The Do's and Don'ts of Cash Management

By: Bronwen Roberts

Working capital is a highly effective barometer of a company's operational and financial efficiency and effectiveness. The better its condition, the better placed the company is to focus on developing its core business.

The early, primitive attempts at maximizing cash management can be traced back to the late 1970s. Unbelievably, there are still some companies who haven't yet understood that putting cash trapped in the balance sheet to better use can give them a competitive edge over their rivals. 
 

A most recent report shows a further reduction of working capital in companies in the US and Europe compared with the previous year, of between 3 per cent and 5 per cent. This demonstrates the continuing increase in the importance of working capital management to help companies achieve their strategic objectives.

 How to do It
There is more to working capital management than simply telling a company to collect its debtors as quickly as possible, to delay paying its suppliers as long as possible, and to keep stock levels as low as possible. A properly conceived and executed improvement program will certainly focus on optimizing each of these components, but will deliver additional benefits that extend far beyond the merely operational. It will demonstrate the need for ambitious corporates to integrate working capital management into their strategic and tactical thinking, rather than view it as an optional bolt-on extra.

There are a number of dos and don'ts to help guide corporate thinking. Firstly, do think of working capital management as a strategic objective that can enable your corporation's goals. We cannot over-emphasize this opening point. The same factors that drive a company's working capital also drive its operating costs and customer service performance. Therefore, by addressing the drivers of working capital a company will also experience significant improvement in operating costs and customer service.

For example, a company's working capital is deteriorating due to an increase in past due accounts receivable (AR). A review of the overdue AR illustrates a high level of customer disputes. The disputes are taking on average 30 days to resolve and consuming significant amounts of sales, order entry, and cash collectors' time. By tackling the root cause of the disputes, in this case poor adherence to pricing policies, the company can eliminate the disputes, thereby improving customer service.

This will free up the time of staff in sales, order entry and cash collections, enabling them to be more effective at their designated roles. This in turn increases productivity, reduces operating costs, and potentially increases sales. Working capital will improve, as customers will have fewer reasons to hold payment. This example illustrates how working capital is one of the best indicators of underlying inefficiency within an organization.

Consider Another Perspective
Don't think of things only from your own company's perspective. If you can help your own customers plan their inventory requirements more efficiently, for instance, you can match your production to their consumption, efficiently and cost-effectively, and do the same with your own suppliers. The potential implications for inventory levels are huge. By aligning ordering production and distribution processes, you increase inherent efficiency and achieve direct cost savings almost instantly, as a by-product. And then you discuss the best way to bill or to pay.

Do educate your organization to consider the trade-offs between different working capital assets when negotiating with customers and suppliers. Depending on the usage pattern of a raw material, there may be more to gain from negotiating consignment stock with a supplier versus pushing for extended terms. This could apply particularly in cases of long lead-time items, or those that require high minimum order quantities.

Agree On Formal Terms
Do agree on formal terms with suppliers and customers and document those terms carefully. Keep them up to date, and communicate those payment terms to employees throughout your business, particularly those involved in the customer to cash and purchase to pay processes, including your sales organization.

Don't allow prolific new product introduction without a clear product range management strategy. Poor product range management creates inefficiency in the supply chain, as companies are required to support old products with inventory and manufacturing capability. This increases operating costs and exposes the company to an obsolete inventory that may have to be disposed of.

 
Collect your Cash 
Don't forget to collect your cash. Many businesses fail to implement effective ongoing collection procedures to prevent excess overdue funds or build-up of old debtors. Ask customers if invoices have been received and are clear to pay. If not, identify the problems that are preventing timely payment.

Confirm and reconfirm the credit terms agreed upon with the customer. Often, credit terms get lost in the translation of general payment terms and what's on the payables ledger in front of the payables clerk. Do devote the requisite amount of time and attention to the critical issue of dispute management.

Don't set top-down targets uniformly across the business. For instance, too many companies impose a 10 per cent reduction in working capital for each division. This fails to take into account the potential opportunity within a division and can result in setting an impossible target that acts to de-motivate. Instead, balance top-down with bottom-up intelligence when setting targets.

Targets Drive Behaviour
Do set targets that drive the desired behaviour. Many companies will incentivise collections staff to minimize the aged AR over 60 days. Does this mean that customers who pay one to 60 days late are good payers? No, aged AR over 60 days will result in increased costs and time it takes to collect the debt. By incentivising staff to lower the amount over 60 days, you keep your costs down. Do educate staff, customers and suppliers that cash and cash management are important, and are an integral part of a successful business relationship.

Look Within Yourself
Don't assume that all the answers are to be found externally. Before approaching existing customers and suppliers to discuss cash management goals, fully understand your own process gaps so you can credibly discuss poor payment processes.

Do treat suppliers as you would like your customers to treat you. Far greater cash flow benefits can be realized by strategically leveraging the relationship you have with suppliers and customers. In addition, a supplier is more likely to support you in an emergency if you have treated them fairly.

Don't however, treat everyone the same. Use segmentation tactics to split your customer supplier into similar groups. This may be based on a basket of criteria including profitability, sales, AR size, past due debt, average order size and frequency. Define strategies for each segment based around the criteria and your strategic goals.

Do celebrate success in hitting targets. Emphasise the actions that helped you get there.

Conclusion
To summarise briefly, following the dos and don'ts will enable you to optimize cash and to highlight inefficiencies in your processes that must be remedied to better serve customers. It will enable you to build stronger partnerships with your suppliers across the total working capital value chain. This translates ultimately into improvement in bottom-line results, often a good deal quicker than you might expect, and helps clarify the senior management focus on strategic imperatives. 

