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Wednesday, 09 April 2014 18:53

E-commerce: A sea change in retail

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Columbus has been very attractive to many West Coast e-retailers that need a presence on the East Coast, like Seattle-based Zulily, says Kenny McDonald, CEO of Columbus 2020. As e-commerce grows, many companies are discovering Columbus works well for their fulfillment centers, even as they struggle to control supply chain costs.

“When you’re pulled to the Eastern market of the U.S. and Canada, Columbus makes an enormous amount of sense,” he says. “And what most people find once they get their boots on the ground is that the talent base is really pretty strong, from top to bottom, and it’s a good value to boot.”

The company doesn’t have to be headquartered on the West Coast, either. For example, New York City-based Gwynnie Bee recently chose the Columbus region for a new fulfillment center.

“Columbus is a centralized location that allows us to service our customer better from a shipping standpoint; customers receive their shipments faster and at a lower cost to execute,” says Robert Escobar, vice president of operations at Gwynnie Bee. “Second, Columbus’ overall infrastructure is geared towards fluid and just in time supply chains like ours. Although labor is getting tight as the economy improves, the Columbus talent pool is great, from senior managers to warehouse associates. The market is an epicenter for distribution and logistics companies.”

McDonald feels that e-commerce is more than just a trend.

“It’s really a sea change in corporate business models,” he says. “Companies like Zulily don’t even have storefronts, and those business models really didn’t exist in that fashion 10 years ago.”

 

Watching shipping costs

Keeping costs down is certainly something that is important to all retailers, but it can be particularly imperative for e-commerce companies.

Jeff Zimmerman, director of the Columbus Region Logistics Council, calls this the Amazon effect — where you need to deliver goods to the customer for free, unless they have expedited needs.

“More consumers are buying through e-retailers expecting access to product selection, a Web interface, that allows them to place an order and source goods without the cost of transportation,” Zimmerman says. “So, that e-retailer wants to be as close as they can.”

The natural location that Central Ohio has to reach dense population centers with a one-day truck drive means e-retailers want to use the Columbus area to reach customers east of the Mississippi.

“Retail doesn’t really have a rosy picture in general. I think we’re probably headed for another sub-standard year in terms of double-digit growth,” says Katy Keane, an adjunct logistics professor at The Ohio State University and president of Koncatenate. “That’s really going to be important as retailers, and all companies, look to control costs wherever they can. A lot of people are re-thinking their shipping strategy.”

 

A crisis in trucking

When any retailer does a market study, it’s easy to see that transportation costs are only going to go up, making it critical to manage them closely, Keane says.

“Where labor market and cheap land used to be the No. 1 guiding principle of the results of a network study, now it’s often transportation because diesel has gone up and we are in a crisis in terms of trucking,” she says.

The federal government recently put in new safety regulations, limiting truck drivers’ hours. This sounds good on paper but likely will have far-reaching consequences, Keane says.

It puts more traffic on the roads during the same hours as the rest of the population, as opposed to traveling a lot at night. This in turn could impact the road infrastructure and increase the need for construction — and some already call Columbus the Orange Barrel City.

It also creates some practical problems. For example, Keane says during the test phase of these new service hours several years ago, she received a phone call in the middle of the night.

“The store manager called me at three in the morning and said, ‘I can see the truck. I have my crew of 15 people here waiting to unload this truck and he refuses to back up.’

“And I said, “What do you mean ‘you can see the truck?’”

Keane learned from the president of the trucking company that the truck driver was in the parking lot but had run out of hours. He had an on-board recorder and didn’t want to start the truck and back up because he would be in violation of hours of service.

Keane says it was a ridiculous situation, but that’s how serious it was to violate the regulations.

 

Learn more about logistics with a related story: Playing on Columbus’ strengths — A focus on workforce is paying off in logistics, but more remains to be done

Most everyone in business has been indoctrinated with an emphasis on the bottom line. Ingrained in the psyche of corporate America is the demand, “Show me the money.” If a public company misses analysts’ profit estimates, its stock is summarily trashed, and the investment community sometimes even calls for the CEO’s head.

In business we’re reminded every day that public companies’ chieftains are paid the big bucks for bottom line performance, not perspiration. Their brethren in the private sector are instilled with this same mindset.

