Tag: Business Tips

Peering Into Business’ Future

If America’s future workforce is going to be “more flexible, more freelance, more collaborative and far less secure,” as Time magazine prophesizes in its May 13, 2009 issue, it indicates that the American business paradigm as we know it is going to go through some major upheavals in the coming decade or two. Time suggests that American business is teetering on the cusp of major change. Powerful social forces have pushed us toward this edge, and the current economic disaster appears ready to tip us over and send us careening in new directions.

What’s driving the coming changes?

  • The Baby Boomer generation has been an unstoppable force since its inception. Sheer numbers have changed the focus of society each time Boomers have entered a new life phase. Now poised to enter retirement, America’s most populous demographic will again shift the country’s emphasis, this time to health care and aging issues. By 2030, one-fifth of American citizens will be over the age of 65, with the greatest growth in the over 85 demographic. As they have from the beginning, Boomers will drive the country’s business, social and political agendas. Expect growth in health care, pharmaceuticals, medical aids and equipment, security and alert services, home care, transportation and mobility, shop-at-home opportunities and travel. But don’t count Boomers down and out yet. The last of the Boomers won’t retire for another 20 years and many plan to and will be able to work into their 80s. With far fewer workers moving up to replace them, American business owners need to prepare for a grayer workforce.
  • The new generation of managers entering the business world seems to have been plugged in since birth. Quick to embrace new technology, they’re more comfortable in front of a computer checking their email and Facebook accounts or texting and twittering than they are communicating face-to-face. Expect business communication and social interaction to change to reflect the fast-paced, multi-tasking, solitary preferences of the tech-savvy earbud generation. This is the generation that will take integrated technology to new levels not yet even imagined. Business has already begun to lose its brick and mortar walls as more people work remotely. Expect the next generation to blow them away. The days of the cubicle are numbered!

More on Monday

Part 1: Why Businesses Fail

Almost daily I read about the failure of one business or another in the business section of my local newspaper. The economy is down, credit is tight and fuel prices are through the roof. Naturally these conditions place an additional strain on businesses. But generally when a business fails there were already underlying fissures in its structural foundation that caused it to crack and break under the pressure.

Businesses fail for many reasons, the most likely being one or a combination of the following:

  • Lack of a business plan or failure to update the business plan to account for changes in the industry, economy and society. Business is not static. You should review your business plan annually and adjust it to take advantage of changing markets, new products and technologies, financial incentives, and customer preferences.
  • Lack of current financial data or failure to fully understand financial reports. Finance is the language of business. You don’t have to be able to write it (that’s why you have an accountant or CFO, but you do have to be able to correctly read and understand financial statements.
  • Lack of capital. If you’re starting a business, minimum start-up capital should be enough to cover your first six months of operation. However, once you’re up and running, don’t confuse capital with operating funds or cash flow. Growth capital should be used to grow, improve and expand your business. You should generate enough monthly income to provide a healthy cash flow and cover operating expenses. If your business is in trouble, borrowing more money isn’t the answer. If you can’t service your current debt load, you won’t be able to service an increased debt load.

To be continued

Forces of Change: What’s Driving New Business Paradigm?

The current economic crisis has created a tipping point for American business. While change is a normal and healthy part of growth, overwhelming economic forces are combining with powerful social forces to force major upheavals in the U.S. business paradigm. Economic necessity has eroded the normal inertia that usually slows change. Economically unviable businesses are failing, the weak are being culled from the competitive pack, and even the strong are struggling, forcing business owners to make hard decisions to ensure their survival. For the first time in decades, labor unions and their members are willing to reconsider compensation and benefit packages to save jobs. Add to this the looming retirement of America’s largest-ever workforce — the Baby Boomer generation — and its replacement with a new generation of tech-savvy workers ready to blow traditional business practices out of the water, and you have a potent climate for change.

Today, we continue our discussion begun last week of the coming forces that will change American business.

