Building a resilient and innovative work force in a time of perpetual doubt

Scott Allen, Ph.D, Assistant Professor of Management, Boler School of Business, John Carroll University

Pick up the newspaper these days and serious economic turmoil, widespread political unrest and, frankly, just some weird weather patterns are pervasive.

How do you prepare your organization for the future when confronted with the challenge of perpetual doubt about how that future is going to look? How do you lead your organization when the path ahead is so uncertain? Your work force is one of your best hedges against an uncertain future, but it has to be developed into a resilient, adaptive and creative problem-solving team.

Although it is tempting to pull back from employee development efforts to reduce costs during periods of high economic uncertainty, investing now in your employees will have a big payoff down the road.

Smart Business spoke with Scott Allen, Ph.D., Assistant Professor of Management, Boler School of Business at John Carroll University, about how developing employees puts businesses ahead of the competition during any economy.

So where do you start?

First, preparing your work force for the future means you have to think differently about your employees. Every employee should be seen as a potential leader on any given day, which means developing leadership capabilities in each of them. Sending employees back to school, providing on-site training, or providing in-practice development opportunities become important mechanisms for developing the kind of work force you need.

Although it’s tempting to look at these mechanisms as costs that can be cut, these should be seen as opportunities to invest in a resource that can protect your organization from the economic and political stormfront you are faced with today. Second, as an expert in leadership development, I suggest four primary areas for developing a team-oriented culture in an organization: 1) skill building, 2) personal growth, 3) feedback opportunities and 4) conceptual understanding.

What are the future skills needed for a resilient and adaptive problem-solving team?

In addition to the obvious functional business knowledge and industry-specific content knowledge, the following skill sets are high on the list of just about every leadership development expert.

Communication Communication is always critical in an organization. As technology continues to change the way we can communicate, people in a team-oriented organization will have to be versatile and effective in every communication medium.

Analytics There are mountains of data available to everyone in an organization and the quantity of data available will increase in the future. The ability to translate data into usable information will create a work force that will mean the difference between being able to adapt to a rapidly changing environment and being left behind.

Language and culture Developing among your employees the skills and sensitivity for successfully working with people from other countries and cultures will substantially increase your organization’s effectiveness moving upstream or downstream in supply chains of the future.

Creativity and innovative problem-solving Economic hard times and global uncertainties produce myriad challenges for finding growth and sources of increased efficiencies. Once the ‘low-hanging fruit’ is gone, companies that have developed a culture of creativity and innovative thinking among employees will continue to grow and prosper through better problem-solving.

How can an organization enhance personal growth?

In our book, ‘The Little Book of Leadership Development: 50 Ways to Bring out the Leader in Every Employee’ (Scott Allen & Mitchell Kusy), we discuss leadership development in the new economy — leadership development that aligns with the flow of the organization and not against it. This approach develops leadership ability in real time while real projects are being completed. Creating a resilient organization in this economy means innovatively developing the next generation of corporate leaders on a dime, and on the fly. For personal growth, the trick is helping front line managers build a system of continual development that takes individuals and their team to the next level each and every day.

Think about your own organization for a moment. Are managers intentionally assigning their team members with challenging assignments, giving them opportunities for the personal growth that is essential for being able to adapt to changing environments? Each employee needs assignments, tasks and activities that take their knowledge, skills and abilities to new levels.

Where is the payoff for creating ongoing feedback opportunities for employees?

Consider the struggle your employees face when deciding what to behaviors to practice or what skills to develop. Are your people practicing the right stuff? Providing real time feedback means getting your employees where they need to be faster. Also, if you want employees to develop and grow, then the feedback should be provided in a way that encourages reflection. Just as football players watch videos of the game and the Army conducts After Action Reviews upon completing a drill, are there ‘de-briefing’ sessions that connect the dots, make sense of failures and celebrate the wins? If not, a learning opportunity has been missed.

What is meant by conceptual understanding?

Part of being resilient and adaptive requires a ‘big picture’ view. Too often, we define jobs as a set of tasks and then set the employee to work on those tasks. A resilient and creative team will need to see where their work fits in the bigger picture for the organization. Employees need to see how everything fits together. Companies who provide this ‘big picture’ find that their employees are a tremendous resource for problem solving during critical challenges.

Scott Allen, Ph.D., is Assistant Professor of Management, Boler School of Business at John Carroll University. Reach him at [email protected]

How startup co-founders can avoid litigation among each other

Jeremy Suiter, Shareholder and Chair of the Business and Commercial Litigation Practice Group, Stradling Yocca Carlson & Rauth

While it may be uncomfortable for founders of a new business to talk about issues that may lead to disputes between them in the future, it’s important to address, resolve and document those issues before they start the company. Otherwise, disputes can often lead to litigation.
“Having a written agreement is crucial. It’s one thing to agree upon various issues up front, it’s another to have the agreement in writing so the founders have something to refer to when questions or issues arise,” says Jeremy Suiter, Shareholder and Chair of the Business and Commercial Litigation Practice Group at Stradling Yocca Carlson & Rauth.
“Founders may operate on a handshake, but it can be hard to recall exactly what the terms are later on down the road. It’s important to have something in writing that sets out in detail how you’re going to deal with various scenarios,” he says.
Smart Business spoke with Suiter about what company co-founders should do before forming a company to prevent the often-disastrous results of litigation later on.

What are some common reasons company co-founders might sue each other?

The most common reason involves a fight for company control. A failure to address equity and management rights up front may lead to an impasse down the road. This is particularly common when co-founders reach a stalemate, and there’s no provision for a tiebreaker.

