Thursday 29 May 2014

M&A Deals Work if People Are a Strategic Imperative Not a Tactical Afterthought

I've always been a great believer in MBWA, 'management by walking about'. I think it's the only way to really feel the pulse and temperature of a firm and to quickly pick up on new ideas and things that need fixing. That makes me allergic to companies that put up barriers to open communication. For instance, management imperiously sealed away in offices whilst other employees 'gopher' in single-occupancy cubes.
 
It runs deep with me. I've always thought that in evaluating companies for acquisition, even before you've waded through the numbers you can tell which companies are likely to be combined successfully simply by entering their offices and feeling the atmosphere. The best firms exude 'buzz' – not frenetic hipsterish over-excitement, but a mature hum of quiet confidence that hits you as soon as you walk in the door and that emanates from every employee, whatever their role.

So it's been ever frustrating to me why such little attention is paid to the 'people factor' in the evaluation of M&A deals. I've always put it down to the fact that people are complex and simply not as easy to analyse, evaluate or appreciate as the numbers. Of course entrepreneurial or high tech business deals tend to be led by those with sales or finance backgrounds for which the spread sheet is the ultimate comfort blanket. That, combined with a suspicion that those who excel at the 'soft' side of business will lack the financial nous to be allowed anyway near the 'strategic' early stages of a deal.

Typically, it's not until you get into the due diligence and the actual integration of the organisations that the negotiators begin to think they need some people help in 'making the numbers'. Nevertheless, I still believe that if you don't take the people thing seriously and early enough - particularly in highly people-dependent entrepreneurial businesses - it can quickly kill the value in the deal. Imagine my delight then, when research published recently by London's Cass Business School found 60 per cent of non-HR and HR executives agreed post M&A deal issues could be better resolved if HR teams were involved earlier.

Frighteningly, interviews with 31 professionals and in-depth conversations with seven found only ten per cent of companies engaged with specific people issues – by included HR resources – at the targeting stage of a deal, while 81 per cent involved them at the integration stage, too often only once the merger or acquisition was announced. Respondees suggested this was too late and that without HR involvement, problems surfaced and expected returns on investment either didn't occur or were held back significantly. In fact, the research found the top reason cited by respondees as contributing to the failure of a deal was 'culture'.

To my mind this reveals a fundamental lack of appreciation of people as a strategic factor in the successful development of the business. It's vital for companies to focus on the people at the due diligence stage of a deal if only to work out if the people in the organisations could work together. If not, it's better to look elsewhere.

Overall, though, the message is clear. To increase your chances of success in M&A, view people as a strategic factor, not a tactical afterthought.

Tuesday 27 May 2014

Product Davids vs. Brand Goliaths - Back to the Future?

For almost as long as the discipline has existed, it's been an article of faith that the ultimate aim of marketing is to create brands. The received wisdom is that branding benefits both producers and consumers, whether that is of products or services, or companies and their eventual acquirers.
 
For many years, this actually made sense. As Western society became more atomised though the 20th century – and producer-buyer relationships became more remote – for buyers, a brand served as an assurance of readily identifiable quality and consistency, and therefore built loyalty. So, along with the idea of lifetime employment grew the idea of building lifetime engagement with brands.

Product Davids vs Brand Goliaths
This, of course, worked in the post-war boom years as the basis of the multinational consumer giants' march across the globe. Massive spending on brand development and bought marketing communications was used to influence a customer's predisposition to buy a particular brand, reducing sales cost while allowing the producer to increase margins on products.

Even if the product was virtually identical to a non-branded or branded competitive product, this approach also served as an effective barrier to entry, stopping the entrepreneurial product Davids taking market share from the brand Goliaths. In doing so, I'd argue that it also significantly stifled innovation, a factor in allowing more efficient manufactures from the East to start their assault on Western markets.

For some Goliaths however, the happy sound of ringing tills has continued. But for how long? One of the most profound effects of the pervasion of the internet has been disruption of business models and an associated disintermediation of professional disciplines and interests and liberation of entrepreneurialism. So much so, I'm certain it is in the nature of internet to devalue the traditional concept of a brand, even to make it irrelevant.

Brand demolition
The first way it does this, is to punch a great big hole in the idea of partial truth telling that is the basis of so much traditional brand differentiation. The Web is awash with the wisdom of crowds. User reviews and competitive data abounds. As it's now so easy to find out if a product or service gets a thumbs up or down, this means buyers ultimately no longer need the brand as emblematic of quality or assuring of content. Indeed, for those still wedded to the idea of brand building, this process can lead brand demolition in short order as every new purchase is increasingly a fresh initiative.

A more insidious way that pervasive connectivity is destroying brand loyalties is that it is the foundation of rapid globalisation, providing the infrastructure for outsourcing to the developing world, accelerating the earlier Eastward trend. As a result, savvy consumers realise very many products – and, dare I say it, including many counterfeits of those products  are pretty much the same, regardless of whose brand has been stuck on them, particularly once they reach the stage of the product adoption lifecycle where brands have traditionally tried to extract high volume and high margin.

The exception that proves the rule 
PCs are a case in point. With few exceptions, PCs (regardless of brand) are a replacement market, standard devices assembled from standard components manufactured by the same Chinese subcontractors. The only real (as opposed to imagined brand promise) differences are the look and the name.

