California State University, East Bay: How corporations use politics to improve social responsibility imagesWritten by Jayne Gest
Corporate social responsibility is the duty of a corporation to create wealth by using means that avoid harm to, protect or enhance societal assets.
“Since the U.S. is a developed country, people are more sensitive about not only the quality of products but also the actions of the corporation,” says Ekin Alakent, an assistant professor in the Department of Management, College of Business and Economics, at California State University, East Bay. “This is even true for companies that do not act responsibly in other countries where the public does not have the opportunity to voice an opinion.”
For example, the negative reaction to Apple, Inc., which was criticized for working conditions at the Foxconn factory in China a few years ago.
So how do corporations counteract a negative image?
One strategy is to get involved in public policy, by investing in lobbying, establishing political action committees or making soft money contributions, to offset negative corporate social responsibility records.
Smart Business spoke with Alakent, who researched this topic, about her findings.
How are corporate social and corporate political strategies interrelated?
Both corporate social and political strategies are considered nonmarket strategies, which deal with a company’s engagement with society. Therefore, both strategies have uncertain outcomes, and it’s very difficult to measure their effect on profitability.
To further cloud the causality, smaller companies can indirectly benefit from the investment of a larger company in the same industry. They may also belong to a chamber of commerce that has political action committees to lobby on their behalf.
However, in most cases, companies use both strategies simultaneously.
Which companies are more likely to use political strategy to improve public opinion?
One consideration is what issues are relevant. If there’s an upcoming election and a proposed regulation that would increase business costs, that year a company might heavily invest in issue advocacy groups.
In addition, companies that have poor social responsibility records tend to spend more money on political strategies to offset their negative image in society, such as those in oil and tobacco. Other factors that increase political strategy spending are available resources, size, industry and the extent they depend on government subsidies or support. For example, sugar, energy and agriculture all spend a lot of money on political strategies because they are directly affected by public policy.
Businesses that are more visible, measured by their advertising, care more about their public image, and tend to spend more money on political strategies.
Are there negative side effects to using corporate political strategy?
There is that possibility. Companies that heavily invest in lobbying — and that data is available, who invests and how much, on the OpenSecrets.org database — can be perceived as buying politicians. But, overall, the effect of not investing in political strategy is much bigger.
Corporations tend to overwrite the possible negative image. In fact, businesses spend more money on lobbying than other political strategies.
What do you think business leaders can learn from your research?
An important implication is that political involvement can benefit organizations in many ways. It helps them pre-empt unwanted regulation that could significantly increase their operating costs and improve their public image.
Since both formal institutions, such as laws and regulations, and informal institutions, such as social groups and nonprofit organizations, influence companies, they need to engage with their social and political environment. Be active in shaping the rules of the game. Being proactive with nonmarket strategies can help companies have strong brand reputation and forestall costly legislation.
By using these strategies, businesses are actually investing in a safer, better-educated and healthier society. It shouldn’t only be about offsetting negative public image, greenwashing or having a window dressing. It’s in their best interest to invest in their communities and act responsibly. ●
Ekin Alakent is an assistant professor in the Department of Management, College of Business and Economics, at California State University, East Bay. Reach her at (510) 885-2076 or email@example.com.
Insights Executive Education is brought to you by California State University, East Bay
Ropers Majeski Kohn & Bentley PC: How to address common problems when purchasing, managing buildingsWritten by Roger Vozar
Just as you would when buying a house, it’s important to conduct a thorough review when considering a commercial property purchase.
“Next time I buy a house, I’ll be walking around with the inspector to make sure that they’re doing a thorough job. I’m going to be turning on the faucets and flushing the toilets just in case the home inspector misses it,” says Todd J. Wenzel, a partner at Ropers Majeski Kohn & Bentley PC. “It’s a little different with commercial properties in that the concerns aren’t the same, particularly if it’s an investment property. But you have to do your due diligence.”
Smart Business spoke with Wenzel about problems commercial property owners need to watch for, whether they occupy the space or serve as landlords.
What due diligence should be conducted before completing a purchase?
It depends on the age and size of the building, but for the most part it’s not as involved as with residential properties. With owner-occupied properties, it’s more about checking for any structural problems with the building. However, if it’s an investment property, look at occupancy certificates and rent rolls. Ensure leases are up to date with no outstanding renewals or rental payments.