  • Today’s hierarchical management structures will all but disappear. Growing entrepreneurship will shift more tasks to contract workers. Changing priorities about work/life balance are already impacting corporate structure with more workers telecommuting and job sharing. The creative experiments implemented to save jobs and money during the recession — unpaid furloughs, reduced hours, lateral advancement — are likely to be retained, allowing for the more flexible career paths sought by the next generation of workers.
  • Women will finally crash through the glass ceiling and come into their own. Time foresees an 8% growth for women in the workforce, compared to 5% for men, and much of that growth will be at the management level. Backlash from the economic crises of the last two years is creating demand for the female management style. Studies indicate that female managers are more cautious about risk-taking than their male counterparts and are collaborative consensus-builders who practice transformational leadership that engages and motivates. 
  • Rising health care and pension costs are already forcing a major change in corporate benefit packages. The current model of employer as provider has become unsustainable. Employees are already being asked to share the burden of health care and retirement costs with their employers, a trend expected to increase. While this naturally concerns Baby Boomers nearing retirement age, benefits are of far less concern to the next generation of workers. In its May 25, 2009 issue, Time magazine reported that among 18- to-34-year-olds, base pay and career advancement were the top-ranked concerns. To decrease health care costs, both businesses and workers will support wellness initiatives and adoption of ergonomic equipment and practices in the workplace.

Part 2: Why Businesses Fail

The economic slowdown, tight credit and high fuel costs are placing a sometimes fatal strain on businesses. This week we’re taking a look at why businesses fail. Those who learn from the unfortunate mistakes of others are more likely to succeed.  

Continuing our list from Monday of the most likely reasons businesses fail:

  • Inadequate sales. Inaccurate market analysis can lead to inadequate or inappropriate marketing/sales efforts. A business’ potential market share equals the total market potential for your product or service divided by the total number of competitors in your market area. When sales volume exceeds normal market share, you achieve market dominance and move beyond the break-even point into profit. Naturally, this is every businessman’s goal. While sales are the key barometer of business success, base business decisions on weekly and monthly averages, not daily volume. It’s business trends that drive future sales so concentrate on longer-term market analysis. 
  • High expenses. Failure to properly anticipate and budget potential expenses, failure to adequately control expenses and/or failure to constantly review and update purchasing/service contracts are all common money pits. Expenses should ever exceed income. Never consider any expense as fixed; every expense is negotiable. Be prudent in your purchasing policies. Stockpiling supplies, buying additional product already in stock and failing to decrease order quantities as demand decreases are common mistakes. Limit buying to what you need, what you’re using and what will increase sales.
  • Poor credit policies. Credit keeps business clicking along, but over-extended credit can lead to bankruptcy, particularly in today’s economy. Maintain good credit policies in your own borrowing and be clear about credit policies to customers. Clearly communicate credit policies to customers before finalizing a sale and don’t continue to offer credit to slow-paying customers. You could be left holding the bag.

To be continued

Part 3: Why Businesses Fail

The business section of the newspaper seems to carry daily notices of failing businesses. Despite tighter requirements, bankruptcies are up. Businesses are succumbing to a combination of the economic slowdown, tighter credit and high fuel costs. Today we continue our series on why businesses fail (see our July 14 and 16 posts).

Most business fail for a combination of reasons, including:

  • Poor collection practices. It’s not enough to make the sale; you have to collect the money. While this should be obvious, many businesses fail to initiate or maintain good collection practices. Just like sales, collections should be a daily task. The biggest mistake many businessmen make is to allow late accounts to go too long before starting the collection process. Many customers will take advantage of the traditional 30-, 60-,  90-day payment schedule. Try aging your accounts receivable by the 15th and month end or even weekly. The sooner you start collections, the better the chance of collecting and the faster your money turns over.
  • Lack of experience in basic business know-how. On-the-job experience is an effective teacher, but the lessons can be costly. Develop an ability to learn from the experiences of others. Education, keeping up with industry journals and publications and attending professional conferences and seminars can offset a lack of personal experience. Meeting with other businessmen through professional organizations or social/community service groups provides a valuable opportunity to discuss common business problems and issues.
  • Poor location. For retail businesses that depend upon walk-in or drive-by trade, poor location can be disastrous. Manufacturing and industrial concerns require easy access to freeways and other transportation routes for both delivery of raw materials and shipment of finished product. Convenience and visibility are key. 

    To be continued

Economy Contributing to Worker Paranoia

Findings of a study published in the journal Science indicate that the uncertain economy is contributing to a certain amount of worker paranoia. As layoffs continue and unemployment rises, uncertainty about their future may have workers imagining conspiracies behind every closed door meeting and company announcement. Lack of control over how the recession will affect their employment and finances has people looking for patterns where none exist. In an effort to exert control over the unmanageable and unpredictable, the Science study found that people will create meaningful relationships between events where none exist.

In an online article on ThomasNet Industrial Market Trends, David Butcher explained, “… the desire to combat uncertainty and maintain control through structure can sometimes be so all consuming that people trick themselves into seeing and believing things that simply do not exist.”

