A popular theory in the business world is that three decades of burgeoning environmental controls and regulations have strangled the economy and undermined our economic competitiveness. Given the buzz, it’s no wonder executives often prefer to do the bare minimum or delay regulatory compliance as long as possible.
But what if adhering to the planet’s highest environmental standards actually created a competitive advantage by allowing agile, mid-size firms to zoom past their monolithic competitors? And what if compliance led to reductions in manufacturing and distribution costs? Being proactive and viewing compliance as an opportunity instead of an obligation could be just what the doctor ordered to heal our ailing economy.
“Adhering to the highest environmental standards can inspire innovation and the development of cutting edge products, because it can force everyone in the organization to coalesce around ways to meet the most stringent requirements,” says Dr. Gregory Theyel, associate professor of Business Management at California State University, East Bay. He teaches undergraduates and graduates about environmental, social and economic sustainability and helps companies with business development and the introduction of sustainability into their daily practices.
Smart Business spoke with Theyel about creating a competitive advantage by treating environmental compliance as an opportunity instead of an obligation.
Why should executives consider adhering to the highest global standards?
First movers often have the upper hand in the marketplace, and developing a product that adheres to the highest environmental standards can allow you to sell it anywhere on the planet without changing the design or manufacturing process to meet disparate regulations. Plus, proactive companies have more time to adapt to new regulations and grab market share by appealing to green-minded customers and touting their environmental stewardship. Meanwhile, the laggards stymie production, efficiency and profits when they wait until the eleventh hour to find new vendors or secure alternate manufacturing materials.
How can companies spot opportunities to benefit from environmental compliance?
First, interact with stakeholders to find out what they care about and anticipate their needs. Second, observe social change and stay connected to the community, because environmental laws usually begin as social movements before giving rise to new policies and regulations. For example, after environmental concerns surfaced following the Fukushima disaster in Japan, Germany decided to shut down its 17 nuclear power stations by 2022. The law has spawned a spate of new ideas for producing environmentally safe power across the European Union. Finally, stay in touch with regulators and engage in the law making process to give you a preview of pending legislation and the chance to influence the regulatory process by sharing information and ideas with political leaders and committee members. Regulators often seek input and solutions from the business community when evaluating new laws.
How can companies use open innovation to solve sustainability issues and reduce operating expenses?
Don’t focus on just R&D or fixing a single problem; invite everyone into the discussion and rethink your entire innovation process and business model. By attacking the problem holistically, you may uncover opportunities to sell ancillary services, reduce production costs, boost margins or enter new markets. For example, when an electronics manufacturer needed to find a substitute coating for its wiring products, it brought in customers and members of the supply chain to brainstorm solutions. In the process, they created an environmentally safe, yet more pliable material that not only opened the door to new markets, but also reduced manufacturing costs by facilitating the consolidation of several production lines. This company didn’t focus on meeting the minimum standards; it was successful because it seized the opportunity to rethink how it does business.
How can executives orchestrate an attitudinal shift?
The idea is to weave compliance and innovation into the culture of the organization and ensure that everyone is looking out for new ideas and the advent of environmental regulations. Start by asking employees to interact with stakeholders and participate in industry associations, and by hiring employees with collaboration skills so everyone is capable of nurturing relationships and developing strategic alliances across the entire supply chain. The idea of excluding outsiders is old school; successful companies remove the barriers to innovation by inviting everyone into the process. They even collaborate with competitors when it benefits the entire industry, such as for infrastructure development or standard setting. Finally, examine every component and step in the manufacturing and distribution process to identify chemicals and activities that are harmful to the environment. Once you’ve created a list, stay ahead of new regulations by investigating alternative systems and solutions. In the process, you may uncover ways to reduce waste, negotiate lower prices for raw products, substitute nontoxic chemicals or consolidate distribution simply by viewing compliance as an opportunity instead of an obligation.
Dr. Gregory Theyel is an associate professor of Business Management at California State University, East Bay. Reach him at email@example.com or (510) 885-3078.
Why let a lack of staff or resources curtail your expansion plans, when the expertise you need to develop new markets is just around the corner. Business school students have the ability to conduct research, assess opportunities and develop comprehensive marketing plans, and since they’re supervised by faculty, you don’t have to spend a fortune to tap some great business minds.
“You don’t have to hire additional staff or expensive consultants to solve business problems, when students and faculty are capable of doing the work for a fraction of the cost,” says Dr. Terri Swartz, dean and professor of Marketing for the College of Business and Economics at California State University, East Bay.
“Instead of shifting projects to the back burner, tackle them by leveraging the resources at your local B-school,” says Luanne Meyer, director of the Business Opportunity Program at California State University, East Bay.
Smart Business spoke with Swartz and Meyer about the advantages of developing a partnership with a local business school.
Why should executives consider partnering with a local business school?
Swartz: Student projects provide companies with the opportunity to develop the work force of the future and evaluate prospective employees, without incurring the managerial responsibilities and costs of a formal internship program. We help company representatives scope out the project, while course professors guide and supervise the undergraduate and graduate students during the assignment. The concept is similar to the tried and true programs used in teaching hospitals and dental schools, where students gain hands-on experience under the close supervision of faculty experts.
Meyer: Busy executives like the fact that they have access to our faculty brain trust, so they can hear about the latest marketing trends or consider another solution to a challenging problem.