With commercial properties, it’s important to have full disclosure. It’s expected that parties on both ends are sophisticated, so the law does not provide the same protections that residential purchasers receive.
Should you check on tenants as well?
There should be a file on each tenant, complete with financial background checks to confirm that tenants have the wherewithal to continue making payments. Be sure to look at whether a tenant has a history of late payments or nonpayment of rent.
In a recent situation, there was no credit report run on tenants. The client that purchased the property received a good purchase price, but the tenant files were very thin. It turned out that some tenants were in immediate default after the purchase. Ultimately, one tenant breached his or her lease, left and litigation ensued. Obviously, a buyer wants to avoid that; if you see tenant information missing, run your own credit check as part of your due diligence.
Considering the moist climate in Northern California, how big of a problem is mold?
It can be a real problem. You typically see mold claims in residential settings, but it can happen in commercial ones, too. Tenants must notify a landlord as soon as they suspect mold, because it becomes problematic once spores are airborne. Commercial leases should contain specific notice provisions required of the tenant to notify the owner of the first signs of mold.
A commercial tenant client recently suffered property loss and business interruption when a roof leak caused water to drip into the office space and storage room walls for months (possibly longer). When they opened the wall, they found mushrooms growing. Mold in a commercial setting is not as serious of a health risk as in a residence because no one is sleeping there, but you still can have people working around it eight hours or more a day.
If the problem is hidden in the walls, landlords have some defenses if they had no notice or reason to know. But if it’s indicative of a persistent water leak, the owner may be charged with constructive knowledge. The legal exposure is worse if the landlord knows and acts slowly to address the situation.
What key items need to be looked at when considering facility expansion?
The main concern is structural integrity and the foundation, making sure the soil will support an addition. Get engineers to check piers and other foundational measures.
If you’re doing an extensive renovation on an older building, you may need to bring it up to current codes. This cost estimate should be part of a preconstruction checklist.
Ask architects and engineers if they can incorporate green-building elements into the project. It may cost a little more, but it’ll speed up the permit process and can help in terms of public relations.
Although it’s difficult to get contractors to guarantee a maximum price because costs are based on time and materials, it’s a good idea to include a cap when bidding projects — a $50,000 job cannot exceed $15,000 in change orders. Otherwise, some contractors submit low bids, hoping to make up the difference in change orders. ●
Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC
Even though social media continues to grow and seep into various industries, many companies struggle to translate social media likes and follows into tangible business success. Plum District, a mom-focused e-commerce platform and media property, is an exception, amassing spectacular social commerce gains by adding onsite social media modules.
Recently, the San Francisco-based company, which connects busy moms to high-quality products, activities and inspirations for kids and family, employed ShopSocially’s social commerce platform. Plum District’s e-commerce site is now more social and is increasing user engagement through low-effort, incentive-based onsite social interactions.
ShopSocially, based in Mountain View, Calif., is a SaaS social commerce platform that drives millions of dollars in incremental revenue, new customer acquisition, improved SEO rank, growth in Facebook fan base and word-of-mouth branding for hundreds of top brands.
The apps are the thing
The ShopSocially platform enables a suite of onsite social apps for e-commerce sites. Examples of these apps include social connect, purchase sharing, fan acquisition, shopping community and mobile social reviews. Through ShopSocially, users of a company’s website earn a discount coupon in return for performing a social action, which results in a large uplift in sales conversion.
Plum District is inducing its website users to become Facebook fans by offering them a 10 percent discount on their e-store. ShopSocially’s Get-a-Fan app enables this entire interaction without users ever having to leave the site. This has resulted in more than 5.5 percent site visitors becoming qualified Facebook fans who are converting at a sales conversion rate of 26.64 percent.
By using another app from ShopSocially called the Share-a-Purchase app, Plum District is encouraging shoppers to share their purchases on social networks in return for a discount coupon applicable for their next purchase on the site. This incentivized social sharing of purchases has resulted in 11 percent of shoppers recommending their purchases on Plum District to their friends.
Besides creating valuable social testimonials, these social recommendations are bringing quality social traffic back to Plum District’s website, which is converting at a rate of 34.9 percent.