There are exceptions. Creating value is not always about generating immediate profitability. Recognize either of these names: Tesla Motors and Twitter, just to name a few? These two companies, as an example, simply don’t make a dime in profits, yet their stocks have performed better than their most well-endowed, bottom-line counterparts.

Why? Because they’re building something for tomorrow. They sacrifice short-term profitability for innovation and market share. They’ve captured investors’ imaginations of what might be, not what is.

 

The value of the trade-off

How should privately held small-, medium- and even large-sized businesses look at the trade-off between profitability and investing heavily on the “if come?” 

The quick answer is that it depends on the industry, the products or services, as well as the depth of the private company’s pockets. Forget about traditional banks as a source of funding for the unprofitable business, unless the owners want to personally guarantee a bank loan. The reality is banks take a dim view of companies that lose money. Banks need certainty, which includes a high degree of strong assurance that the borrower will more than likely pay them back at the prescribed time.

There are a number of alternatives for these budding companies that are pushing the boundaries to make it big, but whose founders were not fortunate enough to have been born with that proverbial silver spoon to feed their passion. These include big and small private equity/venture capital firms, which have the money, mindset and stomach to take chances on the unknown. Some are relatively conservative while others are always ready to double down based on instinct and experience.

Many companies are not of the right size, or don’t have the sizzle or just may not know how to package their story to attract traditional private equity. There are always wealthy angel-type investors, however, who have already made their big money and want to do it again vicariously on someone else’s sweat and tears, or because they just like being in the game. 

 

Take heart; be strong

No matter which type of investor a company chooses to romance, the cornerstone of getting the needed capital is understanding the old cliché that “Money talks and ... Oh well, the other stuff walks.” Companies must be weary of wasting their time on the later. So what’s an entrepreneur to do?

Colors can paint different pictures. Take the smash hit TV series last year titled “Orange is the New Black,” about a gal who finds herself in a women’s prison wearing the ubiquitous orange jumpsuit. 

Marketing yourself as the company for which “red is the new black” and attracting necessary capital takes a strong stomach and no fear of rejection. Most importantly, you need a decent idea with a practiced ability to deliver a compelling pitch to sell it, backed by thoughtfully researched assumptions.

Never forget, however, that just like the tagline in the oil filter TV commercial, when you take OPM, aka “other people’s money,” you have to either “pay them now or pay them later” regardless of how you color your story.

 

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. “The Benevolent Dictator,” a book by Feuer that chronicles his step-by-step strategy to build business and create wealth, published by John Wiley & Sons, is now available. Reach him with comments at mfeuer@max-wellness.com.

With spring here, we think of new growth that will come as nature revives itself for another growing season. With this in mind, it’s a good time to pause to think about greening and growing your next crop of leaders.

When speaking about my POW experience and the lessons learned there, a common question from the audience is how we chose our leaders in that situation. That’s a great question because the burden of leading in that cauldron was often painful, always unpredictable, and not a position that most people would want.

Fortunately we didn’t have to compete or debate about who would take command; in remote situations like this, it’s clear military policy that the senior person based on rank and date of promotion takes charge.

In normal conditions, the military is constantly training and grooming every person for higher leadership responsibilities. The heavy turnover from reassignment, separations and mandatory retirement makes succession planning a vital part of normal military planning and operations.

But many civilian organizations don’t see a pressing need, and many don’t have a system in place for developing and evaluating leaders. Do you have a vision for developing leaders? Do you see the need? Are you willing to invest time and energy in the process?

 

Have a vision

Developing leaders does take time and money, but it also has great short-term benefits:

  • Having a built-in system for instilling the values and leadership principles that are important to you.
  • Building relationships in classes to enhance functional collaboration and break down silos.
  • Gaining better-trained leaders at every level.
  • Creating higher morale and better retention among top performers.

Long-term benefits are even more strategic because research shows that hiring from within is the way to go especially at higher levels. Developing your own pool of leaders from which to choose managers, directors and executives reduces your risks in a number of ways.

Granted, there are times when you may need to bring in an outsider to stir the pot or tap into a resource you don’t have on board. But when you do, the risks go up.

 

Avoid a bad hire

Hiring is one of the most difficult challenges leaders face. If you search the Web, you’ll see that the estimates for the cost of a bad hire run from 30 percent of the individual’s salary to three times the annual salary.

In some cases, it could be much more when you consider the energy lost to the executive teams and the opportunity loss of not having the right person on board.

