deposit by transmitting the MICR information and the checks image to his bank electronically. The electronic transmission continues through to the customer’s bank for the settlement of funds. This process eliminates the need for the paper check to physically move from place to place. The check writer may receive a substitute check from his bank, or he may see a copy of a substitute check on his account statement.
What are the benefits of merchant capture?
It can be more cost-effective for you and your bank. The scanning process reduces the amount of time previously required for handling checks. Also, you don’t have to worry about getting the checks from your location to the bank before closing time or to the night deposit, which you may consider a safety issue.
Another benefit is quicker availability of deposited funds. In most cases, you can negotiate with your bank a next-day or same-day availability, whereas previously, the funds may not have been available for three to five days or longer in some cases. If you are tightly managing your cash flow, merchant capture could play a huge role by providing access to funds quicker.
Another benefit is to companies with multiple locations, because they can process checks from all locations into one central bank account instead of maintaining local accounts.
Lastly, since the checks remain in your possession until they are destroyed, you have the ability to go back and look at physical checks for research or collection purposes.
What do I need to know as I consider merchant capture?
The first thing is to have a great relationship with your business banker or treasury management professional. He or she can provide a lot of help as you conduct your cost/benefit analysis. Remember to look at all costs involved in your current check-handling process. Include the time spent
and the processing and services fees currently being assessed by your bank. Determine with their help what, if any, savings will be gained by switching to merchant capture. Be sure to factor in the quicker availability of funds and reduced processing time. Usually, the more checks you handle, the more cost benefits will be realized. If you only handle a few checks per week, there will probably not be enough of a savings to make it beneficial. However, if you anticipate significant future growth, it may be beneficial for you to implement now versus later.
Since the checks will be staying with you, it is also imperative that you develop processes and procedures to secure the checks until they are destroyed. You also will need to determine how long you are going to keep the checks and the method to use for item destruction. Many businesses utilize a shredding service or purchase a high-quality, diamond-cut shredder.
Lastly, if you decide to use merchant capture, the law requires that you advise your customers that their checks will be processed electronically.
What equipment do I need for merchant capture?
You will need access to a merchant capture system and a scanner. Here again, a good relationship with your business banker or treasury management professional is key. They can work with you to establish access to their system and recommend a scanner based on the scanning capacity you need. Scanners currently run between $700 and $2,000, depending on the brand and/or scanning capacity. These costs are trending down as more merchants adopt this product and more scanning vendors enter the market.
TRACY L. MARSHALL is vice president of treasury management at ViewPoint Bank in Plano. Reach her at (972) 509-2020 ext. 3682 or email@example.com.
By Robyn Davis Sekula
Tony Affuso says the best way to guarantee success in business is to focus on your employees.
Affuso, chairman, president and CEO of UGS Corp., has his 7,200 employees focusing on making customers successful, while he focuses on making his employees happy.
“We want a company where employees enjoy coming to work every day, where they feel challenged, where they feel like there is opportunity,” Affuso says. “We want them to enjoy what they do, and they have a passion to win. That together makes it fun.”
Affuso wants his employees to want to enjoy their jobs and pass that kinetic energy on to their customers. It’s one of the keys to successful growth he’s found while leading UGS, a product life-cycle management software company, for some 14 years now.
When he arrived at the firm in 1992, it was called Unigraphics Solutions Inc. and it had about $175 million in annual revenue. It was bought out by Electronic Data Systems Corp. and then merged with a competitor in 2001; in 2004, UGS was bought by a private equity group.
Affuso says every move was calculated as a way to continue the company’s progression to become the No. 1 player in its market.
The numbers show his success. In 2005, UGS had about $1.15 billion in revenue, a nearly 10-fold increase over 1992. The company’s customer retention rate is about 96 percent, which Affuso says outpaces the industry average of about 88 percent.
And despite the decline of many tech companies, Affuso has found a way to make UGS grow.
Here are some of the keys to how he did it.
Make employees successful
Everyone wants happy customers, and Affuso says the best way to get them is to create a happy group of employees. And that process starts with hiring and promotions.
