Tag Archives: Bonuses

The Business of Life Chapter 30 – trust and integrity

With two management buy-ins (MBI) completed plus appointment as non-executive chairman of two other firms, it could reasonably be argued that I was more than fully occupied.  However, the two MBIs were not deals that I had initiated and I had only a minority equity stake in each.  So, my goal remained that of acquiring a substantial engineering business as head of my own MBI team.  Things were looking up with a heads of agreement signed and a period of exclusivity guaranteed to acquire the Metal Spinners group (MSG) of companies based in Newcastle upon Tyne.The Business of Life - Trust & Integrity

Mark and I set about the process of refining our business plan for the acquisition.  We now had a complete team of advisors with Phil and Ian (one of his senior managers) at KPMG providing corporate finance advice and Jonathan a partner at Pinsent Curtis on the legal side.  Paul and Mark T at 3i were working with us to ensure we could complete this transaction (following our three previous failures where we had been heavily outbid) and add another investment to their portfolio.

The original MSG company in Newcastle had been formed in 1953 by Clifford’s father and had grown steadily, supported by continuous investment in equipment from the leading German manufacturer of the CNC spinning lathes the business used.  This continuous investment had enabled the business to constantly expand its range of capabilities.  With its low level of exports and the possibility of offering solutions to a range of different industries I was excited by the development possibilities MSG offered.  I made time to visit the various Metal Spinners companies in Newcastle, Manchester and Birmingham to carry out a detailed review of the facilities.  There were five factories spread over these locations with a total production area in excess of 150,000 sq ft.  Whilst the range of equipment was of high quality it was clear that all of these factories were old.

Clifford was a curious character; slight of build and height he may have been but he seemed to posses a vitality that spoke of commitment to the business he had inherited.  The only other working shareholder was Mike, the finance director who had been with the company for many years.  I felt that I had established a good relationship with Clifford and this impression was reinforced when I called on one occasion to confirm a further meeting when he invited me to stay at his house the evening before.  Following a very pleasant dinner at a local hotel we retired back to what I discovered was Clifford’s holiday house (some 35 miles north of Newcastle) where a bottle of fine cognac settled us into a conversation that lasted long into the night.  Clifford, perhaps lubricated by the cognac, talked at great length of his life and his family. The following day the meeting went well and I drove back to Yorkshire convinced that our relationship was stronger than ever and that the deal was really going to happen.

A day later Mark T called me, “What on earth went on at your meeting? he enquired. “Clifford just called me to say that he can’t trust you and the deal is off!”  I was stunned.  Going back in my mind over the entire period we had been together I could recall nothing that I had said or implied that could have given Clifford any cause for concern.  In fact, during the entire time we had spent over dinner and back at his house that evening I had merely been an attentive listener to Clifford pouring his heart out over many very personal issues.  It made no sense and I called Clifford who finally agreed to meet me.

Seated together in a hotel just off the A1 a few days later, I attempted to get Clifford to share whatever concerns he felt he had with me.  His demeanour had changed significantly and he was evasive and imprecise speaking only in the vaguest of terms concerning his new-found lack of trust in me.  “OK,” I responded ” then I will call the acquisition off.  If you have no trust in me, and I really don’t know why, then there is absolutely no basis for trying to complete what will be the biggest transaction either of us has ever entered into.  If you do wish to complete the deal then I must know that you have no reason to mistrust me.”  Clifford stared away in the distance for what seemed an age and I could almost see the mechanics of his brain working.  Finally he turned to me and said he would withdraw the comment; no further explanation was offered.

This was the second time in a few years that someone very important to me in business had poured out the most intimate details of their personal life to me only subsequently to turn on me without warning.  I could only assume that both Swaanen  and now Clifford had, upon reflection, felt that they had let their guard down, revealed too much, felt weakened and decided to get their defence in first.

It was increasingly clear that I needed to supplement our team with the addition of an experienced engineer who would be destined to become managing director upon completion.  I started a process of trawling through contacts offered by our various advisers and other contacts.  With the deal community in full flow in 1997 (and destined to reach a peak of buy-in / buyout activity in 1999) and the business world still shedding senior executives, there was no apparent shortage of candidates to join our MBI team.  But when I had completed my essential selection criteria the list got very much shorter.  Finally, following many fruitless meetings and interviews, as a result of a 3i introduction, I met a seemingly perfect candidate I’ll call Pete.   Mark and Mark T both agreed and our team was complete.

My business life had become increasingly frenetic but was still hugely enjoyable with every day bringing fresh challenges (that I shall return to later).  So, it was with a mixture of surprise and regret that I faced the fresh question from Mark T “How much time are you intending to spend on the MSG business if we succeed in this acquisition?”  Given that three of the roles I held were as a result of their introductions, I was a little annoyed at the inference that I wouldn’t be able to cope.  I reasoned to him that with our new team member in place as MD designate all would be well in future.  It was clear from his reaction, however, that all was not well now and something had to give to maintain their support for the MSG deal.

The previous year I had agreed to become non-executive chairman of Jerrard Bros.  Working closely together we had refocused the business and the management team and profits had increased.  However, Steve the major shareholder (and son of one of the founders) was becoming increasingly visible as the major problem.  Previously unhappy in his role of MD and wishing to be freed from the demands of people management he had expressed a strong desire to simply concentrate on product design.  So, we had reshuffled and recruited and once again events were proving Steve to be the problem; his one responsibility, a new product, was woefully behind schedule and he was blaming everyone else.  With 3i’s implicit message that something had to give ringing in my ears, and knowing that the company was 90% owned by Steve, it was his train set and I knew that I was flogging a dead horse.  I resigned at the next board meeting.

The next few months brought fresh frustrations and challenges not least of which was a growing concern over Pete.  Despite his qualifications and experience I was becoming concerned at how little he was contributing to the process.  Mark and I were working every conceivable hour to pull the ever increasing stream of due diligence information into our business plan and I called a meeting to review the latest iteration face to face.  Pete contributed nothing, instead spending the entire time attempting to massage a previously agreed package higher.  When he returned to ‘needing’ a Jaguar XJ6 once more, Mark and I looked at it each other and I decided it wasn’t going to work.  Pete was dropped.

Now some three weeks before a scheduled completion date, I had no managing director candidate on the team.  I had agreed with 3i that my role would be that of executive chairman spending a minimum of two weeks a month in the company but that was predicated on my having a full time MD in place.  Without an engineer as MD, it was simply not going to work.  I called Mark T and Phil and let them know what had happened in my best low key manner and assured them a replacement was no problem.   Except that it was a major one.  I saw more candidates but no-one was even close to being right.  Apart from the big company experience I wanted someone who would be at home in a hands-on role in a medium sized company.  No luck and time was running out.

The results of the KPMG financial due diligence were due and two weeks before scheduled completion I travelled to their Newcastle offices to receive the briefing.  All had gone well with their investigation and as I was leaving one of the local managers put his foot against the door of the lift to prevent it closing, “Are you still looking for an MD?” he enquired, “I played golf with a great guy yesterday whose also trying to do an MBI.”

When I met Roger two days later in the 3i offices in Leeds we found we had a very much aligned view of business.  A highly qualified and experienced engineer, his CV showed everything I was looking for and he was happy to join the team on what looked like a done deal.  After a brief meeting with Mark T, we shook hands on what we both hoped would be a mutually rewarding relationship.

The next couple of weeks flew by in a whirl of constant meetings to review the legal due diligence, environmental surveys, the latest version of our financial projections, obtain bank finance and to discuss the equity split with 3i.  This latter aspect gave rise to a ‘blood on the walls’ dispute with me fighting unsuccessfully for the team to retain more than 50%.  In the end I had no alternative but to settle for just less than this figure but I did manage to win some other very useful concessions.  In the last week there had also been a very frustrating meeting in the office of MSG’s lawyers in Newcastle.  Very late in the evening with a couple of key issues still to be resolved, the main partner stood and declared he was going home!

Finally, the morning of the day for the completion meeting found Roger, Mark and I gathered in the offices of Pinsent Curtis in Leeds.  Most of the day wore on with little happening initially.  Allied Irish, our debt funders, arrived during the day in  the company of a supercilious lawyer to agree the finer points of the banking agreement.  I won nothing from that negotiation.  Clifford and Mike arrived late afternoon and were shown into a separate room along the corridor.  It was only at this late hour that we got to see the disclosure letter they had brought, raising fresh queries over the warranties we required. The pace quickened with what seemed like a fair impression of shuttle diplomacy as lawyers from both sides hurried back and forth attempting to resolve one query or another.

Despite the seven months of painstaking work it had taken to get matters to this point fresh information seemed to be arising in a flood.  Newly discovered potential problems required perhaps a provision against the price we were paying with an amount held in escrow or a deduction in the price.  Each of these problems required a delicate negotiation with, by now, manifest mistrust between the parties. The evening wore on with a painfully slow resolution of one issue after another.  Then, at one o’clock in the morning, Clifford and Mike walked out and disappeared somewhere into night-time Leeds, pausing only to inform their lawyers that they had had enough and might be back or not.

Almost the last issue we had on the table at this point was our requirement for a deduction to cover repairs to the roof at the Manchester factory, something that had only come to light in the last day or so with a surveyors report.  The sum involved though relatively minor may well have been the last straw.  All we could do was sit and wait to see if they would return.  Time ticked by and then two extraordinary events took place, which to this day illustrate to me integrity and honesty and what happens when it is lacking.

Quietly sitting on my own in a corner of the maze-like, old building, trying to relax and remain positive while hoping that all these months of work for everyone had not been in vain, Jonathan the head of our legal team sat beside me.  “Look, don’t worry,” he said quietly and very precisely, “if there are any issues still remaining we can get these sorted out later.  The key thing is to get the agreement signed tonight.”  I couldn’t belief my ears.  I had gained enough experience to know that problems in legal agreements only got worse with time and involved huge additional fees.  I waved him away.