Exploring the psychological phenomenon called “pattern perception,” researchers conducted a series of experiments to explore the effect lack of control has on human behavior. The study was conducted by Jennifer Whitson, assistant professor at the McCombs School of Business at the University of Texas in Austin, and Adam Galinsky, Morris and Alice Kaplan Professor of Ethics and Decision in Management at the Kellogg School of Management at Northwestern University in Chicago.

In the experiments, study participants were divided into two groups. One group received information that made them feel they had control over their actions in the test scenarios. Information provided to the other group was manipulated to make them feel uncertain and powerless about their ability to affect test outcomes. In the absence of control, a preponderance of study participants attempted to create order where none existed, imagining connections, relationships or cause and effect where none was intended. The tests produced some interesting results that may help business owners understand not only the psychological effects the recession is having on their employees but changes in customer perception and behavior.

  • Nearly half of those in the powerless group found discernible images in sheets of random dots that formed no images.
  • Those who felt powerless overemphasized negative information in determining investment risk.
  • In reading a story of a person passed over for promotion, the powerless blamed office conspiracies between co-workers or secret meetings between co-workers and the boss.

“The less control people have over their lives, the more likely they are to try and regain control through mental gymnastics,” Galinsky said. “Feelings of control are so important to people that a lack of control is inherently threatening. While some misperceptions can be bad or lead one astray, they’re extremely common and most likely satisfy a deep and enduring psychological need.”

Friday: Preventing worker paranoia

Finding the Silver Lining in a Stormy Economy

Despite the doom and gloom of news reports, there is a silver lining glinting through our stormy economy. The trick, says Dr. Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association, International (FMA), is knowing where to look. In the FMA economic newsletter Fabrinomics, Kuehl reported finding three precious gems amidst the ashes that provide unique opportunities for savvy businessmen. Manufacturers and businessmen who make use of these three unexpected opportunities will position themselves to take maximum advantage of future opportunities as the economy recovers.

  1. Commodities. Costs are dropping on some of manufacturing’s most used commodities. After posting historic highs, the price of oil has dropped more than $70 in the past three months. While diesel prices unfortunately haven’t dropped at the same pace, the price of gasoline has plummeted to less than half what it was last summer. Steel and copper prices are also sagging. “In fact, most commodities have slipped,” Kuehl notes, “which is good for businesses where these costs are the biggest considerations. Of course, lower input costs don’t help much if demand for the finished product is off, but it doesn’t hurt to get some cost relief when the recovery begins to surface.”
  2. Labor. Unemployment has created a highly skilled, diverse and available labor pool. “The unemployment rise puts some talented people on the market,” Kuehl notes, “and that allows smaller companies to have access to people only larger companies were able to recruit in the past.” The strong labor pool provides an excellent opportunity for companies to improve their employee base and strengthen weak areas. Kuehl also notes that in a downturn people are more grateful for their jobs which can result in higher productivity.
  3. Banking. The mortgage meltdown and resultant credit crunch has taken a heavy toll on America’s banks. The Feds have been forced to shutter a number of small local and regional banks and even the big boys are hurting. Those that survive will be looking for smart ways to re-engage with businesses and consumers. This is the time to strengthen your relationship with your banker. The economy will recover in time and an effective banking partner will allow you to update and expand to take advantage of future opportunities.

Part 5: Why Businesses Fail

At DJ Products we believe in the value of learning from experience — ours, our customers and the business community at large. It’s not necessary to reinvent the wheel. The savvy businessman will learn from the experiences of others and turn that knowledge to his advantage.

With that in mind, we’ve been talking about why businesses fail (see our posts starting July 14). The economy is down, credit is tight and fuel is up. Times are tough and many businesses are struggling to survive. Taking a look at the most common reasons businesses fail may help us all to avoid the same pitfalls.

Continuing our list of why businesses fail:

  • Unwarranted personal expenses. The news is fully of greedy or sloppy businessmen (and politicians) who now find themselves fired or even jailed for using their business as a personal expense account. Hard-working businessmen deserve to profit from their labors, but they also have a responsibility to set an example of fiscal responsibility for their employees and create a profit for their shareholders. You need to be profitable to earn the perks. Set clear policies for charging expenses to the company that follow IRS guidelines and regulations. Set an example for employees and monitor expenses regularly to curb abuse.
  • Unplanned expansion. Entrepreneurs eager to capitalize on every opportunity may be tempted to expand quickly. However, unplanned expansion is the quickest way to run out of cash fast. Expanding a business should involve careful, long-term planning. Take sufficient time for market analysis to ensure that expansion is warranted and can continue to be supported by future sales. Develop an implementation schedule and don’t cut corners on the implementation process. Proper implementation is pivotal to the success of an expansion plan. A good plan, poorly implemented, will turn out to be a poor plan.