Affuso wants employees to understand that they can grow at UGS. He likes to promote from within for that very reason - to encourage them to do good work. The company’s goal is to hire from the outside only about 20 percent of the time.
Affuso likes that new blood to enter the company to challenge traditional thinking and bring in new ideas. He seeks out people who are enthusiastic and who take pleasure in challenges - the tougher, the better.
“I’ve learned through my career that you always want to surround yourself with highly motivated, great people people who think not necessarily that they do what you want them to do, but highly motivated, passionate people who enjoy working with customers and enjoy coming up with a new way to solve a problem,” Affuso says. “You want people who are motivated by achieving things that have been difficult for other people.”
The company is also focused on recognizing achievement and on communication. Once a quarter, UGS holds town hall-style phone conferences, which include a Webcast, with all of its employees.
Affuso and other top management inform employees of the company’s performance and take questions
“We allow about 20 minutes for questions,” Affuso says. “Sometimes people ask a hard question. Any question is valid. If they have the courage to ask it, we’re going to answer it.”
Because public recognition is key to making employees feel appreciated, the town hall meetings are also the place where UGS management highlights employees who have done well and touts significant team accomplishments. Affuso and other members of the management team also share success stories in regular e-mails to the entire company.
Affuso has also established an incentive for the company’s 500-member sales force: Any salesperson who meets his or her goal receives a weeklong cruise or a trip to an exotic location, and UGS picks up the tab for a spouse, too. About half of the company’s sales force typically earns the reward.
Earn respect with honesty
Affuso says the way in which a company handles difficult times will determine how much respect and loyalty it will earn in the long term from both employees and customers.
In early September 2001, UGS was poised to merge with a competitor under the umbrella of Electronic Data Systems Corp. and become EDS’ software division. Company leaders had anticipated there would be overlap between the two in employee function, but the terrorist attacks of Sept. 11, 2001, exacerbated the problem.
“Everything stopped,” Affuso says. “Our ability to earn revenue and sign new business we were very hampered for about a year. Here we were inside EDS, and we wanted to be successful and have revenue growth, and we were not able to do the business we needed to do.”
So Affuso and other company leaders faced employees with the sobering news of what the attacks and the subsequent downturn of the economy meant for UGS.
“The key thing was to continue to communicate,” Affuso says. “We had a town hall (meeting) and told everybody what was going on. We didn’t sugarcoat anything. We told them the truth, where it was and what was going on and where everybody fits, and what we had to do to get out of the situation we were in. We had to paint a picture going forward.
“What we laid out for them was that we had to do some cuts and employee reductions. We had synergies we had to achieve. We had two of everything. We said, ‘Look, we’re going to have to have some reductions in force. We can’t get through this with all of the populations we have.’”
About 700 of the company’s then-5,200 employees were cut. Affuso says the cuts were handled quickly and gently. Employee whose jobs were ending were told they would be able to work for the company for another six months, and they were given a special compensation package if they stayed through the entire period.
“It was kind, but it was also self-serving because we needed those people on board,” Affuso says. “We could have kept them on board and let them go six months later and just not tell them. But we thought it was more effective and it would have higher integrity with everyone if we told them up front what their future was.”
The handling of the situation helped those who kept their jobs feel better about the company. Affuso says quick decisions are crucial when layoffs are imminent.
“You can get into a situation where you have a rumor mill going on,” Affuso says. “Instead of working every day and worrying about customer satisfaction, they are worrying about their own jobs, and rumors start spreading. They become increasingly negative. The sooner you get that behind you, the better. You get it done in one day, one week, and then you move forward.”
Affuso used the same honest approach with his customers.
He sent personal letters to clients to explain the changes, and he and other key executives visited the company’s top 50 or so clients to assure them that products from both companies would still be supported.
“We’ve kept our customers through that whole activity and lost very few customers,” Affuso says. “We have them all in a new, merged product.”
Build on success
Capturing testimonials from happy customers has been a key piece of UGS’ marketing strategy and has helped the company perpetuate its success.
Videos of customers talking about UGS’ products and how those products have changed the way they do business are posted on the company’s Web site. And UGS will put a potential client in touch with a satisfied customer so the customer can prove a testimonial to the firm considering its products.