Some time later, Ian from KPMG, also sought me out, solicitously enquired how I was holding up and then counselled “Look, if everything isn’t right to your absolute satisfaction, walk away now.  They’ll be other deals but for God’s sake don’t sign an agreement you’ll live to regret.”  I looked up at him and could only nod and squeeze his shoulder.  KPMG in the shape of Phil, Ian and their whole corporate finance team had put a simply massive number of hours on the clock on my behalf and if this deal fell through they stood to wave goodbye to fees well into six figures (and probably very healthy personal bonuses).  Absolute integrity demonstrated.

Seeking out Roger and Mark I brought them up to date on the two conversations and asked their opinions.  The response was immediate and unanimous; get it right or we walk away.  Mark T was in agreement; he’d seen the results of too many bad agreements.  Shortly after Clifford and Mike reappeared and disappeared with their lawyers into their meeting room.

A few minutes later and the remaining issues were resolved (at least to our satisfaction).  We were then ushered into the main board room where a sea of documents was laid out for our signatures.  The formalities completed, champagne was poured, backs were slapped, thanks exchanged and words I cannot remember were uttered.  It was 4.00am on the morning of the 8th July 1997 and I had (with a simply huge amount of debt and VC finance) become the owner of a substantial engineering firm that was a leader in its sector.  I later learnt that our deal was one of only 54 MBI deals completed in the UK that year.  Not bad for a lad who’d left school at fifteen with no qualifications.

I crawled into bed at 5.00am, rose again two hours later and drove the 100 miles to Newcastle to take control of our business.  Life was about to get more complicated than I could ever have imagined.

The Business of Life Chapter 24 – can success come from losing?

I had settled into the pattern of a weekly commuter.  Monday mornings would see Denise dropping me off at Leeds-Bradford airport to catch the first flight down to Heathrow where I would switch terminals to catch the next Swissair flight.  Because of the time difference, I didn’t get into the office much before noon.  On Fridays I managed to flee the office by late afternoon in time to catch the BA flight to Manchester where I had arrangements with a local taxi firm to pick me up.  Frequently, I would be making mid-week trips to one or more of our subsidiaries or meeting with two of my direct reports who were based in our factories in Nuremburg and Tienen (Belgium).  Evenings in Geneva would have me either entertaining visitors or taking dinner on my own in one of the small local restaurants.  Given the uncertainty of the situation, it was my intent to save as much of my Swiss salary as I could.

Highlights were the weekends when Denise came over to Geneva.  We would visit some of the restaurants in the city centre or in the small villages on both sides of the lake.  We travelled around as much as we could at weekends and also managed to take a couple of short breaks walking in the mountains.  We also had a great week when my daughter Victoria also came to visit (marred somewhat by meetings I was required to attend).  Sundays were never a complete success when Denise came to stay as it seemed as if we were simply killing time until the time came to drive her to the airport.  The realisation that we were going to spend yet another week apart would cast a gloom over the day however much we tried to divert our attention with lunch out or trips further afield.  There was always that flight to catch and the growing realisation that the sale of the company would provide little of benefit to me.  I had pretended to myself that it might not happen (maybe no-one would want to buy us) but now the reality kicked in.

The meeting with our prospective buyers was a dispiriting occasion that only served to prove to me that, whilst our own senior management might have had no strategy for long term success, this lot had even less.  The reality was a management buy-in team (MBI) backed by CVC Capital Partners represented by Michael Smith, CVC’s CEO.  Michael Smith came across well enough but said nothing of substance to enlighten us of the plans they had for the business.  The management team comprised Norman Scoular (ex CEO of a small UK conglomerate) and another individual, Eddie Bartlett, who I can only describe (on his subsequent behaviour) as Norman’s enforcer.  Norman, pleasant enough on the surface, also said little of substance except to talk of personal responsibility for personal targets.  In turn, Eddie droned on repeating most of Norman’s utterances as if he believed that the repetition would somehow add weight to the vacuous comments.  The only concrete aspect to emerge was that we were now into the due diligence phase of the sale process.  We were instructed by our new prospective masters to respond to any questions they asked to the fullest extent of our knowledge

There was no mistaking the wealth in Switzerland, with fine houses, exotic cars, expensive shops and starred restaurants everywhere.  The Credit Suisse cash machine situated in the lobby of our building had a disconcerting habit of dispensing nothing smaller than a 200 Swiss Franc note.  This was probably fine if you were pulling out a wad of these in one of the many Michelin starred restaurants in town but was a definite problem if your intended destination was merely the local bar!  However, wealth had its positive side and my Swiss bank balance was growing nicely as a result of my abstemious lifestyle.

Having assembled my evidence on the malign effects of the bonus scheme on stock levels across Europe, I decided to discuss the matter first with Alain (VP HR).  A large Belgian man who took an equal pride in his systems and procedures as he did in attempting to demonstrate the correctness of his views regardless of the subject, he listened with growing impatience.  “Listen,” he finally roared, “I spent a vast amount of time putting our incentive scheme together and I’m not about to change it on the basis of some flimsy information!”  Knowing that little happened on the HR front without Alain’s consent I argued to myself that, without Alain’s agreement, Don was unlikely to listen either.  Instead, I decided on a different tack.  We had a general managers’ meeting due for the next week so I merely told Don that I needed a substantial time slot to impress on the assembled group the importance of accurate sales forecasting.  He agreed and the time was duly allotted for late morning.  I worked on my presentation until I was absolutely confident that the logic and rationality were impeccable.

The day of the meeting dawned fine and sunny but as the meeting room started to fill I discovered that neither Don nor Swaanen were present.  I had a quick word with Germaine who informed me that Don, Swaanen and Dan (VP Finance) had decided to play golf in Evian and wouldn’t be back until lunchtime.  I tried to rearrange the agenda to put my slot back until the afternoon but found that this wasn’t possible.  I therefore either had to withdraw the subject from the agenda or go ahead without Don.  By this stage I had no alternative but to proceed.  It was conceivable that Swaanen had got wind of what I was planning and had decided to encourage Don to take the morning off.  Events would later prove at least my first supposition to be correct.

For this meeting I had decided that the issue of the bonus scheme was not relevant, it being purely a head office decision if a change was to be made.  Instead I was intending to focus on the need of minimising stock levels across Europe and the vital importance of letting the DRP system play its role.  For the presentation I had made slides of the graphs generated by DRP showing the accuracy of the system sales forecasts versus country amended ones and the actual results.  In order not to be confrontational all the information I showed was without any country identification.  Instead I had prepared an envelope for each of the general managers enclosing the results for their country that I handed out at the end.  I made known the saving we could make if everyone could trust the DRP generated forecasts and I asked for their support.  Wishful thinking.

All hell broke loose.  Ignoring the incontrovertible evidence in front of them I was attacked on all sides by men who argued black was white.  I knew that there was a degree of animosity existing between country managers and the factory managers who supplied them but I had simply not expected this outcome.  There was simply no-one in the room who was prepared to even acknowledge that their forecasting could be improved.  By the time Don appeared he wasn’t interested in becoming involved in the subject and quickly moved the meeting on to the next agenda item.  I had failed in two battles but I hadn’t given up.

The following week we had a meeting scheduled in London for Monday and that evening I travelled back to Geneva with Don & Alain.  As we had time to kill we decided to eat at Heathrow and over dinner I raised the stock and bonus subject with Don, going over the full facts.  For some reason Don would not acknowledge that there was anything wrong with either the stock or the bonus systems that couldn’t be put right by my team reviewing every single product line forecast for every country every month.  It was both an illogicality and an impossibility and I told him so.  Don disputed this and we went around the subject again but with voices getting louder with every sentence.  Alain stated that the bonus system had no part to play in the situation.  I reminded them of the investment that had been made in the DRP system and that it was being ignored by everyone.  By this time we were all shouting at each other in the middle of the restaurant.  In the end I said that I could not achieve better than the existing system.  But, if he was serious about making an improvement, he should take the whole logistics function away from Swaanen and give it to me to manage and I would commit to making it work.  We were by now red faced and out of breath but Don brought things to a close by agreeing with my proposal.

The following day I went into the logistics department to request that a further analysis I needed be produced.  Sheepishly and with great embarrassment the team informed me that Swaanen had that morning instructed them to not even speak to me again.  When I got to see Don he also looked embarrassed and said that upon reflection overnight he had changed his mind and I must proceed as he had originally instructed.  I had lost the war.  By connivance and weak management we were wasting $10m a year in working capital and no-one wanted to even look at the root causes.  I couldn’t give up.

By this time it was clear that, unless a last minute disaster occurred, the transaction to sell the business would complete.  Feeling less and less respect for the senior team I gave up the daily ritual of lunch with them and started eating instead with one or other members of my team (something that was far more relaxing).  In a last ditch effort to preserve something of the work I had put into the goal I had been given and the findings I had made, I told Norman that I would appreciate a meeting with him as soon as possible.  The problem was that he seemed always to be travelling.  Meanwhile, Christmas was approaching and I decided to drive back to England with my son Alex.  He had been attending a French language school in Chambery, had come to the end of his course, and needed a lift home.  We enjoyed the time together and it made a pleasant change from air travel.  Christmas passed too quickly and it was soon time to return.

A harsh winter had descended upon Europe after Christmas and by the time I drove back across France the temperature was showing -18C.  I had tried to keep the situation out of my mind over Christmas but as I drove along near deserted autoroutes the situations I faced looked decidedly unattractive.   If the sale by some chance fell through it was clear that my role was going to become increasingly more difficult. I had a brain that wanted to understand the big picture and address the things that influenced it.  The problem was that I had neither the skills nor the inclination to enter into politics.  I had also by now made myself something of a pariah amongst the senior team in Geneva by fighting without fear or favour for what I knew to be right.  On the other hand if, or now more likely when, the sale went through I faced new management that seemed to hold views that were an anathema to me.

