1. South African Quality Institutes latest news

    February 28, 2017 by ahmed

    South African Quality Institute (SAQI) http://www.saqi.co.za is the national body that co-ordinates the Quality effort in South Africa. Their monthly newsletter is an excellent source of information to keep up with the latest quality issues in South Africa.

    SAQI201605

    • Is your management review effective? by Pual Harding
    • What happened to the critical chain? by Terry Deacon
    • Kruger Mpumalanga International Airport Business Breakfast forum. by Jacques Snyders
    • Holding directors personally liable: Where to draw the line? by Terrance M. Booysen
    • Quality in schools: Be invloved. By Richard Hayward

    Click here to download this newsletter.

     

     

     

     

     

     

     


  2. Finally, evidence that managing for the long term pays off

    February 26, 2017 by ahmed

     

    Originally posted on HBR by Dominic Barton, James Manyika, and Sarah Keohane Williamson

    Companies deliver superior results when executives manage for long-term value creation and resist pressure from analysts and investors to focus excessively on meeting Wall Street’s quarterly earnings expectations. This has long seemed intuitively true to us. We’ve seen companies such as Unilever, AT&T, and Amazon succeed by sticking resolutely to a long-term view. And yet we have not had the comprehensive data needed to quantify the payoff from managing for the long term – until now.New research, led by a team from McKinsey Global Institute in cooperation with FCLT Global, found that companies that operate with a true long-term mindset have consistently outperformed their industry peers since 2001 across almost every financial measure that matters.

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    The differences were dramatic. Among the firms we identified as focused on the long term, average revenue and earnings growth were 47% and 36% higher, respectively, by 2014, and market capitalization grew faster as well. The returns to society and the overall economy were equally impressive. By our measures, companies that were managed for the long term added nearly 12,000 more jobs on average than their peers from 2001 to 2015. We calculate that U.S. GDP over the past decade might well have grown by an additional $1 trillion if the whole economy had performed at the level our long-term stalwarts delivered — and generated more than five million additional jobs over this period.

    Who are these overachievers and how did we identify them? We’ll dive into those answers shortly. But first, it’s worth pausing to consider why finding conclusive data that establishes the rewards from long-term management has been so hard — and just how tangled the debate over this issue has been as a result.

    In recent years we have learned a lot about the causes of short-termism and its intensifying power. We know from FCLT surveys, for example, that 61% of executives and directors say that they would cut discretionary spending to avoid risking an earnings miss, and a further 47% would delay starting a new project in such a situation, even if doing so led to a potential sacrifice in value. We also know that most executives feel the balance between short-term accountability and long-term success has fallen out of whack; 65% say the short-term pressure they face has increased in the past five years. We can all see what appear to be the results of excessive short-termism in the form of record levels of stock buybacks in the U.S. and historic lows in new capital investment.

    But while measuring the increase in short-term pressures and identifying perverse incentives is fairly straightforward, assessing the ultimate impact of corporate short-termism on company performance and macroeconomic growth is highly complex. After all, “short-termism” does not correspond to any single quantifiable metric. It is a confluence of so many complex factors it can be nearly impossible to pin down. As a result, despite persistent calls for more long-term behavior from us and from CEOs who share our views, such as Larry Fink of BlackRock and Mark Wiseman, the former head of the Canada Pension Plan Investment Board, a genuine debate has continued to rage among economists and analysts over whether short-termism really destroys value.

    Academic studies have linked the possible effects of short-termism to lower investment rates among publicly traded firms and decreased returns over a multiyear time horizon. Ambitious work has even attempted to quantify economic growth foregone due to cuts in R&D expenditure driven by short-termism, putting it in the range of about 0.1% per year. Other researchers, however, remain skeptical. How, they ask, could corporate profits in the U.S. remain so high for so long if short-termism were such a drag on performance? And isn’t the focus on quarterly results a natural outgrowth of the rigorous corporate governance that keeps executives accountable?