Onsite social commerce modules can add positive social media influence in the natural purchase flow for a business, resulting in impressive, tangible outcomes. As shoppers share their purchases on Facebook, they connect with your brand and share valuable social profile data. Aggregation of thousands of social profiles allows you to generate deep social insights into your target audience.
These shared purchases also create numerous social testimonials which can be shown on a company’s website and Facebook page, creating social proofs for its deals.
“Social testimonials created out of social sharing of purchases are resulting in uplift in sales conversion and an improvement in SEO rank,” says Jennifer Nuckles, CMO for Plum District.
Social media makes a high impact when used in the context of commerce. Employing social influence in the user’s purchase flow leverages the existing high purchase intent and results in word-of-mouth brand endorsement and a higher sales conversion rate. On the contrary, offsite social commerce strategy often fails to deliver desired results due to lack of user’s purchase intent on social networks.
“E-commerce sites can gain handsomely by the word-of-mouth branding and social testimonials generated from onsite social engagement modules,” says Jai Rawat, CEO of ShopSocially. “We are happy to deliver meaningful sales conversion uplift through our social commerce platform.”
How to reach: ShopSocially, (650) 701-7759 or www.shopsocially.com; Plum District,
When people think about customer service, the first thing that may come to mind is dreading that call to their bank or their mobile provider. After a machine answers your phone call, you have to wade through endless prompts and messages that don’t apply to your problem before you eventually end up speaking with a live human representative anyway.
PV Kannan is out to deliver solutions to those automated customer service issues. Kannan has an extensive background in customer service technology companies. He was on the ground floor of the revolutionary concept of offshoring and helped pioneer chat and email as customer service technologies.
In early 2000, Kannan co-founded 7, a customer service technology company to combine his first two experiences with the industry and improve upon those ideas.
“The goal in starting 7 is how do you make it truly enjoyable and how do you give an experience that’s outstanding,” says Kannan, CEO of 7. “The reason I started this company was to make 800 numbers easier for me to use. I wanted to figure out ways to make it an enjoyable experience.”
Today, the 10,000-employee 7 tallies more than $200 million in annual revenue. Many of the challenges 7 faces involve the market and how to get the message across as to what the business does in a way where adoption by large enterprises is easier.
“Even though our business is designed for consumers to get more joy out of customer service, ultimately the ones cutting the check to us are large enterprises,” Kannan says. “For us, the market challenge is getting the message across on why customer service needs to be rethought.”
Here’s how Kannan and 7 are rethinking the customer service experience.
Create an innovative culture
In the last couple of years, 7 has been looking at customer service technology and finding ways to make changes “bite size” so an enterprise can take a bite without trying to change the world.
“No matter the size of the company, change is a tough thing to do,” Kannan says. “How do we make it easy enough for them to try something different and then slowly expand on that? That’s what we have worked on — making it easy to adopt and not so inclusive into their systems so it’s not viewed as a big change program.”
Kannan is cautious that his company isn’t just innovating for innovation sake. The business is very driven by making sure enterprises get what they want.
“There’s no point in having an innovation that is cool and awesome, but serves no purpose,” he says. “Companies want to improve customer experience, but cost is a big deal for enterprises. It costs a lot of money to service customers. If you’re one of the top five banks, you’re spending somewhere between $300 million and $600 million in terms of people and technology to serve customers.”
The way 7 approaches it is to look at the cost equation. It has to be simple to adopt and save money. It cannot require a big upfront capital investment or people investment, because that typically reduces the chance for adoption in a large enterprise.
“Those are the design criteria on our mind,” he says. “Whatever innovation comes up has to meet that criteria. The underlying mission is it should make it easy for consumers to do business with companies.”
The key to 7’s innovation success over the years has been the creation of a culture that fosters innovation.
“A CEO cannot delegate innovation to some department,” Kannan says. “It has to be a cultural absorption of the idea that innovation is something you do. If that’s done, it catches on like fire.”
That culture starts with questioning your own strategy in creative ways.
“People know that I’m the kind of guy that even if I signed off on a decision, I’m willing to relook at it in an interesting way if there is substance behind it,” he says. “Once you create that kind of culture, it makes it easier for people to challenge.”