How do student projects benefit all parties?
Swartz: Class projects give business students the chance to augment their classroom studies through experiential education, so they hit the ground running when it’s time to enter the job market. At the same time, the Business Opportunity Program gives the university the chance to partner with local businesses, share faculty expertise and give back to the community.
Meyer: Companies have limited time and resources, so it can be difficult to source the right interns or freelancers and shepherd them through a complex project. But the program office does the legwork by evaluating your needs and connecting you with a faculty adviser who has the right experience and knowledge to manage your project.
Are some projects more appropriate for students than others?
Swartz: The students work on pricing and positioning projects, product launches, opportunity analyses and marketing communications plans and they even find solutions to human resources or supply chain issues. Projects typically last from two to nine weeks and are often divided into phases, so client partners can monitor the team’s progress. For example, our students have developed recruiting strategies for the FBI and helped Lawrence Livermore Labs develop a plan to commercialize one of its licensed technologies.
Meyer: Many projects involve the development of new revenue streams for companies in both the non-profit and for-profit sectors, and through our entrepreneurial studies program, we often help small businesses find innovative ways to expand. For example, we are currently helping a small detergent manufacturer reposition its product for the Latino market by designing new packaging, creating a new message and developing a comprehensive marketing campaign. We can help companies use social media to reach new customers, develop a marketing database or lower costs by utilizing cutting edge technology. In fact, our students can even lower the cost of using a major consulting firm for marketing projects by conducting some of the background research or designing a portion of the program.
How can companies work with B-schools to develop talent pipelines?
Meyer: Client partners have numerous opportunities to interact with the students during a project, which gives them a chance to assess their capabilities and gauge their interest in future employment. For example, a company representative usually addresses the class before each project in order to provide background on the company and articulate its objectives. In turn, students prepare a proposal, map out the specific milestones and timeline and state the need for client support and involvement during the project.
Swartz: The professors align students with projects that match their interests and talents, which increases the chance that the parties will end up working together in the future.
What’s the best way to initiate a mutually beneficial relationship?
Meyer: At CSU, businesses can simply contact the Business Opportunity Program office to initiate a dialogue and assess whether we can meet each other’s needs. We typically need a few weeks’ lead time to scope out a project and get it on the schedule before the start of the quarter.
Swartz: We ask our client partners to cover nominal expenses like office supplies or occasional meals and transportation costs for the students, and we certainly appreciate reasonable donations. But all in all, student projects are a great value when you consider that you’re gaining access to our faculty brain trust and discovering a future star performer during the process.
Dr. Terri Swartz is the dean and professor of Marketing for the College of Business and Economics at California State University, East Bay. Reach her at (510) 885-3291 or firstname.lastname@example.org. Luanne Meyer is director of the Business Opportunity Program at California State University, East Bay, www.csueastbay.edu/businessopportunityprogram. Reach her at (510) 885-7135 or email@example.com.
Bolstered by new legislation that will provide it with valuable information about foreign asset ownership, the IRS has launched a crackdown on international tax evasion that will impact most U.S. taxpayers with foreign financial assets. U.S. tax evaders hiding foreign assets have a much greater risk of detection, but the draconian penalites can also be imposed upon law-abiding U.S. individuals and business that have reported all of their income to the IRS, but failed to file one of the reports disclosing ownership of foreign assets.
“The back tax and interest on unreported income from offshore accounts is often small potatoes compared to the penalties for failing to disclose the foreign account to the government,” says Dr. Gary McBride, professor of Accounting and Finance at California State University, East Bay. “Businesses and individuals can be fined up to $100,000 for willfully failing to meet the filing requirements, if the value of foreign financial accounts exceed $10,000 at any time during the year.”
Smart Business spoke with McBride about the IRS crackdown on offshore tax evasion.
How will the legislation impact U.S. taxpayers?
The foreign asset reporting requirements impact every law-abiding business — partnerships, corporations and individuals — with an overseas bank, securities or other financial account, as well as those with substantial ownership interest in a foreign entity. The crackdown was buoyed by new legislation in 2010 called the Foreign Accounts Tax Compliance Act (FATCA), which forces foreign financial institutions to disclose the names of U.S. account holders to the IRS beginning Jan. 1, 2014. If a foreign bank doesn’t comply, then corporations and other U.S. payors that make payments such as dividends, interest, rents or royalties to a foreign financial institution are required to withhold a 30 percent tax. If the tax is not withheld, the IRS will pursue the U.S. payor for the deficiency. The legislation also represents a unique exercise of extra-territorial jurisdiction by the U.S. government.
What are the most notable changes to the tax forms and filing requirements?
U.S. Corporations, partnerships, individuals, estates and trusts must file a Foreign Bank and Financial Accounts Form (FBAR) if they have a financial interest or even signature authority over accounts totaling over $10,000 in a foreign country. That requirement has been in the law for decades, but compliance and IRS enforcement have been lax until recently. Taxpayers must be far more attentive to the question on the income tax return about foreign financial accounts over $10,000. Beginning in 2011, U.S. individuals must also attach to their Form 1040 individual income tax return new IRS Form 8938, if they have foreign financial assets that exceed a specific threshold. The threshold varies depending upon filing status, but the IRS has the authority to set the threshold as low as $50,000. For a U.S. individual who is required, but fails, to file both an FBAR and a new Form 8938, the harsh penalties can be imposed for both omissions, and that is in addition to the income tax and penalties on any unreported income generated by the foreign financial asset.
