Strategy Focus – Guest Contributor, Rob Cannon

If we take the teachings from my recent post about the Strategy Revolution, that is – focusing on the customer first and foremost, there is another area of distraction that is fundamental to the business marketplace.  It occurs in businesses of all sizes, but is acute in the arena of private companies.  The problem is relying completely on your accountant to do all the financial work.  Accountants do a fine job at what they generally focus on:

1) Accurately calculating and presenting the numbers produced by the business for tax filing.
2) Devising strategies to lower the company’s taxes going forward.

Note that there is nothing in their activities to help you run the business more efficiently or effectively, it’s just not in their charter.   What you need to bring to the table, in addition to a focus on the customer, is a focus on making your product or providing your service as efficiently as possible.  This is a competitive requirement; otherwise someone else will take your customers away.  I have worked with clients in all arenas who don’t know how to use their internal cost numbers to manage effectively.   You must know your costs to be able to set competitive prices.  The old saw about good, fast, and cheap is prescient, pick two and knock the heck out of them.  That means you can choose which two of three to compete on.  The truly best can provide all three to dominate a market, speed, quality, and price.

A Strategic CFO/Treasurer may have an accounting background, but they must be able to go beyond accounting and look forward to drive the operations to maximum performance though budgeting and workforce incentives.  A focus on the bottom line does not need to trump the overarching purpose of customer service, but rather works hand in hand to provide that service so that you provide it at the best value.

Robert Cannon is a principal at Cannonomics Inc.

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Death of Blackberry (Part 3 of 3 Part Series)

No, not that blackberry, but rather the ubiquitous device synonymous with multi-tasking corporate executives since the ’90s.  I still remember hearing “dings” of a new email arrival every few seconds sitting in a meeting with Goldman honchos during my traveling consultant days.  Every one of them had what we called BBB (blackberry brick and believe me, it was as big as a brick).  The device popularity (or necessity) soared to new heights after 9/11 – when the wired and wireless lines crashed under an overwhelming volume during the crisis, BB servers were still working, allowing its users to communicate.

So what happened since then?  Research In Motion (RIM), BB’s parent company, recently announced substantial sub-par quarterly results, prompting exit of its founding executives and board members.  While its fairly new CEO, Thorsten Heins, did his best to reassure its workers, partners and shareholders, I believe BB is dead if nothing else for two main reasons below.

• Reliability – despite being a partner in iPhone applications development company, I refused to give up my beloved BB.  For 3+ years, I carried both my BB Pearl and the latest version of iPhone.  Two phones, two carry-on clips, two rechargers – it was pain…   But when I had to replace my Pearl 3 times during the same time span due to faulty components, I just gave up and switch to the iPhone.
• Consumer Appeal – while consumers wait in line outside the Apple stores for the latest and the greatest, it’s not the same for BB.  And why should they?  Both iPhones and Androids do a good job of implementing meaningful HW and functionality upgrades in new releases, you cannot say the same for BB.  Result – different versions that are essentially derivatives of the same product.  Bottom line – new models have no additional appeal to consumers.

There was a rumor that perhaps Samsung was looking to purchase RIM  – the deal fell through.  Apparently Samsung thought it would do better with its own line of smart phones.  I am afraid BB is walking down the same path that Motorola was on until it decided to adopt another operating system…   Obsolescence.

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Latest Rumors: Apple iPhone 5

Surveys say that the iPhone 5 may be the most anticipated devices among consumers awaiting Apple’s rumored two new devices. The release date of the iPhone 5 has been pushed back repeatedly for months. The release date was once sometime in June, it is now sometime in October. Many features have been added to the iPhone, some of which I will list here: (1) the screen is a bit bigger; (2) 4G LTE; (3) improved SIRI; (4) operating on the new IOS 6; and (5) a potential 3D camera, among other things that have been added.

The main features worth paying attention to are things like the new sleeker design, a laser keyboard, and holographic display all rolled into the iPhone 5. It has a newer computer generated concept than the iPhone 4s. There have also been enhanced gaming features.

Some rumors claim that the phone would be made completely out of glass. The type of glass they are using is called Gorilla Glass 2. This is supposed to be stronger and more durable than the standard gorilla glass and they hope it is perfectly suitable for the iPhone 5. The glass iPhone will set Apple apart from all of its competitors. Questions are raised about whether this is really suitable for day to day uses and typical living conditions. Carrying this phone without a case isn’t an option; they hope that using gorilla glass dampens the worry of consumers.

