The Art of Predicting Failure – Guidance from a successful Corporate ‘Doctor’

Tom FitzGerald (CEO of FitzGerald Associates) makes an excellent point in his blog viz:

‘Each company has a Trajectory that is independent of the economy. As it points - up or down - so goes the company. It shows how a company will react to threat. Or mobilize to create its future. It is not measured by the financials; those are history. (It is measured) by the causes, (the) Drivers of performance. These predict (the future) at the (same) moment (as) they are creating the future. They can be identified - easily. They can be measured - simply. They can be changed - readily. As they change, they change the future.’
See: http://fitzgeraldassociates.blogspot.com

FitzGerald’s excellent consulting work partly based on a London School of Economics (LSE) and McKinsey & Co research paper has proved the following predictors, if not corrected in good time, will certainly cause corporate failure. FitzGerald has identified over a hundred what he calls ‘Blockers’ that if left unchecked will cause a business to stumble into decline; four examples are:

• Distrust / Fear
• Complacency
• Need For Consensus
• Tolerance of Incompetence

When the rot is identified using simple tools that Fitzgerald has developed, it can be stopped and reversed by fixing certain ‘Critical Functions’ utilising certain ‘Generators’. Examples are listed here:

CRITICAL FUNCTIONS:
• Performance Management
• Talent Management
• Lean Operations / Cost Containment
• Profitable Growth Orientation
• Customer Orientation
• Innovation / Creativity

GENERATORS:
• Corporate Decisiveness
• Acknowledgement of Work
• Accountability
• Corporate Assertiveness / Energy
• Commitment of Management
• Openness of Management
• Adaptability
• Effectiveness
• Cooperation

It is easy to accept that when several of the ‘Critical Functions’ listed are not well managed within a business, that business is already on the slippery slope to ruin, even though its financial results may not reflect the fact. FitzGerald’s point is that when the financial results do eventually evidence that a company is in decline, a turnaround is much more difficult to effect and failure is much more likely.

The answer for FitzGerald is for corporate leaders to identify the problems even before Key Performance Indictors (KPIs) show weaknesses, and long before the financials are impaired, and to take necessary action to effect a course correction.

Credit Executives on the other hand could seek out the signs of danger in counterparty customers as a means to predict failure early enough to avoid being embroiled in a bankruptcy.

The message then for Credit Executives is, beware of businesses exhibiting the following, for example:

Indecisiveness

• Making poor quality decisions, the inability to table problems and resolve them, the inability to take decisive action and, worst case, the need for consensus.

Failure to Acknowledge Work

• Workers not discussing ‘the work’ with Supervisors. Supervisors not talking about ‘the work’ with Managers, except when a mishap occurs.

Accountability

• Managers not holding their peers accountable for doing what they said they would do.

The cause and effect of failure can be illustrated as follows:

Distrust is evident (a Blocker) that leads to…
Reduced Decisiveness (a Generator) and so to…
Poor performance Management (a Critical Function) that finally begins to generate….
Loss of Quality (a KPI) and too late the result shows in the Financial Reports as…
Reduced Profit

In summary, to quote Tom FitzGerald:

‘Drivers of Performance in any organisation are the Organisational and Human Factors that Underlie, Drive and Impel Performance’

This is food for thought indeed...

BarrettWells

Global Credit eBook in Mandarin Chinese

T3P LIMITED is pleased to announce that an eBook version of the Chinese (Mandarin – simplified characters) language version of Global Credit Management - an Executive Summary is now available to purchase through http://www.t3plimited.com/estore.html.

The eBook format is a .pdf Adobe Acrobat document of about 4.15mb and the price is £5.18.

The eBook can be downloaded immediately after payment.

Reinventing the Technology of Human Accomplishment

WHAT MATTERS NOW
- How to win in a World of Relentless Change – Gary Hamel

Please log onto http://www.managementexchange.com and view Gary Hamel’s most excellent video presentation titled:

Reinventing the Technology of Human Accomplishment

If you then want to know more buy the book – What Matters Now – you will not be disappointed by its contents….

Some random quotes that I ‘clipped’ by way of example are:

"….across the world, frontline employees feel marginalised by managers who see them as semi-programmable robots."

"….intrinsic motivation – the drive (to) do something because it is interesting, challenging, and absorbing – is essential for high levels of creativity."

"The old world (management) processes (are) focused on running the business. We (need) new processes that (are) focused on changing the business."

"In a turbulent world, prediction is difficult and long-range planning is of limited value. Management processes that seek to surface the one best strategy through top-down, analytical methods must give way to models based on biological principals of variety (generate lots of options), selection (use low-cost experiments to rapidly test critical assumptions), and retention (double down on the ideas that are gaining the most traction in the marketplace)."

At least enjoy the video it is only 16 minutes 43 seconds in length

BarrettWells

China: Perception versus Reality....