Author Bio
REL Consultancy Group www.relconsult.com are global specialists in generating cash improvements, cost reductions and service enhancements by optimizing working capital. They are the only international corporate financial consulting firm that focuses exclusively on increasing operational efficiency from working capital and operations. They work with people to transform your organization, your customer's and your suppliers in more than 60 countries around the world.

10 Things Inspire Teams to Optimally Perform

 

More and more people feel stuck at work and are looking for validation.    

Not only do they want to be heard, but more importantly they want to know that their contributions are being noticed and not taken for granted.  Not for the sake of attention, but more so because they want to know that their skill sets are still relevant and useful and that they are making a difference to advance the organizations they serve. 

 With professional development budget cut-backs in recent years, employees have had to start investing in themselves as concerns grow about where their capabilities best fit in their organizations and what their futures hold.

At the same time, leaders are trying to make their employees feel more secure in order to keep the ship afloat, aware that if too much disruption leaks out into the workplace, there is risk of losing top-talent that is difficult and costly to replace. In this ever changing workplace terrain, leaders need to think differently about how to keep their teams on track.  They must become more intuitive; diverting from the traditional ways of leading that have become too predictable and uninspiring. 

  

Many leaders are out of touch and disconnected from their employees, focusing solely on their own personal agendas.   This is most evident in leaders that still try to use a “one-size-fits-all” approach to earn trust, build loyalty and stimulate team and individual performance.

 

Leaders must understand that in today’s new workplace, there does not exist a single recipe to encourage employees to perform better.   Rather, it’s about how to maximize the ingredients in order to create hundreds of recipes that are customized and authentic; that provide long-term continuity and impact.    To get you started, here are ten ways to inspire teams to optimally perform. 

 

1. Solving, Not Just Selling

Stop selling your employees about why they need to perform better.  Explain why their contributions help solve problems and contribute to the company’s advancement.  Employees are more inclined to step up their game when they know their work can add-value to the healthier whole.

For example, I would always show my team the outcome of their collected efforts.   We would go to the manufacturing plant and watch a new product on the production line or to the stores to see new label designs  on the shelves.   Inspire performance by connecting the dots of your employees’ efforts.

It’s not only about what you are trying to sell, but also what you  as a team were able to solve along the way.

2. Purpose, Not Just Profit

Employees are inspired by knowing that their hard work  makes a difference beyond profitability.  Employees want leaders who see beyond the obvious and look to create wider reaching impact that extends into the community and influences social causes.  

Look what IKEA did in1995, after they discovered that some of the factories that manufactured and sold carpets to IKEA were exploiting child labor.  Founder Ingvar Kamprad and his IKEA executives immediately took action, addressing the problem from within and taking all steps necessary to ensure that an IKEA product never again would be created by manufacturers that exploited children. IKEA then solidified its commitment to eradicate the problem at its root. The company partnered with UNICEF to create a program to help prevent child labor by changing the conditions that lead to child labor in the first place, namely: poverty, hunger, and illiteracy.  Today, this same program serves more than five hundred villages in India’s Carpet Belt, an area with a population in excess of 1.3 million. 

 

3. Know the Ingredients, Not Just the Recipe

The secret recipe to inspiring employees is to know the “ingredients” of the people you are inspiring.  People want to know that their leaders understand their tendencies, aptitudes and behaviors well-enough to best work-with and motivate them.   The best leaders and coaches always do.

When you spend time with your employees, make it matter.   Don’t just expect your time and title to inspire them.    Employees want a leader that pays attention and genuinely cares about them.

Great leaders take the time to know the ingredients before they can create the best recipe for success.   Employees are most inspired when a leader takes the times to know them and show that they have their best interests at heart.

Leaders that know how to prepare thousands of recipes are those who continually make the ingredients better – and keep them from spoiling.

4. Learning, Not Just Lecturing

Employees are tired of being told what to do.   They are eager to learn and remain relevant.   But they find it difficult to be inspired by leaders who only inflict fear.    In today’s fast-paced world, people don’t have time for lectures; they want continuous coaching and leaders that are paying attention.  Eager to grow, they want objective feedback.

Simplify the process.  Don’t exhaust your employees through complexity and buzz-words.    People seek direction that is too the point.  Remember, most people have mastered the art of execution.  Let your employee do their jobs well by providing the right tools and support to make them better at carrying out their roles & responsibilities.  Be a great teacher, but quickly shift into facilitator mode.   People are inspired when given the opportunity to learn how to do new things. Stop lecturing and start teaching.   

5. Innovation, Not Just Ideation

Employees want to create impact.  Allow them to be part of the innovation-based projects in your company by letting them get their hands dirty.    Ideation is important, but being part of implementing the ideas that come to life can be a more exciting and meaningful growth opportunity for your employees that will inspire them to perform. 

Additionally, provide your employees the resources to be innovative in their work.   Stay close enough to your employees’ activities to know the 2 or 3 tools  and/or resources that  each would require to take their performance to the next level. 

 

When given the right tools and resources, the best employees will instinctively challenge themselves to be more innovative in their work – and will perform better.    That is why incentives inspire performance – but remember that money alone is not the sustainable answer.   Focus on giving your employees the opportunities to elevate their individual value while serving the needs of the company.  

 

Allow innovation to inspire performance.

