It used to be that only very large companies were doing business overseas. As more small and midsize companies enter the international marketplace, they must learn how to navigate tax laws related to conducting business in foreign countries.
“These tax laws are often broad and complex, and companies need to know how to minimize their combined taxes,” says Richard J. Nelson, CPA, director of Tax Strategies at Kreischer Miller.
Smart Business spoke with Nelson about what companies need to consider and how to manage the tax implications of doing business overseas.
What do companies need to consider in terms of taxes related to international business?
The first, and most important, decision is what to do regarding profits and cash from overseas operations. Are you planning to bring profits back to the United States right away or will you seek a deferral strategy that will leave cash and profits overseas for the time being? The answer to that question determines how overseas operations are structured.
A deferral structure is preferable when you want to keep profits offshore for a significant time and the foreign tax rate is lower than the U.S. tax rate. In order to defer U.S. tax, the foreign entity must be treated as a corporation for U.S. tax purposes. The goal is to move as much income as possible to this entity, and to defer U.S. tax until earnings are brought back here.
What problems do companies encounter with the deferral strategy?
Some pitfalls include matching of foreign tax credits, Subpart F rules and transfer pricing rules.
Proper planning is needed to ensure foreign taxes paid are credited to offset U.S. taxes. Subpart F rules, if applicable, make foreign profits taxable in the U.S., even if the earnings are not repatriated. Poor planning in these two areas could result in paying a higher overall effective tax rate on the same income.
Transfer pricing rules are designed to ensure that the transfer of goods from the U.S. company to the foreign company are priced fairly so the U.S. collects its fair share of taxes on the profit. If the Internal Revenue Service challenges your pricing, you could face significant penalties.
Does a non-deferral strategy pose pitfalls as well?
In a non-deferral strategy, the tax implications are not nearly as complicated. Generally, the foreign company is established as a ‘pass through’ entity, or you can check a box to have it treated as a disregarded entity or pass through entity. With this structure, the U.S. taxes the income of the foreign corporation and foreign tax credits are available to offset any U.S. tax on current profits. There are no additional U.S. taxes when the money is repatriated.
Under this scenario, you don’t need to be concerned about transfer pricing rules, at least from a U.S. perspective, or Subpart F rules. This structure provides the most flexibility and is well suited to U.S. companies that are S corporations with overseas operations.
Are there tax incentives for a U.S. company doing business overseas?
If you are selling products overseas that are manufactured in the U.S., you may be able to take advantage of an Interest-Charge Domestic International Sales Corporation (IC-DISC). You set up a separate corporation that makes an IC-DISC election and is, by law, exempt from federal income tax. A commission agreement is entered into between the related exporter and the IC-DISC. The related exporter pays the commission to the IC-DISC, which gets a 35 percent tax deduction. The IC-DISC then pays the commission to its shareholders, who are individuals, as a qualified dividend, which is taxed at 20 percent. The overall savings is 15 percent.
Can companies manage the various tax scenarios internally?
Because of the many complexities involved in doing business internationally, there is a lot of expertise required in planning a strategy to minimize the company’s overall effective tax rate. Seeking competent advice is crucial to avoid the many pitfalls that you may encounter when venturing overseas.
Richard J. Nelson, CPA, is a director of Tax Strategies at Kreischer Miller. Reach him at (215) 441-4600 or firstname.lastname@example.org.
Insights Accounting & Consulting is brought to you by Kreischer Miller
Anything published online lasts forever, so it is important to set the right tone for your company’s online communications and to mean what you say from the outset. You might try to retract or amend these public statements, but it is relatively easy to find prior versions, thus causing embarrassing or false statements to not truly disappear, says Christina D. Frangiosa, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC.
“It’s safer to wait to publish materials to the Web until you have confirmed they are accurate, not misleading and not based on someone else’s intellectual property rights,” she says. “False statements about either your company’s products or about a competitor or its products could lead to lawsuits claiming false advertising, unfair competition or commercial disparagement. Misuse of the company’s or a competitor’s intellectual property can result in a loss of rights, or even, perhaps, an injunction or damages.”
Smart Business spoke with Frangiosa about avoiding legal mistakes on the Internet.
How should you handle statements about your competitors and their products?
Avoid knowingly making false statements about a competitor or the quality of its products. Publishing statements about them without appropriate due diligence could result in negative publicity for your company, corrective advertising costs or monetary damages.
How does cutting and pasting content from other websites create copyright concerns?
Many users have a common misconception: If they can find ‘free’ content on the Internet, then they must be able to use that content for any purpose. Just because content may be freely accessible does not mean that you have a right to use it. Copyright holders have exclusive rights, including the ability to choose to publish or not to publish their works; posting something on a public website constitutes publication. Copying and pasting someone else’s images, text or video into your company’s website without permission could expose the company to copyright or trademark infringement suits, among other claims.
How might misuse in social media undermine company trademarks?
