As the economy moves away from recession, many privately held companies are finding themselves with available cash and are deciding how it can be best utilized.

“They’re calling and asking, ‘Do I acquire a business, or start a new product line? Or do we further incentivize our top performers?’” says Tyler A. Ridgeway, director of Human Capital Resources at Kreischer Miller.

Many companies are aggressively looking for top talent, and you need to act quickly to attract ‘A’ players and ensure your best performers don’t leave. Top executives are landing jobs more quickly than ever, Ridgeway says.

Smart Business spoke with Ridgeway about retention methods that will motivate key employees.

How can an owner identify which employees are indispensable?

If you went to the office on Monday and someone gave notice, whose departure would make you feel irreparably harmed? Think about the key people you need to take your company to the next level of growth. Also, consider who you consult with when making a critical or strategic decision. These are the employees who need to be the focus of your retention efforts.

What financial rewards are being used to retain employees?

Total compensation is important, but it’s not always about base pay. Companies are using phantom stock plans, stock appreciation rights or a pool of money tied into company growth. For instance, if a $10 million company grows to $15 million, a portion of that $5 million difference can be divided among key performers and put into a pool that can act as a retirement benefit or, if the business is sold, would vest immediately. These types of programs can be used to attract top talent to your company or reinforce the desire of your existing team to stay and contribute at a high level.

You can also set bonuses on a team or individual basis. For individuals, percentages can be tied to specific goals you expect your executives to accomplish, such as qualitative metrics or projects to be completed.

It’s also advisable to add subjective items so the team is rewarded if the company has a really profitable year. Executives are willing to share risks, and they want additional cash if they put forth the effort and the company grows. A situation in which someone can contribute strategically, and reports to the ownership, is very attractive when you offer some type of upside if the company grows.

What are some other retention strategies?

Health care and flex time are still important. Health care negotiations are all over the map, and how a company addresses this key employee benefit can act as a strong motivator for top performers to stay.

Vacation time and flex time are also important because businesses are operating in a 24/7 environment; an executive may not be in the office all the time, but he or she is almost always plugged in. Organizations that take into account their employees’ personal lives and offer flexible work arrangements will be viewed as the best companies to work for.

Employee engagement also is important. If you can create an environment where employees at all levels understand their importance and role within the organization, and how they contribute to the growth of the business, it will be easier to retain them. When that breaks down and someone doesn’t feel they’re contributing or engaged, you risk losing that person.

Employee retention is not like a best practice environment; you have to know your organization and what motivates your employees. Most organizations now have four generations in their workforce and they’re all motivated differently. Figure out what motivates your employees and be flexible in creating policies that encourage them to stay and operate as cohesive, engaged teams.

Tyler A. Ridgeway is director of Human Capital Resources at Kreischer Miller. Reach him at (215) 734-1609 or tridgeway@kmco.com.

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Companies are valued based on a formula that takes into account cash flow and the multiple that a buyer would be willing to pay. Increasing the value of a business amounts to finding ways to affect those two factors.

“Certain businesses, like a developer investing in land, are valued based on how much their assets are worth. But 90 percent of companies are valued based on their cash flow. So you need to increase cash flow if you want to increase the value of the business,” says Mario O. Vicari, a director at Kreischer Miller.

Smart Business spoke with Vicari about how owners can make businesses more valuable.

What is the formula for determining the value of a company?

Essentially, the two components are how much cash flow the company produces and what multiple a buyer will pay. At a very basic level, a business with a cash flow of $100,000 that finds a buyer willing to pay a five multiple would be worth $500,000.

The multiple is based on the risks associated with the cash flow, which is principally concerned with how sustainable  and predictable it is. If a company derives its income from having to bid and win contracts, that cash flow is difficult to predict. A business that has more repeatable revenue, like a building maintenance contract that reoccurs every year, would represent a lower risk and a higher multiple.

What are some steps to take to increase cash flow?