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Strategy Revolution – Guest Contributor, Robert Cannon

Forbes has published a review of Roger Martin’s “Fixing the Game” . I have since read the book itself and consider this a seminal work in the area of leadership and management strategy. It harkens back to the theories of Peter Drucker and Michael Porter, whose focus was on the purpose of a firm or company. That is, the main purpose is to create and service a customer.

The review points out a fundamental weakness in our current financial incentive world. For public companies it’s all about managing earnings and expectations. For private companies, it’s an overemphasis on the shareholder. The best public companies have avoided the managed earnings trap, but they are few. I think mostly of Apple, who’s leadership (not just the departed) focuses fiercely on the customer, and not simply on what the customer thinks they need (no market research here), but rather on what they really want (but just don’t know it yet). Translating this to the private market, the focus of the firm needs to be on serving the customer in the best way possible, and only then will profits follow. The more recent focus on maximizing shareholder value (a term called the “dumbest in the world” by no less a titan than Jack Welch) should not be the driving force. Incentives are OK, but they must be tied to customer-related goals as well as profitability.

I would recommend the book on its own merits, but remember as the leader of a small company you must try to keep the focus on your customer and you will succeed. Just bring in a good financial mind to incentivize the workforce and count the beans.

Robert Cannon is a principal at Cannonomics Inc.

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Merger and Acquisition Trends for 2012 – Banking

Many thought 2011 would be a banner year for bank mergers and acquisitions. TARP obligations; SoX requirements; Dodd-Frank regulations; and other lingering governing compliance issues on the horizon – time was ripe for both frustrated operators to run for the exit and those with deep-pockets pick and choose from distressed targets with niche segments, both regional and product/customer focus, that would further expand the existing portfolio of services. But as we know, industry M&A activity fell well short of expectations in 2011. Or did it?

If you include deals that involve partial stakes (for specific assets or operational segments) in addition to whole-bank mergers, according to Dealogic’s year-end scorecard for 2011 which documented 234 total deals for aggregate value of $22.7BN. That compares very favorably to 176 deals valued at $12BN total in 2010.

So what’s in store for 2012? Such is a prediction few experts will hang their reputations on these days, given prevalent economic uncertainties and banks (every other institutions for that matter) vowing to approach growth and expansion opportunities with caution and conservatism. One thing for sure – with recent Fed Chairman’s comment re: the US economy not being out of the woods yet and every region of the world re-stating GDP growth downward, we can only hope for gradual recovery of M&A activities in the sector in 2012.

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Death of the Penny (Part 2 of 3 Part Series)

Sheena Moore, an analyst for our sister site Spend Matters’ popular Friday Latte segment, reported that Canada will no longer produce its pennies citing increasing costs of production and decreasing relevance.  “Pennies take up too much space on our dressers at home.  They take up far too much time for small businesses trying to grow and create jobs,” stated Canada’s finance minister during his budget speech in front of the lawmakers in the House of Commons.

Growing up in Korea, I vaguely recall when the South Korean government ceased production of 1 won coins (~tenth of penny at today’s exchange rate) during the 70’s (yes, I am giving away my age).  Transactions were rounded up to 5 won denomination which caused much ire at the time before 5 won coins faced similar fate.  Now 10 won denomination is the lowest.  Many economists agree that getting rid of pennies won’t pose adverse impact on inflation and that sound policy dictates dismissal of the lowest denomination when raw material used in creation is worth more than the denomination itself.

Indeed, there are many precedents in addition to Canada.  Singapore, Mexico, Sweden, and Israel all eliminated their lowest denomination in the past two decades in a smooth transition.  But just three years ago, businesses in the East Coast were begging for households to break their penny jars when shortage occurred in the marketplace.  Question is, if the US follow Canada’s lead in abolishing our pennies, will it go away quietly like Hungarian forint or will it cause a stir as it did in 1999 shortage or an upheaval as it did during the Reagan Administration shortage?