As the company grows bigger, one of the challenges for people who are new to the system is trying to get a feel for the place. They have to figure out how things get done, who makes the decisions and what the criteria is behind it.
“If it’s established based on transparency, fairness and a willingness to look at things in a fresh way, it becomes easier for people to come in and contribute,” he says. “That’s what we try to foster.”
In the last year, Kannan and his team at 7 have invested deeply in design to rethink customer experience from a design standpoint. The company hired a senior designer who had a design background with Apple Inc. and Yahoo Inc.
“That’s something very new, and it’s unconventional for a technology company to take that perspective,” Kannan says. “If you look at companies in our space, technology companies that improve customer service, you don’t have that perspective at all. It’s all about how great is the technology. What is so cool about it? How does it disappear in the background for consumers to interact with it?”
Kannan wants to change the way customer service technology interacts with its user.
“You’re pretty used to dialing an 800 number and hearing two or three messages that we all hear and are sick to death of hearing,” he says. “One is about English and Spanish — press one if you speak English, press two if you speak Spanish. The other is how much we care about you and we’re going to put you on hold. The third is that this conversation is going to be recorded for quality purposes.”
What 7 is striving to do is connect that phone call to an Internet-connected device, if and when applicable.
“Suddenly an 800 number experience comes alive with video, pictures and text, and you’re able to do that transaction easier than if you had to download an app,” he says. “You’re still on the phone, so you’re actually speaking.
“The rethinking and design comes in for things like how do you effectively use speech? When do you give instructions? When do you stand back and let the customer do what they need to do? How many degrees of freedom do you give customers so they can do it on their own terms?”
Most often people are used to service in a straight, single-channel mode, so either you’re dealing with an automated system, or you’re passed to a human being.
“What we’re saying is could you enhance that experience using a device?” Kannan says. “Could we mix speech versus text on a screen? Where does video play a role? How do you get moving to your end objective sooner rather than later? Those are the open-ended questions we’re asking.”
7 has been creating solutions for airlines, banks and credit card companies where the company has brought a different design element to the customer service table.
“One of the things we do is we recognize you based on your mobile number, greet you by name and actually tell you what you’re probably looking for,” he says.
If you’re calling an airline and it’s the day of your travel, data shows that there are only two reasons travelers call within six hours of a flight — either you’re cancelling your flight or you want to change the flight.
“So we would say, ‘Hey Greg, looks like you’re travelling today from Cincinnati to destination X, and is this what you’re trying to do,’” Kannan says. “Think about the difference in greeting you that way as opposed to saying, ‘Thanks for calling X airline, press one for English.’”
Similarly, 7 redesigned how credit card company’s customer service technology interacts with users. Take the example of having your card put on hold for suspicious charges.
“What 7 did is we can tell if you’re calling from a smartphone and the credit card company can send the charges by text and the customer service person will stay on the line while you check the charges and help you,” he says.
“Instead of an automated system painfully relaying line-by-line the last six charges you did, you get to see it in one shot and you can say, ‘Yes, those charges are mine, or no, this one for $50 isn’t me.’”
Kannan and his team rolled that out last year and the adoption rate is very high. The company also asks customers at the end of the call to answer a simple five-star rating survey about the experience via text.
“About 80 percent of people fill it out,” he says. “More than 95 percent give it a five-star rating. That’s a practical example of how you would use a smartphone and use the ability to display data or screen information while you’re on a phone call without downloading an app.”
No matter how you get there, at the end of the day you want the resolution on what that user set out to do.
“We measure how many people succeed in doing it themselves,” Kannan says. “If 20 percent succeeded in automation and 80 percent had to talk to a real human being to get a result, that system is not doing its job.
“That’s what we look at — what’s the current success rate, how much time does it take, how many people really like that experience? Then you measure your solution design and whether it’s going to improve it. Sometimes you have to just try it out.” •
- Create a culture that fosters innovation.
- Rethink the standard ways of delivering an experience to consumers.
- Measure whether your solution is solving the problem.
The Kannan File:
Name: PV Kannan
Title: co-founder and CEO
Born: Chennai, India
Education: He has degrees in finance and accounting from the Institute of Cost and Works Accountants of India, and the Institute of Chartered Accountants of India.