Companies today use their websites and social media to communicate about their products or services. Specific employees may be assigned to prepare and/or post content. These employees should be informed about how to use the company’s trademarks to further develop the brand and maintain existing rights. If employees misuse these trademarks on the company’s sites, they may unknowingly undermine the value of the brand, and perhaps cause problems for trademark renewals or other filings.
Some employees may also use the company’s marks on personal social media. For example, an executive might use a company logo rather than a headshot on his or her Facebook page. Any statement made on these pages about company business could be seen as a formal company representation, and perhaps cause problems for the company with the Securities and Exchange Commission or other governing bodies.
What can you do to protect against these pitfalls?
- Create your own content, rather than relying on design elements you see on other sites. This may have a higher upfront cost but could reduce your litigation exposure in the long run.
- Seek a license to use any content in which you are interested, and pay the appropriate royalty fee for its use. There are organizations that accept those royalty payments on behalf of content owners.
- Obtain images, videos or other content from a valid image collection service, authorized by the copyright owner.
- Ensure employees understand the source of the content they plan to use before they upload it to the company’s site. They should be trained to avoid the impulse to right-click, ‘save as’ and then upload.
- Avoid using a competitor’s trademarks to advertise your own goods or services.
- Ensure employees understand the appropriate use of trademarks.
- Establish a social media policy that includes explanations of limits on use of the company’s trademarks.
Christina D. Frangiosa is an attorney at Semanoff Ormsby Greenberg & Torchia, LLC. Reach her at (215) 887-0200 or email@example.com.
Find about more about privacy and intellectual property law on Christina’s blog.
Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC
When it comes to insurance, many customers feel they have no control over their price, product, how incidents happen, losses, etc. A properly constructed service plan mitigates this frustration.
James Misselwitz, CPCU, vice president at ECBM, says a service plan is something business owners should be asking their broker about upfront.
“They should say, ‘OK, you’ve given me this spiel on all the wonderful things you’re going to do. Now show me how you’re going to deliver it to me,’” he says. “‘Show me how you deliver it to your existing customers, and show me what happens when something doesn’t get done. Give me that blueprint, so I know I can depend on you.’
“There’s no question that somebody who doesn’t follow an active service plan with a broker will ultimately pay the highest premium out in the marketplace.”
Smart Business spoke with Misselwitz about effective service plans that help manage risk.
How do service plans create fail-safe procedures?
Although most brokers use some version of a service plan, many do not monitor and control it. A service plan is a client-driven method where business owners determine, along with a broker or agent, what services they need, how often they need it and who is responsible for delivering it to them.
Some services might be a review of market conditions before renewal; a review of the loss experience and current claim activity; a review of the outstanding reserves on claims that have already occurred; a review of information for the renewal like the current automobile schedule or payroll; and a tentative experience modification factor review that shows the impact of workers’ compensation on your renewal.
The service plan helps manage the insurance throughout each cycle of the policy. Both the company and broker know the expectations, and the plan can operate as a safeguard. When the broker doesn’t complete a claim review at six months, for example, a fully automated, computerized service plan notifies the underwriter by triggering an alert at the brokerage firm. At the same time, executives have a copy of the plan and can ask the broker about it.
What happens when service plans aren’t properly executed?
Things fall through the cracks. The insurance business is a deluge of paper and electronic messages, so it’s easy to lose a due date or report that needs to be run. If companies don’t actively manage insurance with the help of their brokers, they give up control of pricing, coverage, and losses to the whims and vagaries of the insurance companies and marketplace.
For instance, if your company doesn’t have a regular claim review on workers’ compensation activity, you could have a few large claims on reserves. You might not be working on action plans to mitigate those claims. So your renewal comes up, and it’s running a temperature with a poor loss ratio. Your insurer might ask for 40 percent more to underwrite the risk or send out a notification of cancellation. Now, you and your broker are scrambling to put together a response that will allow the underwriter to stay on a reasonable price.
With what types of insurance is a service plan most important?
With a commercial account, service plan diligence is most critical with insurance lines that have loss activity and when there is anticipated change. You want to automatically stay in control of critical items like losses, payroll, premiums, sales, etc.
Also, you need a service plan if there’s an anticipated change, such as a merger or expansion. It’s important to have the right coverage at the inception, as well as coordinating existing coverage so you’re not being overcharged because of overlap.
Why is flexibility key?
As a commercial insurance purchaser, it is important to develop a system with your broker that will deliver the service that you want and need. A service plan is one such system that can help you control costs and deal effectively with change, both in your operations and in the insurance marketplace. While flexibility is the key to tailoring a service plan for each business owner, it is the ability of the broker to audit the process that seems to be the critical element in making the program work extremely well.
James Misselwitz, CPCU, vice president at ECBM. Reach him at (888) 313-3226, ext. 1278, or firstname.lastname@example.org.
For more information about risk management, visit ECBM's blog.