6.    Significance, Not Just Success

Helping your employees to be successful is important, but not inspiring enough in itself.  People want much more out of their leaders and if you can activate the natural talents of your employees in ways that make them feel more responsible about their jobs, you will be inspiring something that is more significant – and has longer lasting impact.

The next time you conduct an employee performance review, evaluate each performance in two areas:  success and significance.   Let’s say that “sales” is a performance category – and your employee has performed at 90% of plan.  That’s good.   After you discuss what is required to reach 100% of plan, measure the significance of the sales generated.  For example, perhaps reaching 90% of plan generated enough revenue to hire 5 more people or contributed to a particular community outreach plan as a result of a local market push.  You never know the significance of someone’s performance until you measure it; and when you do, it’s an effective way to inspire even greater performance.

7. Ownership, Not Just Accountability

Enforcing accountability is a key component to sustaining performance momentum. However, when you can give your employees “ownership” in the process of defining how accountability is enforced – you inspire trust and a desire to go above and beyond the call of duty. 

Giving your employees ownership means that you have shared and entrust them with your authority.   You are now allowing your employees to “call the shots” based on what they believe is in the best interests of the team and the organization.    For example, create a special project and allow an employee to take ownership of it.   Outline your expectations for the end-result, but allow him or her to take charge of the project.  Agree to meet once-a-week and observe the change in attitude and desire to perform.     Use the results and what you learned along the way about the employee as a means to customize your approach to best inspire that employee’s performance long-term.   Again, this is a great way to learn more about “the ingredients” as noted in point #3.

8. Respect, Not Just Recognition

Beyond appreciation and praise, show your respect and admiration for the work of your employees.  While people want to know they are respected, you must establish the ground rules for how respect is earned.  

 

There are too many recognition addicts in the workplace.  In a world of fierce competition, we have come to believe we are our own best allies. We believe we must rely only on ourselves. We believe we can sell ourselves better than anyone else.  But this attitude puts our long-term careers in danger.

Unfortunately, too many people want recognition because they forgot the significantly greater value of earning respect.   Re-train your employees about the importance of respect and lead them in how to earn it.  When they see the greater impact respect delivers, they will be inspired by your example. 

 

9. Personal Growth, Not Just Responsibility

Historically, leaders have used “increased responsibility” to inspire performance.    While this approach may still have merit, it is when a leader can help foster the professional growth and development of their employees that performance most flourishes.    Leaders must take more time to mentor and / or guide their employee’s development and growth.

Encourage networking opportunities and performance development forums.  If the budget gets cut,– put your money where your mouth is.  For example, purchase copies of a book that you believe will help your employees advance and grow in their work. 

Phil Jackson, former basketball coach of the Los Angeles Lakers and Chicago Bulls, has won 11 NBA championships – the most in history.   Jackson became known for giving each one of his players a specific book that would help the player be a better teammate, decision-maker, leader, etc. on the basketball court.  

10. Trust, Not Just Transparency

Ultimately, it is a relationship based on trust that inspires employees to perform.   When you are mindful of managing and concurrently implementing points #1 – #9 this will certainly jump-start your ability to earn trust with your employees and inspire their performance.  When you trust someone, you believe in them.   People are inspired when they know that their leaders believe in their capabilities to deliver.  

As a young executive, I had a boss that I trusted, not only because he was transparent with me – but more importantly because he believed in me.   He created an environment that helped me grow and prosper.   For example, he assigned the most significant corporate growth strategies to my team and me.   This level of trust inspired us to perform not only for the sake of seizing the unique opportunity that was given to us – but equally to prove to those above my boss that it was the right decision for the organization.    We wanted our boss to earn respect and recognition for the bold decision he made to place such a significant amount of trust on the youngest leader and team in the organization – and not to let him down.

Inspiring employees to optimally perform requires a leader who can see beyond the obvious in people.  Inspiration comes not from something that you turn on and off, but rather   from constant behavior – triggered through multiple ways – that makes your employees feel that they matter and that you genuinely care. 

About Glenn Llopis Contributor

Warren Buffett is bullish ... on women

By Warren Buffett 

Warren Buffett with the late Katharine Graham of the Washington Post at his 50th-birthday party in 1980

(Fortune)

In an exclusive essay the Berkshire Hathaway (BRKA, Fortune 500) chairman and CEO explains why women are key to America's prosperity.

In the flood of words written recently about women and work, one related and hugely significant point seems to me to have been neglected. It has to do with America's future, about which -- here's a familiar opinion from me -- I'm an unqualified optimist. Now entertain another opinion of mine: Women are a major reason we will do so well. 

Start with the fact that our country's progress since 1776 has been mind-blowing, like nothing the world has ever seen. Our secret sauce has been a political and economic system that unleashes human potential to an extraordinary degree. As a result Americans today enjoy an abundance of goods and services that no one could have dreamed of just a few centuries ago. 

But that's not the half of it -- or, rather, it's just about the half of it. America has forged this success while utilizing, in large part, only half of the country's talent. For most of our history, women -- whatever their abilities -- have been relegated to the sidelines. Only in recent years have we begun to correct that problem.

Despite the inspiring "all men are created equal" assertion in the Declaration of Independence, male supremacy quickly became enshrined in the Constitution. In Article II, dealing with the presidency, the 39 delegates who signed the document -- all men, naturally -- repeatedly used male pronouns. In poker, they call that a "tell." 

