Situation: A company uses outsourced manufacturing but is concerned about inventory damage by the manufacturer. Tests have been established to assure both visual compliance and functional performance, overseen by a company employee. Still the company is receiving too many unacceptable parts. How do you minimize inventory damage by an outsourced manufacturer?
Advice from the CEOs:
It is perfectly acceptable for a vendor of consigned materials to bear the risk of product that is not to specification.
In any contract for manufacturing, require that the vendor carry insurance to cover the full cost of materials and processing in case of damage either during manufacturing or shipping.
It sounds like this is a new opportunity and situation for the company. In the process they have not guaranteed that both cost and risk are covered.
There is no point in assuming all this risk.
For future opportunities like this, take on the work as a time and materials project at an appropriate hourly rate for the market, and with a significant mark-up to cover risk as the project is transferred to a contract manufacturer.
Another option is to take on the project under a project management contract, and to bill engineering separately.
This situation sounds familiar for an evolving project. In the future try to unhitch the manufacturing piece from the engineering. Engineering should be more profitable, which will allow the company to more successfully manage the project into early manufacturing.
Strategically, this could be a good move for the company provided they partner with a reliable vendor to facilitate early stage manufacturing. One option for paying sub-vendors is to pay for yield – particularly if early stage work has a high failure rate.
If the market opportunity is there do two things:
Set up an organization with professionals who know early stage manufacturing.
Be aware this group will have a different culture and approach compared to design engineers.
A founder CEO is faced with two options – either selling his company or buying
a complimentary company. The acquisition would fulfill his dream as CEO, but he
is concerned both about the synergy between the two entities and his ability to
manage the combined company. Should he sell, or buy the other company?
from the CEOs:
Given these concerns approach the
purchase opportunity skeptically. Be more prepared to say no than yes.
In evaluating his ability to run a
larger operation, the CEO should objectively assess his own abilities.
A good CEO is not a Superman. A good CEO
creates a viable business model and vision and hires a good team to bring that
model to reality.
Consider past accomplishments. In an
industry where nobody makes money the CEO has created a business model that is
sustainable, highly profitable, and technically superior. The only thing lacking
is size in terms of revenue.
The new opportunity – on the right terms
– can launch the company from dominance in a niche to dominance in a
significantly larger industry.
Assess the new opportunity both as a
technical and cultural match. If there is a good cultural match:
Fewer things must go right to add value.
The purchase provides a channel to a
The acquisition will rapidly speed company
The biggest concern will be the time to
manage both entities.
The most important factor will be the
chemistry between the two company teams. If the chemistry is good, the
combination offers reasonable assurance that the two teams will complement each
Look at the purchase as an opportunity to
build a win-win with enduring value.
In considering outside investors to
support the acquisition, be cautious about financial partners and the conditions
behind each financing option.
Situation: A professional services company wants to grow while maintaining the small company atmosphere that has been the key to its success. There is a limit to how many clients a manager can manage, and with this the reality that if the firm is to grow they will have to bring on more client managers and support personnel. How do you maintain your culture as you grow?
Advice from the CEOs:
To maintain your boutique atmosphere, consider hiring to fit your needs rather than to maintain a culture. Use team meetings to direct team members while communicating and instilling the culture that you wish to maintain.
Don’t risk diluting the strength of your client relationships. A $250K client who is fully committed to your service may have more demands than a $1M client for whom you only represent 10% of their business.
Service companies with the highest profit ratios rotate customer contact among several qualified people. What matters is the level of service provided, not the individual providing the service.
Grow by adding locations. Instead of growing vertically in the same office, grow modularly by spawning additional offices.
Create an optimally sized model for the level of service that you wish to deliver.
Design the organizational structure for this model and identify the order in which slots will be filled as business grows through each office.
Develop a service and organizational template with standard operating procedures, metrics, technology, and reporting.
Once the model is created, spawn it.
Focus your business. Define a niche that you can serve better than your competitors. Focus on this niche and develop a sustainable advantage over your competition.
Assure that your service delivery is seamless to the client and make sure that it remains seamless.
Offer a menu of service options and price options by the level of service delivered. Some will want to buy a Mercedes, and some will be happy with a reliable lower priced sedan.
Situation: A company’s CEO came from sales where she excelled in building relationships with important customers. As CEO she must adapt to new responsibilities. This seems to be working, but she misses her sales role as the face of the company to customers. She wonders whether this is normal. How do you adapt from sales to CEO?
Advice from the CEOs:
First, congratulations on your new role and responsibilities. It is clear that your Board saw your potential and has rewarded you with a new opportunity. You have a lot to feel good about.
Second, adapting to new roles is a necessary pain of personal growth. The company needs a different you now. Everyone in the room has gone through the same emotional trauma – and survived! You will, too, in your own way.
In your sales role self validation came from your ability to convert customers, satisfy their needs and solve their problems. As CEO, self validation must now come from managing, coaching and motivating others, not from doing the job yourself. Your new customers are internal as well as external. Many of the techniques that worked in sales can work in your new role. Look for potential wins and take pride in these just as you did in sales.
You are still the face of the company, but now in a bigger role. Enjoy this and leverage it for the benefit of the company. Take pride in team wins just as you did previously in personal wins.
You will never find someone just like you or who does the job the way that you would! Accept this, accept that others will add value different from your own, and that this has benefits. The more you can help others win the more success you will experience.