Affuso wants his products to be the ones people talk about - and rely on.
“I’ve always been a believer that customer referencing is very important,” Affuso says. “When people buy this technology, it’s a tremendous commitment because they are putting their intellectual property in our data formats. If they have a problem, let’s say their power goes out and they can’t access their data base of information that we store for them, they can’t even work that day. Our technology is absolutely critical.
“We use customer referencing quite a bit with new customers coming on. It gives us an advantage when we can point to a large company, and they can talk to them and get a good reference.”
Make acquisitions to accelerate growth
Currently, Affuso and other UGS executives are working to take the company public to fund acquisitions to help it grow faster.
“Acquisitions are really good when you are trying to penetrate a new segment of the market, and for you to do it with your own resources might take you three or four years to build,” Affuso says. “If you can find the right acquisition with the right technology and right cultural fit, you can plug that hole in the lineup a lot quicker. But again, you have to have the right product, the right culture, you have to be able to integrate it in with your existing product line.
“There are a lot of factors we look at when we go into an acquisition.”
Affuso employs several people who do nothing but look for potential acquisitions, talking to bankers and others in the investment field about which companies are for sale. Then, the waiting begins. UGS watches the company carefully, and when the possible merger gets closer, it forms a committee from different divisions at UGS to analyze the company.
One project manager is put in charge of the acquisition and reports directly to Affuso. That person is in charge of how the new company is incorporated into UGS.
“Decisions need to be made fast, and there is a lot of concern that the company we’re acquiring has and the people have,” Affuso says. “They have a lot of questions. It’s a very uncertain time for them. You have to move fast, act fast and be sure you are communicating with them all the time.”
As Affuso sees it, growth is his paramount goal, and by ensuring the success of existing customers and employees, he is positioning the company as a winner - one that investors will want to be part of and one that companies will be anxious to merge with.
“Growth is absolutely key,” Affuso says. “We want to be the No. 1 player in our market. Along with that, we want to have a great reputation with our customer base.”
HOW TO REACH: UGS Corp., www.ugs.com
What you might need, says Blake Sellers, president and CEO of Avvantica Consulting, LLC, is business-intelligence-for-decision-support (BI-for-DS) capability, which will allow easier access and analysis of existing business data.
“When managed properly, a business intelligence implementation can deliver continuous benefits through a series of relatively short projects,” Sellers says. “With this approach, the company is better able to manage the risk of an individual project while working to obtain real business benefits in a relatively short period of time.”
Smart Business asked Sellers to further describe the concept of BI for DS.
What is business intelligence (BI)?
It goes by many names, depending on how it’s used. Some of the names are data warehousing, data marts, executive information systems (EIS), executive dashboards, multi-dimensional analysis and reporting, corporate performance management (CPM), business performance management (BPM), decision support systems, and online analytical processing (OLAP).
How does business intelligence differ from traditional information systems reporting?
Most business applications are designed to capture and/or manage transactions. Examples might include entering a customer order, receiving material against a purchase order, or recording a journal entry. Some level of reporting is usually available from most transaction systems, but they generally are not that useful for decision-making especially strategic decision-making.
On the other hand, business intelligence develops and displays information that can be used to make better management decisions. Two things are unique about business intelligence. One is that you are bringing multiple ‘views’ of your data together in the same place. The other is that the database itself is designed for query and analysis, which is difficult to do in typical transaction systems.
Why are standard reporting systems insufficient?
First, transaction management systems and their associated databases are typically designed and then optimized to support many simultaneous users updating the database. A key design objective of standard reporting/transaction management systems is sub-second response time for a large number of users. Unfortunately, databases designed with that objective are not optimal for analysis. In some cases, attempting to use a transaction system for substantial analysis and reporting can bring the system to its knees. So you need a database structure that’s designed for analysis and reporting.
Second, typical business applications only have access to a limited set of data files. With a business intelligence application, you can combine information from multiple data sources, which allows for multi-dimensional analysis ‘at the speed of thought.’
Can you provide an example?
Say a company needs improved sales reporting. Key data might come from five separate systems: an order management system, a payroll system, a customer relationship management (CRM) system, a planning and budgeting system, and the general ledger.