Insights Risk Management is brought to you by ECBM
Imagine it’s a hot day. You’re thirsty and hungry, but don’t want anything unhealthy. There aren’t many options available to meet all those needs. In the early ’70s, the concept of the smoothie was born out of this unmet need. Opened in 1973, Smoothie King Franchises Inc. was the original smoothie brand.
In 2001, Wan Kim had this same urge to find a healthy option to quench his thirst and satisfy his hunger. He had his first experience with a Smoothie King smoothie while studying at University of California at Irvine. The high quality, healthy product had him hooked immediately.
Kim was so impacted by the product that he became a Smoothie King franchisee in South Korea. Since 2003 he has owned several Smoothie King franchises, and in 2012 when the opportunity came about to own the brand, he jumped at the chance.
“I bought the company in July 2012,” says Kim, Global CEO. “I really love this brand. It’s not because I’m the owner, but because we have great products. There are a lot of changes still happening, but it’s exciting.”
Smoothie King, a 300-employee, more than $230 million organization, is now 40 years old. The brand has more than 700 stores and a presence in the United States, Korea and Singapore. Despite the company’s established age and fairly big size, a new owner and plenty of potential market opportunity leave the brand in growth mode today.
“Our next five-year growth plan is to open 1,000 stores in the U.S. and 500 outside the U.S.,” Kim says. “Last year the company did about 26 franchise openings. This year in the first quarter the company has done 40 to 45 signings.”
Kim’s experience as a franchisee and now a franchisor has given the company new life and Kim is excited about where he can bring the brand and its smoothies in the near future.
Here’s how Kim is spreading the word about Smoothie King in the U.S. and overseas.
Understand all areas of your business
Kim was a franchisee for nearly a decade in South Korea. His stores were some of the highest grossing for Smoothie King before he became CEO.
“Obviously franchisees and franchisors have some different views, but eventually the bottom line is to make a better brand,” Kim says. “The path they take can be different, so you have to keep communicating to each other and look at the bigger picture.”
Kim has a very unique advantage over numerous other franchise CEOs. He now has experience as a franchisee and a franchisor.
“I have both aspects and know what a franchise wants and needs, and I know how I need to communicate,” he says. “In any kind of business, sometimes people forget why we do it. So that’s why I keep communicating and keep telling our people why we do this business. We have a great mission and a great vision. We just have to talk about it.
“A lot of people want to make money and be comfortable and I get that and that’s very, very important, but there has to be another reason why we do this. Smoothie King is a healthy choice and our mission is to help people live a better lifestyle.”
While the company’s mission is to help people live a healthier lifestyle, Kim wanted to make sure that the company’s franchises were in good health also.
“As soon as I bought the company I looked at how many single franchisees we have, because when I was a franchisee I thought becoming a multi-unit franchisee was actually very challenging,” he says. “As a franchisor, they don’t understand what kind of challenges franchisees have when they have a second or third location.
“I started to visit some multi-unit franchisees that we have to look at what kind of system they have in place. Today, we are assembling all those systems so that whenever we have a single franchisee try to become a multi-unit franchisee we have some system to help them grow.”
Having those systems in place will become very beneficial as Kim continues to look at ways he can expand the brand.
“Right now we are in growth mode and are opening a lot of stores and also expanding into other countries,” Kim says. “When you grow, you are hiring a lot of people and when you’re expanding outside the United States you encounter different cultures. In order for me to assemble all those differences I need a really strong mission for why we do this business so that it doesn’t matter what kind of culture or background you’re from.”
Prepare for growth mode
Today, Kim is focused on growing the Smoothie King brand outside the U.S. and in the Southern parts of the U.S. where the company has a strong presence, but a lot of potential still remains.
“We want to make sure that we secure our market before we expand to a different part of the U.S.,” Kim says. “That expansion is happening in Florida, Texas, Georgia and other southern parts of the U.S. Going outside the United States we are looking at Malaysia, Indonesia, Thailand, Taiwan, Japan and the Middle East. Our goal is to open two markets this year and two more markets next year.”
Fast-paced growth like Smoothie King is expecting requires a strong culture and mission that make the company attractive anywhere it goes.
“When you are in growth mode I would advise that you want to have a really strong culture in your organization, so that whomever you hire can be blended into your culture,” he says. “You have to set up a strong mission, vision and keep communicating with your employees.”
When you take your company outside of the United States you will experience a lot of cultural difference, and you have to be prepared for it.
“A lot of times when people don’t have any experience with different cultures they will think it’s wrong, but in fact it’s different,” Kim says. “In order for you to go to other countries and do business you have to learn how to respect their culture. If you don’t respect their culture they will know immediately. You have to educate your employees.”
The vast cultural differences Smoothie King employees will experience as the brand continues to expand isn’t the only change they’ll have to accept, they’ll also have to buy into the sheer amount of growth that Kim sees in the company’s future.