    What We Actually Measured — and the Limits of Our Knowledge

    To help provide a better factual base for this debate, MGI, working with McKinsey colleagues from our Strategy & Corporate Finance practice as well as the team at FCLT Global, began last fall to devise a way to systemically measure short-termism and long-termism at the company level. It started with developing a proprietary Corporate Horizon Index. The data for this index was drawn from 615 nonfinance companies that had reported continuous results from 2001 to 2015 and whose market capitalization in that period had exceeded $5 billion in at least one year. (We wanted to focus on companies large enough to feel the potential short-term pressures exerted by shareholders, boards, activists, and others.) Collectively, our sample accounts for about 60%–65% of total U.S. public market capitalization over this period. To further ensure valid results and to avoid bias in our sample, we evaluated all companies in our index only relative to their industry peers with similar opportunity sets and market conditions and tracked them over several years. We also looked at the proportional composition of the long-term and short-term groups to ensure they are approximately equivalent, so that the differential performance of individual industries cannot bias the overall results, and conducted other tests and controls to ensure statistical robustness. (For more on our methodology download the full report.)

    One final caveat: While we firmly believe our index enables us to classify companies as “long-term” in an unbiased manner, our findings are descriptive only. We aren’t saying that a long-term orientation causes better performance, nor have we controlled for every factor that could impact the relationship between those two. All we can say is that companies with a long-term orientation tend to perform better than similar but short-term-focused firms. Even so, the correlation we uncovered between behaviors that typify a longer-term approach and superior historical performance deliver a message that’s hard to ignore.

    To construct our Corporate Horizon Index, we identified five financial indicators, selected because they matched up with five hypotheses we had developed about the ways in which long- and short-term companies might differ. These indicators and hypotheses were:

    • Investment. The ratio of capex to depreciation. We assume long-term companies will invest more and more-consistently than other companies.
    • Earnings quality. Accruals as a share of revenue. Our belief is that the earnings of long-term companies will rely less on accounting decisions and more on underlying cash flow than other companies.
    • Margin growth. Difference between earnings growth and revenue growth. We assume that long-term companies are less likely to grow their margins unsustainably in order to hit near-term targets.
    • Earnings growth. Difference between earnings-per-share (EPS) growth and true earnings growth. We hypothesize that long-term companies will focus less on things like Wall Street’s obsession with earnings-per-share, which can be influenced by actions such as share repurchases, and more on the absolute rise or fall of reported earnings.
    • Quarterly targeting. Incidence of beating or missing EPS targets by less than two cents. We assume long-term companies are more likely to miss earnings targets by small amounts (when they easily could have taken action to hit them) and less likely to hit earnings targets by small amounts (where doing so would divert resources from other business needs).

    After running the numbers on these indicators, two broad groups emerged among those 615 large and midcap U.S. publicly listed companies: a “long-term” group of 164 companies (about 27% of the sample), which were either long-term relative to their industry peers over the entire sample or clearly became more long-term between the first half of the sample period and the second half, and a baseline group of the 451 remaining companies (about 73% of the sample). The performance gap that subsequently opened between these two groups of companies offers the most compelling evidence to date of the relative cost of short-termism — and the real payoff that arises from managing for the long term.

    Trillions of Dollars of Value Creation at Stake

    To recap, from 2001 to 2014, the long-term companies identified by our Corporate Horizons Index increased their revenue by 47% more than others in their industry groups and their earnings by 36% more, on average. Their revenue growth was less volatile over this period, with a standard deviation of growth of 5.6%, versus 7.6% for all other companies. Our long-term firms also appeared more willing to maintain their strategies during times of economic stress. During the 2008–2009 global financial crisis, they not only saw smaller declines in revenue and earnings but also continued to increase investments in research and development while others cut back. From 2007 to 2014, their R&D spending grew at an annualized rate of 8.5%, greater than the 3.7% rate for other companies.

    Another way to measure the value creation of long-term companies is to look through the lens of what is known as “economic profit.” Economic profit represents a company’s profit after subtracting a charge for the capital that the firm has invested (working capital, fixed assets, goodwill). The capital charge equals the amount of invested capital times the opportunity cost of capital — that is, the return that shareholders expect to earn from investing in companies with similar risk. Consider, for example, Company A, which earns $100 of after-tax operating profit, has an 8% cost of capital and $800 of invested capital. In this case its capital charge is $800 times 8%, or $64. Subtracting the capital charge from profits gives $36 of economic profit. A company is creating value when its economic profit is positive, and destroying value if its economic profit is negative.