 To be continued

Is Absenteeism Hurting Your Bottom Line?

The nation’s 300 largest employers reported in a 2007 survey by research firm CCH Inc. that absenteeism costs their businesses more than a quarter million dollars annually in direct payroll costs. Add in lost revenue from lower productivity and unscheduled absences can have a significant negative impact on a business’ bottom line. In these recessionary times, absenteeism can make already slim profits disappear.

Only a third of all work absences are due to illness, said Susan Frear, director of education for the Dallas office of the Society for Human Resource Management. “The rest of the absences are related to having to be someplace else or they just don’t feel like coming in. So a lot has to do with the culture of the place.”

Changes in management style or corporate procedures can make a significant difference in absenteeism rates. “Take a hard look at the climate,” suggests Barb Ashbaugh, owner of Ashbaugh’s Trade Secret, a performance management company. Authoritarian managers “who make employees feel it’s their way or the highway” cause higher levels of absenteeism, Ashbaugh noted. Companies that count “occurrences” instead of individual days absent encourage employees to sneak in a couple of extra days off, warned Nancy Glube, an Atlanta human resources executive.

Retail giant J.C. Penney Co. is trying a new approach that shows promise for both large and small businesses. With 1,500 workers calling in “sick” and another 1,200 out on disability each day, Penney executives were concerned about the impact of growing absenteeism rates on the company’s profit margin. This fall they began project PowerLine. When an employee is absent for 3 days, the PowerLine team swings into action. They communicate with the employee to determine the nature of the absence and whether the employee qualifies for health insurance, workers’ compensation or short-term disability benefits. The team notifies store and department managers and insurance carriers and sends the employee the appropriate forms to complete. Daily absenteeism rates have dropped dramatically.

What has made the PowerLine program so successful in such a short time is the constant follow-up that continues until the employee returns to work. “I’ve found that when someone goes out on disability, that person undergoes a significant event in their life,” said Penney’s benefit manager Jim Cuva, “and if no one checks on them to see how they’re doing, they could stay out longer than necessary.” The PowerLine program is Penney’s way of “letting them know we care.”

Employees who know they’re valued work harder, are more productive and are absent less frequently. Making the effort to create a positive work environment can positively impact your bottom line. On Monday, we’ll talk about how implementing ergonomic practices in your workplace can improve worker morale, decrease worker injury and boost your bottom line.

Preventing Worker Paranoia

In times of economic uncertainty like today when people feel they have less control over their jobs, their income and their lives, it is common for people to engage in a psychological phenomenon called pattern perception (see our June 10 post). Uncertainty about the future generates feelings of unease that can cause considerable stress, leading the mind to search for patterns in events where no patterns exist. It’s a phenomenon that has people seeing conspiracies in government actions and finding hidden, unintended meanings in business announcements. It’s the phenomenon that causes people to think the worst when managers meet behind closed doors or co-workers start whispering. Illusory pattern perception feeds company gossip mills to negative effect, sowing seeds of dissatisfaction. The result can cause paranoia that negatively impacts worker efficiency, decreasing product quality and slowing production.

How do companies keep paranoia from spreading through their workforce? Human resources experts say open, honest and frequent communication is the key to reassuring nervous employees. Companies must be proactive in addressing not only internal gossip but external rumors. A brief news article or minor drop in a company’s stock can generate fear far out-of-proportion to the actual event. If faulty information is not corrected immediately, it has the potential to mushroom into panic that can cripple your workforce — and even worry investors and stockholders. Addressing issues as they occur via email, memoranda and company newsletter is important; but don’t ignore the value of the personal touch.

Nothing alleviates fear like the ability to address it head on. Open meetings allow managers to directly address worker fears, project calm and provide accurate information. Q&A sessions can provide workers with the opportunity to voice their concerns and ask for the specific information they need to feel confident about their position in the company. Allowing give-and-take sessions between management and workers provides managers with valuable information about worker concerns and the current psychological state of their workforce. For workers, such sessions meet two psychologically critical needs:

  • They allow workers a direct avenue to management, making them feel empowered and more in control of their destinies.
  • They serve to invest workers in company processes, increasing feelings of control by promoting a “we’re all in this together” sense of community.

Communication with its workforce should always be high on a company’s agenda; but in these uncertain economic times, effective communication with your employees can have a significant impact on both worker and production efficiency and quality.