Finally, 133 years later, in 1920, the U.S. softened its discrimination against women via the 19th Amendment, which gave them the right to vote. But that law scarcely budged attitudes and behaviors. In its wake, 33 men rose to the Supreme Court before Sandra Day O'Connor made the grade -- 61 years after the amendment was ratified. For those of you who like numbers, the odds against that procession of males occurring by chance are more than 8 billion to one. 
 
When people questioned the absence of female appointees, the standard reply over those 61 years was simply "no qualified candidates." The electorate took a similar stance. When my dad was elected to Congress in 1942, only eight of his 434 colleagues were women. One lonely woman, Maine's Margaret Chase Smith, sat in the Senate. 

Resistance among the powerful is natural when change clashes with their self-interest. Business, politics, and, yes, religions provide many examples of such defensive behavior. After all, who wants to double the number of competitors for top positions? 

But an even greater enemy of change may well be the ingrained attitudes of those who simply can't imagine a world different from the one they've lived in. What happened in my own family provides an example. I have two sisters. The three of us were regarded, by our parents and teachers alike, as having roughly equal intelligence -- and IQ tests in fact confirmed our equality. For a long time, to boot, my sisters had far greater "social" IQ than I. (No, we weren't tested for that -- but, believe me, the evidence was overwhelming.) 

The moment I emerged from my mother's womb, however, my possibilities dwarfed those of my siblings, for I was a boy! And my brainy, personable, and good-looking siblings were not. My parents would love us equally, and our teachers would give us similar grades. But at every turn my sisters would be told -- more through signals than words -- that success for them would be "marrying well." I was meanwhile hearing that the world's opportunities were there for me to seize.

So my floor became my sisters' ceiling -- and nobody thought much about ripping up that pattern until a few decades ago. Now, thank heavens, the structural barriers for women are falling. 
 
Still an obstacle remains: Too many women continue to impose limitations on themselves, talking themselves out of achieving their potential. Here, too, I have had some firsthand experience. 

Among the scores of brilliant and interesting women I've known is the late Katharine Graham, long the controlling shareholder and CEO of the Washington Post Co. (WPO) Kay knew she was intelligent. But she had been brainwashed -- I don't like that word, but it's appropriate -- by her mother, husband, and who knows who else to believe that men were superior, particularly at business. 

When her husband died, it was in the self-interest of some of the men around Kay to convince her that her feelings of inadequacy were justified. The pressures they put on her were torturing. Fortunately, Kay, in addition to being smart, had an inner strength. Calling on it, she managed to ignore the baritone voices urging her to turn over her heritage to them. 

I met Kay in 1973 and quickly saw that she was a person of unusual ability and character. But the gender-related self-doubt was certainly there too. Her brain knew better, but she could never quite still the voice inside her that said, "Men know more about running a business than you ever will." 

I told Kay that she had to discard the fun-house mirror that others had set before her and instead view herself in a mirror that reflected reality. "Then," I said, "you will see a woman who is a match for anyone, male or female." 

I wish I could claim I was successful in that campaign. Proof was certainly on my side: Washington Post stock went up more than 4,000% -- that's 40 for 1 -- during Kay's 18 years as boss. After retiring, she won a Pulitzer Prize for her superb autobiography. But her self-doubt remained, a testament to how deeply a message of unworthiness can be implanted in even a brilliant mind.



I'm happy to say that funhouse mirrors are becoming less common among the women I meet. Try putting one in front of my daughter. She'll just laugh and smash it. Women should never forget that it is common for powerful and seemingly self-assured males to have more than a bit of the Wizard of Oz in them. Pull the curtain aside, and you'll often discover they are not supermen after all. (Just ask their wives!) 

So, my fellow males, what's in this for us? Why should we care whether the remaining barriers facing women are dismantled and the fun-house mirrors junked? Never mind that I believe the ethical case in itself is compelling. Let's look instead to your self-interest. 

No manager operates his or her plants at 80% efficiency when steps could be taken that would increase output. And no CEO wants male employees to be underutilized when improved training or working conditions would boost productivity. So take it one step further: If obvious benefits flow from helping the male component of the workforce achieve its potential, why in the world wouldn't you want to include its counterpart? 

Fellow males, get onboard. The closer that America comes to fully employing the talents of all its citizens, the greater its output of goods and services will be. We've seen what can be accomplished when we use 50% of our human capacity. If you visualize what 100% can do, you'll join me as an unbridled optimist about America's future. 

This story is from the May 20, 2013 issue of Fortune.

The Do's and Don'ts of Cash Management

By: Bronwen Roberts

Working capital is a highly effective barometer of a company's operational and financial efficiency and effectiveness. The better its condition, the better placed the company is to focus on developing its core business.

The early, primitive attempts at maximizing cash management can be traced back to the late 1970s. Unbelievably, there are still some companies who haven't yet understood that putting cash trapped in the balance sheet to better use can give them a competitive edge over their rivals. 
 

A most recent report shows a further reduction of working capital in companies in the US and Europe compared with the previous year, of between 3 per cent and 5 per cent. This demonstrates the continuing increase in the importance of working capital management to help companies achieve their strategic objectives.

 

How to do It
There is more to working capital management than simply telling a company to collect its debtors as quickly as possible, to delay paying its suppliers as long as possible, and to keep stock levels as low as possible. A properly conceived and executed improvement program will certainly focus on optimizing each of these components, but will deliver additional benefits that extend far beyond the merely operational. It will demonstrate the need for ambitious corporates to integrate working capital management into their strategic and tactical thinking, rather than view it as an optional bolt-on extra.