Why is the risk of getting caught much higher?
The clear IRS commitment to enforce the foreign assets reporting laws and impose the penalties for noncompliance causes the greatest risk. Not all foreign financial institutions will cooperate with the upcoming requirement to disclose the names of U.S. account holders. In many instances, disclosure by a foreign financial institution may be prohibited by the domestic privacy laws. Regardless, the IRS Commissioner made the following statement in testimony before the U.S. Senate Appropriations Committee: ‘We are well on our way to deterring the next generation of taxpayers from using hidden bank accounts to avoid paying taxes.’
The IRS will eventually be able to cross-reference disclosed foreign accounts held by U.S. account holders against the database of returns to identify taxpayers who haven’t filed the proper forms or paid the requisite taxes.
What are the penalties for failing to comply?
Business entities (and even trusts and estates) face a penalty of the greater of 50 percent of the value of the foreign account or $100,000 for willfully failing to file an FBAR. Do the math: willful failure to file an FBAR for an $11,000 account is $100,000. If the account balance were $1 million the penalty would be $500,000, and, if the FBAR is not filed for three years, the penalty is $1.5 million. The nonwillful penalty for failure to file an FBAR is $10,000. For the new Form 8938, the minimum failure to file penalty is $10,000 plus a penalty of up to $50,000 for continued failures after IRS notification. Furthermore, underpayments of income tax attributable to non-disclosed foreign financial assets will be subject to an additional accuracy–related income tax penalty of 40 percent (up from 20 percent for most understatements).
How can taxpayers prepare and take steps to avoid hefty penalties?
First, make sure that all foreign financial accounts are reported on the FBAR as well as the new Form 8938 for individuals. Then, make the proper disclosure on the income tax return acknowledging the existence of any and all foreign financial accounts over $10,000. U.S. taxpayers may be required to report foreign trusts on Forms 3520 and 3520-A, foreign corporations on Form 5471, foreign partnerships on form 8865 and foreign disregarded entities on Form 8858. Failure to file any of these forms results in a $10,000 penalty.
If you don’t have substantial foreign holdings, consider moving them to a domestic bank or a U.S. bank that has a branch in that foreign country, but, even if you choose the second option, you’ll still have to file an FBAR. Remember, the U.S. Treasury has promised proposed regulations on FATCA by the end of December and final regulations by the summer of 2012, so keep your eyes and ears open, because the revisions may usher in new requirements for U.S. taxpayers.
Dr. Gary McBride is a professor of Accounting and Finance at California State University, East Bay. Reach him at (510) 885-2922 or firstname.lastname@example.org.
Historically, commercial real estate afforded investors predictable and favorable returns. In fact, many of the richest Americans on Forbes infamous annual list attribute all or a portion of their hard-earned fortunes to a bevy of sound real estate investments.
But commercial real estate prices plunged nationwide by 73 percent at the start of the recession and, though values have started to rebound in some cities and sub-markets, generous returns are no longer guaranteed. Going forward, investors need to anticipate every possible scenario and run numerous pro-forma models in order to forecast a realistic return.
“You can’t make sound investment decisions in commercial real estate by relying on gut instinct,” says Dr. Tammie Simmons Mosley, associate professor of Finance, California State University, East Bay. “You have to factor-in market uncertainly, review data and employ rigorous decision-making to validate your assumptions.”
Smart Business spoke with Simmons Mosley about the due diligence that leads to sound investments in commercial real estate.
How should investors approach decision-making?
Engage a team of professionals from the outset, including a realtor and an investment analyst, so you can tap their expertise through the various stages in the process.
1) Set goals. You won’t be successful if you try to hit a moving target. Establish how much money you’re willing to risk in addition to your desired rate of return and investment timeline before creating an investment profile and searching for a suitable property. This includes knowing the specific property capitalization rate for that locality.
2) Acquire financing. Whether you plan to use equity, debt or a combination of both to consummate a purchase, line up your financing in advance so you know the parameters and can negotiate with confidence.
3) Understand local laws and taxes. Local taxes, fees and even zoning and signage regulations can impact the success of a commercial building, so be sure to research and understand the local laws and regulations before you make a purchase.
4) Evaluate the tenant base. Assess the ability of current and prospective tenants to garner customers, because the efficacy of the local trade area will determine whether tenants can meet current or future rent obligations. Then use that information to create various scenarios and estimate a realistic return during the financial modeling process.
What constitutes a viable investment strategy?
Start by examining the area’s macro trends and assessing the impact on existing commercial properties to determine the best way to spend your time and money. For example, if local incomes are dropping and unemployment is high, it may not be wise to invest in a boutique retail center until the economy improves. While an influx of new office buildings may lure tenants away from mature projects and force landlords to grant temporary rent concessions, especially if available space exceeds demand. Include a demographic analysis of the average household size, age and income, and then look at how the property has fared over the last five years and the pipeline of future projects to realistically estimate the investment’s performance over the entire holding period. Finally, link your strategy to your goals in order to create a profile of your ideal investment so your realtor can suggest properties that match your appetite for risk and desired return.