For this particular analysis and reporting need, management wants to understand things like sales year-to-date, sales versus prior years, sales versus goals, sales trending, commission calculations, what products are selling, forecast accuracy, and much more. A BI-for-DS system represents an effective approach for bringing all of this information together.
What are the key components of a business intelligence application?
Start with various source databases. Extract the source data from the original systems, transform it, and load it into the BI databases. Part of this extract/transform/load (or ETL) process might be aggregating daily transaction data into weekly or monthly totals, or mapping unique codes from separate systems that actually mean the same thing.
The results of the ETLs are first stored in a relational database, because certain reporting may not require multi-dimensional access.
Next, create the multi-dimensional database which is often referred to as a ‘cube.’ This is typically the key element of a business intelligence application.
Finally, design a user interface to extract information from the cube that typically includes reports, graphs, gauges, tables, query/analysis and so on.
What’s the best way for a company to get started?
Start by identifying and building a specific prototype or ‘proof-of-concept’ application. This will allow the organization to get started with minimal risk, and will also help to build momentum and support for the overall concept of BI for DS.
In parallel, we recommend that companies develop a high-level strategy for business intelligence. For a medium-sized company this can generally be done fairly quickly; six to eight weeks is typical. The strategy helps a company to define an overall technical architecture for BI, identify its priorities, determine the level of resources required, and estimate the overall time frames that are likely to be involved.
BLAKE SELLERS is president and CEO of Avvantica Consulting, LLC. Reach him at (214) 379-7920 or BSellers@AvvanticaConsulting.com.
What impact will the discovery, located less than 200 miles from the world’s largest petroleum-consuming country, have on America’s growing dependency on imported oil?
“If it proves to be a 15-billion-barrel field, and in the near future we find another 15-billion-barrel field, it would be the first time in over a decade that we found as much oil as we used in one year,” says Bill Barnes, managing director of B&R Energy. “Those are sobering statistics.”
Smart Business spoke with Barnes about the enormous challenge of drilling for deepwater oil in the Gulf of Mexico and when it might influence the U.S. market.
How has the oil industry responded to the Gulf of Mexico find?
The industry is taking a wait-and-see approach. We’ve all heard of promising new fields, some of which hold up. One or two wells won’t make a field, but a potentially large discovery is better than finding a dry hole.
Last year, Mexico’s Pemex announced a find of up to 10 billion barrels a fountain of gold but that’s since been revised down to about 43 million barrels.
What are the challenges of tapping deepwater oil?
This well requires leading-edge-technology drilling. So far, there have been 14 technological records set to reach these depths. Then there’s the cost. This type of project is something only the giants can take on, with expenses approaching $120 million per well.
Another issue is the vulnerability to hurricanes. And because the water is too deep for a pipeline, the oil, which will likely be heavy gas and heavy oil at those depths, will have to be liquefied and loaded directly onto ships. It’s amazingly complicated, and the risks are high.
When will the Gulf of Mexico oil impact the marketplace?
Production won’t start until 2010. Full production certainly would not begin until 2013, and most of these types of projects are delayed a few years. So we’re probably looking at 2015. By the time it gets to production, it may offset some of our country’s oil depletion and may help us maintain our current production levels.
Will other companies expand their Gulf of Mexico exploration?
At $80 to $120 million per well, only a handful of refiners could drill there. One of the rigs used in the Gulf exploration has been under a long-term lease for $195,000 per day. The lease is coming due for renewal at a cost of $500,000 per day, plus all of the expenses relating to it.
These wells present considerable risks, and you don’t know for sure if any oil exists until you drill. I’m sure Chevron is relying on seismic analysis, which shows structure but doesn’t necessarily show hydrocarbons. Companies must project substantial potential profits to take on these risks.
What political issues surround the Gulf discovery?
Throughout history, the oil business has been incredibly vulnerable to political events. It was interesting that Mexico’s recent oil discovery was announced just prior to parliament’s vote on the Pemex budget. The U.S. Gulf discovery certainly wasn’t timed, but surely one of the partners realized that with an upcoming Senate vote on offshore drilling, the announcement of a large find might spur interest in passing the legislation.
