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The Finish Line

12/26/2014

We are coming to the end of another year and it is essentially a type of finish line for most of us. Many of us will look back over the last year as one complete performance and we will measure how close our estimated personal and professional goal accomplishment was to our actual goal accomplishment. In the western world the span of one year is a very important measurement. If we did well we can celebrate and if not there is always next year. The stock market places a lot of emphasis on measuring performance during a quarter of a year politicians place a lot of weight on their four year election cycle but not too many people, governments or businesses have a measuring stick longer than that. The most common reasoning is that the fast pace of change prohibits using a longer measuring stick. But really, it is helpful to use numerous measuring methods and timelines to gain perspective. The old saying goes “if the only tool you have is a hammer then everything begins to look like a nail.” Anyone that has spent time in the stock market watching corporate america scramble each quarter to make earnings would know that there is a down side to such a short term strategy. If all you have is a short term measuring tool you are definitely not getting the whole picture. You can run an engine for a few months and even over a year without changing the oil but going longer can cause major problems and be very costly. Being an innovator means being able to reframe a problem numerous ways and in this case being able to measure performance and set goals with multiple timelines. Think of crafting a vision that inspires and guides people for a generation not just the next three months. Walt Disney’s vision still guides Disney long after his death, the founding fathers of the United States crafted a vision with guidelines that have been a beacon for millions of people for over two hundred years. Finding ways to measure success well beyond the next year will do much more than improve your odds of making a profit, it will give your organization a soul and spirit that inspires people and makes the world a better place!

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Creating your own Inflation Adjusted Performance Measurement.

12/19/2014

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Most people in business are pretty familiar with how much it costs to produce their product. It would be hard to stay in business if you didn’t. Material and labor rates fluctuate from year to year but overall the trend is up other than the rare event like we are seeing in the oil market. So, regardless of any government Producer Price Index (PPI) you could probably create your own PPI. However, the cost of production has so many variables from region to region and from industry to industry and depending on tool and equipment renewal rates and cycle times etc. When it comes to labor rates you might think you know what wages you can pay your labor but if it is not keeping up with the true inflation rate you will have more and more difficulty keeping top talent and you will have an increasingly disgruntled workforce. Being an innovator means being empathic to the needs of society and understanding the actual conditions your workforce is working under. Imagine you live in Russia with an estimated inflation rate of over 8% or Argentina where the rate is over 41 percent and you have seen the value of your savings and your wages drop precipitously. It is very likely that these conditions will have an detrimental affect on worker productivity and therefore the cost of producing your product. It should also influence the amount of profit margin you require in order to stay in business. If your net profit margin is 10 percent and you live in 41percent inflation then your true net profit needs to be higher to help with the rapid loss of value. The problem with inflation is that it’s stealthy and not always easy to measure and that makes it harder to know if your business is truly profitable or just losing money less fast. In Argentina because of the extreme distrust of the official government inflation rates, and the threat of fines preventing private consultants from publishing their own estimates, a group of opposition deputies have released their own statistics based on private estimates every month since June 2011. Russia doesn’t look bad at all when compared to Argentina but compare the Russian inflation to that of the US which is about 1%….officially. However, there are private consultants and economists that suggest that the US rate is much higher, as much as 9 percent, and if so what does it mean to business professionals? Here is the real rub when it comes to inflation and why it is so important.

If your production costs go up 10% from $100 to $110 you might think you can just keep your 10% profit margin and it will all be fine because it is on the increased cost of production. As in, you take home $11 dollars instead of the usual $10 but that is only true if the profit is immediately invested gainfully, if not and it sits in the bank as liquidity, then inflation immediately begins to nibble at the value. Also, if the wages you pay yourself and your workforce do not keep up with inflation then your take home pay is actually less each year and it will be more difficult to keep up with the cost of living. For instance, if the actual cost of living is going up 9 percent each year then you should be getting a 9 percent raise each year! Now, there are not too many businesses giving 9 percent raises or raising the price of their products 9 percent each year. So, the bottom line is that when you are seeking to measure the value you are producing you need to at least be capable of adding the actual cost of living increases to your labor rates and still be profitable or you are actually in a declining market. Eventually you will have big labor and production issues to deal with when people really wake up to inflation!