“A lot of times when companies grow employees don’t really see how far we can go,” he says. “When we start to grow there is a lot of work coming in and a lot of things are changing. It is very important that I need to keep communicating with employees that we can get there, because if you don’t believe we can get there, then it’s not going to happen.”
One of the first things Kim did when he bought the company was to tell the employees about the growth plan and a lot of people didn’t buy in.
“They were thinking, ‘Oh, it’s a new owner; of course he’s going to be thinking of growth, but it’s not possible,’” he says. “So I had to keep communicating that it’s going to happen and one by one, I started to show them that this would happen and then it really happened and people believed in the plan. I know there are still people who don’t believe where we can go, so I still have to communicate.”
Kim bought the company a little more than a year ago and he is having a blast seeing the company succeed little by little.
“I tell my employees to imagine if we were the size of any big fast food company, the world could be a different place,” he says. “It’s not just about making money and having success. It’s also about influencing more and more people to live a healthier lifestyle.”
How to reach: Smoothie King Franchises Inc., (985) 635-6973 or www.smoothieking.com
Recently, I had the privilege of attending the EY World Entrepreneur Of The Year conference in Monte Carlo. I’m back to report that entrepreneurship is alive and thriving around the globe!
It was a whirlwind of a trip, packed with networking, thought-provoking panel discussions and personal interviews. We heard from a remarkable panel of speakers including Kofi Annan, former Secretary General of the United Nations and Nobel Peace Prize recipient; Sir Timothy Berners-Lee, inventor of the World Wide Web; John Cleese, award-winning actor, author, humorist and Monty Python legend; and many more.
I also had the opportunity to sit down with some of the world’s most accomplished entrepreneurs. These business leaders come from more than 60 countries that combined represent a staggering 94 percent of the global economy.
In this issue and in the months to come, you’ll learn what the world’s greatest entrepreneurs have to say about leadership, innovation, overcoming challenges, bringing their visions to life and much, much more. You’ll also hear from the leadership at EY as to the importance of celebrating entrepreneurship.
Transforming vision into reality
“Be careful about making assumptions. Those assumptions can lead you down a pretty dangerous path. It is OK to make assumptions and have confidence but you had better do your due diligence as well. An assumption is having those critical for the business make sure it is happening. I am very trusting of people and in the past have had some unfortunate instances where I did make assumptions about something and they were completely the wrong assumptions.”
Dr. Alan Ulsifer, CEO, president and chair of FYidoctors
“Growth obviously continues to be a challenge. The markets demand growth if you are a publicly traded company, and growth is a metric of how the business is doing. If you want to continue to attract the best people, attract the right sources of capital to your business, you have to demonstrate that things are going well and growth is one measure that people look to. I think that if you are a business in an established market, growth can be a challenge because those markets by and large are growing more slowly. So in order to get more rapid growth, many companies are looking at emerging markets and trying to figure out what their strategy should be for emerging markets, those that have double-digit growth potential.”
Bryan Pearce, Americas Director, Entrepreneur Of The Year and Venture Capital Advisory Group EY
“One of the toughest things for me was that people have a certain image of my country, Colombia. They don’t trust a company there to have good quality and do good work, but I am very proud to offer those qualities from Colombia. It is not easy but it is something that you can accomplish. I have been down a lot of times, but the good thing I have noticed is that every time something like that happened, I have been able to obtain positive things out of it. I have been broke multiple times, but from being broke I have been able to learn from it and rebuild.
Mario Hernandez, founder and president, Mario Hernandez
Jim Turley leaves his post as Global Chairman and CEO for EY with deep admiration for the entrepreneurs who continue to use their vision and spirit of innovation to change the world.
“They have got this wonderful ability to think outside themselves, to look at the world outside these windows and see the needs that exist out there,” says Turley, who officially retired on July 1.
“Then they’ve got a vision to create a product or service or an idea to meet the need they have seen. They have got the courage to risk everything and they are as persistent as can be. Most of them fail the first time out. But they get up, clean themselves off and do it again.”
“Work carefully with a few people who get a twinkle in their eye. If you talk about your idea, some people will respond with excitement because they get it, but not everybody. Maybe you talk to 300 people and three people will get it. Work with those three people. The web took off because a few people all over the world got it. You get the support from a few people who get it and then it builds from there.”
Sir Tim Berners-Lee, creator of the World Wide Web
Corey Shapoff has a job that many would envy, booking well-known musical acts such as Maroon 5, Katy Perry, Christina Aguilera and Kelly Clarkson for live concerts and private corporate events. But he doesn’t take much time to stop and think about all the famous people on his call list.
“I’m a grinder,” says Shapoff, president and founder of SME Entertainment Group. “I’m the kind of guy who is always looking to what’s next. You’re only as good to me as your last deal.”
It’s that instinctual drive to always try to do it better that is embedded in the true entrepreneur and allows the next vision to become a reality.
