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"A prudent person profits from personal experience, a wise one from the experience of others." 
- - Dr. Joseph Colins

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TEC Leadership Notes
April 2004   Volume 1   Number 1
 

 Selected articles and notes of Interest to Company Leaders from the regular TEC Express Newsletter sent to TEC members each month

TEC Confidence Index

   Outlook Stays Positive, Despite Slight Dip

        - Introduction
        - It's Still the Economy
        - Overseas Outsourcing
                                   - Other Highlights
                                   - Survey Results 

Introduction

The Q1 2004 results of the TEC Confidence Index found that most of the 1,100 TEC-company CEOs who responded maintain their positive outlook for 2004.

The Index's quarter-over-quarter measurement of economic confidence slipped by 1.5 percent after posting cumulative gains of 15.6 percent in the previous two quarters.  Despite that slight dip, the results continue to indicate that CEOs of TEC member companies expect strong economic expansion in the coming year, with higher projected profits and plans to continue hiring and investing.

Most significantly, the survey reflected an increase in the number of TEC members reporting improved current economic conditions.  Three-quarters of those surveyed expressed confidence that overall economic conditions have improved over the past year, more than twice the number that held favorable views at the start of 2003.

It's Still the Economy

With regard to the upcoming presidential election, chief executives identified the economy as the most critical election issue and voiced strong support for George W. Bush.  The Q1 survey also addressed topical economic issues including the rising cost of raw materials and the effect of the accelerated depreciation tax on business investment.

As Americans look to the job market for signs of economic recovery, almost 85 percent of surveyed TEC members plan to hire employees this year.  The majority of these new hires will fill full-time positions and much of that expansion will occur in sales and marketing departments, with 48 percent of CEOs planning to hire for those positions in 2004.

TEC CEOs expect profitability to improve in 2004, with 72 percent voicing confidence in increased profits.  Likewise, CEO investment plans remain strong.  For the third consecutive quarter, half plan to increase their investment spending during the coming year.

Half of those surveyed believe that the accelerated depreciation tax benefit will affect their business investment this year.  This benefit, available to businesses making investments before the end of 2004, allows the deduction of a greater portion of the cost of depreciable property in the first years after purchase, rather than spreading the cost evenly over the life of the asset.

Overseas Outsourcing

When asked about plans to offshore business functions, one in five respondents expect to outsource overseas in the next 12 months.  Nearly 12 percent will offshore manufacturing functions, and a smaller percentage plan to offshore work in information technology, sales and customer support.

Seventy percent of those surveyed expect continued economic improvement in the coming year, down from 81 percent in the Q4 survey of 2003. 

"Although firms did expect a slightly slower pace of growth, they still judge overall economic conditions quite favorable.  Overall, the data indicate that firms expect only a small and temporary slowing in the rate of economic growth, too small for them to make substantial change to their investment and hiring plans," said Richard Curtin, Ph.D., TEC Confidence Index consultant and director of surveys of consumers for the University of Michigan.

TEC members clearly identify the economy as the number one issue for the upcoming presidential election. TEC International began asking this question in Q3 2003 and at that time, 76 percent named the economy as the most critical issue.  By contrast, one quarter later, only 56 percent chose the economy as number one, while 37 percent considered the war in Iraq the most critical.  The economy is again top of mind in the first quarter of 2004, as 70 percent now believe that the economy will be the deciding issue.

Other Highlights

The 2004 Q1 TEC Confidence Index also addressed topical political and social issues.  Findings include: 

• Seventy-two percent of surveyed CEOs support the U.S. decision to go to war with Iraq.

   

• Nearly three quarters of CEOs would select George W. Bush in the upcoming presidential election.  John Kerry would have garnered 16.4 percent of the vote.

   

• Seven-and-a-half percent of respondents plan to increase their inventory of materials in order to avoid rising prices of raw materials such as steel.

   

• One in five CEOs is currently a decision-maker regarding assisted living or nursing home placement for an elderly parent.

   

• Nearly one-third of surveyed CEOs have tried the Atkins diet; 10 percent are currently Atkins dieters. 