Over the past 15 years, I’ve been fortunate to work with some great organizations. The best ones usually put considerable effort and resources into developing their next generation of leaders at every level from first line supervisor to the executive level.

What about your organization? Do you have a focus on growing your leaders? What programs and processes do you have in place to make this happen?

 

Lee Ellis
president

Leadership Freedom® LLC, a leadership and team development consulting company.

Lee consults with Fortune 500 senior executives in the areas of hiring, teambuilding, leadership and human performance development, and succession planning. His latest book about his Vietnam prisoner of war experience is entitled “Leading with Honor: Leadership Lessons from the Hanoi Hilton.”

www.leadingwithhonor.com

Tax planning is a key component of mergers and acquisitions for both buyers and sellers. It can impact the deal price and play a role in the post-transaction integration.

Tax issues are probably more stressful for sellers, because if there are tax exposures they may need to make representations and warranties. It also can have a bigger impact on the seller’s individual taxes. However, from a buying standpoint, if you want management to stay on but there’s a tax problem, say with executive compensation plans, that can have an adverse effect on operations prospectively.

“It’s one of those things where lots of times people forget, and they bring tax in, in my mind, a little too late,” says Mark Reis, CPA, a tax partner in the Bay Area at Moss Adams LLP. “Or maybe they don’t have a clear understanding of how some of the tax considerations work because they are focused on operations or the deal, and then it can impact purchase price and the taxes of selling shareholders.

“Without the proper planning, you see a lot of things that do go wrong, versus go right,” he says.

Smart Business spoke with Reis about tax planning tips for M&A activity.

Why bring tax into a deal early?

It’s imperative to get all your advisers to the same table early, so they’re communicating throughout the process. If you’re worried about professional fees, remember with the size of these transactions, it’s a comparatively small cost to ensure everybody is on the same page. And many times you’ll end up spending more on professional fees than if you’d been proactive from the start.

Another problem with waiting is you may not get the maximum tax value or benefit. For example, on a recently closed deal, if the company had brought in experts six months earlier, it likely could have saved $1 million in California tax. It’s a matter of having the right people with the right expertise at the table together in order to plan versus react.

What’s important to know about the deal’s structure and its tax effects?

Often business leaders can be unclear on the differences between a stock transaction and an asset purchase, or a tax-free or partially tax-free transaction. Understanding available structures gives both buyers and sellers flexibility to maximize the benefits. For instance, one transaction started as a tax-free merger, but it became mutually beneficial to restructure it as an asset purchase.

Your advisers can help find the best and safest answer, looking at how to manage all the risks, including income tax. Getting a clear understanding of all issues both before and after a transaction closes helps eliminate unnecessary stress or surprises. There are a lot of traps for the unwary; take in as much as possible about the whole picture.

How should buyers attack tax exposures with the target business?

During the diligence process, look at all the exposures, including transactional taxes like sales and use tax, or income tax in other states where activities haven’t been reported. These liabilities may decrease your purchase price offer, or lead to requiring the seller to clean things up prior to doing the deal.

You want to know what you’re buying. With one transaction, the change-in-control agreements were drafted unclearly, which led to problems with the golden parachute rules and payroll taxes. Not only do you have to meet all compliance burdens, but also the last thing a buyer wants is to alienate a key employee who was part of the target.

Is there anything else to keep in mind?

When running projections, you need a solid understanding of the pro forma financial, the purchase accounting adjustments and what kind of resource strain the integration will put on your organization.

When budgeting, project out from both an EBITDA and tax standpoint. Do you have to do fair value accounting? Are you inheriting a liability or is it a true asset? If it’s an asset, what’s the value? How will you handle the transaction costs, which may or may not be deductible?

And the work isn’t done after the deal closes. Post-transaction actions can add value. Again, you need a strong relationship with your advisers, so everybody is talking as issues bubble up. Sometimes it can be a great tax answer, but it doesn’t make sense operationally — but at least you can make an informed decision.


Mark Reis
, CPA, is a tax partner in the Bay Area at Moss Adams LLP. Reach him at (415) 677-8323 or mark.reis@mossadams.com.

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In a world where fast-paced technology dominates everything we do, the amount of personal contact is decreasing, leaving many first impressions at the mercy of an email sent from a smartphone.