Western business leaders, who are devoid of ideas, continue to rationalise their inability to capitalise on the opportunities that abound despite the so-called crises. I am wary of reading Western slanted commentaries designed to ‘prove’ that China’s relentless march forward is bound to falter, so it was refreshing to read an article titled ‘China’s new Corporate Champions’ written by Joel Backaler, see: http://www.bbc.co.uk/news/business-16206489 for the full text, courtesy of BBC.com.

Here is a brief extract, quote:

The global economic downturn presented these Chinese companies with a unique opportunity to capture market share as global consumers increasingly prioritised value for money. Western multinationals have limited time to adapt their strategies and regain their momentum before these new competitors can further consolidate their presence in key markets.

Chinese companies are perceived by some as opportunistic firms with a "land-grab" mentality that lacks well thought-out long-term strategy. Western executives often cite the large scale investments by Chinese companies in Africa's resources sector as an example of this type of behaviour.

These same executives also argue that Chinese companies' fast growth will likely not be sustainable in the longer term due to their short-sighted business practices. In reality though, there is another side to the story in which Chinese companies have been developing local innovations that are suited for their home country but can also be adapted for overseas markets to boost on-going growth.

End Quote

Western business leaders rationalise their inaction in respect of China and Asia generally by clutching on any piece of bad news and blowing it out of proportion; holding crises meetings to focus on the negatives while ignoring their responsibility to identify and capture the opportunities by changing their business models to acknowledge that they are no longer effective.

The abovementioned article appeared alongside an article titled ‘China: A bigger lender than the World Bank’, which charts China’s advances into the resource rich emerging countries; going where ‘Angels (Western banks and businesses) fear to tread’.

BarrettWells

A Negative Management Style Causes Employee Stress and Ill Health

Metal Health and Wellbeing (a UK Government Office of Science 2009 publication) reported that one of the leading causes of stress at work and ill health is linked to the style of management. That is to say that stress and ill health are minimised, if a manager provides autonomy to his or her subordinates, manages them by ‘praise and reward’ rather than ‘fault-finding’, provides them with flexible working arrangements and creates a ‘person-friendly’ organisation culture.

Studs Terkel, in his book Working, wrote; ‘Work is about a search for daily meaning as well as daily bread, for recognition as well as cash, for astonishment rather than torpor, in short, for a sort of life rather than a Monday through Friday sort of dying’.

Many people believe that the best way to motivate ourselves and others is with external rewards like money—the carrot-and-stick approach. That is a mistake according to Daniel Pink, writing in his provocative and persuasive book Drive: The Surprising Truth About What Motivates Us.

Leading at a Higher Level: Blanchard on How to be a High Performing Leader with its underlying theme of ‘selfless leadership’ as opposed to ‘selfish leadership’ is the perfect compliment to Drive.

It is to be hoped that all leaders of the future will read these or similar books, take the messages to heart, and make the world a better place.

Ron Wells

Hedging and Liquidity Risk

A discussion (English-Chinese) in relation to the management of future price risk, was presented in Shanghai, to an invited audience of EMBA/MBA and other Business Executives. The inter-active presentation was followed by an enlightening discussion of Risk Management topics related to dealing with corporate customers and suppliers, commodity traders, banks and brokers.

One Business Executive and MBA Student commented:

‘Hedging and liquidity risk is still rather a new topic to most of businessmen and managers in China, except those working in banking and the other financial institutions. So your lecture will urge those managers, who want to grow their business in a healthier way, to learn more about the risk management tools. Simultaneously, your lecture will also raise awareness of what an important role credibility plays for a company in the market, which I think is even more important in China.’

View the presentation at:

http://www.barrettwells.com/LiquidityRiskHedgingSHAug2010encn.pdf

See a Related Article:

Hedging Future Commodity Price Risk Can Damage Your Company’s Liquidity:
Hedging future commodity price risk is something to consider, only if you guard against the chance that the outcome could damage your company’s liquidity and/or its competitive position. The English version of this article is available at: http://www.barrettwells.co.uk/liquidity.html

To obtain a copy of the Chinese version of the article click: http://www.barrettwells.co.uk/HedgingLiquidityRiskMar2010cn.pdf

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Convention on International Security Interests in Mobile Equipment (Aircraft etc)

The Cape Town Convention or Treaty, as it is commonly known, took effect in 2006.

‘The treaty creates an international system of perfecting security interests in aircraft and simplified and stronger methods of enforcing the rights created by such interests. It was created to engender more certainty for lenders which will, in turn, lower the costs of financing for the purchase and lease of aircraft.’

The European Community ratified the convention in April 2009. The convention was due to enter into force throughout the European Community (with the exception of Denmark) on 1 Aug 2009.

Below is a link to a good introductory article explaining the Cape Town Treaty:
http://www.aviationtaxlawyer.com/pub_docs/Article-CapeTownTreaty.pdf

Official site for the Treaty:
http://www.unidroit.org/english/conventions/mobile-equipment/main.htm

List of countries that have ratified the Convention:
http://www.unidroit.org/english/implement/i-2001-convention.pdf

Editor: These notes kindly supplied by honorary GCMG member SN