What issues should founders discuss up front?

Prior to forming the startup, founders should discuss their goals and vision. These may include services or products the company will provide, the company’s growth plan and the role of each founder. For example, one founder may see the company as his long-term employer, while another may see the company as a shorter-term investment in anticipation of a liquidity event. Goals are going to change, but founders who discuss issues ahead of time and develop a plan to resolve differences are better positioned to avoid the types of stumbles that can lead to litigation.

What specifically should they iron out?

They’ll want to determine how ownership interests will be divided; how decisions will be made; whether the company will employ founders; and the exit plan if a founder dies or wants to leave the company. It’s also important to have a plan for dealing with events that may change the company or how it operates. There are myriad possibilities, but the most common include selling the company, acquiring another company, taking on new partners, raising money or going public.

What provisions should they include in their written agreements?

Once founders decide which type of business entity they want to form, they should enter into an appropriate written agreement that outlines their ownership interests and explains how the company will operate. The agreement should explain how decisions will be made, who will make them and what to do if founders disagree. For example, the agreement may provide that material decisions, such as selling the company may not be made unless both founders agree, while other decisions, such as the day-to-day operations of the company or expenditures of less than $10,000 may be made by a single founder. There also should be procedures in place for the exit of a founder — voluntary or not — and an explanation of each founder’s responsibilities.
The agreement should specify what happens if one of the founders isn’t living up to their responsibilities, and how to resolve disputes that may arise. Dispute resolution procedures should include provisions requiring founders to mediate disputes before pursuing litigation, and if mediation is unsuccessful, the forum for litigation — court vs. arbitration; litigation location; and which state’s law, or any other rules that the parties may choose, will apply. This final provision is particularly important if founders reside in different states.

What methods can resolve disputes prior to litigation?

The best way for founders to resolve disputes is to be upfront with each other. Maintain a good relationship with your co-founder and try to talk through and resolve issues. Agree there will be times when you’re not going to agree, but for the betterment of the business you’ll try to resolve your disputes.
If this doesn’t work, founders should ask a neutral party to mediate. It doesn’t have to be a formal mediation service; it could be a trusted third party whose recommendation each founder trusts.

What damage can result if litigation occurs?

The time and expense of litigation can be substantial. Litigation often impacts not just the founders, but also company personnel and resources, which can ultimately hurt the business. In extreme cases the company may be dissolved if the founders are unable to resolve their dispute. Under California law, that’s the nuclear resolution where the court dissolves the company and divvies up its assets.

How can founders think of everything they’ll need in a contract up front?

Retaining qualified counsel is a good first step. While every business venture starts off with good intentions, disputes arise and that should be recognized. Qualified business counsel can raise potential disputes and incorporate terms into a written agreement for the founders to resolve up front.
Having industry specific counsel doesn’t hurt but isn’t required. Instead, look for a firm that has experienced corporate counsel involved in company formation and litigation counsel familiar with the disputes that typically arise. They can help formulate an agreement to address the real issues that come up and offer advice on how to prevent those issues from becoming disputes in the future.

Jeremy Suiter is a Shareholder and Chair of the Business and Commercial Litigation Practice Group of Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4000 and [email protected]

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth

How entrepreneurship courses can help executives start their own business

George Abe, Lecturer and Faculty Director, Strategic Management Research Program, UCLA Anderson School of Management

For executives interested in branching out and starting their own business, the UCLA Anderson School of Management offers entrepreneurship courses designed to help them better understand what it takes to make that happen.
“Executives who enter the course have ideas they want to explore either related to their job or not. The course helps them think through the process of whether or not they should give up their job, incur the opportunity costs and strike out on their own,” says George Abe, lecturer and faculty director for the Strategic Management Research (SMR) Program at the UCLA Anderson School of Management.
As they work through the courses, students can begin to better answer questions such as: How do I raise investment capital? What’s the difference between an angel and a venture capitalist? Should I seek outside financing at all? I have an idea, how do I know it’s a good idea?
“They enter school with these questions and we try to be pretty direct on how to answer them. So the way entrepreneurship courses help them is to answer these questions. We do this by having them work through deals and providing examples of best and worst practices,” Abe says.
Smart Business spoke with Abe about how entrepreneurship courses can help prepare executives to start their own companies.

What do the school’s entrepreneurship courses cover?

The school has tried to establish a brand of entrepreneurial education. Faculty thinks entrepreneurship can be taught, at least aspects of it. So the courses are heavy on jargon — the newspapers are full of business jargon and students really want to know what’s going on — how deals are done; how to look at feasibility; and learn about early stage legal formation, financing, venture capital and angel financing. That takes about 10 weeks of study and is the first entrepreneurship class. In that class they’re asked to come up with some kind of business idea they think would be worth pursuing.
Then they take another class called Business Plan Development in which they take the idea they’ve thought about in the first course and write a business plan. The first course is primarily analytic — mainly to analyze markets, themselves, products and make a determination as to whether a company idea is feasible. Once having determined that it’s feasible they go about writing a business plan, which is an action-oriented document, in the latter 10 weeks.
The courses also delve into areas of entrepreneurship beyond starting up companies where acquisitions and spinoffs are discussed.
After that there’s a field study in which some students implement the business plan they’ve developed previously. There also are two elective courses, one on entrepreneurial finance and another on entrepreneurial operations.

What are some reasons executives take these courses?