What was your first job and what did you learn from it? I did bookkeeping for my dad when I was 11. The takeaway from that job was you don’t get free money.
Who do you admire in business? A lot of my inspiration came from my dad and watching him build a business.
What annoys you most about dialing an 800 number? The thing that annoys me most is the fact that you still have to say “one” for English when you never even selected two — why even ask that? Out of 100 things that annoy me, that’s probably the easiest to solve.
What is a customer service solution that you’re most proud of at 7? I would say it’s the work we are doing for banks uniting their Web, interactive voice response and mobile services.
How to reach: 7, (650) 385-2247 or www.247-inc.com
Breakthrough ideas are typically the result of someone who was able to challenge conventional wisdom and think differently. Author Malcolm Gladwell demonstrates this in his newest book, “David and Goliath: Underdogs, Misfits, and the Art of Battling Giants.”
David’s victory over Goliath is widely accepted as a monumental victory for the underdog. David’s tactic of fighting from a distance with his sling changed the playing field.
Every industry has at least one, if not several, powerful companies with massive resources to win most any customer they decide to target. Is it possible that, like Goliath, they all have weaknesses that can be exploited? I believe this to be the case. But how can a smaller, less trained competitor be like David and turn the tables?
Change the field of battle
For years, the major auto companies have had the ability to build new electric vehicles, but they never focused on them because they didn’t believe the market would be large enough. As a result, they tried to modify their current vehicle platforms with hybrid or electric motors.
Yet in only a few short years, Tesla Motors has created a huge brand image and a market valuation that is already half that of Ford Motor Co. — even though Tesla’s current market share is less than 0.1 percent. The market currently values Tesla at $1 million per car, while General Motors Co. is valued at just more than $7,000!
Similar to David, Tesla refused to compete on GM and Ford’s terms and instead focused all its efforts on building the best electric cars available. Although sales are still small, Tesla has sold more electric cars than anyone else — despite its higher price tags.
Large companies sometimes ignore profitable opportunities
Large companies regularly dismiss new products and markets because these opportunities aren’t currently large enough to “move the needle,” or they may threaten to “cannibalize” their very profitable current businesses.
A classic example is Kodak. It didn’t pay attention to the introduction of the digital camera — mostly because early digital cameras weren’t very good. Yet this would not always be the case. Kodak decided to remain focused on its core film and camera business. In 2012, it declared bankruptcy and sold its valuable intellectual property.
Leverage the larger competitor’s assets against them
As successful companies grow, they make significant investments in plants, stores, technology platforms and other tangible and intangible assets. All these investments actually become barriers to change because they can tie a company’s success to certain ways of doing business with certain sets of customers.
In 1992, Fidelity dominated the IRA market. Fidelity and other major industry firms all charged about $22 per year to manage an IRA account. Charles Schwab was much smaller and decided to provide this service for free. Because Fidelity had so many accounts, it would have been very expensive for it to follow suit. As a result, Schwab added $2 billion in assets, and made money managing assets rather than by charging fees.
Similarly, Blockbuster had invested heavily in 3,400 brick-and-mortar stores by the time Netflix launched its DVD-by-mail service at a fixed monthly price. Blockbuster couldn’t create an alternative without cannibalizing its own store sales.
When we think about the large competitors that we all face, it’s difficult to not focus on their size and strength. However, if we view them as David saw Goliath, we can often find ways to topple them.
Paul Witkay is the founder and CEO of the Alliance of Chief Executives. Based in Northern California, the Alliance of CEOs is the most strategically valuable and innovative organization for leaders anywhere. The Alliance strives to provide the creative environments where breakthrough ideas happen. He can be contacted at firstname.lastname@example.org.
If you’re like most Americans, chances are that question has haunted you from adolescence to adulthood.
Which is a shame, because it’s a terrible question. It sends our vocational thinking down the wrong path — which might help explain why 70 percent of Americans are unhappy with their work, and why more than 2 million voluntarily quit their jobs each month, according to a recent Forbes article. And when you consider how much of our lives Americans dedicate to our jobs, being unhappy at work too often means being unhappy, period.
Clearly, we need to adopt a new way of looking at our own careers.