What should investors review and consider as part of their market analysis?
Consider the purchasing power of the local market area as part of your analysis. How many demographically desirable customers reside within a two-minute or three-minute drive and can they use public transportation to reach the location? Next, consider the specific site and environmental factors. Will you incur heavy environmental clean-up costs or zoning roadblocks if you want to remodel an industrial property for another use? Will property setbacks keep you from expanding a shopping center or parking lot? Review data and human intelligence to conduct a thorough market analysis.
Which pro-forma statement models help investors estimate an accurate return?
First, run a broad pro-forma statement model or financial statement that estimates the property’s annual return over the entire holding period. Then, run a monthly model for the first and second year, because equity and debt investors will want to see a more precise cash-flow estimate during the risky start-up period. Then, repeat the process using a variety of assumptions to see how the investment performs under a variety of scenarios. Run the absolute worst case scenario, the most optimistic scenario and the expected scenario to see how uncertainty impacts your rate of return. Finally, calculate your expected internal rate of return by assigning a probability weight to each model while making sure that the total weight adds up to one.
Do you have any other tips or best practices for prospective investors?
Prevent bad investments by having an in-depth understanding of the commercial real estate market, because you won’t succeed in today’s environment with superficial knowledge. Use realistic assumptions and data from reliable sources to create multiple scenarios and pro-forma statement models, otherwise, its garbage in, garbage out. Be sure to check the math in your software program or financial model, because a bad formula can misconstrue an investment’s risk and estimated return. Finally, understand the current capital tax gains treatment so you can retain every possible dollar after exercising extreme due diligence and rigorous decision-making during the investment process.
Dr. Tammie Simmons Mosley is an associate professor of finance at California State University, East Bay. Reach her at (510) 885-3316 or email@example.com.
Although pricing plays a pivotal role in generating profits, most firms end up leaving money on the table, because they rely on ad-hoc or undisciplined practices instead of a well-honed strategy. Worse yet, they don’t establish a price based on the product’s value, or forgo profitability by hastily initiating discounts to grab market share.
“Executives don’t run enough ‘what if’ scenarios before establishing a price for a product or service and then hope that something good will happen,” says Dr. Jagdish Agrawal, associate dean and professor of marketing for the College of Business and Economics at California State University, East Bay.
Smart Business spoke with Agrawal about the dos and don’ts of pricing management.
Why do companies overlook the need for disciplined pricing management?
For starters, academia hasn’t paid enough attention to pricing so MBAs aren’t familiar with the tools or the need for a rigorous methodology. In fact, there isn’t a single academic journal on the benefits of good pricing. Executives also tend to think that the market establishes the price for goods and services, when it’s up to the seller to educate buyers on their product’s value.
What are the components of an effective pricing strategy?
These best practices are integral to an effective strategy.
- Start with a profit objective. Market share and profits aren’t necessarily related; conceptually, you can reduce your price to zero, lose money and capture the entire market. Start with a profit objective before establishing a price for the product and then research the market to see if it’s on target.
- Practice value-based pricing. Pricing should be determined by the value of a product or service, not production costs. Research the competition and then adjust your price up or down based upon the inferiority or superiority of your product.
- Understand market segmentation. Airlines are experts at market segmentation based pricing. They understand that business travelers don’t pay for their tickets so they don’t care about price, but families always shop for the best deal when booking a vacation.
- Price proactively. Avoid knee-jerk reactions to competitive price changes by continuously monitoring buyer preferences as well as social and economic changes so you can adjust prices proactively.
- Develop prices collaboratively. Solicit input across the entire enterprise, because each group offers unique expertise and perspective that leads to better pricing.
- Invest in marketing. It’s not that buyers won’t pay more, but they need education and data to appreciate your product’s value.
How can companies utilize tools to attack pricing both tactically and strategically?
Savvy companies understand price elasticity and customer preferences and use niche software programs to conduct incremental break-even analyses. For example, what will happen if you drop the price of a product by 5 percent? How much will sales go up and will you still make a profit? Conversely, what will happen if you don’t reduce the price? Start with a conjoint marketing analysis to uncover the nexus between price and value by forecasting the impact of various price changes and then conduct trials or tests to validate the results before initiating wholesale price changes. Some product managers are turning to a new field called behavioral economics, which helps them understand buyer motives and strategically offer rebates or other discounts to communicate a product’s price and value to customers.
How can companies avoid typical mistakes?
Marketing has four variables, or ‘Ps’: price, product, promotion and place. Because price is the most flexible, people tend to use it for instant gratification. But it’s a mistake to temporarily lower prices for competitive purposes, because it compresses margins across the entire industry. Another error is incorporating irrelevant or non-incremental expenses into the cost assumptions because it results in an inflated price that isn’t based on the product’s value. Fixed costs like managerial salaries aren’t necessarily impacted by the number of products a company produces, so you stand a better chance of developing value-based pricing and realistic forecasts by excluding them from the estimated costs. Isolated pricing decisions made by a single department like marketing or accounting are usually off the mark. Instead, develop the brand’s positioning and profit objectives before creating a coordinated promotion and advertising campaign. Next, develop various pricing scenarios through a collaborative effort and run ‘what if’ models to validate your sales and profit goals. If necessary, adjust your product’s positioning or marketing strategies until they align with the desired outcomes, because everything should flow from the brand’s positioning.