Many students in the class have thought about their business ideas for a while and they’ve got a lot of the product ideas nailed down, but they don’t know how to think about the financing, marketing and operations pieces. That’s why they’ve come here. In fact, many of the students are ex-entrepreneurs who’ve failed previously and don’t want to fail again.
Another thing faculty tells students is even though you’ve got this nice cushy job at some big company it’s not necessarily secure. The greatest job security you can have is the ability to withstand a layoff and go off on your own.

What kind of time investment should be expected?

Classes are every other week, staring Thursday afternoon and going through the weekend. Faculty, then, assigns two weeks of homework. They have case studies, which are a set of facts about a particular business and they’re given open-ended questions about it. The cases address famous companies like Starbucks — for example, what made Starbucks work while thousands of other coffee shops didn’t scale up — and not-so-famous cases that did or did not succeed. Also, guest speakers come into class to talk about their experiences attempting to get a business up and running.
For each class, students can expect to spend three hours in the classroom and six to seven hours on homework and other preparations. Therefore, the workload is about 10 hours per session minimum. They’re going to take two to three classes at once, so they’re looking at 20 to 30 hours every two weeks.
The workload isn’t trivial, but it’s directly related to their entrepreneurial aspirations. In addition, there is a six-month field study project called Strategic Management Research (SMR) in which students are placed in a company in groups of five for six months. SMR frequently involves international travel.

What can executives expect to gain from this experience?

Students who come back tell me they learned a lot about themselves and whether or not they should be entrepreneurs. They learn how to execute deals. Both the entrepreneurship courses and others emphasize deal-making discussions and what deal terms look like. We walk them through the deal process; help them get familiar with term sheets; and advise them on how to work with legal counsel.
They also leave the program with a network of other students and faculty who can help them with their businesses. You’ve got this group of people you’ve been in this foxhole with for two years and they tend to stick together for a long time. This EMBA group is pretty close. There are only about 70 of them and they see each other every other week for two years. They get to know each other pretty well and they often get together and cooperate.

George Abe is a lecturer and faculty director for the SMR program at UCLA Anderson School of Management. Reach him at (310) 206-3082 or [email protected]

Insights Executive Education is brought to you by UCLA

How to develop a relationship with a staffing firm

George Thomas, Senior Vice President, EverStaff

If you think your business may need to use a staffing firm at some point in the future, you should start doing something about it now.

Waiting until you actually need those services could prove to be a huge mistake, says George Thomas, senior vice president at EverStaff.

“Obviously, it’s always best to think about it before you need it,” says Thomas. “Often, by the time you have a need, it’s already too late. Planning ahead by establishing a relationship with a staffing agency can ensure that you have a partner that will be properly prepared to fulfill your staffing and placement needs when they arise.”

Smart Business spoke with Thomas about how to develop a relationship with a staffing firm so it can stay ahead of your needs.

Where should a business owner start when considering a partnership with a staffing firm?

Before you begin, recognize that there could very well be a disconnect between your operations, human resources and finance departments. In many cases, the finance department is going to look at staffing (as they should) based on a cost savings proposition focusing on liability, overall exposure of work force and the staffing company markup. The HR and operations departments will also be looking at cost and exposure, but will be more focused on the quality/reliability of candidates and the impact on production. As the CEO, you want to align all three departments and ensure that you are taking into account the full impact of what the service offers, focusing on the total value proposition. This means getting HR, finance and operations all in one room together to figure out what your company expects to gain from the use of a contingent labor work force. Second, it is key to determine a healthy percentage of contingent work force to permanent work force. Once you have determined this, you are now prepared to consult with a contingent staffing service to best determine how you will move forward.

How do you determine the right firm for your needs?

If your company has any chance of using a staffing firm, your HR employees probably hear from staffing services several times a week so there is no need to look in a phone book. Start by asking them what they know about the local services, as they should know who is out there and have an opinion.

An important consideration when choosing a firm is determining whether the company is merely happy to be a subordinate vendor and order taker to you, or if it wants to be a trusted partner. It’s not a question you can ask directly, but you can ask about relationships and the expectation of those relationships during fact-finding meetings. Also, listen to the questions the recruiter asks. If the staffing firm wants to be a trusted partner with you, the recruiter is going to try to learn about your business and get into your operating reality. He or she will use effective questioning to get to the root of your needs and learn everything he or she can about your facility and specific operating style. Then the recruiter will use that information to form a proposal about how the staffing firm can improve your operations with contingent staff.

It’s a matching process, not just order filling, and a staffing firm can’t make a proper match unless it can get into your operating reality and understand your company’s culture. It is very easy to find candidates with the proper hard skills, but much more challenging to find someone who is going to fit in with your company culture and be a long-term match. The difference between a good and great staffing company is that the great ones can make the match.

If a prospect staffing company simply walks in with a pricing sheet without first doing a proper analysis and says, ‘Whoever you’re doing business with, I can do it cheaper,’ that’s a good indication that that company has no interest in being a partner and is happy to be a vendor. That relationship never lasts long.

How can developing a partnership benefit a business?

Too many CEOs look at the staffing industry as a necessary evil, because they can’t carry all of the liability that comes with hiring and their HR departments are normally too small to recruit all positions internally. Because of that, they see staffing firms as disposable, something they can replace tomorrow if need be. As a result, they often throw out a job to several firms, and the first one to find a worker wins.

You can do that, but it’s not doing you any good because you’re not developing a key partner relationship. You need to think of your staffing firm as the third arm of your HR department, as an external recruiting department. Have them at your meetings so they understand your business from an operational standpoint. Keep them engaged to keep them out in front of your needs.