Finally, in January I met Norman for dinner one evening.  He wanted to know my views on the business, which suited me just fine.  I gave him an overview that I felt was realistic and showed opportunities.  I took him through an abbreviated version of the stock saga and shared with him the savings that could be made in working capital. However, Norman surprised me with his response that indicated he had little or no interest in the DRP system and that country managers should take responsibility for their own stock levels.  They should be completely responsible for their own results.  We talked on but it became clear that in terms of modern management thinking, Norman was back in the Stone Age.  Newco was not going to possess a culture that would play to my experience, training or skills.  A new threat wormed its way into my consciousness; what if they did want me?  A great concern.  I also had to pick up the bill.

A week or so later we got the news that the transaction had completed and Norman and his team marched into the offices.  Don had disappeared and then Norman promptly got on a plane to somewhere.  Eddie quickly took up his role as enforcer with relish.  As will have become apparent by now my view was that whilst many of the problems in the industry were structural, we certainly hadn’t made the best of the hand we had drawn.  However, that is different from some diminutive clown telling us we had all been complete idiots.  The only thing of note that happened that first week was that business class travel was banned and we all received a long lecture from Eddie on the need to save money and how life was going to change.  I’m not sure what motivational training Eddie had had but he wasn’t a patch on my old headmaster at the art of bollocking.  Life at the back of the plane on Friday evening wasn’t too bad but the signs for the future were.

A few days into the following week Alain called me into his office.  Looking less like his usual bombastic self than I could ever have imagined he fidgeted and launched into the worse version of a HR scripted Dear John speech I had ever heard.  I put my hand up to halt him, “Don’t worry about the niceties, Alain” I smiled, “Just be good enough to tell me if this lot are going to honour my contract?”  It was with relief that he nodded and handed me the paper laying out the terms of my severance, which were exactly as my contract.  Alain went on to tell me that my whole team was to be fired with just one exception   He held out his hand for my office and car keys.

At the age of 47 and after 13 years of constant commitment and effort to the organisation that had given me more highs and lows than I can now recall, I was out of work once more.

Postscript

The North American business of GTE Sylvania was sold to Siemans shortly prior to CVC purchasing the European and Rest of World business.  Europe and ROW was subsequently sold on by CVC some years later and has passed through several ownerships since.  The business is currently owned by an Indian conglomerate and was the subject of an article in the Sunday Times (22 July 12) describing the difficulties they had in changing the company culture.  

My inactivity in the ‘non-job’ referred to above did not in fact stop me from carrying out a very detailed research project to establish the viability of the Linolite brand.  The results I obtained indicated that attempting to extend the brand’s franchise was not a viable proposition; this was ignored and the product range I had developed was rebranded Linolite despite my stiff opposition.  Today the Linolite brand is no longer owned by Sylvania (which has gone on to develop its very successful industrial and commercial lighting fittings identity) and appears to have a very limited market presence.

Greg retired to Florida where I understand he still lives.  Don now works for a small venture capital company owned by a past GTE Sylvania president.  Alain still lives in Geneva where he runs a successful multinational HR consultancy.  Swaanen was persuaded to stay with the business.

Norman died on Swissair flight 111 in a crash over the Atlantic in September 1998.

Image courtesy of  www.Fecielo.com

The Business of Life Chapter 23 – Keeping Enemies Close

An early, hazy summer sun was shining the morning my flight approached Geneva and I could see the Jura, the city and Lac Leman spread out below.  I had spent ten years flying into Geneva on a fairly regular basis but this morning was different.  I was coming here to live and to work and although visually everything was familiar it felt very strange indeed.  A few years earlier our European head office had moved from tiny, cramped offices next to the lake into a new block adjacent to the airport.  Although it was now just a short walk from the terminal to our offices, the heat of a sunny day together with the humidity that came from Geneva’s position, ringed by mountains and built by the lake, meant I arrived drenched in perspiration. 

Sitting for a few minutes in the office I had inherited from Louis, my predecessor, I gathered my thoughts.  It was compact and somewhat clinical but did offer an astounding view.  Sitting at my desk I could see, over in the distance across the city and Lac Leman, Mont Blanc, just visible above the haze.  After a welcome cup of coffee delivered in beautiful white china by Germaine my new secretary, “Louis would never accept his coffee in anything else!”, I went in search of Don.  Sitting in his palatial office he proceeded to light a Marlborough.  The offices had previously been declared a no smoking zone but Don had imperiously decreed that the rule didn’t apply to his own office.

The briefing I received was perfunctory.  Don announced that stock levels across Europe were far too high and he wanted me to make a significant improvement.  I was perplexed as the company had spent a vast amount of money previously on a Distribution Resource Planning (DRP) software programme.  This programme (identified and implemented by Peter, a Cambridge PhD, who had been recruited to head up pan-European logistics) was designed to analyse sales history and trends and make more accurate forecasts than the capabilities of mere mortals would permit.  I politely reminded Don of this but was greeted with the response that my marketing team should be close enough to the market to be able to predict sales far more accurately.  He would hear no counter argument and made clear the meeting was concluded but not before emphasising that this was to be my absolute priority.  I said I would investigate and see what needed to be done.  This issue was destined to become my Nemesis.

The rest of the day was spent gaining the views of my new team.  They were a real multinational group including Swiss, German, French, Belgium & Romanian members most of whom I already knew extremely well.  The marketing department numbered 13 out of a total headquarters staff of 70.  In addition I also had what is referred to in management speak as ‘dotted line responsibility’ for the sales and marketing functions in all of the 16 European countries where we had subsidiaries.  At the end of that first day I was sitting quietly in my office writing notes on the day’s meetings when Rien Swaanen (VP Manufacturing) burst in.  Without pausing first for pleasantries or even common courtesies, he immediately launched into a vitriolic attack on me, my function and the whole of my new department.  I was totally mystified because the attack was laughable and demonstrated a gross lack of understanding of the issue he was complaining about.

A few years previously after Jean’s death,  I had heard from a colleague that Swaanen’s wife was suffering from the same cruel disease.  I felt spontaneously driven to write to him and let him know of my concern for them both and offered an understanding ear if he ever felt the need to talk.  Very shortly afterwards, I got a call from Swaanen’s secretary to fix a date for us to have dinner on his forthcoming visit to the UK.  We talked late into the night and he poured out his soul to me and thanked me profusely for my concern for them both.  It wasn’t long after that I heard the sad news that his wife had finally passed away.  I wrote again but it was some time before we met as I was still running the UK while he was based in Geneva.

A year or so later, I again received a call from Swaanen inviting me for dinner on his next visit.  Business concluded I drove him to his hotel.  As the sun was shining brightly on that fine summer evening, we decided to take a walk along the river that ran by the country hotel I had chosen.  Once more Swaanen talked at great length, of the pain of his wife’s suffering and death, of the slow repair of his inner self and of a returning belief in the joys of living.  And then he shared with me his love for a new woman in his life, how they had met, what she meant to him and how they would spend their life together.  I had been pleased for him but now, for some inexplicable reason, he was acting as if I was an enemy appearing in his back yard.  I retired to the hotel that shared our building.

The following morning I was met by Walter the office manager, a genial Swiss German who proved an invaluable part of the process of integrating me into Swiss life.  Our first stop was the ministry responsible for registering foreign workers and I was guided carefully through the process of obtaining my visa.  We then set out to inspect the half a dozen apartments Walter had lined up for me to view. In the end the last viewing of the day proved to be the one.  It was a pleasant and large apartment in an old block, close to the lake with on street parking and local cafes and bars, close enough to walk into the old town and it gave me a good feeling.  Critically, it was on the same side of the lake and only 3 kilometres from our office.

Louis had promised to meet me for a full briefing on my role but this never materialised.  Instead, I received in the post a few notes he had jotted down, which included the suggestion that I read through the files he had left.  One of the priorities was to continue working closely to bring a project with The Boston Consulting Group (BCG) to a successful conclusion.  It seemed that Don had initiated a number of major projects when our parent board had put the business up for sale, of which this was one.  The scope of the project was an outwards one to look at the European market and assess what could be done to improve our position.  I also discovered that another major project had been to look at the performance of our manufacturing operations across Europe but this had been put on hold (it was never instigated and I suspected Swaanen’s dead hand).

When I met with the BCG management a short time later I learnt that on finding that no product line profit and loss statements existed on a pan-European basis they had managed to create these.  I was staggered to find that our company, a major global player, had never attempted to create this basic information.  I had been carrying out this process in the UK for some time and found the information simply invaluable.  What the BCG exercise revealed was staggering.  Working from the factory cost price through to the ultimate selling price at market level less all costs showed that our entire incandescent product range was making large losses.  Furthermore, France which had for years been paraded as the premier example for their marketing excellence in this product area, was making the greatest losses.  The situation should have been recognised and addressed years previously.  However, in the current circumstances the required solution (closing obsolete factories and investing in new production facilities) was out of the question.  My previous UK profits for this product group were amongst a minority and vindicated my strategy in this area.  My cynicism started to mount.

The routine side of my new role involved monitoring progress on planned new product development projects, touring subsidiaries to review and promote good marketing and sales practice, sitting through Don’s meetings, which never seemed to address core issues and taking part in the travelling circus that was the individual country operations reviews.  New product development was driven by technical developments that manufacturing felt would enhance product performance rather than any attempt to establish what markets required.  It became crystal clear that my previous suspicions were well founded.  The central marketing function was largely reactive and existed without a clear role in overall company strategy.  In fact there was absolutely zero talk of strategy to improve the long term viability of the company and if such a strategy did exist it must have been securely locked away in a Credit Suisse bank vault.

The hectic schedule of meetings I was required to attend (both in Geneva and elsewhere in Europe) gave me the feeling I was on a treadmill that custom and practice had determined but which rarely achieved anything of value.  However, during this time I had been working away on the objective I had been given by Don and had started to see some startling results.  Swaanen had an entire department (headed up by Peter the director of logistics) solely to run the DRP system and manage the logistics of our business.  I had always kept close to Peter and had been a fervent supporter of the DRP system.  I had encouraged him to work with me in widening the scope of the relationship I had built with some of the largest UK distributors and this had borne fruit.  When I arrived in Geneva I found that this whole department with its huge potential was largely ignored by Swaanen.  With the added benefit of the relationship I built with Peter’s team, I soon had them working enthusiastically with me.