“It’s hard for me to turn it off and say, ‘That’s great,’” Shapoff says. “I’m always thinking about tomorrow. You just can’t take things for granted in our business.”
“The skill sets of an entrepreneur involve understanding how to create business. So if you’re going to give back, why not work with kids who need it the most and actually teach them and help them to be entrepreneurs. That’s what is going to grow our economy and create stability where otherwise we’re going to have a lot of social unrest.”
Amy Rosen, president and CEO, Network for Teaching Entrepreneurship
“When you’re an entrepreneur you feel like you have never met a deal that you didn’t like. You only have limited resources and limited time to be successful. You have to stay disciplined and focused and being able to say what we are not is every bit as important as being able to say what we are.”
Jim Davis, president, Chevron Energy Solutions
“It’s important that you have teamwork and all your top players are well motivated with passion, principles and values. We make sure that people know where we are going and what our main objective is for that year. We promote teamwork inside and outside the company. Our directors have to make sure they are sharing our company values and principles with each of their team members.”
Lorenzo Barrera Segovia, founder and CEO, Banco Base
“For entrepreneurs you get a great idea, you start your business and then you have to keep focused. Keep executing that idea if that idea is big enough. Never fall into the temptation of getting out of your business or change it unless it’s strategic. Secondly, try to get financing as late as you can. Never get financing as soon as you can. Thirdly, create a great team and culture, because that’s what will prevail and create value for shareholders and your community. That’s how you scale your business. The last one is to dream big.”
Martin Migoya, CEO, Globant
“It was nothing but a gut feeling. The only thing I knew was there was a big opportunity in yogurt. I grew up with yogurt. Being from Turkey yogurt was a big part of our diet. I wasn’t sure if I could do it – break through in the world of yogurt in retail.
The category was owned by two major companies; Dannon and Yopliat owned about 70 percent of the market, and they had been there for years. As a startup you go to the specialty stores first. That’s how you start and you grow and once you reach a certain level then you go to the big retailers.
I didn’t want to do that. I wanted to go to the big retailers and be in the regular dairy aisle. That was a crazy idea and nobody thought that would go, but at least we tried. When we tried, we convinced one retailer in New York, ShopRite. The result from that was we were able to expand to a couple of other retailers. After the second or third customer that we had success with for our yogurt, I knew it wasn’t going to be about selling, it was about making enough.”
Hamdi Ulukaya, founder, president and CEO, Chobani Inc.
One of my favorite business books, which also made it as a Broadway play and a big-screen movie, is “The Wonderful Wizard of Oz,” written by L. Frank Baum in 1900. My hero in this story is not the young orphaned Dorothy, nor the Cowardly Lion, the desperately in-need-of-some WD-40 Tin Man, nor even the Scarecrow in search of a brain.
Instead it is the Wizard. To understand why the dubious Wizard is my favorite character, one must get past the portrayal of him as scheming, phony and at times nasty.
To appreciate the man behind the curtain, recognize that he is a very effective presenter, though at times this ex-circus performer behaved a bit threatening. OK, he was a jerk, but the point of this column is to take you down the yellow brick road on the way to the enchanted Emerald City and corporate success.
From this tale there is a lesson that one can say all sorts of things, not be visible, and yet still have a meaningful impact.
Another takeaway is that playing this role provides plausible deniability. This absence of visual recognition is particularly beneficial in negotiating when you, as the boss, use a vicar, aka a mouthpiece, to speak on your behalf. This allows you to have things said to others that you as the head honcho could never utter without backing yourself into a corner.
Another plus is you can always throw your mouthpiece under the bus if necessary, of course, with his or her upfront understanding that sometimes there must be a sacrificial lamb. This is not only character-building for your stand-in, but also many times presents an unprecedented opportunity for him or her to learn in real time.
Perhaps the Wizard was the first behind-the-curtain decision-maker, but today this role is used frequently in business and government. In a similar vein, the “voice” of Charlie from the well-known 1970s TV series “Charlie’s Angels” was always heard, but he was never seen.
Frequently there is much to be said for using anonymity to float a trial balloon just to get a reaction. Think about a son having his mom test the waters by talking to dad before the son tells him he wants to drop out of junior high school to join the circus. Maybe that’s even how our former circus-drifter-turned-Wizard-of-Oz got his start.
In the negotiating process it is important to have a fallback when the talks hit a rough patch by instructing your vicar to backpedal, saying that he or she has just talked to the chief and the benevolent boss said, “I was overreaching with my request.”
This also serves to build a persona for the boss-behind-the-curtain as someone who is fair-minded and flexible. All the while, of course, it’s the boss who is calling the shots and maneuvering through the process without getting his or her hands dirty.
The value of using this clean-hands technique is that it enables the real decision-maker to come in as the closer who projects the voice of reason, instead of the overeager hard charger who at times seems to have gone rogue.