Survey Results

Click below to view the complete results of the 2004 Q1 TEC Confidence Index.

Q1 2004 TEC Index Results (U.S.)

Created for MyTEC. Copyright 2004, TEC Worldwide, Inc. All rights reserved.

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TEC Expert Insight

   E

If you want to beat the competition in today's business environment, being good isn't good enough. You must be great. And you can't be great if your organization doesn't engage every employee in driving the operational and financial performance of the business.

In short, you must create an organization of employees who think and act like owners.

Here are five steps to take to accomplish this goal:

1. Teach the fundamentals. Teach your employees the fundamentals of business and finance. More importantly, teach them the fundamentals of your company's business and finance.

   When employees don't understand the finances of their company, they make mistakes and assumptions. The mistakes come from not understanding the ramifications of their actions relative to financial importance. The assumptions are that the company is making a 50 percent profit, and that all of that money goes into the executive team's pockets -- or they assume the company is going bankrupt.

   Having the CFO teach business and financial information may not be the most effective approach. Financial professionals often can't communicate financial concepts to lay people without losing them.

   Instead, employ training methods that are fun and interactive. Link financial concepts to personal finances. Examples might include refinancing your mortgage (restructure debt), changing your long-distance company (review vendor relationships and purchasing policy), and taking care of your car (preventative maintenance on equipment to increase its life and reduce repair costs). Include exercises in training around real-life company issues (waste, inventory, control and safety that affect profitability and equity value.

    

2. Identify key performance indicators. The reason most employees feel disconnected from financial performance is that the only mechanism to keep score in their company are financial statements (income, cash flow, balance sheets). Financial statements are only about dollars and cents. They don't focus on the "people stuff" that makes dollars and cents happen, so employees don't connect tasks to financial performance. Also, most people can't read financials, so they're of little practical use. Finally they are historical documents -- important, to be sure, but not leading indicators of financial performance.

   Survey your employees and management team to find out where they believe the opportunities for improvement lie. Do a financial trend analysis of your company. Compare your performance to other companies in your industry. Have a facilitator (without a personal agenda) lead a team of key personnel through the process of Key Performance Indicators (KPI) identification.

   Operational KPIs are important because these are the measures that most employees understand. By focusing on these and then pointing to the financial results of driving them, you can effectively link tasks to financial results over time.

    

3. Maintain high visibility and high accountability. Create an organization of high visibility and high accountability by using your KPIs to monitor performance and keep score.

   Create scoreboards with your KPIs, and assign the responsibility for monitoring them to the individuals with the greatest impact on them (not your CFO!). Ask those individuals and/or teams to forecast results against budget, rather than simply looking at historical data. (if there is some unease about sharing a high level of financial information throughout the company, lower-level (departmental) scoreboards can focus primarily on operational measures.

    

4. Have fun! Regularly involve employees in creating and participating in Rapid Improvement Plans (or games, if you prefer). RIPs are mechanisms designed to focus employees on areas of opportunity that (1) improve financial performance; (2) create a learning environment; (3) drive equity value and fund incentive plans; and (4) make work fun.

   Select a KPI that has significant opportunity for improvement and build your Rapid Improvement Plan around it. One example: A company in San Diego had a problem with obsolete inventory and created a game called "Ice Age" to eliminate it. The game board was a small sandbox in the office containing several toy dinosaurs, each representing $10,000 of obsolete inventory. The objective of the game was to make the dinosaurs extinct. The company specified a specific time frame, insured that results were quantifiable and identified the participants and activities needed to "win" the game. The prize was inexpensive because it was understood that when employees won, they were funding their incentive plan and driving stock value.

    

5. Tie incentives to KPIs. If you have (or want to have) an incentive plan, make sure that it's clearly tied to your organization's KPIs. Most incentive plans don't work because they're overly complex. They're tied to financial performance yet participants don't understand finance. As a result, there is no connection between activity and bonus, and the plan becomes nothing more than an entitlement. Creating a good plan isn't difficult. The trick is teaching people that it must pay for itself, how they can drive it and that it is their plan, not yours.