How can partnering with a staffing firm help with retention?

Statistics show approximately 60 to 70 percent of turnover occurs in the first two to three weeks at a new manufacturing job. People are experiencing many different things and moving in ways they’re not used to, so they may be sore, or not used to specific odors, environment, etc. If there is someone coaching them through those weeks and letting them know that it’s going to get better, there is a higher likelihood that they will stay and your retention will improve.

Proper orientation is a key to retention in contingent staffing and you need to ensure that you work with your staffing partner on orientation. Improper orientation always leads to misunderstandings. In the staffing industry,  much of our turnover is based on misunderstanding. For example, if someone shows up on day one and doesn’t know where to go, doesn’t have a proper orientation, or took a break in the wrong space and is disciplined, then they are likely to not return the next day. By partnering with a trusted staffing firm, you get more than just warm bodies on the job. You get the correct candidate and the right match, which is critical to your company’s operating success.

George Thomas is senior vice president at EverStaff. Reach him at (216) 369-2599 or [email protected]

Insights Recruiting & Staffing is brought to you by EverStaff

How arbitrage can benefit the portfolios of high-net-worth individuals

Brian Hopkins, Portfolio Manager, Ancora Advisors, LLC

Arbitrage is a trading technique that has been around for decades, but it’s not one that most investors have heard of.

However, in today’s economy, it can be a smart investment, says Brian Hopkins, portfolio manager at Ancora Advisors, LLC.

“Warren Buffett employed this strategy for decades with his short-term bond money, until Berkshire got so big that he couldn’t do it anymore,” says Hopkins. “It has been a smart money strategy for decades.”

Smart Business spoke with Hopkins about arbitrage and how it can benefit an investor’s portfolio.

What is arbitrage?

Arbitrage can take two forms. One is purchasing a security with a known value in the future trading at a discount to that value after adjusting for the risk free rate. Another is when two securities with virtually identical characteristics trade at different prices. An arbitrageur can purchase the cheaper security and sell short the more expensive security and wait for the two securities to reflect their intrinsic value.

One example of this is merger arbitrage, a strategy employed when a company is being purchased by another company. Typically, there is a six-month window between when a merger is announced and when the deal finally closes. Often, during that six-month period, the stock of the company that is the target of the takeover will trade at a discount to final value because the large mutual funds are not concerned about making that incremental couple percent and decide to sell. As a result of this selling, the market price of the target company may be less than the final transaction price. At this point, an arbitrageur can step in and buy the shares of the company being acquired.  The bet is that the deal will close and the spread between the market price and the takeover price will close to zero.

Another arbitrage example is when you take advantage of the mispricing of different securities that relate closely to one another. For instance, a number of companies have two classes of common stock. One will be voting stock and one is nonvoting stock and they both trade on an exchange. They have the same economic rights in terms of dividends, cash flows, proceeds in a sale etc. so they are identical except for the voting rights. Typically the share class with the higher voting rights trades at a steady, predictable premium to the nonvoting class.

For a variety of reasons, there can be times where temporarily the steady, predictable spread widens or maybe even inverts. In that scenario, the arbitrageur buys the less expensive stock and shorts the more expensive stock. An arbitrageur would then wait for the two classes of shares to come back to the normal premium/spread relationship. This strategy has limited risk because you are only betting that the historical relationship between the two share classes will restore itself.

Is this strategy one that investors can pursue on their own?

I would advise against it. An arbitrageur will run several screens to identify opportunities, using technology that feeds in pricing data for different types of securities and the relationships between them. There is quite a bit of manpower that goes into identifying and researching those opportunities and managing overall portfolio risk.

Why is now a good time to consider this strategy?

Historically, the risk of arbitrage strategies as measured by standard deviation has been in line with the risk of the bond markets. Our feeling is that the bond market right now does not offer investors much in the way of return on capital. Fixed income investors are losing purchasing power because the yields on many bonds today are less than the rate of inflation. This is where an arbitrage strategy can come in as a complement to fixed income only portfolios.

Arbitrage has historically outperformed bonds and inflation, and we think will do so again in the future. In the current environment, we believe it represents a good way for conservative investors to diversify their sources of return away from fixed income only.

In terms of the environment for public company merger activity, there is a significant amount of cash sitting on the balance sheets of corporations, and we think that cash may be deployed in part in mergers and acquisitions. This creates a good environment for arbitrageurs because the more mergers the higher the spreads and therefore the rate of return. More deal supply in the market widens spreads and adds upside to the strategy.

What is the risk profile of this strategy?

There is some risk, but the risks of the stock market are much higher. The strategy has only been down twice in the past 22 years. Both occurrences happened in the worst years of the recent bear markets. In 2002, this strategy as measured by the HFRI Merger Arbitrage Index was down 1 percent in a horrible year for the stock market. In 2008, one of the worst years for the market since the Great Depression, the strategy was down 3 percent, giving you a reasonable idea of what can happen in the most difficult of potential environments. Following each of those down years, the strategy bounced back and returned in the double digits the following year, leaving merger arbitrage investors up over the two-year period. The strategy has had numerous years of double-digits returns since the early ’90s, typically in years when merger activity was high.

What role should this strategy play in an investor’s portfolio?

It should be a portion of the portfolio, and investors should view it as an allocation to their fixed income portfolio.

An attractive element is that the correlation between this strategy and fixed income is very low. As a result, as you add a merger arbitrage strategy, the volatility of your fixed income portfolio should decrease.