It actually takes a bigger person to play a secondary role behind the curtain rather than always be in the limelight. It also takes a hands-on coach and counselor to maneuver a protégé through the minefields to achieve the objective.
However, accomplishing the difficult tasks through others is true management and the No. 1 job of a leader who must be a master teacher.
After you have guided a handful of up-and-comers a few times through thorny negotiations, you will gain much more satisfaction than if you had done it yourself, while engendering the respect and gratitude of your pupils. They in turn will have learned by doing, even though they were not really steering the ship alone.
The final step is to let the subordinate take credit for getting the big job done. This will also elevate you to rock star status, at least in his or her eyes. Soon those who you’ve taught will emerge as teachers too, and the big benefit is that you will populate your organization with a stellar team of doers, not just watchers.
So, forget about the Wicked Witch of the West and move backstage for the greater good of the organization.
Tim Smith faced a big challenge at Verizon PA/DE, but he had confidence and a track record to win over the skepticsWritten by Mark G Scott
When Tim Smith arrived to lead Verizon’s Pennsylvania/Delaware Operations, he found a group that thought it was performing quite well both from a metrics perspective and in the way it served its customers.
Unfortunately, the data Smith had reviewed painted a different picture of what was happening in the PA/DE region of the $115.8 billion broadband and telecommunications company.
“The challenge I had was taking a group of individuals that had a lot of tenure, with most of them having been in their positions for more than 10 years, and convincing them that they really weren’t as good as they thought they were,” Smith says. “We had a long way to go to provide a compelling service experience.”
Smith was in the midst of a transition from Verizon’s vice president of operations in Florida and Texas to his current position in Pennsylvania/Delaware.
“I had come from an environment in Florida and Texas where, when I left, the operations budget was $4.5 million under budget,” Smith says. “When I came to Pennsylvania/Delaware, they were $7.8 million over budget.”
These numbers were clear evidence of a problem. But when Smith met with operations directors and later with his sales directors in the 3,100-employee region, he sensed very little energy to get things turned around.
“I said, ‘Do you believe that you can get better?’” Smith says. “And they said, ‘Well, yeah, but we’re No. 1 on this and No. 1 on that.’ I looked at the numbers and said, ‘You may be comparing yourself to a certain part of the region. But if you look at this team nationally, you’re not No. 1. That may come as a surprise to you, but you’re not.’ At that point, you could see the expression on their faces change a little bit.”
It was becoming clear to Smith that he had a tough job ahead of him.
Get people actively engaged
As Smith emerged from his first meeting with regional leaders, he felt he had to take immediate action.
“The first thing I wanted to put in place was for them to work with a sense of urgency,” Smith says. “The numbers were decent, but they weren’t where they needed to be or where they could be.
“I talked to them about how they needed to work with a sense of urgency and mapped out where I thought we could be both on the service side and on the expense side and then eventually on the revenue side so we could turn the margin picture of Pennsylvania/Delaware around.”
With that initial message conveyed, Smith then wanted to speak to everyone who worked in the PA/DE region and make sure they understood what he was trying to do.
“I wasn’t just dealing with my direct reports,” Smith says. “I had to make sure the messaging that I wanted filtered down into the organization and got down to the technician level so that they really understood what was going on.”
To get that message across the way he wanted, Smith gathered the directors to develop a new mission statement that had proven effective for him in the Florida/Texas region.
“I changed just a little bit of it so that it fit exactly what was going on in Pennsylvania/Delaware,” Smith says. “I worked with the directors because my philosophy around how I lead is I want to make sure that the team is involved in everything I do. I don’t just create something and throw it out there and see if it sticks and then move forward.”
Smith didn’t want it to be his mission statement. He wanted the directors to take ownership and feel like it was a mission statement that spoke for the entire group.
“I brought in the directors, gave it to them and said, ‘How can we change this to make sure it really fits what we’re going after?’” Smith says. “‘What are our goals? What do we want to do? Do we want to be best in class? If we want to be best in class, how are we going to do that? How innovative is this team? How innovative have we been?’”
Smith talked about innovation, culture, competition and revenue. He wanted to drive home the message that eventually, complacency would lead to bigger problems.
As a means of continuous reinforcement of the mission statement, Smith made sure the statement was always visible to his team.
“I put together a mission statement that I wanted everyone to put in their cubicle, their office and in their garages,” Smith says. “I sensed that if my direct reports were complacent, then there was no question the rest of the team would be that way as well.”
Making the tough call
Smith had offered some tough feedback to directors in the region about their performance. But it was about to get even tougher when he came to the realization that the team needed an overhaul.
“I came in and within the first 30 days that I was here, we reduced almost 400 technicians and a director,” Smith says. “We called it an ISP offering, an income security plan. It allows individuals in the business to elect to leave the business if they so choose. We sweetened it with a pretty good chunk of money. Not only did they get their years of service, but they also got a huge stipend to leave the business.”