But despite our reliance on technology, it’s important that we not lose the basics of our relationship skills. We need to hold ourselves to a higher standard when it comes to dealing with people, because ultimately it’s good business to make a solid first impression.

Here are some things we can do today to make sure each impression is a good one: 

1. Send a handwritten letter instead of an email after meeting someone new or adding a customer. This may feel archaic, but that person will take notice and know that you went the extra mile to make him or her feel important. I’m not talking about a form letter that you stamp a signature onto, but a letter they know you personally wrote and signed. 

2. Be professional in how you dress and how you conduct yourself. It is very acceptable in today’s society to dress down or settle for basic etiquette. But first impressions are everything, and we should make the other person feel important. Treat them as if you were meeting with the CEO of a Fortune 500 company. Make sure your appearance and actions send the right message. 

3. Add value. Find ways to add products or services to a contract the customer didn’t expect. By doing a little more than expected, you will stand out to the customer and help build a stronger relationship. You can also add value by introducing the CEO to other potential customers or suppliers that can offer additional help.

4. Stand out. Do something that keeps you top of mind, such as sending a small gift, book or article you think is of interest. Continue doing this throughout the relationship. 

Be vigilant about these things, because impressions can last forever. A blown opportunity to impress a potential new customer won’t come again.

 

Fred Koury 
President and CEO 

Smart Business Network Inc. is the publisher of Smart Business Magazine and operates SBN Interactive, a content marketing firm. 

Fred is committed to focusing on relationships, not transactions, in everything he does. 

(800) 988-4726

fkoury@sbnonline.com

www.sbnonline.com

www.sbninteractive.com

Recent media attention, including ubiquitous coverage of the Target Corp. security breach over the holidays, has highlighted the increase in security intrusions affecting organizations across industries. As technology moves forward exponentially, security threats and leaks continue to emerge.

“In the digital age, nearly every company holds personally identifiable information of its employees or customers in digital form,” says Christina D. Frangiosa, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC. “It’s imperative that this information is protected from unauthorized disclosure and that companies have a plan to address any breaches.”

Smart Business spoke with Frangiosa about data protection, the role of state laws when it comes to breaches and the importance of assembling a strong data breach response plan.

How should a business go about protecting the data it collects?

First, it’s important to understand what kind of data are collected and what are stored. For instance, some companies collect credit card numbers in order to process transactions, but don’t keep them.

Once a company understands what it stores, it’s important to understand where the data are kept and who has access to them. Companies should limit access to relevant personnel and ensure that security protocols are up to date. If vendors or third parties will have access to these data, it is important to understand their policies so the company’s privacy policies can accurately reflect them.

Customers need to know what the company is going to do with their personal information before they entrust it. It’s essential that a company abide by the privacy policies it announces.

How should a business proceed if it experiences a data breach?

The first question to ask is, ‘What has been accessed and how many people have been exposed?’ Then it’s important to act quickly. Hopefully, the company already has a plan in place for locking down the data to prevent further breaches, for investigating the source and nature of the breach, and for notifying affected individuals. State laws will govern when and how affected individuals need to be notified.

What role do state laws play in notifying affected individuals?

Forty-six out of the fifty states have implemented data breach notification laws. Companies should consider such laws in each state where their customers reside or where they do business. These laws provide the timeline for reaching out to individuals affected by a data breach and, potentially, notifying credit agencies. The notification may need to happen very quickly after the breach occurs. Some data breach notification statutes provide exceptions to the notification requirement. However, companies should plan ahead so they know what their obligations are and are able to meet them promptly.

What type of personnel should be included in a data breach response team?

A data breach response team should include not only internal personnel — like IT, HR, legal counsel, facilities management, and upper management — but also external resources, such as forensic investigators, law enforcement, notification firms and consumer fraud protection agencies. It’s also important to enlist publicity/marketing personnel to help craft public communications about certain breaches. A security breach can have a negative impact on a company’s reputation. For instance, Target reported that its profits plunged 46 percent in the fourth quarter of 2013, largely due to revelations of customer data theft.  Preventing further loss will be important.

Why is it so important for companies to be proactive about data security?

If a breach occurs, there will only be a short window of time in which the company has to act. Companies that have prepared in advance and developed a response plan will be in a better position to protect themselves, their customers and their employees. It’s important to reach out to potential resolution partners before there is an issue so that the company can complete its own assessment of available services and costs without needing to make immediate decisions in response to a ticking clock.