There are a number of dos and don'ts to help guide corporate thinking. Firstly, do think of working capital management as a strategic objective that can enable your corporation's goals. We cannot over-emphasize this opening point. The same factors that drive a company's working capital also drive its operating costs and customer service performance. Therefore, by addressing the drivers of working capital a company will also experience significant improvement in operating costs and customer service.

For example, a company's working capital is deteriorating due to an increase in past due accounts receivable (AR). A review of the overdue AR illustrates a high level of customer disputes. The disputes are taking on average 30 days to resolve and consuming significant amounts of sales, order entry, and cash collectors' time. By tackling the root cause of the disputes, in this case poor adherence to pricing policies, the company can eliminate the disputes, thereby improving customer service.

This will free up the time of staff in sales, order entry and cash collections, enabling them to be more effective at their designated roles. This in turn increases productivity, reduces operating costs, and potentially increases sales. Working capital will improve, as customers will have fewer reasons to hold payment. This example illustrates how working capital is one of the best indicators of underlying inefficiency within an organization. 

 

Consider Another Perspective
Don't think of things only from your own company's perspective. If you can help your own customers plan their inventory requirements more efficiently, for instance, you can match your production to their consumption, efficiently and cost-effectively, and do the same with your own suppliers. The potential implications for inventory levels are huge. By aligning ordering production and distribution processes, you increase inherent efficiency and achieve direct cost savings almost instantly, as a by-product. And then you discuss the best way to bill or to pay.

Do educate your organization to consider the trade-offs between different working capital assets when negotiating with customers and suppliers. Depending on the usage pattern of a raw material, there may be more to gain from negotiating consignment stock with a supplier versus pushing for extended terms. This could apply particularly in cases of long lead-time items, or those that require high minimum order quantities.

Agree Formal Terms
Do agree formal terms with suppliers and customers and document those terms carefully. Keep them up to date, and communicate those payment terms to employees throughout your business, particularly those involved in the customer to cash and purchase to pay processes, including your sales organization.

Don't allow prolific new product introduction without a clear product range management strategy. Poor product range management creates inefficiency in the supply chain, as companies are required to support old products with inventory and manufacturing capability. This increases operating costs and exposes the company to an obsolete inventory that may have to be disposed of.

 
Collect your Cash

 

Don't forget to collect your cash. Many businesses fail to implement effective ongoing collection procedures to prevent excess overdue funds or build-up of old debtors. Ask customers if invoices have been received and are clear to pay. If not, identify the problems that are preventing timely payment.

Confirm and reconfirm the credit terms agreed upon with the customer. Often, credit terms get lost in the translation of general payment terms and what's on the payables ledger in front of the payables clerk. Do devote the requisite amount of time and attention to the critical issue of dispute management.

Don't set top-down targets uniformly across the business. For instance, too many companies impose a 10 per cent reduction in working capital for each division. This fails to take into account the potential opportunity within a division and can result in setting an impossible target that acts to de-motivate. Instead, balance top-down with bottom-up intelligence when setting targets.

Targets Drive Behaviour
Do set targets that drive the desired behaviour. Many companies will incentivise collections staff to minimize the aged AR over 60 days. Does this mean that customers who pay one to 60 days late are good payers? No, aged AR over 60 days will result in increased costs and time it takes to collect the debt. By incentivising staff to lower the amount over 60 days, you keep your costs down. Do educate staff, customers and suppliers that cash and cash management are important, and are an integral part of a successful business relationship.

Look Within Yourself
Don't assume that all the answers are to be found externally. Before approaching existing customers and suppliers to discuss cash management goals, fully understand your own process gaps so you can credibly discuss poor payment processes.

Do treat suppliers as you would like your customers to treat you. Far greater cash flow benefits can be realized by strategically leveraging the relationship you have with suppliers and customers. In addition, a supplier is more likely to support you in an emergency if you have treated them fairly.

Don't however, treat everyone the same. Use segmentation tactics to split your customer supplier into similar groups. This may be based on a basket of criteria including profitability, sales, AR size, past due debt, average order size and frequency. Define strategies for each segment based around the criteria and your strategic goals. 

 

Do celebrate success in hitting targets. Emphasise the actions that helped you get there.

Conclusion
To summarise briefly, following the dos and don'ts will enable you to optimize cash and to highlight inefficiencies in your processes that must be remedied to better serve customers. It will enable you to build stronger partnerships with your suppliers across the total working capital value chain. This translates ultimately into improvement in bottom-line results, often a good deal quicker than you might expect, and helps clarify the senior management focus on strategic imperatives. 

Author Bio
REL Consultancy Group www.relconsult.com are global specialists in generating cash improvements, cost reductions and service enhancements by optimizing working capital. They are the only international corporate financial consulting firm that focuses exclusively on increasing operational efficiency from working capital and operations. They work with people to transform your organization, your customer's and your suppliers in more than 60 countries around the world.

The Most Common Leadership Model - And Why It's Broken

When organizations’ hire, develop, and promote leaders using a competency-based model, they’re unwittingly incubating failure. Nothing fractures corporate culture faster, and eviscerates talent development efforts more rapidly, than rewarding the wrong people for the wrong reasons. Don’t reward technical competency – reward aggregate contribution.

Any organization that over weights the importance of technical competency fails to recognize the considerable, and often-untapped value contained in the whole of the person. It’s the cumulative power of a person’s soft skills, the sum of the parts if you will, that creates real value. It not what a person knows so much as it is how they’re able to use said knowledge to inspire and create brilliance in others that really matters.