Discover your talent
Let’s begin with the basic fact that you, dear reader, are a genius. That doesn’t mean you’re the next Albert Einstein. You are a genius as the dictionary defines it: “Exceptionally creative or talented, either generally or in some particular respect.” That has to be true about you. You are a once-in-the-history-of-the-universe creation. You must be exceptionally talented in some particular respect. But in what respect, exactly?
That’s the question we ought to be posing to our children, and the one we should be asking ourselves. Not, “What job do you want to get?” but “What thing(s) are you really good at?” Not, “What do you want to be?” but, fundamentally, “What makes you you?”
Pursuing this introspective line of questioning is a soulful, exciting process that leads to greater peace, happiness and productivity.
The fearful may warn against indulging our individual exceptionalities because we have to pay the bills. There are only two ways to get rich in this life: winning the lottery (not too likely, alas) or delivering some unique value to the world. What more promising way to unearth unique value than via the particular respect in which you are exceptional?
I renewed this inquiry for myself not long ago, as I approached my 50th birthday. I am happier and more at peace for having done it — and I’m a better CEO, too. Because, just as the only way for a business to thrive is to differentiate itself from the pack, so too the only way we can thrive as business leaders is by understanding our own unique qualities. We can only produce the exceptional by understanding how we are exceptional.
So, here’s my challenge to you: Set aside the time to purposefully and deliberately explore what makes you exceptional. You won’t just be charting your course to personal fulfillment; you’ll be paving the way for creating value in the world. If you are unsure how to begin, pick up a copy of Todd Henry’s book, “Die Empty,” and do the exercises that resonate with you.
Unveil the new you
The New Year sparks the same desire in many of us: Be better, be different, be great. Instead of adopting a litany of resolutions designed to create a “new you,” resolve to reflect on the exceptional you that has existed all along. After a lifetime of striving to become what you think you’re supposed to be, let this be the year you define and celebrate the genius you naturally are.
Ask yourself the right questions:
- What am I good at?
- What makes me special?
- What makes me happy?
Finding those answers — and living them — are the only resolutions you’ll ever need.
Jerry McLaughlin is CEO of Branders.com, the world’s largest and lowest-priced online promotional products company. He can be reached at JerryMcLaughlin@branders.com.
Social networks in recent years have been the hottest marketing platforms discussed and used by companies all around the world. It has been a growing way to build a relationship and loyalty with the customer.
So, is your business on Facebook, Twitter, Pinterest, Instagram or all of the above? In doing so, have you left behind other crucial marketing elements?
Below are some critical marketing basics that still need to be done right for social networking to be effective.
Do you have a product that customers want?
Having a product or service that customers really want means that it has to offer something different from what is already available in the marketplace. The definition of “different” can range from different scent/color to a unique product that offers extra benefits. At the end of the day, the product must provide a key benefit that is unique and not offered today in the marketplace.
For example, customers were looking for a natural, healthier snack option to replace regular potato chips. Today, you find healthier snack alternatives in many stores. Another example of a unique product can include creating a need that customers didn’t even know they had. For example, I didn’t know I needed an Apple iPad until I started using one. Now I cannot live without it!
Is the price value right?
Once you have a great product idea, it is critical to set the right price to incent customers to purchase what the product is offering. One way is to set pricing relative to what your product is replacing that customers are already buying or what is currently in the marketplace. For instance, if you have just developed a delicious tasting, but healthier potato chip, you may want to price your product relative to other potato chips or snacks.
Setting pricing is one of the most important things to ensure a product takes off in the marketplace. It is also critical to ensure the pricing provides enough profit so you can spend sufficient marketing dollars to let customers know about this product and offer them incentives to try it.
How do you let everyone know about this great product?
This goes back to how customers learn about new products in your category segment. For beauty products, customers learn about new products from reading reviews by beauty editors from magazines, beauty bloggers and their friends. They also learn about new beauty products when they get a sample.
The key is to determine how best to reach your customers by understanding how they go about making purchase decisions for products like yours. Don’t assume social networks are the most important platform in launching any new product. It really depends on how your customers seek information for your type of product.
The bottom line is that social networks can be part of your toolkit to business success. It is just as important, however, to get the basics of your product offering right and really understand how your customers make purchasing decisions on your product type, even if social networks are one of the major ways. Don’t just assume social networks are the answer. Start with your product idea and the customer.