Consider ways to increase revenues, lower costs, or both. At the highest level, that involves looking at your sales plan and marketing programs. Where are the best opportunities for sales growth? Can you sell different things to your existing customers through line extensions or take market share by attracting new customers through a targeted marketing effort or geographic expansion? Pricing and margins are also a significant consideration because sales growth without appropriate margins will not create value in the business, since cash flow will not increase. On the cost side, some consideration should be given to your cost of sales and making sure that your direct costs are optimized and throughput is high. Overheads should also be looked at closely to ensure that costs are optimal to support the sales growth the company is targeting. Overheads can be tricky, since a reduction has a direct impact on the current year cash flow but too much cutting can affect the business’s ability to grow in the future.

It comes down to how you manage your income statement, and how you drive net income through some combination of growth and more efficient use of resources.

How can a business owner lessen risk and increase the multiple?

There are several things an outside party will look at when considering risk associated with a business’s cash flow. If your customer base or product line is not diversified, that’s a much riskier situation because the loss of one big customer or a product would significantly affect the cash flow. If that’s the case, you should consider how to diversify your customer list and product offerings to manage that risk. Supplier concentrations can also increase risk and, where possible, you should diversify your supply chain.

An often overlooked risk is the depth and breadth of the management team and whether you have a succession plan. A company might have good cash flow, but if too much responsibility revolves around the owner it’s not going to be worth as much because it’s not sustainable if the owner were not there. Good management systems and qualified staff can add a lot of value to a company because they increase the likelihood of the cash flow being sustainable. Lastly, there is one element that fits into both cash flow and risk categories — utilization of assets. If you can turn over assets like receivables and inventory in 60 days instead of 90, that means you need less money to finance those assets and your cash flow increases. Additionally, efficient utilization of fixed assets also is important because a company has more cash flow and is more valuable if its reinvestment rate in fixed assets is lower.

For most private companies, the business is the owner’s primary asset. We encourage business owners to look at the business as an investor would and think about these value drivers so they can ensure they are increasing the value of their biggest asset.

Mario O. Vicari is director at Kreischer Miller. Reach him at (215) 441-4600 or mvicari@kmco.com.

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The increased use of web-based cloud accounting applications has provided users many advantages related to efficiencies and cost savings but conversely it adds certain risk factors, says Roman Leshak, a director in Audit & Accounting at Kreischer Miller.

Smart Business spoke with Leshak about ways to reduce risks associated with accounting in the cloud.

How do accounting firms use the cloud?

Accounting applications utilized through cloud computing include bill management and payment, customer relationship management, document management, enterprise resource planning systems, financial statements preparation, payroll, sales and use tax, tax return preparation and work flow resources.

Advances in technology have helped expedite the use of cloud applications, as many companies are seeing significant cost savings compared to developing and maintaining these applications internally.

Cloud computing can be a very attractive option for saving costs; it also lends itself to quicker software implementation and updates, portability of data enabling remote access among multiple users and locations and significant reduction and possible elimination of capital outlays for hardware.      

What are the main risks involved with web-based accounting?

Despite the advantages of cloud computing, there are several risks that need to be considered and addressed prior to making the decision to move from the traditional accounting applications as information maintained within these applications is often confidential, or even entrepreneurial, and is very valuable to the user. These risks include security and data privacy, reliability and availability of the data and data processing, loss of integrity and overall data ownership and transfer of data.  

During the vendor selection process the user should verify that the service provider utilizes a data center and that the vendor has received an AICPA Service Organization Controls Report on those controls in place at the data center related to infrastructure, software, personnel, procedures and data. These reports are crucial to understanding the vendor’s oversight of the data management, internal controls and risk management and in verifying that the proper safeguards are in place. Some accounting firms provide assurance services related to cloud strategy, integration and migration and will assist with corporate governance issues, vendor selection and system integration.   

Security of the data transmitted and stored within the cloud is of the utmost importance as this data is no longer stored on local servers. Data should be encrypted during the transfer and storage stages and needs to be protected from access by other users that may be using the shared data center.  Availability of the data and the reliability of cloud applications are just as important as the security of the data. Vendors must limit unscheduled downtime of cloud applications in our global 24/7 business environment.

In addition, the number of applications that a company houses in the cloud environment increases the requirement for the bandwidth needed for uninterrupted access to that data. Companies have used secondary internet providers as a backup option as well as engaged services with both telephone and cable internet providers to ensure constant and reliable connectivity.  Risks related to the ownership and migration of data upon a change or termination in service providers also need to be considered.  It is important to discuss the data transfer procedures with potential vendors as well as exit costs and strategies.