We live in time that has moved well beyond competency driven models, yet organizations still primarily use competency-based interviews, competency-based development, competency-based performance reviews, and competency-based rewards as their framework for doing business. It remains the best practices mentality that rules the day, when we’re long overdue for a shift to next practices. It’s simply not possible to change current behaviors by refusing to embrace new paradigms.

Sure corporations know the right buzzwords – they pay lip service to things like character, trust, passion, purpose, EQ, collaboration, creativity, etc., but they really don’t value them in the same way they value competency.  One of the problems is competency is predictable and easy to measure, and corporations like predictable and easy. However just because something is easy to measure doesn’t mean it’s the right thing to measure, and certainly not when measured in a vacuum.

Competency should represent nothing more than table stakes – it should be assumed. Having the requisite level of competency to do your job is not to be rewarded – it’s to be expected. The train is really off the tracks when being technically and/or functionally qualified to do a job makes you a high potential.

The value organizations should be cultivating and curating in people is their ability to align purpose, vision, values, character, and commitment with demonstrated competency.

 Competency isn’t the entirety of a person’s worth, and it certainly shouldn’t be the gold standard of their measurement. It’s a small part of the equation, but in many cases corporations treat it as if it’s the only thing that matters.

Here’s the thing – you can possess the greatest technical wizardry under the stars, but that doesn’t make you a leader.  If you don’t care, aren’t collaborative, can’t communicate, fail to take input and feedback, and allow your hubris to overshadow your humility, you might be intelligent, but in my book you’re not very bright. The really sad part of this story is how often this type of person is rewarded in a competency-based system.

We must recognize competency-based leadership models simply don’t work. They are deeply rooted in the foundations of command and control structures, and they’ve outgrown the value they afforded organizations as nations moved beyond the industrial era. Competency based models simply create alignment gaps at every level – organizational gaps, talent gaps, leadership gaps, cultural gaps, diversity gaps, positional gaps, value gaps, operational gaps, execution gaps, and the list could go on. A leader’s job is to close gaps – not create them (the subject of my next book – Hacking Leadership due out this Fall).

If you want to create a true culture of leadership, it’s necessary to actually lead. Smart thinking and acting must start to take precedence over soaring rhetoric. It takes more than paying lip service to a few soft skills on a performance scorecard to get the job done. It will take a cultural shift in actually understanding, recognizing and rewarding what we say we value. The bottom line is this – the people who spend the most time complaining about the lack of talent are the ones who don’t recognize talent to begin with – don’t be that person.

Mike Myatt
http://www.forbes.com/sites/mikemyatt/

The Six Deadly Sins of Leadership

By Jack Welch and  Suzy Welch

Being a leader is perhaps the hardest challenge any of us will ever face. No matter how long we work at it, practicing the right behaviors is a never-ending task. Knowing – and avoiding – the wrong ones is too. Thus, we offer the following six common leadership pitfalls:

1. Not Giving Self-Confidence its Due.
Self-confidence is the lifeblood of success. When people have it, they’re bold. They try new things, offer ideas, exude positive energy, and cooperate with their colleagues instead of surreptitiously attempting to bring them down. When they lack self-confidence, it’s just the opposite. People cower. They plod. And they spread negativity with every word and gesture.
But all too often leaders ignore (or neglect) this very basic fact of the human condition. Why is anyone’s guess. Perhaps they just don’t understand that it is part of their job to instill self-confidence in their people. It may even be said that it’s their first job. You cannot unleash the creative power of individuals who doubt themselves.

Fortunately, some people seem to be born with self-confidence. Others gain it from life and work experience and come to a company fully loaded. Regardless, leaders can never stop pouring self-confidence into their teams. The ways to do so are myriad. Make sure goals are challenging – but achievable. Give effusive positive feedback. Remind your direct reports of what they do right.

We’re not saying that leaders should blindly extol and exalt. People know when they’re being gamed. But good leaders work relentlessly to find ways to instill self-confidence in those around them. They know it’s the gift that never stops giving.

2. Muzzling Voice.
Perhaps the most frustrating way that leaders underperform is by over-talking. That is, they act like know-it-alls. They can tell you how the world works, what corporate is thinking, how it will backfire if you try this or that, and why you can’t possibly change the product one iota. Sometimes such blowhards get their swagger from a few positive experiences, but usually they’re just victims of their own destructive personalities.

Ultimately, the company ends up being a victim too, because know-it-alls aren’t just insufferable, they’re dangerous. They don’t listen, and that deafness makes it very hard for new ideas to get debated, expanded upon, or improved. No single person, no matter how smart, can take a business to its apex. For that, you need every voice to be heard.

3. Acting Phony.
Can you spot a phony? Of course you can – and so can your people. Indeed, if there is one widespread human capability, it is sniffing out someone who is putting on airs, pretending to be who they’re not, or just keeping their real self hidden. Yet too many leaders spend way too much time creating personas that put a wall between them and their employees. What a waste.
Because authenticity is what makes people love you. Visibly grappling with tough problems, sweating the details, laughing, and caring – those are the activities that make people respond and feel engaged with what you’re saying. Sure, some people will tell you that being mysterious grants you power as a leader. In reality, all it generates is fear. And who wants to motivate that way?

Now, obviously, authenticity is unattractive if it’s coupled with immaturity or an overdose of informality. And organizations generally don’t like people who are too emotionally unbounded – i.e. so real that all their feelings are exposed. They tend to tamp that kind of intensity down a bit. And that’s not a bad thing, as work is work and, more than at home, allows us to maintain some privacy.