Christina D. Frangiosa is an attorney at Semanoff Ormsby Greenberg & Torchia, LLC. Reach her at (267) 620-1902 or cfrangiosa@sogtlaw.com.

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As the availability and use of 3-D laser based printers proliferate, IP related issues need to be considered.

The use of lasers for rapid prototyping has existed for a number of years as a process of making molds and models in the early stages of production. However, with improved technology 3-D printers are becoming used as a means to make finished products.

For patent owners, the ability of large numbers of individuals (with 3-D printers) to produce products will increase the difficulty of enforcing patent rights. Particularly, 3-D printer technology will act to fragment the target of potential patent enforcement, says Mark Svat, a partner attorney at Fay Sharpe LLP.

For example, an infringer who produces 5 million patented widgets is a clear target for the patent owner.  If, however, 5 million people can produce that widget on their own, the patent owner might need to target each individual infringer to put a stop to the infringement.

Additionally, there are concerns about 3-D printing related to other types of intellectual property, including, for instance, copyrights such as found in artistic works.  Artists can have their designs lifted and potentially turned into any number of products, reducing the market for their merchandise.

Smart Business spoke with Svat about the threat 3-D printing creates for businesses.

Why might the ability of companies to protect their patents be insufficient now that 3-D printing is more available?

A patent owner often looks to a party that is directly infringing its patent. As 3-D printing becomes more common, the direct infringer often will be an individual that is operating a 3-D printer in his/her own home.  Stopping each individual infringer can be quite an onerous task.

A more efficient manner to stop the infringement would be to stop the party providing the data files used to create the infringing product. This could be the person running the website through which the data files are made available and/or it could be the party that created the data files being used to print the infringing product. However, neither of these entities is directly creating the infringing products. Their actions are therefore more likely an indirect infringement, which is often more challenging to litigate.

Particularly, indirect infringement may require an additional level of proof, which means more obstacles must be overcome to prove indirect infringement. This extra burden increases the costs associated with a lawsuit and allows for more defenses to be presented, further complicating an already complex process.

What other challenges might arise as 3-D printing becomes more common?

In addition to patent-related issues, 3-D printing also raises issues related to copyright infringement.   For example, widespread use of 3-D printing could cut into licensing opportunities for creators of artistic works.  A third party might generate a data file for a copyrighted work and then place  it online where others would generate unauthorized 3-D printed versions, cutting out the creator for merchandise revenue. 

To stop unauthorized use, if the data file is from the creator or inventor, he or she may attempt to use technologies similar to a digital rights management (DRM) system to combat piracy. In one embodiment, DRM systems embed code into the data files, only allowing reproduction if proper credentials are used.

Other issues with 3-D printing include the possibility of expanding the physical locations around the world where counterfeits can economically be produced. Similarly, where now a counterfeiter might ‘specialize’ in, say counterfeit shoes, an advanced 3-D printer would allow the counterfeiter to easily switch among a large number of different products.

What should companies that are vulnerable because of 3-D printing do to ensure their patents are enforced?

Companies should pay attention to advancements in 3-D printing, such as new materials that would allow the printers to make one of their products.

Another step is to consider monitoring websites such as www.thingiverse.com that permit individuals to share 3-D printing designs.

Mark Svat is a partner attorney at Fay Sharpe LLP. Reach him at (216) 363-9000 or msvat@faysharpe.com.

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In today’s fast-paced world of business, it is critical to make choices and execute on decisions quickly to remain competitive. However, at some point, innovation has to be a part of the plan or the result is a very well built, highly engineered . . . typewriter. Whether it is new products or other difficult business problems, a structured approach to problem solving is superior to a reliance on the incremental decisions approach often used to identify day-to-day operational improvements. If you are in a situation where simple solutions are not going to suffice, it is time to consider more creative approaches to problem solving.

Smart Business spoke with Karen Schuele, Ph.D., professor of accountancy and dean of the Boler School of Business, and David Jarus, Ph.D., adjunct professor, both at John Carroll University, about true creative problems solving and its role in business.

What is creative problem solving?

Creative problem solving is a well-established, structured process used when unique or innovative solutions are necessary. There are many versions of the process, but all include the following steps: 

  • Identify the goal, wish or challenge.

  • Gather data.

  • Clarify the problem.