What do businesses need to do before proceeding with accounting in the cloud?

The most important thing you can do as a protector of information is to understand the potential risks associated with accounting within the cloud environment. Users should consider establishing a process of mandatory contractual agreements with potential cloud application service providers and verification that the service provider has the proper controls in place to help mitigate these risks of accounting in the cloud environment.

Accounting in the cloud has many advantages, but considering the risks and protecting your data should be your focus when entering into this environment.

Roman Leshak is a director in Audit & Accounting at Kreischer Miller. Reach him at (215) 441-4600 or rleshak@kmco.com.

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By definition, the term “waste” is an act or instance of performing or spending carelessly, extravagantly or to no purpose. Despite the negative connotations surrounding waste, many businesses are seeing waste as an opportunity.

Successful businesses are actively engaged in the identification and reduction of waste in processes, says Robert S. Olszewski, a director at Kreischer Miller.

“Processes either add value or create waste to the production of a product or service,” says Olszewski. “Waste can account for up to 30 percent of the operating costs of an organization. Unfortunately, waste has become accepted by many as what normally happens. Most businesses put significant energy into increasing sales. However, pushing more business through an inefficient system makes no sense.”

Smart Business spoke with Olszewski about the process and enhancing the probability of reducing waste.

Are there common areas of waste in a business?

Waste reduction is one of the most effective ways to increase profitability in businesses. Prior to jumping into the issue identification process, it is important to comprehend what waste is and where it can be found. Toyota, after years of work to remove waste, identified the most prominent ones. The seven most common wastes identified by Toyota include overproduction, waiting, transporting, inappropriate processing, unnecessary inventory, motion and defects.

As we facilitate activities surrounding the waste reduction process, we often find that the key areas of waste are clear to all levels within the organizational structure. The elephant in the room needs to be addressed.

Is there a process businesses can use to reduce waste?

Conducting a waste assessment is the starting point, which generates a wide range of issues. With so many issues requiring attention, the project can be overwhelming. Therefore, ranking priorities enables the most important issues to be dealt with first; focus on the issues that have the greatest combination of economic benefit and ease of correction.

Start with the end in mind by establishing mutually agreed upon key performance indicators to monitor the effectiveness of the change being implemented or the impact of issues being addressed.

Who should be involved in waste reduction?

Waste reduction is not a task for a single individual; formation of teams is essential. Teams are not spontaneously generated, they require lots of hard work. It is unrealistic to believe your team will network and instantly reach peak performance.

Teams go through four distinct stages: honeymoon period, power struggle, working through frustrations and settling into a high performance mode. Don’t worry when the team enters into a power struggle, as conflict is normal; don’t take it personally. Change should be welcomed and the probability of success may be enhanced with an independent third party facilitator.

What are the most common issues you have observed in the process?

First is overcomplicating the process. We recommend isolating the significant few from the trivial many. You must be laser-focused on the issue and define where you are now, where you want to be, and form strategies on how you are going to get there. Do not get overly excited about where you are now and begin attempting to correct it. Be certain to define where you want to be in order to define and enjoy the success.

Second is accountability for results. Construct a one-page plan that highlights key action items, responsible parties and timelines. In addition, we recommend performing routine assessments for accomplishing mutually agreed upon goals and expectations.

Robert S. Olszewski is a director at Kreischer Miller. Reach him at (215) 441-4600, ext. 275, or rolszewski@kmco.com.

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“Planning for an exit can be a very emotional event in a business owner’s life. There are feelings of mortality — not only with one’s health, but also his or her role as the leader of a business. Businesses that achieve long-term success typically do a good job planning for succession,” says Steven E. Staugaitis, a director in Audit & Accounting at Kreischer Miller.

“It makes sense that companies that effectively plan leadership transitions will do better because they can sustain positive momentum when a leader is properly groomed and allowed to rise within the organization,” he says.

However, many business owners and executives don’t properly plan for an orderly exit. Less than 20 percent of organizations are well prepared for the departure of a key individual, according to the American Management Association.

“We see that particularly with first-generation business owners. One day they realize they’re 65 and ready to retire. They expect to be able to turn a key and exit the business. In those cases, it is rarely a successful exit,” Staugaitis says.