Brian Hopkins is a portfolio manager at Ancora Advisors, LLC (an SEC Registered Investment Advisor). Reach him at (216) 825-4000 or [email protected]

Insights Wealth Management & Investing is brought to you by Ancora

How energy projects are driving the national, state and local economies

Michael W. Wise, Co-chair, Energy Practice Group, McDonald Hopkins LLC

World energy demand is exploding and the U.S. is no longer driving consumption and price. For instance, the U.S. could double the fuel efficiencies in all its cars and the amount of world oil consumption would continue to rise, says Michael W. Wise, co-chair of the Energy Practice Group with McDonald Hopkins LLC.

“Advocates exist for coal, gas, nuclear, wind, solar and many other sources of power, but the reality is that we will need all these energy sources,” Wise says. “Every year has brought new technology, changing economics and dynamic opportunities. For example, Northeast Ohio is in the running to build the first offshore wind project in North America.”

Smart Business spoke with Wise about how energy projects are driving the economy.

What is the biggest change in the energy landscape over the last five years?

Abundant cheap natural gas -— the source of this gas is in shale formations buried deep in the earth. Historically, this source of gas represented less than two percent of the total production in the United States. Today, the production percentage is approaching 30 percent. A few years ago, gigantic port terminals were being constructed and planned in order to import liquefied natural gas (LNG). Today, those terminals are being reconstructed to export that LNG.

Texas has led this effort with its Barnett Shale reservoir, which may be the largest reservoir in the United States. However, the eastern U.S. (including Pennsylvania and eastern Ohio) is now developing the Marcellus Shale reservoir and Ohio has begun to see abundant activity in its Utica Shale reservoir.

Cheap natural gas benefits our economy  as it drives down the price of electricity. Old coal plants are being retired and in some cases converted to natural gas. Both these conversions and new gas-fired generation utilize more efficient turbines to provide cheaper electricity. Cheap natural gas also provides a cost break to homeowners who heat with gas and a break for large industrials that rely on gas as a component of their manufacturing.

Finally, the drilling and distribution of natural gas is revitalizing the economies of a number of states. In particular, Texas, Louisiana, Pennsylvania and Ohio are already experiencing transformational wealth accumulations.

Are there other unique ways that Ohio is positioned to capitalize on this development?

Yes, in the use of natural gas as a preferred transportation fuel. Large vehicles and some fleets have used compressed natural gas (CNG) and liquefied natural gas (LNG) as a fuel source for decades — but on a limited basis because of the volatility of pricing. With supply appearing firm for the foreseeable future, efforts are full speed to develop the CNG/ LNG potential. Just recently, GE and Chesapeake Energy announced plans to develop CNG fueling infrastructure. The utilities (Dominion and Columbia), gas marketers (IGS) and auto OEMs (Ford, Honda and Chrysler) are also active. Government is also addressing the issue as Governor John Kasich is working with the Ohio General Assembly on a series of incentives and Congress is considering adding CNG provisions to the Federal Highway Bill.

Ohio is at the crossroads of the CNG play because of the Utica and Marcellus Shale along with the existing auto supply chain infrastructure. No other state may be better able to take economic advantage of this opportunity.

What is an under-discussed component for developing a project?

For an electricity generation project, the basics have always included site control and site-related issues along with an adequate offtake or power purchase agreement. Today, many projects must also undergo sophisticated financial engineering in order to achieve financial viability. New projects often do not have adequate returns to proceed. A byproduct of cheap natural gas is a decrease in the price of base load electricity, and more expensive renewables and advanced energies like waste heat recovery and cogeneration become comparably more expensive. In a nutshell, how does $.08 power from a cogeneration project at a steel mill compete with $.05 power from a utility? Couple this with the increasing complexity of government incentives and you have a need for sophisticated professionals. Good counsel and financial advisers can help bring a project to fruition by taking advantage of tax equity, retail power pricing, complex capital leases, state and federal incentives and favorable treatment from a utility.

What is another new variable for developing energy projects in 2012?

The Investment Tax Credit has been a strong tool to finance renewable energy projects.  From 2009 until the end of 2011, that program was a real game changer as a developer could choose to take a 30 percent cash grant in lieu of the credit. This allowed projects to move forward without a partner with the requisite tax appetite. With the expiration of the grant opportunity, there is once again the necessity of a tax appetite partner. This will put a premium on sophisticated financial engineering of these projects.

What is ‘hot’ in 2012?

New and converted gas fired generation. The utilities are moving into this space but a less-told story is that other types of companies are pursuing both cogen and independent power production. The goals are to take advantage of low natural gas prices, provide a long-term hedge against the return of higher electricity prices, and to also (where appropriate) provide for the steam needs of a facility.

Who is developing projects in 2012?

Homeowners are pursuing small solar and geothermal, companies are exploring wind and cogen and utilities are developing new gas fired plants and smaller renewable projects to meet their obligations under Ohio’s renewable portfolio standard. In short, anyone.

Michael W. Wise is the co-chair of the Energy Practice Group with McDonald Hopkins LLC. Reach him at (216) 430-2034 or [email protected]

Insights Legal Affairs is brought to you by McDonald Hopkins LLC

Lowering costs and creating efficiencies during new construction, renovation, or relocation

Eric Verh, Director of Project Management, CBRE, Cleveland

Most business owners are not in the real estate or contracting business. So, when they’re relocating, building or renovating, they probably have limited resources or knowledge when it comes to managing this time-consuming process. They have a choice: go it alone or align with a professional that has the technical expertise to manage the delivery of the project within clearly defined scope, schedule and budgetary requirements.