Until Congress announced royalty relief for companies taking on these experimental offshore projects, these wells could not be drilled and we would not have this additional three to 15 billion barrels of oil to help shore up our energy security.
Could the promise of huge Gulf reserves and other finds slow the recent push for alternative fuels like E85?
We’ll have E85 because the federal government wants it. It’s not viable without federal subsidies. It falls under farm policy, not energy policy. E85 production uses almost as much hydrocarbon energy as it provides, meaning it offers only a marginally positive net energy.
We need to develop alternative sources that make money sense. Meantime, we’ll have to increase offshore drilling and develop areas like the Arctic National Wildlife Refuge (ANWR). I don’t know how we can keep producing and using more oil than we find.
BILL BARNES is managing director of B&R Energy. Reach him at (214) 445-6804 or bill_barnes@BandREnergy.com.
Bachelor’s degree, computer science and management science, 1971, Boston College; master’s degree, business administration, Harvard Business School, 1973
What’s been your biggest business challenge?
i2 has been a major turnaround challenge. It was a once-great company that was in a difficult position when I took over as CEO. i2 has great employees, passionate customers and amazing technology.
These employees, customers and our shareholders had a lot at stake in this turnaround. After 18 months, we have accomplished everything that we set out to do. i2 is profitable, more financially stable and growing. We launched a new strategy around a whole new generation of supply chain management solutions.
What’s been your biggest business lesson?
Perhaps the biggest lesson I’ve learned over the years is around decision-making. Knowing what decisions to make, when to make them and how to make them determines a lot of the success of any company and life, for that matter.
What publications do you regularly read?
I read a lot, especially while traveling. I skim articles to try to keep current with what’s happening. I read all the standard business publications: Business Week, Forbes, Fortune, The Wall Street Journal, Harvard Business Review.
I also review a lot of technical publications online, and i2 publishes briefings on articles on supply chain management. In addition, I read nonbusiness publications like The Washington Post and Time to keep current on global trends.
What business book have you read recently?
The best book I’ve read in awhile was ‘The World Is Flat.’ Thomas Friedman is one of the most perceptive thought leaders on international trends.
I’ve also read ‘The Tipping Point’ and ‘Blink’ recently. For some reason, I have not found any new good business books so far this year.
I also think you need to read nonbusiness books to better understand things. I’m currently reading ‘A Fine Balance,’ a classic historical story of India. i2 has a large operation in India, and I need to understand the culture better.
I recently reread one of my own books, ‘Product Strategy for High-Technology Companies,’ so I could apply some of the concepts here at i2.
“Product Development: Success Through Product and Cycle-Time Excellence” (1992); “Product Strategy for High-Technology Companies: How to Achieve Growth, Competitive Advantage, and Increased Profits” (1994); “Setting the PACE in Product Development, A Guide to Product and Cycle-time Excellence” (1996); “Product Strategy for High Technology Companies” (2000); “Next Generation Product Development: How to Increase Productivity, Cut Costs, and Reduce Cycle Times” (2004)
“As more projects and programs take up more time and capital in business, it is becoming critical that these projects are selected effectively by use of a portfolio system that attaches priorities to each project or program,” says Joiner.
Smart Business spoke with Joiner about the importance of creating a project portfolio management system in a business.
Could you define a project portfolio management?
Project portfolio management is often done in many businesses already without the label. It is simply making sure that the projects and programs that are being done are in line with company’s goals. There is a hierarchical relationship among the various elements: projects form programs, and projects and programs form portfolios.
Project portfolio management exists to ensure the effective selection of projects and programs.
Why is all this important to a business?
Because businesses have limited time and resources. Project portfolio management adds a dose of reality to the whole process.
For example, projects can come from many sources. The task is to make sure the projects being implemented are in alignment with company goals and strategy. It is not uncommon for pet projects to be approved and implemented, whether in line with company needs or not. An effective portfolio management system will minimize the implementation of these nonessential projects.
Creating a project portfolio helps the business align the projects with reality that is, with the resources available in the form of money, time, personnel and equipment, to get the project done.
Who should be responsible for the project portfolio management?