Editor’s Note – This story really has two major angles that are subject to analysis and debate, and perhaps we’ll spark some further discussion on such topics:

(1)   The production costs of coins have shifted significantly in some countries, largely as the result of price fluctuations in the raw metal commodities that are used in the minting process.  Some nations take the prudent route of changing the metal content of their coins, but the market value of the materials used in coins has spawned cottage industries among coin hoarders, who hope to capitalize on extracting the metals from coins which are (sometimes) worth more than the face value of the coins themselves.  Sovereign control over currency production and laws preventing the destruction of coins serve as a practical limitation on melting down coins, but that doesn’t mean some people aren’t intent upon doing it.  http://abcnews.go.com/Business/laws-change-penny-hoarders-cash-thousands-dollars/story?id=15076522

http://tech.fortune.cnn.com/2012/04/11/penny/

(2)   The second issue is when some countries legislate a unit of currency out of existence, not just stopping the production of coins, but by getting rid of units that are deemed too small to remain practical.  While economists have largely supported the historical efforts of countries to “retire” coins and currencies of negligible value, there is some anecdotal evidence that consumers perceive or experience inflation when coins or currencies are dropped.  How much penny candy can you buy when there are no more pennies?  Some research and analysis of the Euro transition’s effect on pricing and consumer perception shows that there are some potential risks when currencies are transitioned out of circulation.

http://www.princeton.edu/ceps/workingpapers/101mastrobuoni.pdf

http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp588.pdf

Editor’s Note 2 – If economists are quick to dismiss the inflationary effects (real or perceived) of coin abolition on consumers of penny candy, you have to wonder if they’d be as dismissive of the interests of investors in the enormous penny stock industry?  I’m just sayin’…

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Drop the Brick, Pick up “The Box”

Ah to be young and a traveling consultant.

You travel to God-forsaken locales; you spend your nights sleeping in horrible Motel 6-esque chains, driving in tuna can-like rental cars, subsisting off of unhealthy food, and you can probably name all the stores in Terminal B of O’Hare by memory.

And then of course, there’s the numerous conflicting images that you have to contend with.

One lesser-mentioned, but equally frustrating, challenge of being a consultant that bears mention is a logistical one: managing your data.  Typically consultants work on bulky, cumbersome devices which do not always have the full suite of applications they require.  And sometimes after looking at data day in, day out it’s easier to whip out an alternate device such as an iPad or iPhone.

There are a couple different options for getting around this hurdle in managing data:
1. USB drive.  Brick, stick, thumb drive, jump drive.  There are many different variants to the term.  At the end of the day it is a ticking time bomb.  Let’s say you’ve put the finishing touches on a slide deck that will knock a client / prospect’s socks off.  You accidentally leave your trusty SanDisk device in the tray and walk through airport security screening at EWR, LAX, PDX, or the other airport of the week.  With it goes the deliverable that could’ve changed their life (and yes, I am still working through the afore-mentioned image issues).

2. Email.  I chuckle every time I receive multiple copies of a document with files that contain the author’s initials, the version, the date, their high school locker combination, and numerous other data points to help manage the document history.  Regardless of the versioning system, the upshot is always that this is a space-hogging, highly inefficient way to manage information.

3. Carrier pigeon.  Hey, sometimes the old tried and true is the best way.

A Better Way

There is a far more logical, and cooler alternative to all of these approaches, known as DropBox.  This is one of those multi-million-dollar “why didn’t I think of it” ideas that has taken the business world by storm.  The cloud-based file hosting service has attracted interest from your rank-and-file knowledge workers to more high-voltage names such as U2 (yes, that U2).  The Y Combinator alum has earned a place alongside Facebook, Linkedin, Yelp and others in the startup glitterati, and with good reason.

Dropbox has been good to me.  Over the course of my career, I found it maddening to keep my work in sync across numerous laptops.  This was especially true during graduate school, where I’d often deliver presentations and have to keep making updates until the very last minute.  Additionally, collaboration was a nightmare, as it was nearly impossible to reconcile each member’s contribution or modification to group project deliverables.

DropBox removed the complexity and headaches from managing this information, as we were able to reference one unified copy of a document instead of foraging through our inboxes, or playing “Musical Thumb Drives.”  Additionally, I loved the ability to review presentations and other deliverables from multiple devices, including my trusty old iPad.  Finally, given the tendency of PC’s to gobble up key documents via hardware / application crashes, it’s nice to have the data backed up in the cloud.

Lucy, You Got Some Disclaimin’ To Do

Obviously there are caveats to this recommendation of DropBox.  The firm’s recent introduction of DropBox for Teams notwithstanding, it is still very much geared toward the individual user and small businesses.  Enterprise customers will more likely need a more robust solution such as industry standard Microsoft SharePoint, or the recent cloud-based entrant Box.  And, as with any other wildly successful product, DropBox is not without its share of detractors.