Situation: A company has a long-term employee who recently joined a new church. Based upon the guidance this individual is receiving from their new minister, they have begun to evangelize at work, upsetting both co-workers and clients. Both employees and clients have spoken to the CEO with a request that this behavior be stopped. How do you respond to preaching at work in a compassionate, legal and appropriate manner?
Advice from the CEOs:
You need formal guidelines that are not discriminatory and do not impinge on freedom of speech. Augment the employee handbook – with appropriate legal advice – to specify what is and is not appropriate in communicating strongly held beliefs at work. Use neutral language, addressing political, religious and other strongly-held beliefs. Specify a line that divides appropriate from inappropriate communication. Communicate these guidelines to employees and manage to them.
Conduct internal discussions and training as necessary to communicate to all employees what is and is not appropriate expression of strongly-held beliefs. Emphasize the need to respect the beliefs of all employees. Clearly spell out the line that divides appropriate from inappropriate expression of beliefs.
As situations arise, be aware of the impact that they are having on the team. Address individual situations one-on-one, referring back to the employee handbook and training and discussions that occurred in employee group meetings.
Be particularly careful if you feel it necessary to terminate an employee for repeated violations of company policy in this area. See legal advice to avoid wrongful termination suits.
Situation: A company has a long-term loyal employee who has served in a number of roles. The company is growing, and no longer has a clear role for this individual. This individual can’t and doesn’t want manage either other employees or projects. The CEO wants to be compassionate with this individual to honor their loyalty, but finds himself in a quandary. How would you handle a loyal employee who no longer fits the company’s needs?
Advice from the CEOs:
Your desire to treat this individual compassionately is commendable. This individual has been loyal and has served you well. There are a couple of questions to ask: is there a valuable function that this individual can serve within the company, and is this individual essential to the company?
What happens when this individual goes on vacation? Are there gaps in service or function?
Who handles this individual’s duties while they are on vacation?
If the answer to these questions is that others fill in easily and not a beat is missed, particularly when this individual is absent for long vacations, then either they have made excellent preparations prior to their vacation absence, or they may not be essential to the team.
As a business grows, it changes. Not everyone who came onboard early will have a place as the company grows. Think of a pick-up basketball team on the local playground. In pick-up basketball, you play with whoever is available. Let’s say that the team starts to improve, and they decide to join a competitive league. Now the game starts to change, and some of the buddies who played pick-up ball won’t be able to make the shift to competitive ball. They aren’t bad people; they just no longer fit the game that the team is playing.
You may need to sit down with this individual and have a heart-to-heart discussion about the needs of the company and their ability to serve these needs. This is difficult, but if there is truly no longer a role for this person, then you need to be honest with them while at the same time honoring their past contribution.
Situation: A company is in contact with an Eastern European company that seeks outsourced business from the US. The CEO seeks guidance on challenges managing as well as formalizing this relationship. What is your experience outsourcing to Eastern Europe?
Advice from the CEOs:
Location in Eastern Europe is important. There have been concerns with both corruption and IP protection in Russia. Some other Eastern European are more aligned with US/European values and farther up the ramp as outsource partners.
Experience of other US companies suggests that your spec must be written much more tightly than if you were doing the work here. If you can’t write a tight spec on the work, don’t outsource it!
Contract outsourced work on a fixed fee basis with the bulk of payment due on completion. This helps to assure that you receive timely delivery and the quality of work required.
Set up thresholds for the circumstances to engage an outsource partner.
Say one US worker is economically worth 5 foreign workers in your domain. Do you have enough work to support this?
Determine who will manage the outsourced work. A European is fine, as long as they have experience managing outsourced work.
Someone on your team will become their Project Manager. This can be VERY time consuming.
Consider setting up an offshore company to shelter some of the revenue from the outsourced work.
You want to locate the offshore company in a tax-free country, and to have them handle the funds connected with the outsourced work.
The contact in the tax-free country will likely be an accountant, lawyer or both. There are many reputable individuals who do this in tax-free countries, but be sure to check references and background carefully.
Situation: A company has been struggling to meet objectives. Financials aren’t completed on schedule, limiting the ability of the CEO to manage by the numbers. Milestones are behind schedule. The CEO was advised to consider stringent measures, including financial penalties, to force compliance to performance goals. In your experience, are negative incentives effective?
Advice from the CEOs:
There are at least three potential roots of this problem. Have your hired people who lack the skills to perform their functions? Is there a clear plan and set of priorities in place? Or are you as the CEO being consistent in your demands of the team? You need all three to meet your objectives.
Be sure to set SMART objectives: specific, measurable, achievable, realistic and time-bound. In addition, make sure that everyone understands how their performance impacts not only the plans of the company, but their salary and benefits as an employee. Be sure that everyone has the resources to complete what is expected of them.
Be careful if you are considering financial penalties, and negative incentives.
Many studies have shown that positive reinforcement is more effective than negative reinforcement.
If an employee is chronically behind on deliverables, ask what is happening and why they are not getting the job done.
If the response is not satisfactory, and performance doesn’t improve, you are better off terminating the employee than using negative incentives.
Often the question is not one of motivation but one of focus. Focus has to start at the top, and has to be maintained through departmental and team leadership. Make sure that there is proper training in setting and monitoring achievement of objectives throughout your leadership team. It helps if everyone clearly understands what the company is trying to achieve.
Key Words: Objectives, Achievement, Failure, Schedule, Manage, Numbers, Penalties, Compliance, Positive, Negative, Incentive, SMART, Resources, Achievable, Motivation, Focus, Training, Great Game of Business, Jack Stack, Understand