It was obviously a difficult decision to make, but Smith felt it was the right call to get things turned around in the PA/DE region. It also made it clear that the status quo was not going to be acceptable.
“I had to be really self-confident in the decisions I was making when I came into this job,” Smith says. “And that had to be really consistent with my values and my belief system. You need to trust that gut instinct that you have to make the right decisions. I didn’t have a whole lot of folks that were cheering for me to do the things I did or make the decisions I made.”
If he did not produce any results, Smith would face a lot worse than the lack of cheering and he understood that. But that confidence he had in his leadership abilities, and the knowledge that he had done it before and succeeded, kept him moving forward.
“I had to show them I could get results and I had to show them I could do it in a relatively short period of time,” Smith says.
Smith’s goals were to cut expenses, improve customer experience and energize employees to work as hard as they could for the company and its customers.
One of the key metrics Verizon looks at is the meantime to restore high-speed Internet due to outages from weather, equipment malfunctions or other problems.
When Smith arrived, he was coming from the best-run operations region in the nation. “We were running in Texas and Florida right around 30 hours for restoral,” Smith says. “In Pennsylvania/Delaware, it was around 56.”
There were other metrics in which PA/DE was way behind as well. And Smith set out to create a sense of accountability at every level of the region.
“I taught them how to look at what I would consider the numbers or the metrics and put together action plans that really drove those numbers where we wanted to go,” Smith says.
As he looked at the team and who knew how to do what, he discovered that some people weren’t trained in all that they needed to know.
“They had groups of individuals that just focused on one piece of the install,” Smith says. “I said, ‘We can’t do that. We need everyone to be accountable for every install every time.’ So we changed our philosophy.”
The key to making this type of improvement work is listening to your team and working with them to bring everyone up to the desired level.
“I have a call with my directors and second-line managers every Friday,” Smith says. “It’s not a call I beat people up on. It’s a call where I hold them accountable and we talk about the actions they had taken the previous week and how those actions either helped them or didn’t help them.
“If it didn’t help them, now I’ve got the team on the call to help them so they can improve the next week. Leaders need to excel at giving feedback and it has to be quantitative feedback.”
Smith says the efforts of the team have paid off in a big way for the company, the region and its customers. The budget has been trimmed, everybody has clearer goals and the end result is actually less work that now needs to be done.
“When I came in here, the amount of work we had every day was more than double what we have today,” Smith says. “Once we reduced it down, we were able to provide a more compelling service experience for our customers. We improved our business meantime restore by 49 percent over the past two years and reduced our overtime by 31 percent. So it speaks to the quality of life our employees now have.”
How to reach: Verizon, www.verizon.com
The Smith File
region president, consumer and mass business markets
Verizon’s Pennsylvania/Delaware Operations
Born: Fort Wayne, Ind.
Education: Bachelor’s degree in business administration, Indiana Wesleyan University.
What was your very first job and what did you learn? Danny’s Pizza Shop. I was making $1.25 an hour. I didn’t live close to the pizza shop, so I had to get up and catch the bus because I wasn’t of age to drive. It taught me discipline. I wanted to sleep in, and I couldn’t sleep in because I had to catch the bus. If I missed the bus, there was nobody at home to take me to work.
Who has been the biggest influence on your life? My parents always instilled in me a good work ethic. I watched my dad work, and I can’t remember my dad not being at work through the week, other than vacations. Even a few hours on Sunday, he would go in. My mom was the same way. I watched them do the best they could to make ends meet for our family.
What one person would you like to have met? Martin Luther King Jr. It is not because he’s an African-American, but it’s the vision he had for America.
Most people have a hard time creating a vision for their own life or household.
When I look at my job here at Verizon, I want to make sure I have a vision for not only growing revenue, margins going up and expenses going down, but there are more than 4,000 individuals that count on me to make the right decision.
I don’t take that lightly. Meeting a person like Martin Luther King Jr. would just help me even today to solidify the vision that I not only have personally, but it would also help me in business as well.
Be confident in yourself.
Think before you act.
It is all well and good to have organizational values. That’s the easy part. How do you keep them alive? How do you position them to be a living, breathing part of your company’s DNA? That’s the hard part.
Organizational values can provide a moral foundation for taking the high ground in tough times or when temptation comes knocking. They reflect and reinforce organizational culture. Put another way, they are the anchors of your business.
Many organizational leaders spend countless hours coming up with an explicit set of values that reflect the beliefs and aspirations of their company. Often, they are inspirational, professing integrity, leadership, teamwork and collaboration. When asked about organizational values, it is often determined that the executives are enthusiastic and supportive of them. Why? Because they were instrumental in their creation.
Although there may be a lot of energy put into selecting the perfect set of values for your organization, don’t get trapped into thinking that once they are communicated everyone will remember and abide by them. Simply put, they won’t. Mistakes and misinterpretations will be made, but as an organizational leader, you can increase your chances of having your values front and center by adopting four basic principles:
Principle No. 1: Keep them memorable
Long drawn-out lists containing complex descriptions are a thing of the past.