    With this metric, the gap between long-term companies and the rest is even bigger. From 2001 to 2014 those managing for the long term cumulatively increased their economic profit by 63% more than the other companies. By 2014 their annual economic profit was 81% larger than their peers, a tribute to superior capital allocation that led to fundamental value creation.

    No path goes straight up, of course, and the long-term companies in our sample still faced plenty of character-testing times. During the last financial crisis, for example, they saw their share prices take greater hits than their short-term counterparts. Afterward, however, the long-term firms significantly outperformed, adding an average of $7 billion more to their companies’ market capitalization from 2009 and 2014 than their short-term peers did.

    While we can’t directly measure the cost of short-termism, our analysis gives an indication of just how large the value of what’s being left on the table might be. As noted earlier, if all public U.S. companies had created jobs at the scale of the long-term-focused organizations in our sample, the country would have generated at least five million more jobs from 2001 and 2015 — and an additional $1 trillion in GDP growth (equivalent to an average of 0.8 percentage points of GDP growth per year). Projecting forward, if nothing changes to close the gap between the long-term group and the others, then the U.S. economy could be giving up another $3 trillion in foregone GDP and job growth by 2025. Clearly, addressing persistent short-termism should be an urgent issue not just for investors and boards but also for policy makers.

    Where Do We Go from Here?

    Our research is just a first step toward understanding the scope and magnitude of corporate short-termism. For instance, our initial dataset was limited to the U.S., but we know the problem is a global one. How do the costs and drivers differ by regions? Our sample set consists only of publicly listed companies. How do the effects we discovered differ among private companies or among public companies with varying types of ownership structures? Are there metrics that can help predict when a company is becoming too short-term — and how do they differ among industries? Most important, what are the interventions that will prove most effective in shifting organizations onto a more productive long-term path?

    On this last point, we and many others have identified steps that executives, boards, and institutional investors can take to achieve a better balance between hitting targets in the short term and operating with a persistent long-term vision and strategy. These range from creating investment mandates that reward long-term value creation, to techniques for “de-biasing” corporate capital allocation, to rethinking traditional approaches to investor relations and board composition. We will return to HBR in coming months with more data and insights into how companies can strengthen their long-term muscles.

    The key message from this research is not only that the rewards from managing for the long term are enormous; it’s also that, despite strong countervailing pressures, real change is possible. The proof lies in a small but significant subset of our long-term outperformers — 14%, to be precise — that didn’t start out in that category. Initially, these companies scored on the short-term end of our index. But over the course of the 15-year period we measured, leaders at the companies in this cohort managed to shift their corporations’ behavior sufficiently to move into the long-term category. What were the practical actions these companies took? Exploring that question will be a major focus for our research in the coming year. For now, the simple fact of their success is an inspiration.


  3. The Most important management skill

    February 23, 2017 by ahmed

     

    Originally posted on Linkedin by Terry Traut

    I’ve been teaching management and leadership skills now for over 25 years to new managers and supervisors as well as to seasoned veterans.I’ve met, researched, and worked with some of today’s renowned leaders including Captain Mike Abrashoff, Warren Bennis, Marshall Goldsmith, Jack Welch, Sir Richard Branson, John Kotter, Dave Ulrich, Pat Lencioni, and many others.

    I’ve talked to thousands of employees and looked at what they wanted – NEEDED – from managers that they felt they weren’t getting, or getting enough of.

    And, perhaps most importantly, I am a manager. I hire, fire, manage performance, coach, cajole, and counsel.

    Based on my unique set of experiences, I’d like to share my belief of the most important management skill and I’d like to count down to that skill in Lettermanesque fashion. You can see which skills I considered and why I believe each is important in its own right, but not THE most important skill.

    #7 Know What Motivates People – Motivation is an intrinsic thing; theoretically you can’t motivate someone who doesn’t want to be motivated. While I agree with that, effective managers draw from a variety of techniques to cajole, encourage, inspire, recognize, and otherwise create an environment where many people ARE motivated. They recognize that each person is motivated by different things from simply having a job to contributing to something great. They also realize that what motivates someone tomorrow may be different than what motivates them today.