How can companies boost profitability through pricing improvements?
Start with the actual product or service to uncover untapped market segments and incremental profit opportunities. Does your product solve a problem? Are there prospective customers who would be willing to pay more for a solution? For example, retailers usually charge less when customers buy online, but some people are willing to pay more for the experience of shopping in a pleasant environment. Train everyone in the company on pricing fundamentals and methodology so they make better pricing decisions and spot additional opportunities to sell goods and services for a higher price. Remember, price is the only marketing variable not associated with the product’s cost, and price allows you to realize the value of all your investments and boost profits.
Dr. Jagdish Agrawal is associate dean and professor of marketing for the College of Business and Economics at California State University, East Bay. Reach him at (510) 885-3290 or firstname.lastname@example.org.
After battling a lackluster economy for years, most executives are out of ideas for increasing revenue and lowering operating costs. But the smart execs are reviewing history to predict which customers will buy more or splurge on high-end products and enticing them with strategic advertisements. And some are analyzing data to hone inventory purchases or decide how to optimally deploy resources.
The savvy executives don’t have a crystal ball, but they have invested in software and staff to conduct data mining and predictive analytics. Research from Accenture confirms that high-performance businesses are five times more likely to use analytics strategically when compared with low performers.
“Business leaders can avoid mistakes and predict future demand for products and services by utilizing data mining and predictive analytics,” says Dr. Zinovy Radovilsky, professor of management for the College of Business and Economics at California State University, East Bay. “Unfortunately, most don’t know where to start, so they continue to make decisions based on managerial opinion instead of facts.”
Smart Business spoke with Radovilsky about the opportunities to control costs and increase revenue through mining and predictive analytics.
What are analytics and data mining?
Analytics is a diverse field of statistical, qualitative methods and models used for predicting future business trends and customer behavior, and savvy executives are using the practice to make opportunistic business decisions. The process starts when professionals extract or mine data so it can be analyzed and used to identify relationships between the predicted parameters and other factors. The analysis phase is called descriptive analytics, which helps organizations discover what happened in the past, why it happened and how these events impacted the business. Predictive analytics uses the results of both data mining and descriptive analytics to make predictions and optimize business decisions.
How can mining and analysis turn data into dollars?
Analytics may highlight ways to increase customer retention or cross-sell certain additional products and services. At the same time, predictive analytics can reduce operating costs by predicting demand so companies can better forecast inventory or reduce wasted resources. The need for predictive analytics is spreading across various industries and business functions, like marketing, finance, operations, supply chain and human resources.
Predictive analytics and data mining help executives forecast future demand by analyzing customer behavior and profitability by market segments, so they can boost revenue and profit margins by selling additional high-value products and services to certain customers. For example, 1-800-FLOWERS.com attracted 20 million new customers and increased repeat business 10 percent by employing a real-time decision manager that uses predictive analytics applications, business logic and historical purchasing data to motivate customers by offering flower arrangements that appeal to their personal preferences.
How can predictive analytics and data mining reduce operating costs?
These examples illustrate how data mining and analytics can reduce operating costs.
- Predicting future demand helps operations and supply chain managers develop accurate inventory forecasts, purchase the right amount of supplies and eliminate unnecessary waste.
- Predictive analytics can substantially improve allocation of critical resources including equipment, labor and material. For example, after developing and implementing an optimization model to allocate small boat resources, the U.S. Coast Guard reduced its small boat fleet by some 20 percent and overall fleet operating cost by around 5 percent.
- Response modeling allows companies to identify repeat customers from the outset of the relationship and reduce the cost of mailing or calling by targeting only those who are likely to respond. The bottom line is that companies can cut marketing costs by targeting fewer customers while getting the same response.
How does a lack of data analysis or an inability to forecast future events restrict a company’s success?
Companies have accumulated a substantial amount of quantitative business data about their products and services, customers and suppliers. But, their ability to create a competitive advantage by utilizing the data and employing appropriate quantitative models varies significantly. In fact, two-thirds of U.S. companies surveyed by Accenture acknowledged that they need to improve their analytical capabilities. Some organizations still rely on executive opinion instead of using data and analysis to predict the future and make prudent business decisions.
What should executives consider before embarking on a data-mining mission or investing in software or experienced personnel?
Implementation of data mining and predictive analytics can be very time consuming and requires changing the existing decision-making processes and culture, hiring analytical staff and making investments in computer technology. Executives should consider several important things before implementing and managing predictive analytics projects.
First, clearly formulate strategic goals of using predictive analytics and data mining, and identify where the tools will likely make a difference. Then, prioritize the goals by their business impact and ease of implementation and utilization. Finally, identify prospective return on investments before purchasing software, hiring staff and training current managers to use analytics.
Dr. Zinovy Radovilsky is a professor of management for the College of Business and Economics at California State University, East Bay. Reach him at (510) 885-3302 or email@example.com.
Projectization is increasingly embraced by companies to cope with the challenges of the competitive global environment such as tighter budgets, diminishing resources, aggressive time constraints and competition to improve efficiency. The short-term ventures allow companies to maximize precious resources and tools while responding quickly and efficiently to changing market conditions. But today’s burgeoning portfolios pose tactical and strategic challenges that can create an operational nightmare or, worse yet, produce a string of project failures that can derail an entire company.