  • Generate ideas.

  • Select and strengthen solutions.

  • Plan for action.

The process dates back to Alex Osborn, who coined the term ‘brainstorming’ as a method of generating ideas. Creative problem solving, however, is more expansive than a group sitting around a table ‘coming up with ideas.’ It is structured to drive real solutions for planning and execution. Each phase includes a divergent step, stretching participants to identify what may be possible, followed by a convergent step, narrowing down possibilities.

Why is creative problem solving useful?

Understanding the goal and gathering the known facts are important first steps to ensure that the idea generation stage is grounded in and aligned with the actual business objectives of the company. The next step, clarifying the problem, is often overlooked. The many ways the problem could be viewed or addressed is in itself a creative exercise. It is only after these stages that idea generation — however wild or creative — can occur around solutions that are anchored to the core problem and can achieve the actual business goals.

How do the divergent and convergent steps work?

A critical aspect of good creative problem solving is keeping the divergent and convergent phases of the process distinct. The divergent phase requires the participants to suspend judgment and allow for wild and unusual ideas and concepts. The fastest way to shut down creativity is to kill an idea during the divergent phase.

The convergent phase, or critical thinking phase, is where you narrow down your choices to those on which you will take action. Critical thinking is a highly valued skill in business leaders, but one that must be held in check until the convergent phase of creative problem solving. Thinking critically too early can get in the way of good creative solutions.

What are key things leaders can do to encourage creative problem solving?

A good facilitator is always recommended, but a business leader can take steps to help his or her team be more creative in their solutions. First and foremost, don’t converge on a solution too quickly in front of your teams. Once the boss has weighed in on what he or she believes is the best solution — or the most important facts, or the most clarified problem to work on — few participants will stick their necks out and offer additional ideas, especially the really creative solutions that are not part of the mainstream of your business today. Second, if the problem is really difficult and there is great value to gain from a solution, allow the team the time to work through the process. If it is an easy fix, you wouldn’t need a creative solution and incremental approaches would work fine.

Karen Schuele, Ph.D., is professor of accountancy and dean of the Boler School of Business at John Carroll University. Reach her at (216) 397-4391 or kschuele@jcu.edu.

David Jarus, Ph.D., is an adjunct professor in the MBA program at the Boler School of Business at John Carroll University. Reach him at djarus@jcu.edu.

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Companies update their systems to replace outdated software and to modernize or streamline supporting IT resources. They also implement new systems in hopes of benefitting from internal efficiencies through added features, better workflow, etc. The problem is most companies that implement a new system do not achieve all of their objectives, and many fail miserably.

“Ultimately, the new system may be better, but if executives listed the top things they wanted to accomplish by implementing the new system, many times they don’t achieve those things,” says Brian Thomas, partner in IT Advisory Services at Weaver.

Smart Business spoke with Thomas about how to buck the trend of frustrating and failed system implementations.

What pitfalls occur with new system implementations?

Most companies don’t do a detailed analysis of day-to-day operations and assess how that translates into new system requirements. Management must ask, ‘What are the requirements we, as a unique organization, have of a system that will make it successful?’

Midsize companies often don’t have the time and/or don’t feel the need to formulate detailed system requirements. Executives may operate off of a high-level understanding about improvements they want to see, while calling on people they know to get perspective on what comparable companies are doing.

Also, almost everyone takes for granted how software users have shaped internal business processes based on the reports they generate. New systems mean new reports. If the new system doesn’t consider reporting, as well as how much old data to bring over, it can create back-end challenges. Then, companies are forced to either reconfigure processes or scramble to build new reports.

What’s the potential cost of these issues?

A lack of attention can drag out a project and lead to cost overruns. Management may run blind for a period of time if reporting requirements are not properly addressed before go-live, which hampers business decisions and company performance. Top management may perceive the software vendor as not delivering as promised. Delays and problems cause system users to have a tarnished view of a system, and could lead to employees building system workarounds, such as spreadsheets or databases on the side.

What steps do you recommend instead?

A new software system can substantially impact your company. So, it’s crucial to do the initial due diligence to determine whether the new system is capable of doing what management needs it to do the day it goes live.

Appoint someone internally or externally to build out detailed system requirements by working with users in each department to understand how their processes work. You can then provide these requirements to prospective vendors in an RFP-type format.