The portfolio management function is generally the responsibility of a senior manager or a management team. It’s a senior function and not something that can be done very well by a computer. This suggests the eventual creation of the job of portfolio manager, making it a complementary position along with marketing, engineering, manufacturing, and so on. The function of this portfolio manager position is to make sure the company is spending money on the right projects.
What are the first steps in creating a project management portfolio?
First, an inventory of projects and programs must be taken. It should be an actual index of the projects and programs that are happening or are in the planning phase. These projects and programs must be prioritized and some projects weeded out or selected for a later date. You may have 150 projects, but you can’t do all of them this year; maybe you can do 50.
Someone has to decide which projects need to get done that the company can afford to do, and which support its strategy. A portfolio is a way to do that it is an evaluation and screening function that takes a lot of judgment and experience, which is best done by someone in senior management.
What are the top advantages to creating a project portfolio management system in a business?
The business will know where it stands in terms of the projects that are going on. Without it, businesses are operating in the dark and are probably spending more of their money and resources on projects that may not be furthering corporate objectives.
It helps rein in costs and personnel time and helps company focus on the projects that are really important and have a good ROI or meet other strategic objectives.
Are there any disadvantages or reasons not to create a project portfolio management system?
A company may not be large enough to have a formal structure for it and no need to appoint a person as portfolio manager. But even in very small companies, someone somewhere needs to decide which projects need to get done. In small companies, that is usually the business owner. So it is helpful to go through this exercise (of taking an inventory of your projects and prioritizing them), even if a company only has a handful of projects.
JIM JOINER is the director of the Project Management Program at the University of Texas at Dallas School of Management. Reach him at (972) 883-2652 or firstname.lastname@example.org.
In 2002, Gainsco Inc. was primarily in the commercial lines insurance business and was hemorrhaging money. After the company tried unsuccessfully to fix the problems, that part of the business was scrapped.
There was a seed of hope, however, in a small Florida subsidiary of the company that specialized in the nonstandard personal automobile insurance line. Anderson, CEO of the company, took that seed, spread it across the Southern states and created a stronger foundation, allowing Gainsco to grow to $99 million in revenue last year, a 103 percent increase over the previous year.
Smart Business spoke with Anderson about how he leads growth and establishes a vision for his 400 employees.
How do you manage growth?
When a rocket goes up into the air, it looks to be a perfect flight, but in reality, what is happening is the computers within the rocket are making adjustments on a millisecond basis. So what appears to be a perfect flight is really just a series of micro-adjustments.
The analogy is that when you grow as fast as we’re growing, you have to work under the assumption that something is not working right, and you have to have a highly proactive approach to find out what is not working right so that you can make those milli-adjustments.
If you’re successful in making a lot of millisecond adjustments, then that avoids the more severe adjustment that might otherwise occur because you failed to make the millisecond adjustments. God forbid you don’t even do that, and then the rocket falls out of orbit.
How do you make decisions?
What underlines our ability to do business is the fact that we have capital. One of the most central tenets of all is to make money. If you make money, you can always come back another day and write more business.
If you don’t make money, you’ve not earned the right to come back the next day to make money. If you’re facing decisions in business, ultimately you do what the right profit-making decision suggests you (do).
Be extraordinarily service-driven. Our customers ultimately vote as to whether they want to join or stay with our company. The retention of customers in our business is extraordinarily important because it’s our downstream and revenue stream, so to earn the right to retain those customers earn their votes, so to speak you have to provide extraordinary service because their doors are being knocked on at all times to leave our company and join another company, because that’s how competition works.
What keeps a company from growing?
If you don’t have the vision, and if you do not have a leadership team that is driven to achieve that vision, you essentially will not be compelled to make the changes that will drive you forward ... in that vision. You’re more likely to be operating more as an administrative maintenance organization, just keep on keeping on and sustaining what you have, but not developing the growth of the company.
There’s a tremendous amount of leverage associated with the vision and the leadership team that’s dedicated to achieving that vision.
In the absence of vision, there’s no reason to change or to upgrade or to improve or to develop or to grow.
How do you get employees to buy into that vision?