“Managing multiple projects is a competitive necessity,” says Dr. Vish Hegde, associate professor of management for the College of Business and Economics at California State University, East Bay. “But unless executives provide direction so projects are prioritized and aligned with the company’s strategic and financial goals, they can create an operational mess and cause project managers to fail.”
Smart Business spoke with Hegde about the challenges of managing multiple projects and how executives can avert operational meltdown by providing guidance and considering multiple characteristics when organizing projects.
Why is multiple project management so challenging?
Occasionally a project is so large and complex it requires the undivided attention of a single manager. In many companies, it is not uncommon to see project managers have to simultaneously juggle as many as five to 13 mid-size projects without dropping the ball. Their mission is complicated by the fact that projects are constantly being added, changed, or removed in response to changing market conditions, which alters the dynamics of the portfolio and forces managers to cope with an inefficient workload or fight for limited resources. Executives need to consider several characteristics when grouping projects or assigning resources, and provide project managers with the tools to balance multiple priorities and make prudent decisions on the fly.
How should projects be grouped to create synergies?
Grouping projects randomly can create inefficiencies, so most companies evaluate tactical characteristics when organizing projects. Certainly managers should consider project duration and complexity as well as technical and functional similarities when grouping projects, but they also need to consider the objectives and goals of the project, time pressures, workflow and resource availability to optimize every possible synergy. It’s imperative that executives provide guidance so project managers can balance tactical needs with strategic considerations and optimize efficiencies by sharing common resources.
What should executives consider when assigning projects?
Realistically, project managers can’t handle too many simultaneous projects without affecting quality and efficiency. If they’re juggling too many ventures, project managers will spend most of their time transitioning and won’t have time to dive into detail, devise a plan and actually lead the project. In fact, they’ll be inclined to simply go with the flow, which is symptomatic of an over-leveraged project manager. Balance a project manager’s slate of assignments by considering the mix, types and phases of the various initiatives in addition to his or her capabilities, because a project manager needs a broad range of technical and non-technical skills and the ability to multi-task in order to master a complex portfolio.
How can resource allocation and planning create efficiencies?
Sometimes CIOs launch multiple projects without considering the availability of critical resources, so employees struggle to balance conflicting priorities as project managers haggle for their services. Consider projected completion dates and the number of projects in the queue when evaluating the availability of shared resources as well as the organization’s overall capacity to handle a large portfolio. Help project managers avoid conflict and optimize scarce resources by providing benchmarks or a decision template that spells out the company’s priorities and the best way to schedule and allocate shared resources in various situations.
How does resource scheduling fit in?
Team members have to refocus and get their bearings each time they switch assignments, which impacts productivity and may ultimately delay the project portfolio. Executives should consider these challenges when scheduling shared resources and provide training in time management and multitasking to enhance their basic competencies. It’s important to control costs by leveraging the cost of human capital, but, at some point, over-scheduling critical resources becomes counter-productive.
Should project managers consider project interdependencies?
Certainly executives want to maximize the savings from working on several interdependent projects and select ventures that maximize investments. To achieve this important objective, the CIO should provide guidelines to help project managers select interdependent projects from a bank of possibilities, since their priorities and schedules could change as projects are added or removed from the process. Project managers should evaluate several criteria when making their selections, including the project’s benefits, available resources and technical synergies.
Dr.Vish Hegde is an associate professor of management for the College of Business and Economics at California State University, East Bay. Reach him at (510) 885-4912 or firstname.lastname@example.org.
Executives across the Silicon Valley received a wake-up call in January, when Eric Schmidt stepped down as the CEO of Google. Rumor had it the tech giant and former Wall Street darling had missed the social network boom and lost its innovative edge, as Schmidt focused on day-to-day operations while digressing from Google’s legendary 70-20-10 rule, which requires technical staff and management to devote 10 percent of their time to dreaming up new ideas.
Although leadership is the catalyst and source of organizational innovation and creativity, busy executives don’t need a complex plan to inspire and encourage an imaginative culture, as long as they’re willing to shake things up and not punish failure.
“Creative leadership is about giving people permission to dream and encouraging them to try something different,” says Dr. Terri Swartz, dean and professor of marketing for the College of Business and Economics at California State University, East Bay. “You get there by shaking things up and not letting employees settle into the status quo.”
Smart Business asked Swartz to describe the activities and behaviors that inspire and promote an innovative culture.
How can executives inspire creativity by shaking things up?
Although bureaucratic processes and formal protocols create the organizational discipline, which often produces short-term productivity gains, they actually threaten a company’s long-term financial health and stability by discouraging outside-the-box thinking and the development of new products and services.
Give people permission to dream by launching meetings with a brain teaser instead of a reading from the latest financial report and allow them to play with simple, creative toys like Legos, pipe cleaners and Silly Putty during conferences instead of leaving them to text message co-workers or read e-mails.
Next, invite new perspectives on old problems by holding meetings outside traditional conference rooms. Stroll the campus while you meet, congregate in a local park or shake up a stale routine by asking participants to sit in different seats. Finally, change the menu in the cafeteria and even the background music in the office on a regular basis, so employees learn to anticipate and embrace the unexpected.
What other simple, cost-effective techniques incite innovation?