Smart Business spoke with Staugaitis about planning for succession and what business owners should be considering to increase their chances for success.

What steps should owners consider?

The succession process involves evaluating several steps. These steps include, but are not exclusive to:

  1. Identifying potential candidates.
  2. Training those qualified candidates.
  3. Publicly affirming the decision.

These action items are necessary to set the right tone and expectations for the organization and those around them.

When should owners start thinking about exit planning?

Successful transitions occur where sufficient planning takes place — five to 10 years from a planned exit is best. This time frame allows for potential ‘false starts’ as circumstances change. These changes can be a shift in the operations of the business, the unplanned departure of candidates or candidates simply not demonstrating the necessary qualifications to take over. It is important to start the process early in order to keep your options open.

Who should be involved in the selection process?

Certainly the current owner or owners should be involved as well as any identifiable candidates. These candidates need to confirm their intention of really wanting to take over.

Also, having an outside, independent entity such as a board of directors or advisory board can be helpful. The board can help balance decisions by removing the emotion, since they don’t work as intimately with the candidates on a daily basis. Board members are able to provide outside perspective and new, innovative ways for evaluating candidates.

What about contingency plans?

It’s always a good idea to have what is sometimes referred to as a ‘disaster plan’ in place. These plans are a set of key instructions for a spouse or the management team of a business to act upon in the event something happens to the owner. Unfortunately, there are situations where a key owner of a business passes away suddenly. If there is no clear direction left to anyone either in the family or in the company, the company may go out of business as a result.

Are there any other things an owner should be thinking about?

A leader who is planning to leave the organization should think about what he or she is going to do once he or she actually leaves. The most successful transitions occur when the owners take up an active hobby or they participate on advisory boards of other companies. Showing up at the business every day can undermine the whole process and give the perception that a succession has never really occurred.

The succession process needs to be mapped out like you would any other aspect of the business. Even if you’re not planning on exiting the business in the near future, being prepared ahead of an actual event sends a positive message to employees and customers that you’ve built a strong company that is focused on long-term success.

Steven E. Staugaitis is a director in Audit & Accounting at Kreischer Miller. Reach him at (215) 441-4600 or sstaugaitis@kmco.com.

 

 

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Owners of privately held midsize companies are increasingly using performance-based bonuses as a key way of compensating executives.

“Companies will pay for performance, but they want to see value,” says Tyler A. Ridgeway, director of Human Capital Resources at Kreischer Miller.

“Whether it’s a CEO, CFO, COO, vice president of sales or vice president of marketing, it’s about how they can create value for owners in an organization. If it’s a CFO, for instance, it’s not just about crunching numbers; it’s about being a strategic business partner,” Ridgeway says.

Smart Business spoke with Ridgeway about performance-based bonuses and other trends in executive compensation.

Why has there been a trend toward performance-based pay?

A lot of companies have been through tough times, but they’ve also learned to better operate their businesses. Many have available cash right now and are wondering whether to incentivize the current team, pursue an acquisition, launch a new product or upgrade their talent.

For some who’ve decided to incentivize the current team, one option has been to reward their top performers by creating phantom stock or stock appreciation rights plans. These plans can motivate key executives to stay, and also reward them as the company grows.

If they’re hiring an executive, the interview process is now much longer than it was five years ago because they can’t afford to make a mistake. When they upgrade talent or bring in a new CEO, companies want the entire management team involved in the decision. As a result, the chosen executive candidate can build trust and rapport with management before they even start. This allows him or her to hit the ground running.

Companies want to make new executives happy from a compensation perspective, but they don’t want to give away everything. So, they’re designing packages that provide long-term rewards. They’ll negotiate a base salary everyone is happy with, and then determine how to link the bonus to company performance.

How do phantom stock and stock appreciation bonuses work?

Companies are increasingly using these plans that put a percentage of an increase in revenues over a specified period of time into an executive’s retirement plan.

With these plans, the executive doesn’t own equity in the company but shares part of the increase in value. These vehicles reward executives for growth and profits with a focus on specific goals and objectives that need to be accomplished.

Are companies trending away from any particular types of compensation?

Mid-market companies — $20 million to $500 million — realize there is a talent war and know they need to pay for top talent. However, they want to share risk. One way to do this is by offering more in bonus compensation than salary. Executives might be asked to accept less cash upfront in return for the potential upside in bonus compensation and earn-outs.