    #6 Walk Around – The best way to manage – to know what’s going on, to build the credibility that only comes from someone “in the know” – is to regularly and frequently get out there. More and more managers and supervisors are isolating themselves to get the things done – reports, updates, budgets, analyses – that upper management is demanding. Effective managers know that without the effective performance of their people, all of the ancillary work is for naught. The best way to see what’s going on – and to be seen – is MBWA, Management By Wandering Around.

    #5 Use the Right Tool – Effective managers can draw from a treasure chest of tools to use one that is most appropriate for the situation. Leadership and management research over the past 100 years has come up with a single definitive conclusion when answering the question, “what’s the best approach?” The answer is, “it depends.” It depends on the situation, the skills of the leader, the needs of the employees, and the unique interaction of the three. Effective managers have an arsenal of tools to draw from and, most importantly, they have the performance analysis skills to know which tools to use. Coaching, feedback, counseling, feedback, information sharing, self-disclosing, encouragement, recognition, problem-solving, corrective action, and others are options that the effective manager can use at will.

    #4 Learn and Practice Your Craft – Like parenting, most new to the position find themselves underprepared for the awesome responsibilities. In management, as in parenting, those who are most effective study the craft and consciously practice the art. While most of us were promoted to management positions because of our technical expertise (and to some degree our ability to not bump into furniture or tick anyone off), what brought us here won’t keep us here. In fact, many of our technical competencies work against us as managers and supervisors. We must learn a new set of skills and continuously hone those new skills. Fortunately, there is no shortage of books and courses on management and leadership.

    #3 Self-Assess and Course Correct – Almost any management failure can be traced back to an almost conscious decision to ignore the realities of the situation. Ineffective managers and leaders rely heavily on hope as a strategy to get through challenging situations. Effective managers and leaders welcome – and seek out – feedback. Effective managers and leaders are like guided missiles knowing that the only way they can reach their target is if they seek in-flight feedback and make in-flight adjustments. Effective managers use the “start, stop, continue” method of self assessment; to increase my effectiveness:

    • What should I start doing that I’m not currently doing?
    • What should I stop doing that’s not working?
    • What should I continue doing because it is working?

    #2 Develop Your People – Tom Peters calls this “Job One.” Effective managers and supervisors know that they are only as good as the people who do the work. Talented, committed people are a company’s #1 asset. Effective managers and supervisors find ways to develop the talents of their people. Training, coaching, peer tutoring, cross-training, in-job development, online learning, job sharing, and delegation are but a few of the techniques that effective managers use to grow the capabilities of their people. In the process, they foster commitment and increase productivity. Not a bad deal for the investment of time and money.

    #1 Provide Regular and Balanced Feedback – While the other skills are important, the most important – and the one that most employees consistently ask for more of – is feedback. “How am I doing?”

    I conducted a survey recently asking employees for their input on their bosses’ skills in a wide variety of areas from setting clear expectations to creating an upbeat environment. Three of the four most critical areas – areas needing the most attention according to employees – relate to feedback:

    • Provide specific positive reinforcement regularly.
    • Provide me with regular feedback about my job performance.
    • Tell me when I am not meeting expectations.

    Out of the 20 questions asked in the survey, only these three related to feedback – and all three appeared on the list of “most needed”.

    Providing regular and balanced feedback, I would argue, is the most important management and leadership skill for a variety of reasons:

    • Employees want it. In my 59 years of living, the most important lesson – from management to parenting to being married to sales to servicing customers – involves 1) finding out what people want and need, and 2) giving it to them.
    • It is free. As managers and leaders, much of what we need to provide our employees costs real money. Desks, computers, health insurance, compensation, and so on all cost money. Giving feedback costs nothing in real dollars; while it requires that you invest time to give feedback, it is just that – an INVESTMENT that will reap huge dividends in increased productivity and morale.
    • It elevates the employees’ perception of you as a leader. As General Tommy Franks states, “you can’t ‘manage’ a troop of soldiers up a hill under fire; you must lead them.” By giving feedback, you put yourself in a role of one who knows and cares. By focusing feedback on the employee’s PERFORMANCE (as opposed to the PERSON), you cement your role as a performance-based leader.
    • It increases performance. With a focus on performance, feedback is instrumental in improving the likelihood that you’ll get more from your employees. Feedback is the difference between an artillery shell and a guided missile. Artillery shells are lobbed in the general direction of the target and much of the success of the shot can be attributed to the planning of the shot. Contrast this with the guided missile whose initial trajectory is far less important than the continual feedback it receives as it hones in on its target.
    • It is motivational. Most employees – as we’ve seen in the survey results – want to know how they’re doing – with both positive feedback and developmental feedback. The reason feedback is motivational is because most employees want to do a job as effectively and efficiently as possible. With your appropriately worded feedback, you can create an environment in which employees are motivated to perform.