Vendors should demonstrate to decision-makers how their software achieves the requirements as part of the proposal process. If any are not fulfilled, which usually is the case, they should be able to articulate their plan for resolving the gaps. Management needs to analyze, ‘If this software does 75 percent of what we need, are we comfortable with the vendor’s responses or plans for what it doesn’t do? And if we have concerns, do we want to change how we do things or look at a different software product?’

It’s logical to expect this process to take a few months unless the system being replaced is a standalone product used by one department for a specific need. There are multiple vendors for a reason; companies must figure out what works best for them.

What about monitoring risks during implementation?

Once a vendor is selected, don’t turn over the keys. If the vendor made promises about covering gaps, the internal stakeholders need to remain involved throughout the project’s life cycle to ensure those things are actually happening.
An objective third party can work between the company and vendor to ensure everyone is accountable. They can even assess the risks of going live on the new software and let the company know when those risks have been brought down to an acceptable level. This helps the company avoid a failed implementation and protects the vendor from having a dissatisfied client.

Brian Thomas, CISA, CISSP, is a partner in IT Advisory Services at Weaver. Reach him at (713) 800-1050 or brian.thomas@weaver.com.

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Some 45 percent of executives are on the move these days, actively looking for new job opportunities, a trend that should concern employers, says Joe Crea, president of Benefits Resource Group.

“Often an executive is just not engaged, he or she has decided there’s more money to be made elsewhere, or they’re dissatisfied with the company,” Crea says.

Smaller companies that lose a key executive are the most affected. “On average, it costs companies 2.5 times the salary of the executive lost in order to find and hire their replacement,” Crea says. However, there are strategies employers can use to keep key executives around for the long term.

Smart Business spoke with Crea about executive retention programs and how they benefit employers.

What can happen when an executive leaves?

There can be real concerns from clients when they learn a key executive is leaving. Many will wonder why the person is leaving, what’s going on with the company that might have caused the executive to leave and if that loss will affect company productivity.

In instances where an executive is essential enough to a business, that business’s lending institution might have worked covenants in existing loan agreements that could be affected by an executive’s exit.

There’s also the time and cost to a company to replace the executive, such as the cost of a headhunter and time spent on training a replacement.

What are the issues executives have?

Executives can be unhappy with their current compensation. Perhaps they have the sense that the company lacks direction, there’s uneasiness at the office or they have a crazy boss. While many younger executives may wait for changes to happen, those who are older would rather not stick around until things settle, so they seek a better fit.

What can be done to retain these folks?

Essentially benefits can be used by a company to try to lock-up their key executives in some way — vesting programs that offer greater rewards for sticking around. Very few people today have confidence that they’ll be able to retire with an income that’s consistent with what they earn today. There are programs that help supplement retirement income, which puts executives’ minds at ease knowing they’ll have something for the future
These benefit programs meet three key executive concerns: Do I have enough to retire? What happens if I’m disabled? Will my family have enough money if I die prematurely?

Among these programs are split dollar arrangements that are life insurance policies that are owned in part by the company and in part by the executive.

There are restrictive endorsement bonus programs whereby special company bonuses are released on a vesting schedule.
A salary continuation program allows a company to designate a salary continuation amount paid over a defined period in the event of disability, death or retirement.

A phantom stock program is an agreement between the executive and a company whereby a value is attached to a ‘share’ of the company, though no true stock exists, and a payout is given in the future based on the value and number of ‘shares’ owned.

Supplemental executive retirement programs offer a defined retirement benefit in the future that’s offset by what the executive will receive in Social Security or other retirement programs.

Also, there are Section 162 programs that are special company-sponsored life insurance programs that offer executives death benefits and income prior to or at retirement. And there are many others.

How can a retention plan help?

Employers need to develop an awareness of issues at hand. Often times these issues are left unaddressed in lieu of day-to-day needs.

For example, a client in Texas had three executives but only had two of them under a non-compete agreement.

To avoid creating a situation where the executive could leave and take a block of the company’s business out the door, the client decided to implement a supplemental retirement program to lock the person up. Understanding the problems that might occur could mean the difference between losing or retaining an employee who’s crucial to your company’s success.

Joe Crea is president of Benefits Resource Group. Reach him at (216) 393-1818 or jcrea@benefitsrg.com.

Insights Employee Benefits is brought to you by Benefits Resource Group

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