By having a broader environment and culture that’s exciting and vibrant, and enabling people to perform their jobs and grow in their careers. We grade out the performance of our organizational units in terms of 1 to 10 and keep track of their performance. We evaluate each of the individuals in those organizations with the same type of grading system.
The spirit of this is complete teamwork and honesty. If the organizational units are not evolving from a 6 to a 10, we’re candid about that measurement. We proactively identify what it takes to advance that organizational unit to become a 10.
If every day, every person is focused on moving from a 6 to a 10, in the context of fulfilling the vision, then we will make that happen.
How do you get them to do that?
Culturally, we create the environment where people are encouraged to speak up and perform at a high level and show how good they are. Secondly, we’re providing a lot of resources to provide the tools to enable them to succeed.
We’re investing a lot of money in new systems, new products, new tools, new capabilities. We’ve been less concerned with the impact of those expenditures on our bottom line and more concerned with building a foundation on the belief that if you build it right, the business will ultimately be generated because of that.
Build the foundation, and then you can add almost indefinitely to that foundation, but if you start going for the top of the pyramid without the foundation, it will ultimately collapse.
HOW TO REACH: Gainsco Inc., www.gainsco.com
So how do you know who is out there, and how do you determine exactly what you are looking for? More importantly, how do you know when you find it?
Smart Business spoke with Brian Trueblood, vice president of TNS Partners Inc., for insight about how the more enlightened companies replace key executives.
Once a company realizes it has a need, how should it define that need, in order to have the best chance of success?
The best companies seize this opportunity to be introspective. They analyze the key business drivers the role will impact and how this executive will need to affect them. Do the key interactors dictate a certain skill set, style or ability? Often, companies are simply too focused on what the outgoing leader was doing to fully appreciate what the next leader needs to be. The breadth of experience and the outside perspective of an executive search consultant is a tremendous asset in this process.
But if a company has a specific need, why does broad experience help define it?
Because, by being too narrow, you risk overlooking a talented executive who might be the best candidate. When defining the need, many skills will be desirable. A seasoned executive search consultant simply has a larger and broader population base from which to assess an individual. Many of the skill sets companies are seeking today are transferable from one industry to another or at least from one industry segment to another. Broadly experienced consultants are more in tune with those skills.
Can you give me an example of how skills can be transferable across industries?
The easiest one is leadership. If you have led large, complex teams; put in place processes to manage them; developed techniques to measure success; and been responsible for the financials, resource allocation, customers and markets, does it really matter if the actual product was the same?
Beyond leadership, other people skills, technical competencies, measurement disciplines, organizational abilities, financial acuity and communications capabilities are all clearly transferable across industry and functional boundaries. The real question is whether the person will translate his or her successes in other organizations with the differing infrastructure and environment of the new company.
How is the specification able to define the culture and internal dynamics of the company?
The executive search firm must have a proven process that includes becoming intimately familiar with the internal workings of the company. By meeting with the entire management team, touring applicable facilities, interviewing internal candidates, team members, vendors and customers, the executive search firm can gain a true appreciation for the culture, working environment and personality of the organization. This knowledge is reflected in the position specification within the company description, the definition of the opportunity as well as the desired competencies, experiences and attributes.
During the interview process, how are executives evaluated to determine which are potential candidates?
The search specification is the gauge. This is why the ‘spec’ is so critical to the process. Search firms work hard to develop these documents, but expect the client to work just as hard and invest in them just as much. The specification development must be a back and forth process. If the first draft is approved outright and the search firm hasn’t done significant work with the company before, it’s likely that the specification is off target or too vague. There must be insight, discussion, refinement and adjustment before agreement. Only then can the specification be the appropriate tool throughout the process.
So once you have identified your candidates, what is the next step?
Continue to validate your belief that they ‘fit the spec’ using external sources such as background verification and reference checks, while the internal leadership team delivers on their commitments in the specification. Remember, the spec goes far beyond skills and also encompasses a description of the company, the culture and the opportunity. The company must use the interview process to provide a window for the candidate into the organization and it must be congruent with the specification. If the specification is properly developed and then diligently utilized throughout the search process, the likelihood of success is dramatically increased.