    Hold on a second before you rush out to tell your employees “a thing or two” under the guise of feedback. HOW you give feedback is as important (maybe MORE important) as WHAT you say. Feedback must be helpful, unbiased, balanced, and specific (HUBS).

    Helpful — Feedback is given for one reason and one reason only – you are thinking in the best interests of the employee. You want to sincerely help the employee. You recognize the contribution and potential of the employee.

    Unbiased — Effective feedback focuses on performance and results. As a result, it is relatively unbiased. Others observing the behavior or results that you’re commenting on would agree with your interpretation. “When you raised your voice, several in the group stopped providing input,” is relatively unbiased (and actionable); “You frustrated everyone with your rudeness,” is biased and exaggerated.

    Balanced — Over time, your feedback should be balanced. Providing only positive or only developmental feedback reduces your effectiveness. Note that I am NOT suggesting that you “sandwich” developmental feedback inside of positive feedback. I AM suggesting that you provide all employees with a balance of positive reinforcement and developmental feedback.

    Specific — Effective feedback is specific, enabling an employee to address a specific developmental need or repeat a specific desirable behavior. Unfocused feedback such as, “You did a great job on that report,” is not actionable since the employee doesn’t know what specific performance elicited your positive comment. What should the employee do again? What behavior should be repeated? Conversely, what behavior should be stopped? Or how should it change?

    Forget the “sandwich method” of feedback – you know, say one good thing before you slam ‘em with the bad thing; then make nice by saying another – usually trite – good thing. Nobody’s fooled! Make it ALL positive: “You’ve being doing this well and that well. To make it even better, you may want to try doing this….”

    Want to be even more effective? Provide feedback on an ongoing basis by regularly coaching your employees to higher and higher levels of performance. Be a leader – give your employees what THEY want and increase the productivity and morale of your team.


  4. Best Practice Report – Achieving High Levels of Employee Happiness

    February 20, 2017 by ahmed

    BPR_employee HappinessEvidence from decades of research has shown that improving happiness in the work­place delivers significant increases in profit, productivity, and innovation; it also leads to substantial cost savings.Happier workers are healthier, more effective team players, and provide better customer service. Happier businesses attract top talent, and are more likely to retain their best workers.

    This excellent report outlines the best practices research undertaken by BPIR.com in the area of employee happiness. The best practices have been compiled under seven main headings. This new layout is designed to enable you to scan subjects that are of interest to you and your organisation, quickly assess their importance, and download relevant information for further study or to share with your colleagues.
    Sub-Topics:

    1. What is “employee happiness”?
    2. Which organisations have received recognition for achieving high levels of employee happiness?
    3. How have organisations reached high levels of employee happiness?
    4. What research has been undertaken into employee happiness?
    5. What tools and methods are used to achieve employee happiness?
    6. How is employee happiness measured?
    7. What do business leaders say about performance happiness?

    For a limited time this report will be available for FREE via this link.

    Over 80 best practice reports are available to BPIR.com members so why not join? New best practice reports are added every one to two months.


  5. Gettging airborne: Cultural transformation in the Navy

    February 14, 2017 by ahmed

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    Originally posted on BTOES insights by Chris Seifert

    When Ernie Spence arrived as the new commanding officer for the Navy’s largest F-18 training squadron, he was met with disarray. Of the squadron’s 117 planes, most had fallen into disrepair – leaving just one plane safe to fly. As a result, the team responsible for training about 60 percent of Navy squadron pilots was more than a year and a half behind schedule.The maintenance and spare parts delivery schedules for the Navy aircraft had been planned back in the 90s. As American involvement in the Middle East began to ramp up a decade later, Navy missions required these planes in action far more than initially expected. The squadron quickly found itself going through its spare parts at a much faster rate than it had resourced for, forcing planes out of commission while awaiting components that never came. As time wore on, the squadron deferred regular maintenance on the idle aircraft, eventually even using them as sources of spare componentry for other planes in need of repairs. Soon, the amount of work it would take to bring any single plane back to service became far too daunting to take on.