   Select one or two KPIs to drive the plans that (1) everyone can impact, such as profit before tax, and (2) people can understand. You may want to select something from your income statement (to drive profit) and something from your balance sheet (to drive cash flow). Determine a threshold that insures that the company's financial needs are met before the plan is funded. Identify other design elements (how often plan pays out, who participates and when, is there a cap or not, etc.). Finally, provide the financial acumen training and tools your employees need to fund the return.

Employees can't make intelligent decisions without the proper information. And they can't make intelligent decisions if they don't understand how those decisions impact the company's profitability and stock value.

TEC speaker Brad Hams is founder and president of Ownership Thinking, LLC, based in Denver, Colorado.

Created for MyTEC. Copyright 2004, TEC Worldwide, Inc. All rights reserved.

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TEC Expert Insight

        Successful Negotiations

              -  Introduction
                  -  24 Tips For Successful Negotiations
                  -  In a Nutshell

Introduction

"We negotiate constantly," says TEC speaker and negotiations expert Jack Kaine. "Some people -- attorneys, diplomats, purchasing agents, union officials -- negotiate professionally. However, anytime two or more people exchange information with the intent of changing a relationship, they are negotiating. We negotiate with our employers and employees about priorities and compensation. We negotiate with salespeople and street vendors, and even with children about their curfews. In many ways, life is one big negotiation."

Following are Jack's tips for achieving successful negotiations.

24 Tips for Successful Negotiations

1. Negotiate trust first. If people don't trust you, they probably won't share information with you. If people share information with you but don't trust you, anything they say will be designed to deceive or mislead you.
   
    
2. Always prepare for the negotiation as if it was the first time you have ever dealt with the other party. Time and economic conditions change everyone.
   
    
3. Know your walk-away position in advance. Prepare for an adverse outcome: If you are not able to negotiate successfully with the other party, how else can you address your needs? You must know all your options before you sit down to negotiate. The party with the best walk-away position will always have a pronounced advantage.
   
    
4. Always enter the negotiation with an open mind. Look for a better deal for both parties. The best possible outcome for both parties is never apparent at the outset of a negotiation, and it's always a better outcome than whatever seems possible at the beginning of the negotiation. To find this best outcome you must be flexible and willing to explore opportunities as they are presented.
   
    
5. To achieve win-win outcomes, focus on enlarging -- not dividing -- the pie. Add elements to the negotiation. Do not subtract elements from the negotiation. There are always things that you can do for the other party that won't cost you very much, but will have a high value to them. Example: Golf professionals can give customers free range balls for a month instead of cutting the price on a Big Bertha Driver to match the "discounters" price. The club is going to have to pick up the balls anyway, and the offer makes customers feel better about the purchase and keeps them coming back. The more they practice the better they will become, and the more they will visit the club and the more they will buy.
   
    
6. Never allow a negotiation to boil down to one issue if that is an important issue to you. When a negotiation comes down to one issue, it is impossible to avoid a win-lose outcome.
   
    
7. Never pre-negotiate with yourself. "Pre-negotiation" is the process of developing a proposal and then reworking it (to lower the price or change the terms) before you present it to the other party. Don't do it. The problem with pre-negotiating with yourself is that the concessions you make before you reach the negotiating table have no value to you or the other party. All you are doing is giving away your bottom line. The other party will still want concessions. Give yourself room to make them. If the other party has to work for those concessions, they will have more value to you and them.
   
    
8. Speak first. The party that speaks first in a negotiation sets the tone for the negotiation. Have your opening remarks scripted and rehearsed. This allows you to establish a positive tone for the negotiation. It is much easier to set a positive tone at the outset than to later overcome the natural tendency toward hostility and distrust that is found in most negotiations.
   
    
9. Ask questions. The party that asks the most questions in a negotiation determines the content and the direction of the negotiation. You control a negotiation not by talking, but rather by asking questions.
   