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Money Measurement Mixture

12/12/2014

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Being an innovator is great but even better to be an innovator that makes and keeps a profit. It is hard to watch what’s happening in the world of finance the last while without having some trepidation about the stability of the system. After all, the goal of being an innovator and constantly creating value is to be able to capture some of that value in the form of money. The definition of money has changed numerous times over the centuries. Money can be used to measure the actual success of your efforts. But if the “Ruler” you are using to measure with is constantly changing it becomes less and less effective as a way to measure progress. For instance, if you were driving across the United States and each state had a different number of feet between their mile markers it would truly be difficult to keep track of your progress. As the value of the dollar and oil and food get more and more volatile it does make you wonder if our financial system is as healthy as we are told it is. A 40% drop in the price of oil in just a few months is not a healthy environment no matter how much it may help at the gas pump. The problems with collapsing oil prices are many, one being that all the money invested in new sources of energy may now be underwater with the price of oil under $80. The collapse in oil prices may also be acting as the canary in the coal mine, telling us the economy might be in trouble. If you are going to survive as an innovator, let alone thrive, you will need to take some risks and get creative with how you capture and keep the value you are creating in the market place. The dollar has made a truly explosive move upward in the last few months and it could be a good time to move some of your liquidity into another asset such as commodities or into another currency such as the Euro or the Swiss Franc or even the Canadian Dollar. It is as simple as making sure you don’t have all of your eggs in one basket. Diversification is more important when there is uncertainty in the market place! Just like an good export company you need to have the right money mixture. If you are heavily invested in any one currency your company can be very vulnerable. When you think like an exporter or a global business you will be an innovator with your profits as well as your products and people.

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How to handle the Who on your team!

12/5/2014

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How you handle the "Who" is a critical part of creating productive teams. You remember back in childhood when you waited to be picked to be on a team? For some it might have been an excruciating exercise in patience and shame. For others they were the first to be picked because they had all the perceived talents needed to help the team win. Now there are efforts to eliminate the pain of not being picked until the last so that no one has to feel left out. But really, the truth of the matter is that not everyone is good for the team and will help them win. (And then of course there are those that don’t want to keep score because everyone is a winner). I am not of that camp and here is why. It promotes being put in a position that really isn’t a good fit for your strengths, where it will be difficult to really thrive and excel rather than finding the place where you really do have strengths. Not everyone is gifted with the talents needed to be a great basketball player, nor is everyone wired to be a great computer programmer or public speaker and so on. Every football team has only one quarterback and so it is with work teams. Great teams are built not just randomly chosen, thrown together and expected to perform. Great coaches identify talented players and develop and place them in the positions where their strengths can do the most good. Yet, many organizations make their teams out of volunteers that may or may not have the right chemistry and strengths to really be productive. It is a little bit like having all quarterbacks and no receivers on the same team. So if you want to win with productive teams you might need to create them with careful forethought about what talents and strengths you really need in order accomplish your goals. Unfortunately, there will always be people that really want to be picked for the team BUT SHOULDN’T BE! Hurt feelings aside, there’s many people that don’t know their true strengths and would only hinder the productivity of the team. But then again there are team captains and coaches that don’t know how to read and assess the strengths of their team either, so where can we go to get help. I have found lots of help in this endeavor from the Gallup Strengths Finder test and from the work of Core Clarity, you can find them at http://coreclarity.net/. Knowing how your team members think and where they are likely to thrive and not thrive is powerful information for building a truly world class team anywhere!

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The Finish Line

Creating your own Inflation Adjusted Performance Measurement.

Money Measurement Mixture

How to handle the Who on your team!

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