Drop in on the Box

At the end of the day, DropBox is truly a Swiss Army knife that provides benefits to nearly every profile.  Consultants will love the enhanced ability to keep files in sync across multiple devices.  Students working on group projects will benefit from a virtual file server that provides greater security than thumb drives.  And folks less than enamored of Facebook’s byzantine privacy policies will love the ability to share photos in a more secure manner.

From one consultant to another, I highly recommend that you click here to sign up for a free trial, which gives you 2 gigs of space.  You’ll thank me next time you’re delightfully syncing files during a flight delay in Flagstaff, or noshing over some delectable Panda Express in Des Moines.

Guest Contributor, Robert Cannon: Are You an Outperforming Manager? Do You Pay for Performance?

A recent Financial Times article examined the performance of English football teams. In summary –

1) Their research concluded that 90% of football club performance can be tracked to the players. That is the salary level paid for these “employees”, whether it be at high NY Yankee level, or Oakland A’s low, can predict most of the success of the team.

2) That leaves 10% for the Manager’s effect. Some managers outperform, while some underperform, just like in the real economy.

I believe that this phenomenon exists in the realm of competitive business (after all most pro sports leagues operate in a type of Cartel arrangement).  In any event, my conclusions would be:

A) The firm pays for positions and individuals, paying for the type of job and paying specifically for the employee and his/her skills to fill that position. It stands to reason that if the firm pay scale is average for your industry, you should expect no more or less than average performance, financially and customer-wise. Fully 90% of the result can be predicted here, that is if you pay more or less than average, the likelihood is that your financial results will reflect that spending. If you can afford to pay more, then the customer related performance and your related financial performance should go up.

B) Then again, in a small business environment, a very talented CEO can make much more than his/her 10% difference, through organization and drive lead an average crew to outperform it’s pay grade by a long shot.

Prescription – whether or not you are a good manager, you should hire talented people and pay-up for staff.  Hiring well is your biggest and most effectual job.

Robert Cannon is a principal at Cannonomics Inc.

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CFO Priorities in 2012

If you ask a CFO what his or her priorities are within the confines of the finance group, you’d hear an array of expected functional answers – forecasting accuracy, transactional performance, management reporting, return on cost of capital, regulatory compliance, etc. Robert Half recently asked the same question to a group of CFOs with a caveat – think of priorities of the organization as a whole, not just the finance department. The results below reveal how broad typical CFO’s mindset has become over the years, and it’s great to see the chief numbers person looking to leverage technology and / or processes to further push the efficient production frontier curve to the right.

• 35% – implement new or upgrade existing IT systems for increase efficiency
• 21% – develop and introduce new products and services
• 14% – expand geographically, e.g. introduce new locations
• 11% – pursue M&A opportunities

One of RJSL’s clients (where I am personally the CFO at), Peritius Consulting, has been translating strategy into success stories for over 20 years. Our C-level consultants with years of industry experience help companies avoid pitfalls of enterprise-wide implementations by ensuring that the plans are properly laid out; stakeholders are fully vetted and risks are managed from all possible angles. The result – highest possible return on investment on large-scale corporate initiatives. We invite you to contact us for additional information.

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Tidbits #8 – Pray for Pain: The New Orleans Saints Bounty Scandal

The Saints football team is certainly paying a hefty price… A full season without its head coach; the GM suspended for 8 games; linebackers coach out for 6; 2 future 2^nd round picks stripped; a half mil in organizational fine; and other individual players suspensions / fines not yet levied… Not to mention, a permanent damage to its reputation as a squeaky clean franchise – it certainly was a feel-good story with a reclaimed quarterback, Hurricane Katrina, etc… until now.

The unprecedented severity of the punishment, while not a “death penalty” as seen in the past in the college ranks, could set the organization back a few years. While I do not condone intentional malice to end someone’s career on the field (had my shares of broken bones and concussions during the playing days), am I the only one seeing a bit of hypocrisy in the commissioner’s actions? Don’t we all have bad intentions when strapping on the shoulder pads and donning the helmet? Isn’t Ndamukong Suh’s sole mission in life to knock the bazezzas out of the quarterback, running back or whoever has the ball once it’s snapped? The irony here – it was the Roger Goodell back in ’05 (when he was the COO of NFL) who convinced the Saints owner not to abandon the city after Katrina…

I fully get the fact that NFL is a money printing machine by all standards and needs to manage its risks (e.g., looming player injury lawsuits) but the last time I checked, football is still a contact sport and only refs hold the flags on the playing field. You could also argue that the bounty system worked and the players acted as they are incented. After all, the Saints did win the big trophy during the ’09 / 2010 season…

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