The DRP system complimented Manufacturing Resource Planning (MRP) that ensured materials for production in our factories were available when required.  The purpose of DRP was to ensure that our subsidiaries around Europe had exactly the correct stock levels of all finished stock at any time.  The system was participative with the subsidiaries in that it required that each and every one to define stockholding parameters, share key demand factors (e.g. large contracts producing sales spikes) and merely to review the sales forecasts generated by DRP each month for individual products lines.  In this system the subsidiaries never had to place an order as once up and running and reviewed regularly it replenished stock automatically.  This system was predicated on the finding that the best place for non-differentiated stock was in the centre (the factories) with rapid replenishment of subsidiary stocks.  The problem was that it seemed that the system was not working, giving rise to Don’s complaint of high stocks.  There were profound systemic problems.

Every employee at management grade and above (worldwide) participated in a Management by Objectives (MBO) system. Each individual had as many as eight or more quantitative objectives they had agreed to each year and bonuses were awarded on the basis of performance against each component.  At senior management level these objectives were spread across set areas and could be very prescriptive. For country and factory managers and above there was a specific target given each year for stock levels.  Given that stock levels were contributing to bonuses, subsidiary managers in each country felt inclined to attempt to manipulate these by adjusting the sales forecasts produced by DRP.

The factory managers also had an incentive to manipulate stock levels as they too had targets to minimise stock at factory level.  At one meeting shortly after a year end Swaanen had actually boasted that only the action of his factory managers in overriding sales forecasts agreed by subsidiaries prevented sales targets in subsidiaries from being missed.  The factories had an additional incentive to ship more stock than required because of the ever increasing drive to increase line speed to reduce costs.  Driven by a misguided bonus system both sides were playing the same game and I suspected this was the cause of excess stock.  The problem was that I had lacked the means to prove this.

Working with Peter and his department we solved the issue.  I asked if the DRP system could recover the individual product line sales forecasts it had generated for each subsidiary for the previous 12 months.  “Of course”, came the immediate response.  I then asked if these could be plotted against actual sales achieved over the same period and the revised sales forecasts the subsidiaries had made.  “Of course”, again!  Within hours I had a complete picture.  With the exception of a few low volume lines that had a very lumpy and unpredictable sales pattern, every major product line, in every country, monthly sales forecast by DRP had been far more accurate than the ones adjusted by the subsidiaries.  If the subsidiaries had done nothing more than merely tick the original DRP forecasts without making any adjustments and the factories had shipped against these, the calculation showed we would have ended the year with $10m lower stocks!  I had the answer and the proof.  We had to change the bonus system and stop the counter productive double guessing that was driving stocks higher.

Could I convince Don that I had found the root cause of the stock problem?  And would he agree to make the necessary changes?  Before I could take this issue further it was announced that a sale of the business finally had been agreed in principle and the potential new owners were to visit us the following week.

Image courtesy of Europeupclose.com

The Business of Life Chapter 22 – Saved by the Bell

Some years earlier our European finance group decided to implement a new IT system, which like most such schemes, was late and over budget.  Finally the UK was selected to be the first to implement the new systems.  An external team was parachuted in to attempt to do in a few short months what should have taken a year or more.  It was obvious that the system hadn’t been fully developed and the implementation process was horrendous and continued to be subject to endless fixes, that unknown to all, would leave gaping holes.

Another decision that was taken under heavy pressure from Europe was the appointment of a new Financial Director for the UK (who shall be nameless).  Recruited in Brian’s time, Nameless came with glowing recommendations from his previous (internal audit) role. He initially appeared to be competent but over time I began to realise that his interpersonal and management skills were severely lacking and had brought this to the attention of Claude the VP Finance in Geneva.  What I didn’t realise (until it was too late) was that he also lacked key functional skills that I might have spotted had I been more experienced.  Whilst preoccupied with the pricing & margin scenarios that were playing out at the time I discovered that we had suffered a stock loss that Nameless had not revealed to me.  The loss was not huge in relation to our business but large enough (at $250k) and the brown stuff hit the fan.  Suddenly, everyone in head office was an IT and an accounting expert and making known opinions on the UK situation.  An accounting hit man was put in to get to the bottom of it.  The process rumbled on for months with the interim result that Nameless was fired and I would make a big mistake.

By this time the stock loss had become a cause celebre within the company and it was being used to settle scores.  In the middle of all this Gregg had made one of his lightning lunchtime raids on me and demanded to know if I had known about the stock loss prior to it becoming public knowledge.  My mind was in turmoil.  If I admitted that I had known nothing of it, I would demonstrate that I didn’t have my hands around the accounting and IT functions in the UK (which was true enough).  On the other hand if I said I was aware of it but hadn’t blown the whistle, I could stand accused of being complicit (which I wasn’t).  In a snap decision that haunts me still, I lied and claimed I had been aware of the situation earlier.  Ultimately, it became known that the loss was a paper one and stock had never physically disappeared.  The issue had been faulty IT and accounting systems that couldn’t reconcile all the components of a transaction with the physical stock.  The head office IT and Accounts people were in full CYA mode and Claude never forgave me for making known that his appointment (Nameless) was a very poor manager.  He was also ‘retired’ a short time later but I came out of this episode badly.

Early in 1992 Gregg met me for what transpired to be the most open conversation we ever had.  He shared with me his view that I was a very bright strategic thinker and a loyal manager.  He went on to say that he felt I’d had a terrible set of problems to deal with but was too much of a nice guy who did not fight enough, “Nice guys come last!”  It was clear from other comments he made that a fairly comprehensive image destruction job had been carried out on me by others in the head office team.  He went on to share with me the news that he intended to integrate my company with another in the group (Linolite) and that I was not being given the role of heading up this new structure.  I put up a spirited defence but to no avail.  Gregg said that his view was that I had done a fantastic job in the past but that I might have been out of my depth with all the problems I’d had to deal with, “Anyone might have been.” he said and then added,  “but I don’t want to lose you from the organisation.”   I had worked tirelessly (and yes, in difficult circumstances) and could not have spent more time with either our customers or my people or had more support from them.  I was deflated.

I was duly served with notice of redundancy but simultaneously what I considered a non-job was created for me.  I had to sit on the sidelines, in a shiny new office, as my company was merged with Linolite by Gregg’s new protégé.  The only factor the two businesses had in common was that they both sold via the distribution channel and I could only disagree with the manner in which the businesses were merged.  My non-job was boring in an extreme and I took full advantage of the outplacement programme that was also offered to me.

My consultant, Max Eggert, was the most fascinating character who had the most profound and beneficial effect on me.  Max put me through a battery of psychometric tests and the words he used to describe me from the results were, “tough, strong leader, stable, assertive, competitive, change agent, highly creative, socially strong, relaxed, self-assured, secure, open, self-sufficient, warm, enthusiastic”.  These were very similar to results that I had been given some years earlier by a Professor of Psychology at Yale (Vic Vroom) describing me as,  “a strong leader, visionary, with a participative and informal style and a transformational leader”.  I felt somewhat vindicated, that I had been in the right role and decided that I would use my severance package to take a full time MBA and start afresh.  I applied and was accepted for the programme at Bradford Business School to start in the October of that year.  However, events soon took an unexpected turn that led me to decline the offer.

Soon after it was announced that our parent company GTE was putting the $2bn global Sylvania lighting business up for sale.  Whether my analysis of the industry and presentation to the President had played any part in this, I have no idea.  But I had clearly been correct in my analysis of the situation.  Another decision was announced soon after; that Gregg was retiring.  His replacement was Don, another American, and an accountant by profession from elsewhere in the organisation.  The European business limped on hindered by a hiring and firing freeze with rumours and uncertainties rampant.  I couldn’t have done too badly in my new non-job as my records show that Don awarded me a bonus for that year!  As my redundancy was effectively placed on hold and my salary was still being paid I continued to fill my days as best I could.  I ignored as many of the duties of my non-job that I could as they were futile.  However, events overtook me and a life changing event took place that demonstrated to me that I hadn’t learnt all the lessons from my psychometric testing that I might have done.

Early in 1992 I took a call from Alain, the European VP for HR.  I was asked if I would take on the role of European Product Manager for a group of our products and be based in the Factory in Belgium.  My heart sunk as this was a role that filled me with horror.  It had no line authority over the subsidiaries, their pricing or their activities but carried responsibility for the results.  It was also the product group that I knew to be struggling the most (and has subsequently been killed off by EU regulations).  I was never normally one to fail to respond when a challenge was put to me but I decided that this was a dead horse that would not respond to flogging.  I entered into a delicate process of negotiation, claiming that I wanted to assist the company but that the details had to be right for both parties.  I managed to drag the negotiations out for weeks whilst I did my research on life as an ex-pat in Belgium.  I pushed and wrangled, had meetings and more meetings and continued to delay until I had got to the point where I could procrastinate no longer.  Then, miraculously, at a minute to midnight, I was saved.

Alain came on the phone on the day I had committed to make a decision and said to forget Belgium.  Louis was leaving his role as VP Marketing in Geneva to run the operation in France.  This was the role I had wanted many years ago and I knew it would look good on my CV if things took a turn for the worse following a sale of the business (if indeed it ever happened).  I started to negotiate but it soon became clear that, given the circumstances, they were desperate to fill the role and I was the only one in the frame.  By the time we had finished I had on the table a salary in Swiss Francs that had doubled, a company flat with cleaner and all bills paid, a company car in Switzerland, the retention of my company car in the UK, business class travel to and from Geneva each week (or for Denise if she wished to join me in Geneva) and the guarantee of a severance package based on all this if I was made redundant from Switzerland (plus repatriation to the UK).  Delaying only for a discussion with Denise I accepted.

Would it work out?  Or had I gone from the frying pan into the fire?