Employees need breaks and a change of scenery to get their creative juices flowing; otherwise, they’ll spend all of their time with routine activities and putting out fires instead of dreaming up new ideas. In fact, carving out creative time and changing venues were simple but effective practices under Google’s 70-20-10 rule. Technical staff were asked to spend 70 percent of their time on core activities, 20 percent of their time on secondary business pursuits and one day each week in a different room or locale, just so they could focus on new ideas. Yet all too often, companies put the kibosh on telecommuting or non-traditional work schedules that break up daily routines and actually encourage forward thinking.
How can executives encourage risk-taking and companywide participation?
It’s easy for companies to digress into a culture that shuns risk and thwarts new ideas as they become mature and successful. But executives can dissuade group thinking and invite companywide participation by maintaining an open door policy and soliciting everyone’s opinions once an idea is suggested. Keep naysayers from getting the upper hand by scripting the positives as well as the concerns when weighing the merits of an idea. And don’t allow risk managers or lawyers to quash new products or ideas until they’re fleshed out.
Finally, travel the hallways and visit the cafeteria to solicit new ideas from everyone. Encourage new behaviors by writing down employee suggestions and recognizing every submission.
What else can executives do to encourage innovation?
First, hire and retain the right people. At first glance this may seem simple, but think of the relationship between elephants and fleas. Elephants are big, organized and successful systems, much like today’s corporations, but they are established and set in their ways. They cannot survive change without fleas. Fleas represent creative individuals or groups. They see themselves as different and want to make a difference. Unfortunately, bureaucracies often isolate or suffocate ‘fleas,’ killing off their ideas and passion, ultimately leading to their own demise.
Second, encourage and reward creative ideas from any source. Also, encourage employees to play together because participating in outside activities or playing group games during lunch breaks builds familiarity and trust, which is essential to the creative process and aids in the acceptance of new ideas. Use instruments, candid feedback and pulse surveys to gauge your open-mindedness and temper your reaction to new ideas and departures from the status quo. Executives may unconsciously quash new ideas by expressing a contrarian view or allow personal biases to interfere with their objectivity.
Next, lead the way by changing your routine and asking line managers to do the same. Finally, be willing to invest in the future. Although investments in dream time and allowing employees to roam the property may not produce immediate financial rewards, there’s no doubt that encouraging innovation will yield dividends in the future.
Dr. Terri Swartz is the dean and a professor of marketing for the College of Business and Economics at California State University, East Bay. Reach her at (510) 885-3291 or email@example.com.
Despite the best intentions, too much success may ultimately lead to failure as employees in well-established companies focus on maintaining the status quo and following procedures instead of looking for new opportunities. Executives ultimately get a wake-up call when a svelte competitor swoops in and seizes market share by capitalizing on an untapped opportunity.
“When things are going well, it’s natural for companies to thrive on their own logic and nurture a culture that resists change,” says Dr. Glen Taylor, director of MBA Programs for Global Innovation at California State University, East Bay. “But if you don’t consider new ideas and opportunities, eventually you’ll hit a dead end.”
Smart Business spoke with Taylor about the techniques that help executives infuse an entrepreneurial spirit into mature companies.
How can executives begin the journey toward an entrepreneurial culture?
Entrepreneurs are found in all types of organizations — small and large, business and government, whether people are paid or act as volunteers. If you act like an entrepreneur you are an entrepreneur. It is a behavior, not a job title. An entrepreneur is a person who is good at spotting opportunities, good at mobilizing resources to pursue an opportunity and willing to act on the opportunity. Finding opportunities requires a new frame of mind or attitude, thinking outside the box and challenging the status quo. Entrepreneurs shake things up by injecting different points of view into the organization and then leading the way to test the waters to see if there is real potential for something new.
Well-established companies can do many things to encourage entrepreneurial behavior. Managers can encourage divergent thinking by welcoming guest speakers who offer unorthodox ideas or impart pointed observations about the company and industry. For example, an outsider may propose a direct sales model in lieu of traditional distributors or using social media to embrace a new generation of customers. Managers can also initiate internal conversations that challenge employees to step outside their comfort zones and suggest new ideas. Insights about new opportunities can come from anywhere in the organization. Making room to discuss new opportunities can foster a spirit of collaboration and enthusiasm. But in the end, it takes more than ideas and talk. It takes a commitment of resources and a commitment to take action to achieve entrepreneurial results.
How can executives control expenses and still invest in new ideas?
Entrepreneurs are not loners. They usually do best when they build strong partnerships, sustained by a network of supporters who share the vision and who provide a sounding board that fuels the creative process. Small groups of dedicated employees who share a similar vision and are willing to support each other during the incubation process are the ones most likely to succeed in marshalling resources, building prototypes and conducting pilot tests to move forward in a relatively inexpensive and risk-free way to assess the merits of a new opportunity. Experimentation means failing early and often, and learning from the experience to keep moving forward.
Why is it necessary to modify organizational incentives?
In mature companies, the organization might be silently fostering competing agendas with incentives that discourage experimentation and impede the creative process. It’s up to executives to assure seamless support for innovation across the enterprise by recognizing and rewarding entrepreneurial behavior. This might require separating responsibilities for new initiatives. If entrepreneurial employees get frustrated and leave, the organization will soon be drained of its creative talent.