Joy Chen is CEO of Yes To Inc., a global leader in natural skin and hair care products made with fruits and vegetables. For more information, visit www.yestocarrots.com.
Supply chain events are increasingly showing up in business news, whether it’s regarding product shortages that cause customer dissatisfaction and lost opportunities for corporations, or breaches of laws or decency in the supply chain, such as the use of child labor or unsafe labor conditions that damage brand reputation.
From an executive standpoint, risk management through the supply chain has become a mandate. Front page exposure creates tense board room discussions and often dramatic same-day fluctuations in share prices.
What changed? With the global economy came global markets and global suppliers. Second, third and fourth tier suppliers are often in different parts of the world, subject to different regulations, and multi-channel or omni-channel strategies add complexity. Each new supplier, each tier of suppliers and each tier of customers add a heightened level of risk and thus an increased requirement for risk and compliance management.
Corporations are simply not ready for this challenge. So what actions should supply chain executives take?
- First, incorporate a risk assessment into the corporate supply chain strategy that again has been aligned with corporate goals, as well as customer goals. A corporation should start by making a detailed map of the supply chain and identify points of vulnerability. It should examine the viability of each supplier and transit route, and align with current and future customer requirements.
- Second, be proactive. A risk assessment not only identifies that there is a risk, it also reviews the severity of the risk and identifies contingency plans. For instance, having a single source supplier may be seen as a significant risk, but having two suppliers that have no spare capacity or cannot substitute for each other may be equally risky.
Being proactive also means identifying early indicators that risk may in fact be turning into reality. Big data analysis and the ability to discern key indicators of future problems are important to getting a jumpstart on fast resolution.
- Third, know the environment. Regulations influence almost every step in the supply chain and require real-time monitoring and auditing. Since regulations vary from country to country, a company with globally dispersed suppliers faces the herculean task of monitoring supplier compliance across multiple regulations.
- Fourth, think broadly of what constitutes the supply chain. Data integrity and availability are certainly part of the supply chain, as Apple realized recently when its servers overloaded with a release of a new operating system. Order sites, call centers, transportation networks, post-sales service, and reverse logistics are part of the supply chain.
- Fifth, build a corporate culture that is attuned to risk responsiveness. For a high-profile, public company, this means creating a culture of proactive risk management that extends to all stakeholders, internal and external. The board and CEO should communicate a clear message regarding the corporate policy on ethical issues.
Constant vigilance must be part of the corporate culture of risk detection and responsiveness. There will still be surprises, but early indicators and contingency plans will support fast mitigation.
Hannah Kain is the founder, president and CEO of ALOM, a leading global supply chain company headquartered in Fremont, Calif. For information, visit http://www.alom.com.
Throughout 2013, companies expanded and took calculated risks, but the government’s actions — and its gridlock — continue to impact business leaders.
“There’s a lot going on within our midmarket client base that’s allowed them to expand their businesses, but the vast majority of our clients aren’t taking big financial risks because of the continued uncertainties,” says Tullus Miller, partner in charge of the San Francisco office of the accounting and business consulting firm Moss Adams LLP. “I hear a number of businesses talk about these issues.”
Smart Business spoke with Miller about the continuing concerns of companies, and how to be ready for 2014.
What are the top business concerns you’re hearing from CEOs and COOs?
Generally, there’s uncertainty about the economy and increased regulations, as well as concerns about the Affordable Care Act (ACA) and health care costs. Many companies are facing higher health insurance premiums and co-pays. If health insurance costs continue to rise, or the tax burden is too great because the ACA may have unintended consequences, some might consider options like health insurance captives.
Despite concerns surrounding tax and potential interest rate increases, the continued rancor between Congress and the White House, and a sluggish economy, there has been growth. Mergers and acquisitions, new operations opening in China and South America, capital market deals, initial public offerings, debt restructuring and private equity deals all have transpired in 2013. Businesses are taking financial risks, but on a smaller scale.
Looking ahead, what actions should business leaders consider?
Business leaders should look for more efficient tax solutions or structuring, such as tax deferral options. Arranging the deferral doesn’t avoid the tax — it just defers it to a different period or amortizes it. Another example is a better use of tax credits such as the California enterprise zone program, which has been revamped for 2014 and beyond.