Some owners might be reluctant to negotiate upfront agreements relating to severance because they may have been burned in the past, such as having to pay severance to a sales professional who was not driving revenue. While many companies do not proactively offer severance, depending upon leverage, executives can have success in gaining some change of control protection.

Most companies are trying to avoid employment contracts as well. Instead, the offer letter now summarizes expectations and includes some measures of protection.

All of this comes back to companies expecting value creation from their new hires. When an executive joins a company, it’s difficult to know upfront exactly where or how he or she will add value. But if the executive helps generate leads that double revenue, for instance, companies are willing to revisit compensation because they want to reward that behavior.

Companies have become more transparent — owners are more willing to allow key team members to know the company’s cash position, and understand why bonuses are down if it’s not a great year. Their philosophy is that everyone is in this together, and, if the business grows, everyone will win.

Tyler A. Ridgeway is a director, Human Capital Resources, at Kreischer Miller. Reach him at (215) 734-1609 or tridgeway@kmco.com.

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Many closely held private companies are organized as partnerships or S corporations — pass-through entities with no material tax implications at the organization level. For owners of such businesses, tax planning predominantly focuses on the individual. To properly plan for those taxes, you need to start well before the end of the year, says Michael R. Viens, a director in the Tax Strategies group at Kreischer Miller.

“Although it can be difficult to precisely forecast results for the entire year, a reasonable estimate, along with identification of the material differences that will exist between financial and tax reporting, should be developed,” says Viens.

Smart Business spoke with Viens about key considerations in developing an effective tax planning process.

What is involved in year-end tax planning?

It starts with a solid foundation — just like an unstable foundation can be problematic with a house, tax planning based on inadequate information can lead to a bad outcome.

Some things to consider when developing your forecast are year-end activities that can affect tax reporting, items such as fixed asset additions, the cash basis tax reporting impact of the collection of receivables and seasonal swings in profitability.

It’s also important to take into account tax considerations unrelated to the business. Key components of a business owner’s personal tax obligations are W-2 wages and share of business income listed in a Schedule K-1. But you also need to consider other aspects of the personal tax puzzle. Acceleration of tax deductions is frequently part of tax planning; however, you have to consider what the ultimate tax benefit will be. Too much acceleration of deductions in a particular tax period may result in limiting the related tax benefit to a lower tax bracket than if taken at another time.

So it’s sometimes better to pay taxes earlier rather than defer payment?

Much of tax planning involves a question as to timing when to pay. If there is no material direct or indirect interest charge for deferring payment, that is normally the recommended course. However, a ‘pay as you go’ approach can lead to a better outcome when economic circumstances are not ideal for the accumulation of a significant tax payment deferral.

Another concern with a deferral of tax liabilities is that it can be difficult to monitor future tax payment obligations. Because pass-through entities are not required to identify those liabilities in finance reports, those reports will not help you keep track of when tax obligations may come due.

How does wealth transfer impact tax planning?

Effective estate tax planning may run counter to income tax strategy. You may be able to defer payment of tax due on business profits, but you might not want to do that from an estate tax standpoint. When it’s time to transfer ownership to children, they might not be aware of the need to handle payment of deferred tax obligations. An owner may want to pay the tax, thereby reducing his or her taxable estate and leading to a higher amount of wealth passing along to his or her children.

Should your tax strategy change every year?

An effective tax planning process generally includes some constant elements, such as deferral of revenue recognition and acceleration of deductions. But you need to be flexible to address new challenges.

For example, the new Medicare tax on net investment income will adversely affect owners who do not materially participate in a business, as well as rental arrangements in which commercial property is owned under separate entities. An effective tax plan will consider such changes and adapt to the extent possible.

Michael R. Viens is a director in the Tax Strategies group at Kreischer Miller. Reach him at (215) 441-4600 or mviens@kmco.com.

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Companies spend more than $2 trillion on acquisitions every year, according to an article in Harvard Business Review. Yet studies frequently cite failure rates of mergers and acquisitions (M&A) between 70 and 90 percent.

David E. Shaffer, a director in the Audit & Accounting practice at Kreischer Miller, says problems are often the result of poor planning. Companies are enticed by the opportunity to create synergies or boost performance and fail to consider all ramifications of an acquisition.

