Adding value to the bottom line Featured

6:01am EDT May 17, 2006
In this ever-changing marketplace, the bottom line is not always the bottom line. Companies flourish in the long run when they operate under clearly stated values and when decision-makers and subordinates share those values.

All too often, executives, managers and employees are pressured to improve the bottom line in the short term at all costs, says Randolph A. Pohlman, dean of the H. Wayne Huizenga School of Business at Nova Southeastern University.

This can result in situations - as with Enron, Arthur Andersen, WorldCom and other companies in recent years - in which the lack of focus on long-term value creation creates difficulties.

“Solid customer service, accurate reporting and an informed decision-making process suffer when executives are not focused on value creation,” says Pohlman. “Ultimately, the push for short-term profits can sabotage the very success executives are aiming for.

“Putting a companywide focus on principles that lead to profit - rather than short-term pseudo-profit - can prevent another Enron-like situation.”

Smart Business spoke with Pohlman about how CEOs can create and maximize value over time for their organizations, and the importance of hiring the right people.

How do CEOs start maximizing value for their company?
Company decision-makers need to begin with the values of their customers, then measure the values of the organization against a laundry list of other interests, including distributors, unions, government regulators and the constantly changing mores of the communities in which they operate.

This is easier said than done. But weighing all these interests when making decisions creates value over time. Without creating value, you put your business at risk of being replaced by businesses that do.

Where should the focus be?
One key element is trust. Companies spend time and money cultivating trust within their organization structure and with the public. But that trust can be gone in an instant.

That was the case at Enron, where financial scandal toppled one of the most powerful energy companies in the nation. The lesson? A company’s reputation can disintegrate if employees at every level are not focused on creating value over time.

So at it’s core this is a people issue?
It’s vital for executives to surround themselves with people who are more than just capable. Employees must also share a company’s values and take full responsibility for their roles in the company’s success. Employee seminars are a good tool, but it starts with hiring the right people, because we know that what people value drives their actions.

How should the hiring process be used to accomplish this?
When screening applicants for a job, in addition to assessing levels of competency, interviewers - using behavioral-style interviewing - should set up hypothetical scenarios to determine how applicants would react in certain situations. Since past behaviors are the best predictors of future behavior, behavioral-style interviewing can be quite effective.

For example, if you were searching for a technical support specialist at a university, instead of just asking an applicant if he or she knows how to fix a computer, ask which would be a priority - a workstation in a classroom which malfunctioned minutes before a class was to begin or a dean’s personal computer which broke down. The “correct” answer would depend on the circumstances and what led to the greatest value creation.

Who should be ultimately responsible for communicating the company’s values?
Once an employee is hired, managers share the task of ensuring he or she understands the company’s values. Ultimately, the task of understanding the company’s values lies with the employee. Teaching employees through formal classes is helpful, but a good leader leads by example and spends a lot of time coaching employees.

A good leader understands there are competing values and is able to balance all of those when making decisions or taking action. In the end, the focus has to remain on long-term value creation.

RANDOLPH A. POHLMAN, Ph.D., (Pohlman@huizenga.nova.edu) is dean of the H. Wayne Huizenga School of Business at Nova Southeastern University. A former senior executive at Koch Industries, the second largest privately held company in the United States, Pohlman authored a 2000 American Management Association book, “Value Driven Management,” which explains how decision-makers can create and maximize value over time for the ultimate success of their organizations. Reach him at (954) 262-5001 or www.huizenga.nova.edu.