    
10. Prepare for the negotiation from the other party's perspective. People do things for their own reasons. Most negotiators only prepare for their own needs in a negotiation. You are not prepared to negotiate until you can state the other party's case better than they can. This gives you tremendous understanding and leverage.
    
     
11. Never argue, but always question for understanding. No one ever wins an argument. Someone convinced against his or her will isn't really convinced.
    
     
12. The focus of a negotiation needs to be on "what's right" and not on "who's right." "What" questions are fact-oriented. "Why" questions are subjective and emotional. Asking "what" questions gets the facts out on the table. "Why" questions elicit emotions. Good negotiators are hard on problems and soft on people. The end result will be an agreement that works for both parties.
    
     
13. Always negotiate with your own team first. There are only advantages to the team approach to negotiations. The Japanese have a wonderful expression: "None of us is as smart as all of us." When you work as a team there will be fewer blind spots. Furthermore, a team will accept greater risk than will an individual. The party that is willing to take the greatest informed risk will always have an advantage.
    
     
14. Make sure the other party understands the items on which you agree. Win-win outcomes are built on agreement, not disagreement. Build a strong foundation for the deal. The more items you agree upon, the harder it will be to walk away from the items that separate you. Significant areas of agreement encourage flexibility when addressing disagreements.
    
     
15. You have more power than you think you have. If you did not have something that the other party needed, they would not be negotiating with you.
    
     
16. Kill your ego. More negotiations are destroyed by ego than any other factor. Any time negative emotion enters into an exchange, the conversation may continue but communication has stopped. You can always tell when a negotiation has become ego-driven. People say things like, "It's the principle." When people say this they are saying that they are acting emotionally -- not rationally.
    
     
17. Listen. Listen. Listen. People will tell you what they need. However, most people are so focussed on their own agenda that they never hear what the other party is saying.
    
     
18. Understand why the other party is saying "no." It is usually because someone in his or her organization is blocking the deal. Help the other party perform a second negotiation.
    
     
19. Learn the right way to make concessions. Never make a concession the minute you know you can make it: use time to add value. A quick concession to a win-lose negotiator is viewed as a sign of weakness. Never make a concession unless you can explain what new information you have gained that has allowed you to change your position. If you appear to simply roll over without using time and explaining what new information has changed your position, you will lose credibility.
    
     
20. To make things non-negotiable, put them in writing. People argue with people. They do not argue with printed documents. Once agreements reach written form, they take on a life of their own.
    
     
21. List your assumptions about the negotiation and then test them. One of the reasons there is so much conflict in negotiation is that many times we assume that what we want is exactly what the other party wants. We are quick to assume things about the other party's motivation, thinking and their ethics. Always test your assumptions for validity.
    
     
22. Have the courage to set your goals high. People who expect more get more.
    
     
23. Don't stop at the first acceptable outcome. If there is one good outcome there is a second, and if there is a second there is a third. Try to get the best outcome, not a merely acceptable outcome. The mistake that most negotiators make is stopping at the first outcome they find acceptable.
    
     
24. Separate the person from the problem. If you see the person as a problem, there will always be a problem. Try not to confuse positions with people. Your problem is not with the person, but with their thinking. Always question for understanding.

In a Nutshell

Much of the work involved in conducting a successful negotiation occurs long before you ever sit down with the other party. A well-prepared negotiator fully understands the goals and objectives of his or her side, and also understands the goals of the other parties in the negotiation. Above all, have the courage to set your own goals high. People who expect more get more.

Our lives and careers are affected by how well we negotiate. Keeping these tips in mind will help you strengthen your negotiating skills, and assist you in reaching an agreement that works for both parties -- whether you're trying to close a major deal or agree on where to spend your next vacation.

TEC speaker Jack W. Kaine has taught negotiating and sales skills to some of the best-known corporations in America, including Sprint, Learjet, Sikorsky Aircraft, American Cyanamid, Marriott Hotels, Bell Labs, D'Arcy Masius Benton & Bowles, Inc., and Anheuser-Busch, Inc. He is currently president of J.W. Kaine, Ltd., a professional presentation and management consulting firm.