Image courtesy of c&maccounting.co.uk

The business of life (chapter 8 – a business to run)

Driving across London for my meeting with Peter and Angus the next day I reflected on the growing sense of dissatisfaction I was experiencing with my current role. I was by then earning a great deal of money.  I had flourished through the recessions of the early and mid-seventies (induced by miners strikes, 3 day weeks and Arab oil embargoes), had moved into our first house the year before and we were enjoying regular family holidays.  The problem was it wasn’t enough; not the money nor the standard of living.  The real issue, I realised, was that I was just frustrated with my role.  I loved the negotiations that came with the big deals but the day to day role simply bored me.

By this time I had been selling successfully for over 8 years in two demanding companies and had graduated to the most important customers. But it simply wasn’t enough; I wanted more responsibility, a wider role and greater autonomy.  A few short hours later I had all of those things.

Unbeknown to me, Angus and Peter had been engaged in negotiations with a Japanese manufacturer of cine cameras and projectors.  The new brand Sankyo was potentially a wonderful fit into RAV’s consumer brand portfolio as we had no presence in this sector.  A powerful additional benefit to the Sankyo brand was their forthcoming entry into the market with a first generation sound cine camera.  The negotiations had been concluded, apart from their agreement to whoever RAV chose to head up the new venture.

When I drove away from the office later that afternoon I had the role of Business Manager for Sankyo and full profit and loss responsibility for the new business.  The downsides were that I had to rely on sharing the services of my old colleagues as a sales force, I had taken a pay cut and would have to keep the car I was currently assigned.  The sales team issue was a temporary one, my car was still fine and I had negotiated a basic salary that was 50% up.  However, I was going to be one third down on a monthly basis earnings basis for the first year when I would become eligible for a generous bonus scheme if I exceeded sales and profit targets. But I was also now on the company executive contract with the additional security that provided.  A few days later I met with the chairman of the Sankyo business and his team responsible forEurope and the deal was signed.

The company also agreed to fund a move to ease my commute and later that year we became residents of Henley on Thames, a delightful location (and one now full of wonderful memories).

One of the first meetings I had upon taking up my new role was with Martin, the finance director.  I had been required to construct a one year budget for our new business including my first attempt at a cashflow projection.  Not to put too fine a point upon it, I was taken ‘back to school’ for about an hour and then informed I was booked on a “Finance for the non-financial manager” course.  I learnt quickly and it established my enduring commitment to the critical task of managing cash in a business.  I might have had the financial backing of a major PLC but God help me if the subsequent result was more than a few percent out from my monthly cash forecast.  Cutting back on forecast purchases from Japan, if I had failed to achieve my sales budget, also brought the wrath of the Japanese gods down on my head. One learnt quickly that honesty and accuracy were far more important than over optimism or chancing to luck.

Having ensured that the sales team was trained in my new products and the press was briefed, the trade launch took place.  Luckily for me the products were well received and orders flowed.  However, a few months after launch sales started to fall short of projections.  Two problems were responsible for the slowdown; the first taught me a lot about the challenges of adding a product range to an existing sales team and expecting synergy to take over.  My erstwhile colleagues had existing product sales targets to achieve as did my two fellow business managers (John & Doug) responsible for Pentax & Mamiya.  Gradually, by a process of discussion and collaboration, we managed to stagger promotional activity and product launches and sales started to climb once more.

The second problem was more deep rooted but, once identified, the solution became one of the most important factors behind the brand’s subsequent success.  In my previous role I had learnt to understand the purchasing behaviour and product use of the typical still camera owner.  In common with everyone else in the retail photographic sector, I believed that cine camera owners had similar needs and behaved in a similar fashion.  In an effort to understand more about the market I commissioned research into cine users’ beliefs, behaviours and perceptions of the major brands.  When the results were presented, I was amazed to find that the average owner was almost completely disinterested in the technicalities of the equipment; they saw little difference between major brands and merely wanted something that was easy to operate and would perform reliably.  Yes, there was a technology aware group of enthusiasts but they were a minute percentage of the market.

The implications of the research were immediately apparent; manufacturers and retailers were stressing the wrong aspects of the equipment both in advertising and instore.  There was much evidence in the research findings that many purchasers were alienated with a retail sector they believed talked down to them in terms they couldn’t understand.  The typical cine purchaser was scared off by sales pitches that dwelt on the technical aspects of the equipment.

Armed with this unique knowledge, I implemented two new strategies.  The first was to sit down with the advertising agency and spell out a new communications strategy.  The new top of the range models we positioned as aspirational objects (one of which you can see above, courtesy of an eBay vendor).  For the volume selling lines we took care to explain the benefits that came with new features rather than the universal assumption that everyone knew what these benefits were.  The other new approach I developed was a training module designed to teach our retailers a more congenial and benefits focussed approach.  I took to the road to deliver this training programme to as many of our stockists as I could reach.  The new approach was a success and sales started to climb.

Life was now anything but boring but in the first six months I found I had gained half a stone in weight.  My energetic regime in sales was now but a memory and the long ‘business’ lunch was fast becoming a regular pastime.  Yes, I was still selling my socks off but these negotiations more usually now took place around the table in some suitably upmarket restaurant.  Shocked at my rapidly thickening girth I joined the local Henley rowing club and soon became addicted.  For those interested in the sport, no I never achieved greatness, but spent whatever hours I could free up on the river with a fellow fanatic in a coxless pair.  Happy days, whatever the weather, and the start of a fitness habit that has stayed with me to this day.

Life in our large open plan office was usually full of fun (and intrigue).  Doug and John were now my fellow business managers and we enjoyed a great deal of camaraderie. However, with John (sadly deceased at far too early an age) there was always a competitive edge that was exacerbated by his overly suspicious nature.  Our two heavenly secretaries, Sue and Linda, managed to lighten the atmosphere and both took delight in chiding and teasing John whenever the opportunity presented itself. I had confided in Sue the reason for my absence from the office for a couple of days which happened to be due to a minor operation that would ensure my days of procreation were over.  As soon as I returned to the office John became solicitous in an extreme towards me and I realised that Sue had been a little indiscreet (she just gave me her usual sweet smile when questioned).  It became progressively clear from John’s ever more pointed probing that, not understanding the procedure, he had assumed that I had been completely emasculated.  It wasn’t until several years later, enjoying a drink with Sue at a company function that she revealed the truth.  It seems that the day after my ‘procedure’ she had brought a small medical container into the office containing two pickled walnuts swimming in surgical fluid, which she proudly assured John I had given her as a souvenir!  John had truly believed that this was what my little procedure had entailed.

Towards the end of my first year in the role, I had my first visit to Japan, taking part in a multi brand press trip.  Up until this point I had been liaising with Sankyo with regular trips to their European headquarters in Düsseldorf.  It had been decided to steal a march on competition with a fact-finding press trip to a country that was still relatively unvisited fromEurope.  All of the major factories of our various partners were visited with a good deal of time for sightseeing and ‘rest and relaxation’ built in.  Once I had acquired a taste for sake, raw fish and Ryokan, I came to love the country, returning many times in the next 5 years.  With the excuses of further press trips, dealer visits and sales team incentives, I also managed to visit many of the traditional tourist sights. I also loved the hot spring resorts, the mountains, the temples and how even the smallest patch of garden was turned into a haven of peace and tranquillity.  I was highly impressed with the speed and sheer efficiency of the Shinkansen and particularly the Japanese methods of manufacturing and the care they had for their workers.   Business was something else though and gruelling in the extreme (more of this in subsequent chapters).

I exceeded budget that first year, reaching a level that now justified my own team.  My budget for the next year proposed a sales team of 6, together with a product manager and a secretary of my own (the lovely Sue being stolen away for the exclusive use of John).  Having seen how a good grounding in sales technique was more important than knowledge of the sector, I recruited exclusively from outside the industry.  With Laurie the Product Manager and Bernadette (from Grenada) our new secretary, my team was now complete.  Looking back my leadership style at the outset was one of working with people to achieve agreed results and this approach has stayed with me (although I have no hesitation of ‘letting go’ non-performers).  If I’m honest, though, I probably erred too far towards letting my hair down with the team on evenings before sales meetings and on trips.  I was always the first up in the morning and very intolerant of lateness or lack of serious intent with the business of the day.

We worked hard and we played hard and soon, in 1976, sales were at a running rate of well over £1m and growing healthily.  The new sound cine equipment was selling well, aided by our advertising campaign and good product performance.  In their first year my new team did well and together we beat budget; I was back earning serious money once more. Peter was delighted at the results, as was Angus and the Sankyo people back inJapan.  I also stuck close to the media and sponsored the annual amateur film competition run by a leading magazine.  The only downside of this sponsorship was having to take part in the judging, which involved sitting through hour after hour of the most turgid, amateur efforts.  The relief at finding one film that stood head and shoulders above the rest was palpable.

Shortly after my second year end I walked into the office one afternoon following a customer visit to find Bernadette looking as if the world was about to end.  “Quick,” she breathed in her uniquely husky Caribbean accent “Gordon’s been on the phone several times; he wants to see you now.”  Gordon our divisional MD (and Angus’s boss) was not someone I knew well (in fact I was not aware he even knew I existed).  A 6′ 7″ Scot, with a formidable track record, Gordon towered over the majority (literally and figuratively), inhabiting a suite of offices on the floor above and rarely venturing down into our area.  When I arrived in his secretary’s office, Gordon was on the phone and I had to sit waiting for what seemed an age, consumed with curiosity as to the reason behind my summons; I had done everything asked of me, hadn’t I?

Finally ushered into his corner office, I was directed to one of the armchairs that surrounded the coffee table, where I was joined by a jovial Gordon.  “You’ve been doing well,” he announced and before I could respond continued, “I’ve got a wee problem and I think you can help.” Trying to remain relaxed I muttered something about doing whatever I could.  The story then unfolded.  Akai HiFi was one of the largest of the Japanese brands in the RAV stable, was the first and had originally been won and run by Gordon.  “We’re in trouble,” he went on, “The sales have been flat at £4m for the last two years, the contract is due for renewal in a year and the Japanese have threatened to fire us. How would you like to take the business on and win another contract renewal?”