But don’t let convention wring all the authenticity out of you, especially as you climb the ladder. In time, humanity always wins. Your team and bosses come to know who you are in your soul, what kind of people you attract and what kind of performance you want from everyone. Your realness will make you accessible; you will connect and you will inspire. You will lead.

4. Lacking the Guts to Differentiate.
You only have to be in business a few weeks to know that not all investment opportunities are created equal. But some leaders can’t face that reality, and so they sprinkle their resources like cheese on a pizza, a little bit everywhere.

As a result, promising growth opportunities too often don’t get the outsized infusions of cash and people they need. If they did, someone might get offended during the resource allocation process. Someone – as in the manager of a weak business or the sponsor of a dubious investment proposal.

But leaders who don’t differentiate do the most damage when it comes to people. Unwilling to deliver candid, rigorous performance reviews, they give every employee the same kind of bland, mushy, “nice job” sign-off. Then, when rewards are doled out, they give star performers little more than the laggards. Now, you can call this egalitarian approach kind, or fair – as these lousy leaders usually do – but it’s really just weakness. And when it comes to building a thriving organization where people have the chance to grow and succeed, weakness just doesn’t cut it.

5. Fixation on Results at the Expense of Values.
Everyone knows that leaders deliver. Oratory and inspiration without results equal…well, a whole lot of nothing. But leaders are committing a real dereliction of duties if all they care about are the numbers. They also have to care about how those numbers came to be. Were the right behaviors practiced? Was the company’s culture of integrity honored? Were people taken care of properly? Was the law obeyed, in both letter and spirit?

Values are a funny thing in business. Companies love to talk about them. They love to hang them up on plaques in the lobby and boast about them to potential hires and customers. But they’re meaningless if leaders don’t live and breathe them. Sometimes that can take courage. It can mean letting go of a top performer who’s a brute to his colleagues, or not promoting a star who doesn’t share her best ideas with the team. That’s hard.

And yet if you’re a leader, this is a sin you cannot squint away. When you nail your results, make sure you can also report back to a crowded room: We did this the right way, according to our values.

6. Skipping the Fun Part
What is it about celebrating that makes managers so nervous? Maybe throwing a party doesn’t seem professional, or it makes people worry that they won’t look serious to the powers that be, or that, if things get too happy in the office, people will stop working their tails off.

Whatever the reason, too many leaders don’t celebrate enough. To be clear here, we do not define celebrating as conducting one of those stilted little company-orchestrated events that everyone hates, in which the whole team is marched out to a local restaurant for an evening of forced merriment when they’d rather be home. We’re talking about sending a team to Disney World with their families, or giving each team member tickets to a show or a movie, or handing each member of the team a new iPod.

What a lost opportunity. Celebrating makes people feel like winners and creates an atmosphere of recognition and positive energy. Imagine a team winning the World Series without champagne spraying everywhere. You can’t! And yet companies win all the time and let it go without so much as a high-five.

Work is too much a part of life not to recognize the moments of achievement. Grab as many as you can. Make a big deal out of them.

That’s part of a leader’s job too – the fun part.

The 5 Principles of Leadership, Part II

Posted on March 22, 2013

by futurist Richard Worzel, C.F.A.

This is a continuation of an earlier blog, which you can read here.

Third Principle: A leader places the organization’s goals above her own, and pushes her followers to improve.

 

Why do you lead? Is it to accomplish a specific goal? Or is it to feed your ego? If the latter, then you’re running a personality cult, and you probably don’t want to help your followers get better for fear they’ll surpass or challenge you.


There’s a possibly apocryphal story of an MBA student of one of the more prestigious B-schools (guess which one) who was asked, in a job interview, if he considered himself a team player. He replied, “Absolutely – if I’m the captain.”

If your devotion is to getting things done, to reaching your group’s collective objectives, then the faster your people hone their skills and increase their abilities, the more likely you are to achieve what you, collectively, set out to achieve. And this is as true whether you lead, or whether you discover someone who would actually be a better leader than you are, and cede the leadership role to him or her.


But if your goal is to feather your own nest and buff up your ego, then you are not leading, but rather misleading. In that case, the group’s goals are, at best, secondary to your personal agenda. Indeed, if you look at many of the problems in corporate leadership in recent years, they often stem from the head person’s desire to achieve personal goals (bonuses, stock options, corporate perks, etc.) at the expense of the corporation’s goals or interests. In my opinion, these people are liars, not leaders.

Think, for example, of Aubrey McClendon of Chesapeake Energy, who used corporate jets for personal reasons, borrowed $500 million from a company that’s an investor in Chesapeake, and ran a hedge fund with a direct conflict of interest with his day job of being CEO. Or what about Carly Fiorina, who paid herself handsomely, spent a lot of her time self-promoting, worked the lecture circuit and did media grandstanding, all while firing staff in order to cut costs, and leading Hewlett-Packard into a disastrous merger with Compaq. Then there’s Ken Lay of Enron, who defies the whole concept of leadership. He lied, cheated, swindled, and ultimately stole from investors, stakeholders, and the people who were supposed to be his clients. His company’s, customers’, and employees’ entire purpose for being, as far as he was concerned, was for the glorification and enrichment of Ken Lay. His company, Enron, became the ultimate example of corporate greed and dishonesty.