Smart Business spoke with Shaffer about ways to mitigate the risk and ensure a successful transaction.

Why is the M&A failure rate so high?

Many companies don’t establish a clear business strategy for mergers and acquisitions. Some questions that need to be answered include:

 

 

  • What are the goals of the merger or acquisition?

 

 

 

 

  • Do you want to leverage existing resources or create a new business unit?

 

 

 

 

  • What is the maximum price you are willing to pay?

 

 

 

 

  • Must the seller agree to some holdback of the price?

 

 

 

 

  • What happens to administrative functions and management of the target company?

 

 

 

 

  • Must key employees sign agreements to stay?

 

 

 

 

  • Will you negotiate between an asset purchase and a stock purchase?

 

 

 

 

  • Is culture important?

 

 

You should be proactive in identifying candidates for acquisition. Companies that have done many acquisitions tend to ignore requests for proposals because the sellers in such situations usually go with the highest price. They reason that the law of averages is against them and at least one competitor will overpay.

Instead, companies involved in many acquisitions prefer to target entities and establish a relationship before that stage in order to avoid a bidding war.

How should the due diligence process be conducted?

It’s important that you don’t take shortcuts in your due diligence. Hire professionals who are knowledgeable about the industry; they can negotiate better deals for you because they are not emotionally attached and can push harder for seller concessions.

Due diligence should address internal and external factors that create risk in the acquisition and focus on key factors driving profitability — employees, processes, patents, etc.

The more risk present, the more you should ask for holdback in the selling price. For instance, if much of the profit is derived from a few contracts, require that the contracts be renewed under similar terms if the seller is to receive the full purchase price.

M&A failures often result because buyers concentrate too much on cost synergies and lose focus on retaining and/or creating revenue. Client retention at service organizations is at significant risk following a merger or acquisition, according to a 2008 article from McKinsey & Company. Clients will receive misinformation, so it’s important that the acquiring firm step in quickly to assure clients that service levels will equal or exceed what they have been accustomed to expect.

What needs to be done post-acquisition?

It’s important to have a clear post-acquisition plan, including financial goals, with as much detail as possible. The quicker value is created by the acquisition, the better the result for the buyer.

Key post-acquisition steps to ensure a successful integration include:

 

 

  • Developing the organizational structure.

 

 

 

 

  • Developing sales expectations.

 

 

 

 

  • Identifying what processes and systems will change, and when.

 

 

 

 

  • Developing performance measures.

 

 

Finally, you also need to hold key management responsible for producing results.

David E. Shaffer is a director, Audit & Accounting, at Kreischer Miller. Reach him at (215) 441-4600 or dshaffer@kmco.com.

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Growing a business in today’s environment is as challenging as ever — especially with relatively stagnant overall economic growth. That’s why it’s more important than ever to hold onto existing customers.

According to Christopher F. Meshginpoosh, a director in the Audit & Accounting practice at Kreischer Miller, companies frequently spend too much time trying to win new customers and not enough trying to hang onto existing customers.

Smart Business spoke with Meshginpoosh about techniques that companies can use to create an organization where every employee is driven to meet the needs of its customers.

Why do some companies struggle with customer service?

It’s often a function of a lack of processes that ingrain and reinforce the importance of customer service. When an entrepreneur starts a new business, he or she understands the value of customer relationships because he or she worked hard for those relationships and can’t afford to lose them.

However, as the company grows, employees are added who lack that same perspective. Without formal processes — training, documented expectations, reward systems, etc. — the focus on customer service can gradually erode.

Additionally, all too often, companies treat customer service like a department. For the record, I didn’t come up with that — it’s on the website of Zappos, a company with an almost legendary commitment to customer service. Every employee has the ability to strengthen or damage a customer relationship, so it’s important for companies to make sure they hire people who have demonstrated an ability to put customers first.

What steps can management take to improve customer service?

That’s an easy one: Look in the mirror.  If management wants every person in the organization to demonstrate the importance of customer service, then the first step is to make sure that they demonstrate it. And that doesn’t just mean managers of the sales or customer service functions. If you want happy employees who thrive on meeting or exceeding the needs of customers, then managers in charge of production, human resources, administration and other functions also must walk the walk.