“Whether it’s a ground-up new building construction project or the renovation and remodeling of space, project managers are subject matter experts that can drive value in their ability to identify opportunities and mitigate potential project risk events,” says Eric Verh, director of Project Management at CBRE, Cleveland. “They can properly manage and coordinate teams of multidiscipline design, construction and vendor professionals and provide strategic consulting through all phases of the project’s lifecycle.”

Smart Business learned more from Verh about the value of project management, whether you’re facing a new building construction project, renewing a lease and renovating, or looking for new space and considering landlord turnkey or tenant-controlled improvement projects.

When should a user or owner of real estate hire a project manager to assist in the design and construction process for a proposed project?

The simple answer is the sooner you bring a project management professional in to manage a project the better. During the pre-construction phase, typically where only 20 percent of the project cost is incurred, 80 percent of the value creation can be realized in value engineering, design efficiencies and speed to construction that a project manager can lead if brought on board at the conception of an idea for new space or renovation or contraction. Full-service companies such as CBRE offer strategic consulting through business and conceptual planning stages of a project before the design actually takes place. CBRE Project Management offers clients up-front assistance during their space and building search. By providing comprehensive financial and qualitative analysis of alternative sites or buildings, our clients understand overall budget and scheduling implications associated with each site and, therefore, are better positioned to negotiate more advantageous lease or purchase terms with prospective landlords and sellers.

Further, through proper planning and strategy development early on there are many unforeseen scheduling and budgetary missteps that can be avoided. Understanding roles and responsibilities of those involved in a project and clearly defining the approval process for critical issues are often overlooked. If understood early on, extra time can be planned into the schedule and an expedited process for time-sensitive matters can be developed by a project manager to reduce time and expense.

What types of building owners or tenants are best served to retain the services of a project management professional?

Small, medium and large companies that have single building project needs to corporate and institutional owners and users of real estate on a regional, national or global basis can benefit from the services of a project manager. For example, companies looking to lease or own real estate can focus on their core business while allowing the project manager to oversee their best interests in managing a specific construction project that aligns with the company’s expectations in terms of quality, cost and timing of delivery.

On the other hand, corporations that may be rolling out national rebranding initiatives that either fully outsource or supplement their existing staff with a project management representative can benefit from local market experience and relationships. It runs the full gamut, from small companies to large corporations, whatever their real estate project management needs may be.

Even on small lease renewal projects involving simple renovations of just new carpet and paint, users of real estate may not understand the full implications of what that may mean.  For example, the type of carpet selected can lead to the need to tear down, reinstall and re-cable workstations and the moving of employees and their contents, all of which can significantly add to project costs and employee disruption. Project managers can help companies identify these implications up front and to make decisions for alternative material selections or scheduling adjustments to mitigate such costs and disruption. So even on small projects, it’s beneficial.

Does the value offered by a project manager offset the associated costs for these services?

It is a win-win situation in the sense that a full-service project manager can represent a client’s best interest, while concurrently offering value engineering suggestions and efficient project planning, scheduling and design consultation from project inception through furniture, fixture and equipment selection and move services. For instance, at CBRE, our project management platform often saves our clients on average $2-$3 for every dollar spent on project management fees. It’s our ability to offer up strategic project solutions and best practice methods, as well as our preferred national vendor pricing for building materials and systems that are passed through to our clients in the form of cost savings from day one.

How can a business reduce operating costs through project management?

It comes down to details and aggressive and proactive planning in design early on that the project manager can help manage that process to reduce operating expenses within a tenant space. Selecting appropriate types of construction materials and design, as well as types of finishes, lighting, building controls and water usage can all lead to a more efficient building, which costs less to maintain and operate. Sustainability is big these days. For instance, LEED-certified projects can include environmentally friendly solutions that provide cost savings over time. Project management can not only help clients get into a new building or space, but also going forward have the savings of operational efficiencies.

Eric Verh is director of Project Management at CBRE, Cleveland. Reach him at (216) 363-6455 or [email protected]

Insights Real Estate is brought to you by CBRE

How to grow your business using market research

John C. Moore, Managing Director, Strategic Marketing Programs, Skoda Minotti

When you’re launching a product or considering new markets, do you perform market research before moving ahead? If you do, then are you really listening to the results, or just looking for results that support what you’ve already decided to do?

“Companies that I have seen that conduct their own research sometimes get caught looking for data points to support what they want to do rather than looking for data points to validate their ideas,” says John Moore, managing director — strategic marketing programs, with Skoda Minotti’s Strategic Marketing Group. “Market leaders truly embrace market research, and when they do get results that don’t support their position, they change their strategic direction.”

Smart Business spoke with Moore about the market research process and the times when it is critical to engage in it.

When are key times to conduct market research?

Before you start a business, you need to look at total strategy development, with research as a component of the plan. You need to know your markets, who your customers are, who the competition is, what price points you can use to position your product, and what sales channel you should use. Answers to these questions are all gained through market research, by digging into data, using industry reports, accessing online data, using government information, conducting face-to-face focus groups and phone surveys, and attending industry trade shows.

Market research provides you with the base to develop the strategy and provides direction for moving forward. But as you continue, you may find that you need to change your strategy. For example, you may find a business similar to the one you want to start so you may decide an acquisition is a better path than a startup.