Taxes have motivated some companies to open operations in more efficient tax states, such as Nevada or Texas, although workforce and client proximity factor in.
Organizations also are working on profitability improvement during slow growth periods, which relies primarily on being as efficient as possible — for example, by increasing accounts receivable terms to improve cash flow or initiating technology enhancements.
As the baby boomer generation ages, there are wealth transfer solutions and succession scenarios to consider for 2014 and beyond, which can create more efficient tax positions for wealthy families. High net worth individuals are limited in the amount of money they can transfer without being taxed. Wealth transfer strategies need to be considered well in advance of an individual’s retirement or transition out of the business.
What will higher interest rates mean, and how can businesses prepare?
The Federal Reserve has been buying $85 billion in bonds per month in an effort to keep rates low. Once the Fed decides to slow and then cease the buying program, interest rates could increase quickly. Putting inflation aside, as rates go up, so does the cost of borrowing, increasing the cost of doing business and the cost of goods and services. Consumers may have less discretionary income because they’re paying more interest on credit cards, student loans or home loans, if those have a variable rate.
Recent economic reports suggest that rates should stay down for 2014, possibly going up in 2015. Many companies have or are working on fixing debt, terming it out over a long period. Then, when rates rise, it won’t adversely affect their cost of borrowing.
Planning is very industry specific, but those who are ready will be much better off. ●
If you were to assemble some of the world’s outstanding business leaders in one place and ask them their secret to sleeping well at night amid the pressures of running a successful business, you might think you’d collect the best tips to handling anxiety in the business world.
The truth is that top business leaders often don’t have a secret to reveal — they rely on the strength and confidence they’ve developed over the years.
At the EY World Entrepreneur Of The Year conference, held earlier this year in Monaco, EY Entrepreneur Of The Year country winners assembled to compete for the World Entrepreneur Of The Year title.
We took the opportunity to collect the thoughts of the world’s most accomplished entrepreneurs — innovators, futurists, turnaround specialists and problem solvers — about dealing with worries. ●
“There’s nothing that keeps me up at night. I sleep very well. The challenge we have as a company is to keep delivering the culture we have created and expand it, keep evolving at the speed our customers expect us to evolve and keep creating value for them as we have for the past 10 years.”
Entrepreneur Of The Year 2012 Argentina
“The main thing is to make sure that we are always looking for new, creative ideas that keep our business updated with new technology and creativity. The other thing is making sure we are working faster than before.”
Lorenzo Barrera Segovia
founder and CEO
Entrepreneur Of The Year 2012 Mexico
“Business has its highs and lows, because let’s face it, it’s not easy. It has its challenges. They asked Steve Jobs what was the most important thing in business and he said, ‘Passion.’ If you don’t have passion you would give up when things get difficult. We have so much passion and love for what we do that it becomes a part of our life.”
founder, president and CEO
Entrepreneur Of The Year 2012 United States
2013 World Entrepreneur Of The Year
“What if the stock market crashes? What if there is some unknown thing that happens? What if there’s another 9/11 type of situation? Companies need to carry on, but maybe they don’t need to do events. Maybe they cut back on entertainment and speakers. The worry is what happens if something happens that I can’t control.”
President and founder
SME Entertainment Group
“We are in recovering times. I feel very positive about the economy in general, but I’m still very worried about Europe. And while we are recovering, it’s still choppy and choppy times are times when there are more needs out there.”
Retired global chairman and CEO
"I guess there is a point in my life where I thought it is all about me, and I am going to be the guy that guides everything and controls everything. What I have learned is that the best thing that I have done for our business is learn to let go and learn to get people who are better equipped to manage specific areas, do their thing and not get in the way."
Dr. Alan Ulsifer
CEO, president and chair
Entrepreneur Of The Year 2012 Canada
“Nothing keeps me awake at night becase my work is solid.
My father married at 60 and my mother was 23. They had four children. Then he died, and we quickly had to start thinking about what to do. There was no money — nothing. We had to leave the little town we lived in because of violence there. Thanks to that, I am where I am right now because I still could be on the streets of my village selling tobacco. There is no wrong that can do good. That's what I have to teach people.”
founder and president
Entrepreneur Of The Year 2012 Colombia