How can companies reinforce the importance of customer service?

One easy way is to publicly recognize those who demonstrate an outstanding commitment to customer service. Do you have an employee who went out of his or her way to solve a problem for a customer? Don’t just tell that person, tell everyone.

Additionally, make sure reward systems and incentive programs include explicit customer service goals. While some people seem to have an innate ability to want to make customers happy, others may need a little additional motivation. As a result, it’s important to ensure that annual reviews and compensation programs include explicit customer service objectives. If your reward systems simply focus on metrics like profitability or efficiency, then you run the risk of driving short-term profits at the risk of long-term customer losses.

How do you know if your efforts are moving the needle?

While there are many formal methods such as customer service surveys or monitoring customer service metrics, one easy way is to routinely have your employees ask a simple question: What did I do to add value to the customer relationship?

Everyone gets bogged down in the details once in a while, but they should still be able to step back and determine whether their actions strengthened or damaged a customer relationship. If they can’t routinely point to actions that strengthened a relationship, then there’s room for improvement. If they can, then they’re well on their way to creating strong, lasting customer relationships.

Christopher F. Meshginpoosh is a director, Audit & Accounting, at Kreischer Miller. Reach him at (215) 441-4600 or cmeshginpoosh@kmco.com.

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Effective leadership essentially involves a leader’s ability to influence the behavior of followers in pursuit of goals and objectives. Therefore, those in leadership positions must possess the knowledge, skills and abilities that will allow them to influence the behavior of others.

“Organizational leaders must focus on developing the less experienced members of their organization if they hope to preserve the longevity and sustainability of their organization. Successful organizations typically include employee development as one of their strategic goals and have detailed plans for its execution,” says Mary Ellen Harris, director of Human Resources at Kreischer Miller.

Smart Business spoke with Harris about effective succession planning.

How do you bridge the generational gap?

What constitutes strong leadership characteristics and skills remain constant. In other words, leadership skills are universal and do not differ based on the age of the potential leader. However, in order to bridge the gap between generations, organizations need to be more focused on the communication methods and development vehicles employed in an effort to develop the members of the other generations, as opposed to focusing on the content of the development program itself. Don’t get caught up in the differences that people attribute between generations. Regardless of when a person was born, human beings possess similar core needs/desires such as being treated with respect, feeling valued by peers and having the chance to achieve goals. Bridging the gap is best approached by collaborating with the target group on the design of your leadership development program.

What are the keys to an effective program?

The best approach will include a combination of both formal and informal methods of developing employees. A useful informal approach is as simple as having successful veteran leaders within your organization spend time with aspiring leaders. The veteran leaders model appropriate leadership behavior and the aspiring leaders can observe how a successful leader performs.

You can also expose aspiring leaders to successful veteran leaders from outside of your organization, or provide recommended reading assignments such as books, journal articles and other respected resources to help them take responsibility for developing themselves.

From a more formalized standpoint, the inclusion of training classes and mentoring programs are effective techniques for developing leadership skills. In addition, incorporating leadership skills in your performance appraisal system and ensuring that employees are given specific leadership development targets, feedback and assessments is essential. Shadowing programs and short-term ‘leadership’ role assignments, such as leading a project team, are also effective.

Finally, formal education through college courses and internal training classes are effective leadership development strategies.

What role does context or environment play in the creation of an effective leadership development program for the next generation?

Context is a very important factor that influences the approach to developing your next generation of leaders. A not-for-profit organization will likely approach things differently than a for-profit organization, and similarly a large organization will likely approach development efforts differently than a small organization. The type of industry will also have an impact on the approach and options available for the development of aspiring leaders. For example, some contexts may not be conducive to the use of mentoring programs, but they may be extremely effective elsewhere. Similarly, shadowing programs work in some environments but might not be productive or feasible in other environments.

There is no one specific formula for preparing your next generation of leaders. It is imperative that organizations customize their approach and include such factors as the context, industry, size of the organization, and people involved in order to design a unique combination of methods and techniques that are best suited for the organization’s specific needs, goals and objectives.

Mary Ellen Harris is the director, Human Resources at Kreischer Miller. Reach her at (215) 441-4600 or mharris@kmco.com.

 

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