What other changes inspire innovation?
Unless companies embrace people with diverse views, the corporate culture will continue to support the dominant view and resist new ideas. People learn through experience that they have to act in a certain way or follow specific protocols to be successful. Entrepreneurs often feel like outsiders and seek greener pastures. Corporate cultures that embrace diverse values and perspectives can infuse an entrepreneurial spirit into the culture.
What else can executives do to support cultural transformation?
Trust is the engine that powers innovation, because, without it, employees will be reticent to suggest new ideas or worry that a failed venture may damage their careers. Executives are responsible for engendering trust by setting realistic expectations and time frames for pilots and experiments and by treating failure as a learning opportunity.
Unknowingly, executives often stifle creativity and reinforce the status quo through their actions and responses, so it’s critical that they set the tone by modifying their behaviors. Show support for the creative process by hosting executive forums or roundtable discussions where employees can share ideas. Since innovation is a social process, encourage collaboration by asking employees to talk about their endeavors in meetings and online forums. But do more than support talk — support action. Finally, generate enthusiasm and raise spirits by celebrating small wins, recognizing employees who suggest bold ideas and applauding cultural change.
Dr. Glen Taylor is the director of MBA Programs for Global Innovation at California State University, East Bay. Reach him at firstname.lastname@example.org or (808) 203-3818.
Downsizing and slashing funds for training and development can help executives boost the bottom line during a recession, but they know it’s bound to have an impact somewhere down the road.
The day of reckoning has finally arrived as companies face a shortage of managerial talent and bench depth, which may keep them from capitalizing on the rebounding economy.
In the Silicon Valley, the annual turnover rate eclipses 25 percent and tech giants have reignited the bidding war for elite technical talent. But companies don’t need to spend a fortune to reinvigorate in-house training programs or author new curriculums, when they can achieve the same results at a fraction of the cost by partnering with their local university.
“The talent shortage has reached the critical stage, especially in the Bay Area,” says Brian Cook, executive director of Continuing and International Education at California State University, East Bay. “The situation will only get worse, unless employers recommit themselves to developing and retaining valuable employees.”
Smart Business spoke with Cook about developing talent and building bench depth by tapping the expertise of your local university.
Why is there a critical talent shortage?
Retiring baby boomers, fewer workers entering the labor force and a series of recessions have created a nationwide shortage of employees with critical skills, but studies of employee preferences suggest the worst is yet to come. Gen X and Gen Y value training and professional development and they’re even willing to change companies to have a chance to build their careers in a learning environment. Given today’s business landscape, employers can’t afford to churn staff and continuously compete for scarce employees on the open market. One important way to stay competitive is by growing your own talent.
How can local universities assist employers with professional development?
Historically, local universities focused on the needs of full-time students who were pursuing undergraduate and graduate degrees. But today, most students are working professionals, so local universities have taken on an expanded role, which includes supporting the local business community and fulfilling the need for lifelong professional education. Most universities now offer flexible curriculums that cover everything from intensive MBAs to leadership development, corporate training, professional certifications and even functional expertise in areas like supply chain management and human resources.
Many university educators are working professionals and frequently work in the private sector or own consulting firms. Because instructors are of the business world, they understand modern challenges and bring real-world experience to the classroom.
Why are outsourced programs more cost-effective?
Instead of developing curriculums in-house, it’s possible to leverage the talent at taxpayer-assisted universities and offset some training costs by tapping government funds that are earmarked for work force development and tuition assistance. Annually, the federal government allocates $1 billion to alleviate critical skill shortages, especially in the tech industry, and even small businesses may qualify for the funds. In situations where the labor market demands are aligned to business needs, companies can partner with local universities to develop training programs utilizing work force investment funds. If companies find that leveraging internal staff is preferable or more cost-effective, the university can develop the program and train a staff member to teach the program (train the trainer).
How is the curriculum developed and tailored toward the company, industry and individual?
Although corporate training programs are customized, it’s not necessary to reinvent the wheel. Universities have the ability to harvest material from existing courses and tap current faculty or an extensive network of resources to accelerate the curriculum development process.
- Needs analysis: It’s important to interview multiple stakeholders and executives to gain different perspectives, understand the current challenges and establish the course goals. A customized curriculum should dovetail with the business plan, reflect the culture and support existing training and performance management programs.
- Develop a prototype: The parties should work together to develop the curriculum, and make revisions using an iterative process. The learning modality is critical for working professionals, so consider offering online classes, streaming videos, on site or off site training or hybrid models to suit their schedules and preferences.
- Implementation and continuous improvement: Survey the participants after launching the course and continuously refine the curriculum. Since business conditions and individual needs change, the university should meet with members of the HR team each quarter to keep their finger on the pulse and evaluate feedback.
How can executives support the professional development process?
Executives are halfway home when they recognize the need for professional development. Studies show that investing in your employees and creating a continuous learning environment bolsters your employment brand and jump-starts innovation. And partnering with your local university offers other benefits, because companies build a network of resources and connect with experts who offer state-of-the-art skills. But, best of all, when executives show their commitment by investing in employees’ professional growth, employees return the favor by continuing to contribute at a higher level.
Brian Cook is the executive director of Continuing and International Education at California State University, East Bay. Reach him at (510) 885-7504 or email@example.com.