I had really enjoyed my time running Sankyo, having my own team and getting results.  For the first time in a long time I wasn’t even bored.  And now here was a monster challenge being dumped in my lap.  Did I want it?  Could I turn Akai around? Would it be a good move?

I said yes.  What followed were some of the most invaluable experiences and greatest successes of my early career.  Unfortunately, the next few years were also responsible for almost ruining my career, my health and my marriage.

The business of life (chapter 7 – on gaining a broader insight on life)

Business was not without its occasional pleasures.  From time to time various dealer conferences were attended in venues a littler warmer than off-season Eastbourne (my wife joining me for one welcome trip toMalta).  Another memorable trip for a number of reasons was a visit David organised for 3 of us target busters to a number of our fellow European distributors.  The great surprise upon gathering at Heathrow was being ushered like royalty through departures and out onto the tarmac where the company jet was waiting to fly us off to Copenhagen. 

Our first evening passed fairly quietly and an early flight the following morning took us to Odense. After a very short meeting at our distributor’s office we were taken to a delightful restaurant where beer and schnapps commenced at around 11.30 and flowed until some time after 5.00pm.  A very long evening and night followed and saw me the next morning (following about one hour’s sleep) suffering from a monumental hangover.  Somehow I managed to survive the drive to the ferry and was dragged into the bar where I promptly announced I wanted to die.  The barman took one look at me, poured a glass of dark brown liquid and instructed me to drink it down in one; I did and it had the most incredible effect.  Instantly a deep calm settled upon my very fragile stomach and within another 5 minutes my head cleared.  I had discovered Gammel Dansk.

The Beatles may have long departed but Hamburg was still memorable.  Deciding to wash the travel dust from my bones and sweat out the remnants of the previous day’s alcohol, I joined one of my colleagues for a visit to the sauna in the Intercontinental where we were staying.  Not realising it was for mixed sex we marched in as naked as nature intended to be greeted by a very Germanic blond (in similar state of nudity and using her towel simply to sit upon) with, “Hello English”.  Given we had not uttered a word I am still trying to work out what it was that gave us away.

Dinner that evening was in a very upmarket restaurant in a converted wharf building.  The conversion had been carried out in such a way that there were a number of tiered levels permitting a panoramic view across the docks through full height windows.  The evening was relaxed with wonderful food, lubricated with David’s usual expensive selection of wine.  The clientele was decidedly cosmopolitan, expensively dressed and generally decorously behaved; with one exception.  Taking in my surroundings and glancing around the upper tiers of seating (which was in the main affording an expansive view of a sea of knees and the underside of tables) I couldn’t believe my eyes at a scene playing out one tier up.  A couple, clearly the worse for wear were, not to put too fine a point upon it, pleasuring each other (probably in the mistaken belief that what they were doing could not be seen under cover of the table).  This little demonstration of libidinous incontinence played itself out even whilst they were being served by staff, who effected not to notice what was going on right under their noses.

Richard, one of my colleagues, was strictly teetotal and had swept through the trip so far without even a sip of alcohol.  Having missed our flight from Hamburg, we arrived very late inAmsterdam and rushed through check-in at our hotel to get to the bar, which we found was just closing.  The barman said not to worry as he would rustle us up something to keep us going.  True to his word, he reappeared a few minutes later bearing a large grin and an ice bucket filled to the brim with an orange fluid declaring “Screwdrivers!”  “What are screwdrivers?” enquired Richard with a worried look.  “Oh, it’s just a Dutch version of orange juice.” David assured Richard, who rapidly downed a large glass. He declared it very acceptable and said he would have another.  And another and so on, finally becoming very animated when the bucket was drained, demanding more.   The following lunchtime Richard announced he had by then realised the terrible trick that had been played on him….but would try a beer.   He continued drinking through the rest of the day and most of the night.  He never returned to his former self.

Walking back to our hotel that night my colleagues decided they wanted to see the red light district, so a detour to De Wallen was duly made.  Our short (I promise) walking tour left me with two lasting impressions, one hilarious and the other deeply disturbing.  We had wandered along one side of a canal looking at the wares on offer in the various little windows when a commotion started further along the canal.  We elbowed our way to the front of what was a very jocular and large crowd to find a group of a dozen or more Scotsmen.  Clad to a man in their national dress and very much the worse for wear, they were noisily negotiating terms with one of the ‘angels of the night’ through her open window.  Finally a suitable financial arrangement was agreed, the door was opened and they ALL trooped in at once to a vast cheer from the assembled throng.  The curtain was pulled and we drifted away with the crowd.  The room couldn’t have been much larger than the bed it contained.

Further along the canal there were various small theatres offering ‘live sex shows’, which none of us had an appetite for.  As we were making our way back to the hotel, a smartly dressed trio came into view.  Probably husband and wife in their late thirties, the couple were hand in hand with an angelic looking little girl of not quite teenage years.  They paused to look at the offerings of several theatres before all nodding agreement and walking into one that promised the most outrageous show.  No objection was raised by the doorman and they disappeared inside leaving me feeling decidedly sickened, a sensation that has never left me and that returns whenever I recall the incident.

Quite what business lessons we learnt from this European study tour (despite the meetings we held with our various European distributor colleagues) I am not sure but certainly they have not stood the test of time.  Suffice to say that I gained a much wider appreciation of the social customs of our near neighbours and that it was now crystal clear that my strict religious upbringing had done little to prepare me for some of the more mentally (and physically) challenging aspects of international travel.

Over the next few months I received a morale boost with a move to take over the Central London region covering the majority of our major accounts.  My earnings continued to improve and I ended the year taking home more than three times that which I had in my role with my previous company.  This was fine from a financial perspective but it was far from sufficient in terms of either job satisfaction or self-fulfilment.  I continued to push both David and Peter at any and every opportunity for advancement; I must have been a complete pain in the a*$!  Then, the situation began to look much more hopeful with the news that David was leaving.   I liked David immensely, had enjoyed long ‘business’ lunches with him whenever we could fit them in and learnt a great deal from him, but I was aching for the chance to move on and up.  I began to visualise myself in David’s role and was mentally planning changes I would make.

Almost immediately matters took a turn for the worse when Peter informed me that I was not being given the chance to replace David and lead the team; David’s role was going to Keith one of my team mates, another old hand from the photographic trade.  My heart sank.  A nice enough guy and great company socially but it was clear to me that I could learn nothing from Keith.  Arrogance on my part?  Maybe, but I had studied my team mates carefully for the last year or so and knew that they were now trailing me both in sales performance and the knowledge of how to innovate. A series of meetings with Peter & Keith culminated with a deal being struck; I would support Keith, he would keep out of my hair and the company would support me to fund a study programme to equip me for a bigger role.  Courses at the Institute ofMarketing followed and I started evening classes once more.

One evening some months later I received a call from Peter.  Could I cancel whatever I had arranged for the next day and come into the office to meet him and Angus?  An urgent situation had arisen that he wouldn’t discuss on the phone.  Had I screwed up somehow? Or, was this the chance I had been waiting for?

Images:  Gammeldansk.com / Youropi.com

 

The business of life (chapter 6 – in which I discover riches are not everything )

The company I joined in late 1972 was Rank Audio Visual (a division of The Rank Organisation) based in an imposing, 1930’s style building on the Great West Road in Brentford,West London.  The products marketed by RAV included those manufactured in the UK (such as Aldis, Leak & Wharfedale) together with many of the premier Japanese and European brands (Nikon, Arriflex, Bauer, Akai, Pentax & Mamiya).   The team I joined was responsible for the sale of Pentax, Mamiya, Aldis & Bauer consumer, professional & educational products).

As a small team of six sales managers we covered the UK. My own geographic horizons broadened in that I was now responsible for more than half of the capital plus all of Essex,Kent, Surrey andSussex.  Apart from my new boss David, theUK sales manager, I was the only one of the team who had not previously worked ‘man and boy’ in the photographic business and, as such was treated with a mixture of caution or distain.

Following a product introduction day spent with the two product managers, I was despatched to spend a few days ‘on the road’ with my fellow sales managers.  Having come from a highly structured and disciplined company with rigid call patterns and performance ratios, I was amazed at how relaxed the new business was.  It was clear that my new colleagues were coasting, they were old hands who did just enough to make target (usually with a great deal of  game playing) and who were never on territory before 10.00am and rarely, if ever, after 3.00pm.  Now, despite being someone who had had more than his fair share of afternoons off in the past, it had always been because I had finished that day’s workload and there was little or no way one could earn any additional money. The money I could earn now was limitless and I was certainly going to make the best use of every waking hour.

Here I was with a completely open-ended commission scheme meaning the more I sold the greater my earnings; I was going to sell the maximum I possibly could and reap the financial rewards.  This attitude quickly brought me into conflict with my new colleagues who attempted to instil in me (by fair means or foul) their own values and working practices.  I made it clear that I was going to do whatever it took to be successful.  Over and above the potential for earning, I was now ambitious and I had my sights set clearly on David’s job; he clearly had potential therefore, I reasoned to myself, there would be an opportunity sooner or later. The business was certainly more exotic than the one I had left.  One of the annual highlights was the unveiling of the Pentax Calendar shot by Sam Haskins one of the great glamour photographers of the 60’s & 70’s.  I was constantly befriended by those who clamoured after each year’s new edition.

From the outset my new role was wonderful, the freedom was stimulating, travelling the English countryside in a smart new car (still at far too high an average speed) was refreshing and the selling task was enjoyable.  I had taken over from an old hand who had neglected vast swathes of the market. My advanced level of training had prepared me well enough for the task and the environment was challenging but responsive.  The retail environment I had entered was split into two main factions. There were those that were still attempting to cling to manufacturers’ recommended pricing and a traditional way of retailing on the one hand and, on the other, the new volume driven entrants who created a cost base that enabled them to exist on extremely slender margins (usually via mail order).  I managed to make real progress with both groups.  With the volume operators it was a question of staying close, negotiating well and constructing pricing models that fed the volume needs of both us and them.  With the traditional outlets I spent time on a selection who I felt offered the right geographic coverage and who were receptive to the patient and reasoned sales methodology I put to them (concentrating on lines that the mail order outlets didn’t favour).