    “While there were external pressures, the majority of the group’s issues were internal.”

    The way Ernie saw it, while there were certainly external factors that put the squadron in a difficult situation, the majority of the group’s issues were internal.

    “There are externalities that affect every organization,” Ernie says. “But does the leadership actually take stock and measure what the effects of those will be? Do they allow the cumulative effect to pile up to the point where they appear to be unmanageable? If so, what becomes the tipping point where they decide, ‘We have to start dealing with this issue?'”

    To remedy the mindset that made the squadron so vulnerable to change, Ernie set out to augment its culture.

    Implementing culture change in a complex environment

    The F -18 training squadron is the Navy’s largest, comprised of about 1,300 military personnel, contract partners and government civilian employees spread across multiple sites. Implementing deep and lasting cultural change is never easy, but it is made far more difficult in such a complex environment. To truly change the way the squadron approached its work, Ernie had to engage with people both as individuals and as a collective unit.

    “Every single individual in an organization has the ability to make a difference.” Ernie says. “But for the organization to truly be successful, every single person must contribute to making that difference.”

    “That was the fundamental difference in culture that the squadron was missing. It was the notion that of those 1,300 folks there, any one of them could have sent them on the path to making the squadron better and more capable of operating the way it should have been. But, in order to really get the results that were required, we had to get every single person on board and working toward the same collective goal, taking a very methodical approach to how we were doing business.”

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    Ernie’s squadron was responsible for training about 60 percent of Navy pilots.

    Seeking alignment through belief

    To align the group, Ernie’s first step was to decide what a culture of success would look like. What mission, vision and values did they have to embrace to better perform their jobs? Having defined these ideas, the next step was to figure out how to turn them into action. In Ernie’s squadron, this posed a particular challenge. Because military leadership is relatively transient, people who don’t agree with particular leaders’ strategies can simply wait them out, resisting change until the commanding officer is replaced. So, Ernie knew he could not be passive – he had to actively make sure every individual bought in to the new culture.

    What Ernie realized motivated most people was meaning. For the problem he witnessed wasn’t that people weren’t willing to work hard, but that they believed their jobs didn’t matter.

    “Once an organization starts to falter, it’s easy for folks to come to work and say, ‘It’s not important what I do today,'” Ernie says. “What I saw in that particular squadron is that a lot of folks were coming to work and they were working very hard, but they were working on things that were meaningful to them at a very individual level – they were not contributory and not focused or coordinated across the entire organization. You had a lot of folks that were doing a lot of things, but not working toward what the squadron existed for.”

    Before he could expect someone to get behind the culture, he had to demonstrate why the new mission was meaningful, then explain precisely how that person’s job would contribute to realizing the mission. Having inspired belief in the new culture, Ernie eliminated actions and processes that did not align with the squadron’s values or move it closer to its mission. In their stead, the leadership established a new set of fundamental expectations designed to guide future action toward the squadron’s mission.

    Cementing culture with constant communication

    To drive their importance home, Ernie made these expectations the focal point of every policy decision, newsletter publication, team meeting, performance review and hiring decision going forward. Every action the squadron took from then on was shaped by the culture it was striving toward.

    “Driven by a new organizational culture, Ernie’s squadron saw dramatic results.”

    After about six months of constant communication, every member of the squadron was able to repeat from memory the group’s mission and the expectations that guided their behavior. According to Ernie, this is when he truly began to see a shift in the squadron’s day-to-day productivity toward the goals they had set out to achieve. Rather than taking his foot off the gas when he smelled success, Ernie says the key to sustaining the new culture was working as hard to promote it after six months as they did on day one.

    Driven by a new organizational culture, Ernie’s squadron saw dramatic results. Within six months, it had managed to bring about 20 airplanes back into service. By the time a year went by, it had completely restored nearly 60 planes, returning about $3.5 billion worth of Navy aircraft to the skies. With a functional fleet back in the air, it took less than a year for the squadron to get on pace to complete its training schedule. Plus, the new operating models were more efficient, cutting maintenance costs by as much as 36 percent.