Until, that is, Lehman Brothers went bankrupt in 2008. Lehman Brothers not only exemplified Wall Street’s greed and corruption, gambling with other peoples’ lives and money to try to win huge bonuses for themselves, but almost took down the entire free market system with them. And Dick Fuld was the “leader” that drove Lehman on the rocks, yet remains unrepentant to this day.

The capitalist system works best when both parties are better off as the result of a transaction, if both sides profit. People who do not understand capitalism believe that the capitalist (the bad guy) is profiteering off the hard work of the exploited worker. In fact, the owner does benefit from the work of the worker, but the worker also benefits from the capital investment and market position created by the owner. And the purchaser benefits from the innovation and production of the producer, which in turn benefits by supplying the product or service at a price that is higher than its cost of production. Both sides are better off. But when this two way street breaks down, it’s no longer capitalism, but exploitation. And deliberate subversion of a leadership position for personal gain amounts to exploitation of both the people being led, and the customers or clients being short-changed.

But what about an entrepreneur or founder, someone who starts a company, movement, or organization? Don’t they have to lead the organization in order to accomplish their own personal goals? Indeed, don’t they hire people to help them achieve that specific purpose? No, generally they don’t.

If a founder’s entire purpose is to have people perform personal services for them, that’s one thing. That’s a service transaction.

But if you look at organizations that started off as entrepreneurial ventures, and then grew into something more, they change as they grow, and their objectives change as well. Take, for example, the early days of Apple Computer (now Apple Inc.). Steve Jobs and Steve Wozniak founded Apple Computer, but believing that they had something big on their hands, and that they needed both more capital and executive expertise they didn’t have, found both in veteran Mike Markkula, an angel investor who backed the fledgling company, and whom the two Steves lured out of retirement in 1977. Markkula brought not only money, but connections, financial savvy, and executive ability to Apple. He recruited the first professional CEO for Apple in 1977, and then assumed the role of CEO himself in 1981.

Markkula was devoted to the goals of the organization, not the two Steves. In fact, he overrode Steve Job’s early attempt to kill the Macintosh computer in favor of another project, backed John Sculley’s ouster of Steve Jobs in 1985, and then Sculley’s ouster in 1993. Markkula remained Chair until 1997, when Jobs returned to the company, and a new board was constituted. His devotion was to the objectives of the company, its employees, and its stakeholders, not to the founders.

My point is that although Jobs is now, in retrospect, seen as the archetypical visionary and entrepreneur, he grew into that role, and his path, and Apple’s, overlapped but were not the same. Jobs hired people to serve over him when he lacked the necessary skills, and although his story ends with him as the shining exemplar, the ultimate entrepreneur, what made Apple the world-shaking organization it became involved more than just Jobs’ leadership, crucial though that was to the company’s eventual success. Fortunately, Jobs and Wozniak were smart enough to realize early on that they needed to follow someone who was more experienced than they were – and that may be the greatest testament to their leadership abilities.

So, to sum up this principle: a true leader is one that is truly committed to leading towards the organization’s goals, even when her personal goals are overridden by those of the organization.

 

Principle 4: A leader must promise success, and achieve it.
In many ways, this is the most important of all the five principles. If a leader doesn’t promise victory, either implicitly or explicitly, or his followers don’t believe he can deliver victory, they won’t follow him. Success in the agreed-upon goal becomes the ultimate test of leadership, and the ultimate reason why people will follow you.

There are many examples of this, but one of the best is a British general from the Napoleonic Wars, Roland “Daddy” Hill, who became the 1^st Viscount of Almaraz. The fighting men of the British army at that time were described by Lord Wellington as “the scum of the Earth” because they were largely convicts who chose to enlist rather than be executed for their crimes. (He also added that they were the greatest fighting men in the world, which Napoleon found out the hard way.) Discipline was more than harsh, involving floggings or executions for what we would consider inadequate reasons, and so it was in Hill’s command.

Despite this Hill’s men loved him, and called him Daddy Hill, for two reasons. First, he looked after them, both en masse, and individually. Despite the differences in rank, he would personally thank messengers and solders who served him, and make sure they were well fed and well treated. He showed his men respect, in other words, despite the apparently enormous social gulf between his military rank and social station, and theirs.

But the biggest reason he was loved was that he lead his men to victory, sharing their danger, showing his commitment, leading from the front, and almost being killed during the Battle of Waterloo, when his horse was shot out from under him. He won repeatedly, sometimes against fearsome odds and in difficult situations. In one encounter, at Arroyo de Molinos in Spain, his force inflicted 1,300 casualties on Napoleon’s army, while his troops suffered only 65 casualties. He inspired fierce loyalty and affection.

In contrast, let’s return to Steve Jobs and Apple. Outside of Apple, Jobs was celebrated as a visionary, someone who both saw and shaped the future. But he was hell to work for, often running roughshod over the people who worked for him, showing no interest in their feelings, well-being, or position, demanding unreasonable results, ruining their personal lives, treating them like idiots, and sometimes taking credit for their successes. He famously inspired fear, not love, and was known to have fired employees for things they said when he met them in an elevator.

But he delivered results, and people fought to work for Apple for the prestige of working for a company that could make technology cool, and invent the future. His success was more important than the questionable grooming habits of his early years, his uncompromising, inhuman perfectionism, or his raw, take-no-prisoners, domineering leadership style. He successfully led people where they wanted to go – and they willingly, eagerly followed.

So if you want to lead, you must be able to convince your followers that you will lead them to success. And eventually, you have to deliver that success. Everything else, from leadership style, to personality, to social standing, to skill, is secondary.