BRIAN TRUEBLOOD is vice president of TNS Partners Inc. Reach him at (214) 369-3565, ext. 114, or email@example.com.
“In order to reduce your estate tax liability, it’s critical to work with an adviser with experience in gift giving and estate planning,” he says.
Smart Business spoke with Neal about the estate tax, how it’s calculated and ways to mitigate the estate tax liability.
What is the estate tax?
The estate tax is the tax on the actual transfer of assets from the decedent to another party.
Basically, an estate tax is determined by calculating all of the property that the decedent had ownership, control or the complete use of. The most commonly overlooked asset is life insurance. This is particularly true for younger people who don’t think they have an estate large enough to qualify for the estate tax, yet they have a large life insurance policy. If something happens, it becomes a taxable estate.
The estate tax is based on a snapshot on the date of death, or you can use an alternative date of six months past the date of death, whichever date is in your favor.
For example, if a person died Sept. 1 owning a valuable piece of property in New Orleans that was hit by a hurricane on Nov. 1, the value of the property would be determined on Sept. 1 the day the person died. In that case, you’d want to take the alternative six months later due to the decrease in the asset value. By the same token, if the person owned stock that was worth a certain value at the date of death but was worth twice as much five days later, you’d want to use the value of the stock at the date of the death so those profits would be excluded from the estate.
How can one reduce exposure to the estate tax?
There are exemptions to mitigate the tax liability. Every person is granted a lifetime exemption that currently stands at $2 million. Proper planning can help ensure that the exemption is fully utilized.
For example, in the case of a married couple in which one spouse had $3 million in assets and the other spouse had none, if the spouse that had no assets dies first, there will be no utilization of that person’s lifetime credit. When the second spouse dies, that person would have $1 million more than the exemption and the estate would have to pay $450,000 in estate taxes. With proper planning, perhaps utilizing a trust, this couple could have reduced its exposure to the estate tax. Not taking full advantage of both spouses’ exemptions is probably the most common estate planning mistake.
There are other deductions such as the administration expenses of the estate, including the funeral expenses.
There’s also what I call ‘winning by attrition,’ which allows individuals to give $12,000 annually per person to their heirs. There are some rules governing these gifts, but this allows individuals to significantly pare down their estate in an effort to reduce their estate tax liability.
Lastly, individuals with large qualified plans and IRAs should be sure to consult with an experienced tax adviser, as these can be particularly tricky in estate planning.
How can someone determine whether or not they will owe an estate tax?
Basically, you just need to add up everything you own and subtract everything that you owe. But keep in mind a few things that are often forgotten like the face value of any life insurance and the full value of assets. You need to look at the fair market value of the assets and determine by what a willing buyer and a willing seller would agree to as a sales price.
Isn’t there talk that Congress is going to repeal the estate tax?
Currently, the estate tax exemption is set to increase in 2008 and 2009. The tax is due to disappear in 2010, but I believe it’s highly unlikely that Congress will allow that to happen. Most commentators believe the exemption will rise to $5 million, coupled with a reduction in the tax rate.
DAVID NEAL is the tax director at Whitley Penn LLP, CPAs & Professional Consultants. Reach him at (817) 258-9100 or firstname.lastname@example.org.
Bachelor’s degree, engineering, United States Naval Academy, 1965
What’s been your biggest business challenge?
In the ’80s, we had some outside investments. I’ve learned a lot about people through that difficult time in the ’80s.
We have a wonderful group of people in our company who helped us through those disappointments. Life is a series of challenges. That’s the wonderful thing about life.
I’m a big believer in perseverance. Whether it’s on the athletic field or in the business field, you don’t cook the books, you don’t give up on your faith, you don’t blame someone else, you don’t change your values. You just have to deal with the problem and face it and persevere through it. It’s during those periods of time that you find out what your real character is.
What are some of your favorite business books?
“Good to Great, The Leadership Challenge.” I read quite a bit, but I bounce back and forth.
What publications do you read on a regular basis?
I read religiously Fortune, Forbes, Business Week, The Wall Street Journal. I read The Dallas Morning News every day, The New York Times at home on Sunday and USA Today when I’m on the road.