Although there are ways to ‘mine’ the data yourself, it’s sometimes better to have an outside party involved to validate your plan and help you develop a strategy. Having that outside research partner gives you input from someone who may see something you are overlooking because of a bias. An outside research partner may minimize ‘group’ think and may provide a different view when looking at the same data.

How can market research help with the launch of a new product?

Before developing a new product, a market researcher should be involved from the development of the idea through all the stages of the product development cycle. This includes from design to marketing to sales. For example, if a company has an idea, market research can help validate and define market potential. Basic questions will be answered. Will anyone buy the product? How will it be used? What features should be included that benefit the customer?  How should it be priced? How will it get to market?

In fact, in the initial research, you may find the product isn’t needed. For example, a sales group suggested a new product, but the company wasn’t sure it could allocate the engineering design resources. In this instance, the marketing partner surveyed customers regarding the features and functions of the new product. In the end, the customers said they didn’t need the features. This research saved the business a significant amount of money in engineering resources, freeing those people to perfect products the company already had. This is what the customers wanted.

Another example of market researching being used to validate a new product involves a product being developed for the fire industry. Focus groups helped to shape the idea for the product and then broader population of fire chiefs evaluated it. From that research, a prototype was developed and sent to fire departments for beta testing, and it was then sent to a university to test according to established industry criteria. After each step, the process was stopped and evaluated to determine if it should continue. The product launch was successful. Had it not gone through all of those stages, the company could have gone to the considerable expense of developing a new product that nobody wanted.

How can market research assist in determining a new market?

You should know where your competition and your customers are located. You should map where your customer base and potential customers are. Then you need to ask: Do I have the proper support? Do I need channel partners to sell to this new area? Do I have the direct sales team to support this new area? You also need to consider regional pricing issues. Take the time to look at the strategy you want to implement, find additional data, and if it’s a significant opportunity, go to the area to look around and talk to local officials and the chamber of commerce.

How can partnering with a market research professional improve the process?

A market research professional can help you determine possible results before you even get started. A research professional can also help you establish your objectives. Are you looking to grow sales revenue, reduce costs, increase brand awareness and recognition, or take market share from a competitor?

They will help you dig in to what you do well and what needs improvement. They should provide a collaborative environment and work closely with you, treating every decision as if it was a decision they had to make themselves for their own business. At the end of the day, that person is telling a story to your business. It may not be a story that you want to hear, but it includes all the facts, allowing you to make an informed decision to grow your business.

John C. Moore is managing director – strategic marketing programs, with Skoda Minotti’s Strategic Marketing Group. Reach him at (440) 449-6800 or [email protected]

Insights Accounting & Consulting is brought to you by Skoda Minotti

What boards should know about social media

Jim Stempak, Principal, Crowe Horwath LLP

By now, most business leaders have recognized the opportunities social media offers in the areas of marketing, customer service, recruiting and relationship building. But not as many have weighed the rewards of social media use with the potential risks, including reputational, legal, employment and information security-related risk.

“Social networking is here to stay, and board members cannot simply ignore it,” says Jim Stempak, a principal at Crowe Horwath LLP. “For directors to perform their governance role effectively, they need to understand both the risks and the opportunities social media offers their organizations — and see that both are managed effectively.”

Smart Business spoke to Stempak about how to incorporate social media use into the governance framework to best protect and promote your business.

What are some of the risks businesses face when engaging in social media platforms?

The damage from a disgruntled current or former employee’s comments on Facebook, customer complaints on Twitter, or criticism of management on LinkedIn can be substantial and long-lasting.

An organization that uses social media for customer support (a channel in which they allow customers to post comments requesting assistance) opens itself up to new marketing and business opportunities, but needs to monitor these channels closely and timely. Customers can post criticism or derogatory comments about the business and its services and share negative comments with one another.

Businesses must also keep an eye on the social media activity of employees. Their voices can be as prominent as those of official company representatives. If employees post offensive or confusing content, customers might consider taking their business elsewhere.

What other ways can an employee’s use of social media harm operations?

While the acceptance of social media in the workplace can encourage talented candidates to seek out organizations that embrace this type of access, employees still need to understand that certain practices are exposing them and the company to risk. The explosion of social media in everyday life has generated public disclosure of a great amount of personal data. Malicious users can take advantage of information employees share and use it for social engineering attacks.

In addition, the human resources function needs to be made aware of the restrictions surrounding the use of social media channels to research and recruit new talent. Misuse of information found on social media sites to make hiring decisions could result in a claim of discrimination. Even though potential candidates post personal information on a public site, an expectation of privacy still exists in the hiring process regarding certain protected statuses, including disabilities, age, religion, etc.

Finally, employees must take extra care to understand the implication of the information they share with customers through these channels. While employee communication with the public and customers provides the means to build relationships and good will, if that communication includes confidential or sensitive information, a company could end up with a damaged reputation or even a violation of privacy laws and regulations.

How can leaders take advantage of the rewards and minimize the risks?

Having a robust corporate governance framework helps to clarify the role board members should play relative to social media, as well as address the complexity, interrelationships and variables that an organization must manage in order to strengthen governance over this area.