Getting past my lack of trade experience was never a problem but it did produce some hilarious moments.  I had one East End Jewish retailer called Ken who enjoyed a formidable reputation.  On my first visit I waited patiently for him to finish with a customer and was greeted with a scowling, “Who are you?”  I politely explained who I was and was peered at closely. “What were you doing before you joined RAV?” he barked.  Sensing a challenge was on the way I decided a truthful response was in order and replied that I had been a margarine salesman. Ken’s eyes narrowed.  “Do you speak French?” “Un peu”, came back my cocky reply.  “Good”, growled Ken, “then you’ll understand F*ck off!”  I grinned and stood my ground.  “OK, smart*rse,” he responded, “explain reciprocity failure to me.”  I did in very succinct terms, grinning all the while. He caved in and we did business.

At the end of my first year the money I took home came out at more than double my basic salary and I was even more confident that I could do better.  One of my largest accounts was a national retailer called Derek Gardner, run by him of the same name.  Initially a very intimidating man, who had been extremely difficult to meet, we built a good relationship and business flowed.  Derek was a very disciplined man whose office was always impeccable and without a single piece of paper on display anywhere; in fact the whole office, nicely furnished as it was, was completely devoid of anything of character.  One summer morning I arrived at his office mid-morning for an appointment.  Derek greeted me in his usual reserved but polite enough manner but after five minutes or so I could tell his attention was elsewhere.  “Do you fancy a game of football?” he chipped in halfway through an attempt on my part to engage him on the business of the day. “Come on”, he continued, not waiting for my reply, “We’ll go to my house.”

Derek’s house transpired to be larger than I had ever been in before and set in beautiful Surrey countryside.  The sun shone and for half an hour or so we kicked a football around a section of his enormous grounds.  When he had had enough we sat and chatted.  It wasn’t long before the chat turned into a very serious discussion over a proposition I put to him to launch a major national promotion on Pentax cameras.  We got as far as I could go before I realised that I was, as the saying goes, out of my pay grade.  I made a suitable excuse of checking supply with Japan prior to committing on the details of price and promotional support.  The potential we had discussed was simply huge, greater than my entire budget for the brand that year.  Fast driving got me back to head office that same afternoon and deep in discussion with David’s boss, Peter.  We agreed that if the necessary level of additional support fromTokyo could be obtained, there was the makings of a deal I could go back with.

With a new price agreement in place from the Japanese, I made another appointment with Derek to thrash out what we both envisaged to be minor details.  The evening before my meeting Peter called to say that he couldn’t be with me but his boss, Angus (the divisional director) would be accompanying me.  I had no problem with Angus as I had always had a good enough relationship with him.  However, from the outset it became clear that there was a significant clash brewing between the two of them.  Derek was a self-made man with a clear sense of his own abilities and Angus, although warm and engaging, had that public school confidence and assertiveness that set him a world apart.  I sat and watched as our carefully nuanced deal fell apart before my eyes.  Within half an hour Angus and I were outside on the pavement with Derek’s outright refusal to negotiate further ringing in our ears. Angus put on a brave face and departed for the office.  It was a long drive home but the first thing I did was to phone Derek and seek an appointment with him the next day.  “So long as you don’t have that *&%! with you”, was the response from Derek.  I assured him not.

The next day Derek and I negotiated hard once more, going over the key points but avoiding the pitfalls of the day before.  An hour or so later we finally reached a position we were agreed upon. This time, pay grade or not, I shook hands with Derek, got him to write out and sign the order and headed out back to the office.  I walked straight into Angus’s office unannounced and slapped down the order.  His eyes went wide and then he grinned widely. “You bastard!” was the greeting I got.  But I had brought back the largest ever order in the history of the company and it made sure that I earned a great deal of money that year.  The following month I bought our first family car and booked the first holiday in a long time.

I had certainly made the correct move joining RAV with a level of earnings now flowing that I could only have dreamt of previously.  But once the euphoria wore off I was increasingly bored and looking for a bigger challenge. I was tired of the motivational sales meetings, the endless tweaking of the commission schemes and the lack of any real learning opportunities from the company.

I wanted a move up the ladder; I wanted the chance to do things my way. But could the company provide the career opportunities I now so desperately wanted?

Image courtesy of http://www.Haskins.com

Are bonuses fair?

When I wrote on the subject of bonuses in the middle of last year (Most bonuses are a waste of time) it was on the basis of my views on a subject that has long interested (and involved) me. The row over bankers’ pay had yet to reach the current level of political & public hysteria. Having first been on the receiving end of many different schemes and then being responsible for designing remuneration schemes in many other businesses (including my own), I have some experience of the subject.

Image courtesy of upscale-homes.org

Are bonuses really fair? Is boardroom pay too high? Have the multiples of executive earnings become too high relative to average workers’ pay? Let us consider some aspects of remuneration that don’t get a great deal of light and air in the highly charged political and media circus of today.

Too many issues concerning remuneration have become conflated into the one term ‘bonus’. The definition of bonus that I became familiar with and happen to prefer is ‘Something given or paid in addition to what is usual or expected’. It used to be customary in many large companies that, given a healthy overall company performance in any given year, then a bonus conforming to set formula (often a multiple of an individual’s weekly or monthly pay) was paid. Complex mechanisms were unnecessary and everyone in the company participated in what was a reward.

Sales people have traditionally been paid either commission on sales or a bonus on achievement of a sales revenue or profit target. Both of these two systems have usually included a basic salary. These sales ‘incentives’ often work well when a number of criteria are met – the target thresholds are realistic, the mechanisms are simple to understand, information on progress is readily available and the individual can measure what they are achieving in real time. However, not all schemes were or are well constructed; an old friend and colleague of mine tells the story of an employer who called him in at year end and informed him that he had failed to reach his target. “What target?” asked my friend, “What was it?” The answer came back “You’re not entitled to that information, it’s confidential”.

Sometime over the last 20~30 years, the concept of ‘performance related pay’ became the fashion item amongst consultants, senior management and HR departments. The siren song of a simple way to let money do the management and motivation of a company or department took hold like wildfire. There seemingly wasn’t a role that couldn’t be made to perform better when a carrot was dangled. Couldn’t fail, could it?  Seeds were sown.

Failure to differentiate between a bonus and a reward lies at the heart of the failure of many schemes. A suggestion currently being made is that no-one should receive a bonus (irrespective of their individual performance) until the company reaches a certain level of profit. This has a certain simplistic and populist appeal. However, it breaks most of the basic rules for incentives as detailed in paragraph three above. If I had moved heaven and earth and worked 90~100 hour weeks and had achieved all that had been set for me (or my department), I would be severely hacked off if I didn’t get my reward; a call to my favourite head-hunter would probably be the first call I made. If it’s an incentive, it isn’t or cannot be a reward or be discretionary.

Alignment of board room pay with shareholder interests became the next belief system; shareholder value became the new mantra. I may be in a minority of one but I do believe that managers are managers and shareholders are a different breed. Attempting to create alignment with shareholders via creation of long term incentives paid in share options doesn’t hack it when the vast majority of shares are traded over very short timescales. And as for the concept of paying for above average share price performance of the sector, sorry my friends, it’s laughable. Absolute performance is what counts. If management’s efforts produce satisfied customers, rising market share, cashflows and profits relative to competition then they have done a good job. These activities are the role of management. Linking executive pay to the share price won’t make management any more effective at their day job. If the sales force or managers have absolute targets, then don’t expect anything less at board level. There cannot be a salesman in the world who wouldn’t thank God for a system that retrospectively flexed his target down if the competition were failing. So why for the board?

Is there a better system for boardroom pay that rewards long term performance? There is hardly a main board director of a quoted company that struggles to live on his basic salary (unless he thinks he has a right to live like Bill Gates). Create absolute targets with performance up to the threshold represented by the basic salary and benefits package. For performance above the threshold (set at a genuinely tough level) pay an incentive. However, to ensure consistency of performance (and not short term gaming of the system) I would ensure one third is paid in cash, and two thirds of the incentive is paid over the next two years, but only if the targets for the next two years are met or exceeded.

Rewards for failure?  Executive tenure has been getting shorter for years. The executive who can move companies and go on repeating above average performance is rare (although no-one wishes to acknowledge the fact). Performance is a complex mixture that involves personal qualifications, experience, behavioural attributes and skills plus the right team and a complimentary company culture. If an executive is encouraged to move companies then there is a high possibility of failure (not infrequently due to the hiring management). A contract that requires the giving of a long period of notice on the part of the job holder (as a means of retention) also requires a matching period of notice to terminate. Trying to apportion blame when an executive fails is as complex as attempting to adjudicate where blame lies in a failed marriage. A contract is a contract.

Are high rewards ‘fair’? It very much depends upon the definition of ‘fair’. Most dictionaries have a long list of common meanings for the word – Just to all parties; equitable: a compromise that is fair to both factions; being in accordance with relative merit or significance; consistent with rules, logic, or ethics. It’s difficult to construct an argument that a contract freely entered into by the parties concerned is the business of anyone else by these definitions. The general population is not a party to the process. However, there is a further definition – superficially true or appealing; specious. Fertile ground indeed for politicians and the envious masses. Perhaps we should retain the use of the word fair but restricted to the under fives who seem to understand its meaning so much better.

Whatever your views, vast sums from taxation on the salaries, bonuses and incentives of high earners flows into the exchequer and help pay for much of which is taken for granted. Yes, there are those who find (legal) tax avoidance schemes but it lies within the remit of the Government to simplify the horrendous mess that is our tax system that permits (and encourages) such schemes. Government could also work far harder to eliminate the appalling waste that would never be permitted in the private sector. And evidence based programmes are far more effective than sound bite political dogma and knee-jerk legislation. And if chief executives have ratcheted up their rates of pay by the technique of comparability, isn’t this what unions have been doing for a lot longer?