In today’s world, people don’t read and are even less likely to remember. Make the list brief, two to four values max, and make the descriptions simple so they are memorable, aim for six to 10 words max. Print them on business cards and post them around the office in strategic locations. Keep them front and center in the eyes of your associates.
Principle No. 2: Lead by example
Make sure that you personally keep your organizational values in the forefront of the decisions and actions you take. Refer to them liberally at company meetings and acknowledge your associates who have “lived” them.
Don’t be reluctant to ask for regular feedback on whether your firm is in proper alignment.
Principle No. 3: Build your values into every message
At the expense of being redundant, when you are speaking with others in your organization, refer to those values to make your case. Give examples of how you’ve observed employees embodying those values. Tell stories about how they are being followed in other areas of your company.
Connect the dots for employees about how following the values make your workplace and your company better.
Principle No. 4: Observe when values aren’t being followed
Provide timely feedback to those who have strayed and remind them of the specific value(s) they’ve strayed from. Let them know what impact this has on you, others and the organization.
Keep your organizational values alive and in the forefront of each and every one of your actions. Make sure you are modeling them and expect the same from your associates by infusing them into your communication, recognition and feedback process. And then, sit back and relax. Watch them bring energy and commitment to your organization’s culture and future success.
G.A. Taylor Fernley is president and CEO of Fernley & Fernley, an association management company providing professional management services to non-profit organizations since 1886. He can be reached at email@example.com, or for more information, visit www.fernley.com.
A few years ago, one of my friends embarked on what he deemed an ambitious, yet simple plan: Write a New York Times Best Seller.
“Ed” had reason to be optimistic: His first two books had sold well and he had successfully leveraged them to launch a burgeoning consulting practice. Ed also had a nationally known book publisher to handle distribution for this book, and he had developed a comprehensive marketing and promotions plan for the launch.
Ed felt all the pieces were in place and was sure he would succeed. His goals were two-fold: break out from the pack and grow his business, and hit the New York Times Best Seller’s list. While his head told him the first goal was more realistic, his heart was set on the second — publicly claiming it was his only true benchmark of success.
Needless to say, Ed’s book didn’t make the list. Few books do. That doesn’t mean Ed’s book was a failure. Quite the contrary, it was a huge success.
As a result of Ed’s book, he landed numerous speaking engagements with organizations and companies around the world. He began to command four- and five-figure speaking fees from those engagements, and his book was purchased and distributed to every attendee.
Further, Ed’s speaking engagements lead to dozens of private companies hiring him to provide one- and two-day seminars, where he taught executive teams how to implement the ideas he espoused in the book. Ed was also presented with numerous business opportunities for new and existing clients to tackle initiatives beyond the book’s subject matter that he had not previously considered but were related to his expertise.
Finally, Ed did sell thousands upon thousands of copies of his book in bookstores nationwide and online through booksellers like Amazon.com and BarnesAndNoble.com. His book was in the hands of the right people — and lots of them — and he had established a national profile.
Viewed through this lens, there is little doubt that Ed’s book was wildly successful — even if it wasn’t a New York Times Best Seller and even if it didn’t stack up to his primary benchmark.
This is the reality of book publishing. Each month, I speak with dozens of entrepreneurs and CEOs about their nascent book ideas and the possibility of having Smart Business Books handle development and publication of their stories and manuscripts. I begin every conversation the exact same way: “If your goal is to have a New York Times Best Seller, we’re not the right option for you.”
That’s because you should write books for the right reasons. If your only goal is getting on a best-seller’s list, then your ambitions are off the mark. Writing and publishing a book is not like a professional sports team’s season — there isn’t one winner who takes the championship and a bunch of losers who fall short. Publishing a book is not an all-or-nothing proposition.
This isn’t to say you shouldn’t aim high with your goals, and having your book become a best-seller is certainly one way to measure success. Setting reasonable expectations, however, is essential.
So why write a book?
One of the most important questions you should be able to answer when thinking about writing a book is, “Who is going to read it and why?”
As Ed’s story demonstrates, a book is a very useful business development tool. It is an immediate conversation starter, an excellent credibility builder and one heck of a leave-behind. If you’re engaged in marketing, why not capture your expertise through a book?
Another reason is to celebrate a milestone or establish a legacy piece. It could be for a 50th or 100th anniversary, or to recognize the history of an organization upon the founder’s retirement or death.
And, if you are interested in helping others succeed, a book is a great way to share your expertise or what makes you and your organization special. For example, if you’ve built an amazing corporate culture where productivity blossoms and innovation flourishes, the “how” and “why” are good subjects for a book. And if you’ve been involved with several mergers and acquisitions, consider sharing what worked and what didn’t, and the lessons learned along the way.
Whatever your story, the key is having a reason to share it with others. The bottom line: It’s your story. Make it count.