  • Board of directors and committees. In addition to being responsible for effective corporate governance, the board establishes the direction and values of an organization, oversees performance and protects shareholder interests. As part of overseeing performance, board members should understand the opportunities, as well as the risks, of social media use by the constituents of the organization.
  • Legal and regulatory. Labor practices are changing as a result of social media use in the workplace, and board members need to keep up with those changes to avoid exposure.
  • Business practices and ethics. The board needs to confirm that the social media policy the organization adopts is based on best practices and is enforced consistently. So that no stakeholders in the organization are neglected, a social media policy is best determined by a multidisciplinary team of senior representatives from human resources, legal, IT, marketing, public relations, risk management, compliance and other relevant functions. The resulting written policy needs to address the appropriate use of social media by employees at all levels and in all functions.
  • Disclosure and transparency. Shareholders need to be made aware of the risks associated with social networking and how the organization is managing them. Some public companies are now including social media as a risk factor in their annual reports.
  • Enterprise risk management. Before developing and implementing its social media policy, an organization should undertake an initial risk assessment that takes into account not only the likelihood of and potential damage from incidents resulting from social media use, but also the cost of opportunities lost as a result of social media not being used. Once the policy is in place, social media risk mitigation should be integrated into the organization’s everyday risk management processes.
  • Monitoring. After an organization implements its policy, it needs to monitor employee compliance. This requires periodic social media risk assessments, Internet and site monitoring, and control testing, all of which will show if internal controls need to be enhanced.
  • Communication. Communication holds together the various components of the governance framework and keeps the process improving over time. The board should ensure that the social media policy is communicated appropriately and relevant business practices and codes of conduct are addressed.

Jim Stempak is a principal in and leader of the Risk Consulting practice for the Crowe Horwath LLP Dallas office. Reach him at (214) 777-5203 or [email protected]

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How to sensitively and legally address employees with caregiving responsibilities

Melissa Hulsey, President and CEO, Ashton

You might notice a member of your staff who looks frazzled, or who frequently uses vacation days but never goes on an actual vacation. Maybe he or she has turned down a promotion or a new project. There’s a good chance this person is dealing with something at home, and employers need to pay attention, because it’s a growing issue in today’s workplace.

“When a working man or woman is faced with the additional job of caring for a loved one, their life is changed and so are their priorities,” says Melissa Hulsey, president and CEO of Ashton. “Employers need to be aware of these changes and have plans in place to address them.”

Smart Business spoke to Hulsey about how employers can — and should — approach the often difficult topic of employees with caregiving responsibilities.

Why should employers pay attention to this issue?

It is a fact that Americans are living longer. In 1990, 12.6 percent of the U.S. population was over age 65. This number is expected to increase to 22.6 percent by the year 2040. While those aged 65 to 74 is expected to increase by 17 percent, the population of those over 85 years is expected to double. Improved health care and use of disease prevention techniques contribute to our longer life expectancy.

Many older adults develop a disability that will cause them to need outside help with the activities of daily living. As most older people want to remain in their homes, caregivers must be found to help with simple things like dressing and bathing, or more complex medical requirements. Anyone can be a caregiver; however they are most typically women.

What are some of the challenges these employees are facing, both in and out of the workplace?

When an employee takes on the new role of a caregiver, the first thing they usually give up is personal time and leisure activities to fit everything in. Emotions like sadness, guilt, worry, fatigue and even anger may begin to affect them. Finances may become strained as living arrangements and other caregiving options are being discussed and transitioned. At work employees may become more easily distracted or stressed as this new workload sets in. And this is just the beginning of the process.

How should employers approach this subject?

It is imperative to the company and the employee to communicate openly during this time and have realistic expectations for the work-life balance. The last thing a good employee needs during this difficult time is to worry about their job. Recent studies have shown that adopting flexible workplace policies that help your employees with caregiving responsibilities to have a better work-life balance may decrease complaints of discrimination, but also will benefit the customer base and bottom line.

Employers with work-life balance policies in place reduce absenteeism, increase recruitment and retention and save time and money on training new employees. These programs have allowed some employers to be ‘lean but not mean.’ Offering workplace flexibility programs has given some employers an alternative to work force reductions in a bad economic environment. This allows organizations to rebound quickly as soon as business improves.

Are employers obligated to help or accommodate employees with these responsibilities?

Companies with more than 50 employees are required comply with FMLA (Family Medical Leave Act), which allows for 12 weeks of unpaid leave while caring for a seriously ill spouse, parent or child, and protects job security. Smaller firms can use FMLA as a guideline to structure their own policy.

Employers must also be careful not to violate any Equal Employment Opportunity Commission (EEOC) guidelines. This would include training managers to be sensitive to the needs of employees in this situation. Include written policies that define the benefits and flexibility in your workplace for caregivers in your handbook. Make sure that all employees are treated equally when this occurs to avoid any complaints.

What is the best way for employers to address this in a way that works for everyone?

The best way to address the rising challenge of elder care in the workplace is to have a good written plan in place. Some parts of this plan may include:

  • Human resources or employee assistance can offer a list of resources such as Internet sites, local agencies for the elderly, elderly day care or meal services in the area.
  • Larger organizations could have a caregiver support group.
  • Host a company ‘caregiver fair’ or invite industry professionals to lunch-and-learn seminars.
  • Offer resources for legal and financial advice.
  • Offer long-term care policies as a benefit option.
  • Have counseling options available through insurance coverage or referrals.
  • Consider different ways to give the employee more of their most valuable resource — time. This could be through flex time, borrowing or buying leave, part-time opportunities, compassionate leave policies or career breaks.
  • Most importantly, be considerate and sensitive to what the employee is going through. Others will see that concern and be more likely to ‘pitch in for the team.’

We all have parents and, one day, may face this challenge ourselves. Remember the golden rule: ‘treat others as you wish to be treated.’ That may be the best way to consider what policies employers should have for elder care.

Melissa Hulsey is the president and CEO of Ashton. Reach her at (770) 419-1776 or [email protected]

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