Finally, by HMRC’s own figures the top 1% pay 27.7% of total tax in the UK; fair or not?

When the Perfect Storm hits (part 2 The Storm Clouds Gather)

In the previous post I described (in much abbreviated terms) the events leading up to our purchase of Bridgestream (not its real name).  Despite my concerns about the quality of Bridgestream in terms of its somewhat neglected infrastructure and systems, it was also my first experience of working with a venture capital partner.  With the glow of success still infusing our faces, the following morning we took control of the business and set about reviewing our new company.

Bridgestream traded from eight warehouses across the Midlands and Southern England, supplying a wide range of chemical and consumable products into two discrete industrial markets.  The business was trading profitably on narrow margins but had high overheads in terms of both premises and staff.  Our business plan included achieving major savings by consolidating down onto a single site; this would also have the advantage of operating with reduced inventory whilst improving customer service.  During the remainder of the first week, I visited most of the sites which served to confirm the urgency of the plan.

The first bombshell came with my return to the office to find an extremely concerned looking Richard in his office with the management accountant.  “We’ve been screwed” Richard announced to me.  In contravention of the terms of the sale and purchase agreement the vendor (let’s call him Mr. Offhand) had cancelled all of the previous month’s payments to creditors.  The effect of this was to deprive Bridgestream of the major portion of the working capital we had relied upon.  I agreed with Richard that an overhaul of the accounting systems was vital if we were to have accurate information.

The situation was compounded when we also discovered a few days later that in settling an intercompany debt pre-completion between Bridgestream and its sister company (remaining with Offhand) a large over-payment had been made.  The net effect was now a hole in our working capital of well over half a million Pounds, a situation that moved us from serious to virtually crippled. Richard quickly spoke to Offhand who made soothing noises and promised to look into the situation.  We hastily reran our cashflow projections and calculated with the benefit of the deferred consideration, changes to our payment terms and some savings we might survive; but we needed that cash.  The next call was to our lawyers.

Despite many calls to Offhand, no payment was forthcoming, so on our lawyer’s advice, we instituted proceedings against him for breach of contract. Offhand’s reaction was to issue a counterclaim for repayment of the deferred consideration.  As the months dragged on I attempted to engage Offhand in the Alternative Dispute Resolution (ADR) process but despite agreeing he never showed up for a meeting.  One of our managers still in contact with Offhand reported that he had no intention of paying as he believed we couldn’t afford the legal costs to win.  The legal processes rolled on and our costs duly rose.

Meanwhile, the cash situation was not improving.  We were surviving but barely and towards the end of that first year, the directors all agreed to reduced salaries.  Richard had agreed to replace the management accountant as he was, in Richard’s opinion, simply not up to the job.  The months dragged on but no change took place, Richard always having one excuse after another to delay making a change.  It also became apparent that our invoice financing company were reducing their advances to us, having the effect of stressing our finances still further.  A meeting with their management revealed their concerns over the credit worthiness of many of our customers.  Richard promised a major drive to improve debt collection.

Richard had started giving me growing cause for concern over this period.  He was increasingly absent from the office, ostensibly improving sales but instead he frequently met with one ‘snake oil salesman’ after another and came back full of his latest ideas for additional (and wholly inappropriate) new product lines.   The monthly accounts were increasingly late for our board meetings and appeared to be showing profits whilst we were bleeding cash.  After another board meeting when we were again without full accounts, I called off the meeting and met alone with Richard.  What followed were hopefully the most difficult couple of hours of his life.  I covered all of his shortcomings, his continued failings to take corrective action despite commitments, inappropriate sense of priorities and his duties as a director and required a programme of specific actions over the next period (through to our first year end).

Over the next couple of months we set about the site consolidation process.  We finally found suitable premises, close to the centre of the country and the motorway network and after careful planning on Tim’s part we made the move over one hectic, weekend.  The long awaited reduction in stock levels finally started to feed through.

Yet another turn of the screw came when the financing company rewarded our stock reduction programme with a reduction in advance.  The promised sales improvement failed to materialise and combined with our reduction in stock financing we were seeing no improvement in our cashflow. Richard was pleading the need to concentrate on producing our year end accounts (which we were under pressure to produce) and had still not replaced the management accountant (saying now that he had great loyalty).  I was forced to give him additional time to achieve the commitments he had made to me.  Richard shortly afterwards produced management accounts showing a breakeven position at the year end and promised that the cash situation was improving and that now the move was complete we would see real benefits.

Some weeks later my mobile rang with a devastating call from our major supplier.  I learnt in a very difficult call that Richard had reneged on a previously agreed payment schedule and was now avoiding calls.  He informed me that all confidence in Richard was exhausted.  I promised immediate attention to the issue and asked, on my personal surety, for additional time to resolve matters.  The following day I was due to meet with Richard and Tim at our accountants’ office for the audit meeting, so I decided to delay any conversation until we could meet face to face.

The information from our audit partner was worse than I could have imagined.  The year-end breakeven Richard had reported (critical to the continued support of our financing company) was in fact a large loss.  Furthermore, we were informed that the firm had never seen an accounting system in such a mess.  Richard bumbled on making a series of ludicrous excuses whilst I sat and tried to configure a plan.  The first step had to be to remove Richard; not only was he past the point at which he could recover any credibility, it was clear that he was utterly incompetent.  I made suitable excuses and left to start moving things forward.

 My first action was to meet with our VC partner to bring him up to speed and gain his agreement to the action I was proposing.  I then had a meeting with our lawyers to review the terms of Richard’s contract.  They agreed that the situation constituted a serious enough breech of his duties to warrant dismissal without compensation.  That left the issue of Richard’s equity which was literally under water and without value.  Under the terms of his contract if he left the company he was required to sell the equity back to the company at an agreed valuation. In an act of generosity I set a valuation of a nominal sum.  I called Richard and set up an extraordinary board meeting for a couple of day’s time.

What followed was the hardest task I have ever had to undertake in business.  It had fallen to me to fire more than a few people in my time but to take away someone’s dreams and their life’s savings at the same time was not something to relish.  In the event a usually verbose Richard was stunned into silence save for a few monosyllabic replies.  I escorted him whilst he cleared his office and saw him off the premises.  Later that night he returned blind drunk and hurled two pallets through the front office windows.  The exercise of power can be a sobering experience.

Could we save the business?  In part three I look at the aftermath of Richard’s departure and how the gathering storm grew in intensity to reach perfect proportions.

 

 Image courtesy of viralblog.com

Stretch that target!

I sit and smile whenever I hear or read the advice concerning the desirability, necessity or effectiveness of ‘stretch’ targets.  BEHAGS, some call them; big, hairy, audacious goals.  Sounds great doesn’t it?  Reach for the sky!  Go for gold! Shock’ em out of their comfort zone!  If only it were that simple.

Image courtesy of Port Canaveral Limo & Transportation.com

The problem comes when some idiot of a sales director decides to set the salesforce a target for the year of, say 20% increase in sales…..in an industry that’s flatlining…..when the company has already 40% market share…when production (who haven’t been informed, by the way) couldn’t handle an extra 10% share without significant investment……and the lead time for a new production line is 1 year.  Apart from any of these factors, as soon as the team start falling behind plan (inevitably), the beatings alternate with the pep talks.  Soon half of the team have simply switched off, realising that there is no way they are going to earn bonus that year and sales take a dive!

Don’t get me wrong, setting your team, division or company audacious goals can work as long as you follow some rules.  I go with the French intellectual who said, when faced with an innovative solution, “That’s all very well in practice, but how will it work in theory?”  Firstly, set the stretch target as a working, theoretical challenge after you have carried out a full situation analysis of where you, the company, the competition and the industry are (and don’t forget the SWOT).  Go through this process with all relevant parties in the same room to ensure that you have both captured all the relevant information and can see where the people problems might lie.

Then, and only then, explore if such a leap can be made.  Consider what has to fall into place to facilitate the growth.  Can production meet such an uplift in volume, is investment required, when is the latest the decision can be made to still meet the target, do more employees need to be taken on, trained?  What are the cash effects of such an increase, can the company finance the growth?  Equally important, is this growth a zero sum game, what effect will the proposed move have on competition, which company will lose share, what is their response likely to be?  Alternatively, can the growth be achieved by expanding the market, do we have the marketing budget and will all competitors simply share in the market increase?

If you sell via distributors or agents are your existing network capable of handling the volume; if you insure your debtors, can you get cover for the planned increase?  Will additional training be required for your own sales team, for distributors or agents?  What weak links are there in the team and the distribution channel, how can these be overcome?  Consider also the effects that your big plan potentially is going to have on those aspects of the business that aren’t going to be receiving all this attention.

Bear in mind too how an element within your team might try to game the system – like the NHS department I read of this morning who arbitrarily struck patients of the operating waiting list for not responding to a request for confirmation (which hadn’t ever been sent….).  I remember back in my selling days when a new sales manager decided he was going to get a more even spread of turnover across the year by making each month a discrete target with a set bonus that could be achieved for over-performance.  Funnily enough it worked but a lot of customers had to wait longer for delivery as having achieved target in a given month we just sat on orders until the start of the next month.  Finally, consider what the actions have to be, function by function and plot a critical path with all of the required milestones and measures.

This is not an exhaustive list, but having considered all of the above together with any additional issues, ask yourself, have you got the key people with you, and are they as committed as you?  If you have got to this stage, have a plan that makes sense and is not just a fanciful wish, have the team with you and you really believe in what you are doing, then press the button.  In this way, a stretch target, a really big, hairy, audacious goal stands a very good chance of becoming reality.  And by teasing out all of the unintended consequences, you should avoid the embarrassment of having to explain why what wasn’t targeted suffered.

Have you ever planned, managed and achieved a really significant stretch target?