As a result, in the PC market, much of the smartphone market and in many other tech product categories, brand loyalty is a phenomenon of the 20th century. No wonder IBM sold off its PC and, recently, low-end server businesses and Google its Motorola Mobility purchase to Lenovo.

Isn't Apple the exception that proves the rule however? I'd argue (heretically) that actually, Apple doesn't command brand loyalty, it's just great at creating 'complete product' lock-in, launching a series of devices that work together well in a proprietary service environment. One false step – and they have made many in the past – and the world would indulge in an orgy of post-Jobsian criticism and searching for alternatives. Hence Apple's aggressive use of patent litigation to slow down any company that it thinks buyers might prefer, threatening the outrageous margins on which its stratospheric share price is predicated.

Vorsprung durch Technik
Power has now shifted fundamentally and irrevocably from the producer to the consumer and the ROI of brand marketing will continue to decrease. So what should companies do? The good news for entrepreneurs is that one of the solutions may be to return to pre-branding dominance days. This is done by investing in building and promoting great products rather than by building and promoting brands.

Evidence of this approach is already appearing. Take KIA cars in the UK for instance, which makes no claims for its vehicles. Rather, its advertisements tell prospective customers to go to its website and read owners' reviews in an example of customer reality rather than brand fantasy. That, I'd count as real Vorsprung durch Technik.

Thursday 15 May 2014

Gender Diversity? It’s Not About Sex - It’s About Skills

I had the pleasure recently of being one of two men in room full of the best and brightest women working for tech firms.

I’d been invited to Cisco Connected Women Client & Partner Event (with AT&T and GE). The event was held at IDEALondon (Innovation and Digital Enterprise Alliance) sited in the heart of London’s TechCity just around the corner from the Google Campus.
If you haven’t heard of it IDEALondon is an incubator or as at it likes to style itself `an innovation centre for startups and entrepreneurs to grow and expand their businesses`.

It's a very impressive space with 17 tech firms currently busy developing the next big thing amongst its transparent meeting pods and fern-encrusted living walls. It’s driven and funded networking giant, Cisco, publisher DC Thomson and University College London. And it’s full of proper companies developing cutting-edge technologies - including Amy Lai's Wittos http://www.wittos.com and Jenny Griffith's Snap Fashion http://www.snapfashion.co.uk . Not the web design agencies and PR firms so often included to swell TechCity’s numbers. 

The need to `man up`

The objective of the day was to explore what 'success' looked like through different perspectives. In this respect, one of the constant themes from the succession of inspiring and already highly accomplished speakers, not just from the world of tech but from the law, journalism and science, was that in order to succeed in `a world of men` each had to supress some their nature `female` tendencies and `man up` to a more macho work style.

Issues such as caring how people feel about situations, it appeared, needed to be brushed aside in order to succeed.  It was the stuff of so many current discussions around gender equality and diversity in the workplace, women defining themselves in comparison to men. Having spent my life managing companies where women are in the vast majority, I think that is a mistake. The issue should be about how to do things better.
For me it’s not all about inherently female or male traits or apologetic or oafish behaviour at the margin, it is about what behaviours are both appropriate and advantageous for success in the modern workplace.  And make no mistake, in the modern team-oriented, coached post-industrial workplace the winning firms are those that recognise they need to maximise the contribution of their entire workforce.

It’s not about sex, it’s about skills

Yes folks we are all human beings. It’s not about sex, it’s about skills.  If someone’s gender or orientation blinds you to their superior or inferior potential or contribution it’s time to retire.  But for the time being it seems whether winners or losers we will be viewing the world of workplace skills through polarising lenses.   
Sitting in a room full of impressive human beings who happen to be women who command some of the world's top tech firms and have started their own, apparently, is unusual. In the UK currently women account for between 15-18 per cent of the `IT profession` and, of course, we are in the middle of a month-long` Women in IT` campaign which aims to encourage more women to enter the sector.

Ten top tips

As part of its PR campaign to highlight this issue BCS, the Chartered Institute for IT, has published ten top tips to encourage understanding of the way those with XX chromosomes may differ from the imagined XY benchmark
The Institute’s top and undiluted tips are:

1. Many women almost never say they can do the job on offer in an interview, whilst identically qualified men do;
2. Many women aren’t good at hearing good news but are often obsessive over bad news or criticism, so be careful how you deliver it;

3. Women tend to think they will get promoted by working long hours and doing more than is asked of them. They don’t realise this isn’t always the case;
4. They often find it hard to ask for a salary increase or higher package when offered a job. However, men are generally good at this and it can lead to unwitting or unnoticed pay gaps. Employers need to watch for this and ideally conduct regular independent pay audits – and publish the results;

5. It is helpful to insist that all candidate lists for promotion or recruitment include at least some women;
6. Unconscious bias training is more or less standard across most companies these days. Any training undertaken should be offered to everyone, especially those involved in recruitment and middle and senior management layers of your organisation;

7. Double check the wording of your recruitment advertisements. Are they gender friendly? Will they specifically attract women? Are they likely to catch the eye of more experienced women returning to work after a career break who wouldn’t mind starting again at the bottom of the ladder?
8. Have you got three women on your Board? It makes a real difference in productivity and in profits. Ideally you will have 40 per cent women on your Board and in your executive teams – because that will really put you on the map and attract other high calibre women to your organisation;

9. Women really make the most of mentoring opportunities, and will return the blessing for those less experienced than themselves, so make sure that you are proactive about offering mentoring throughout their careers; and
10. Women are much more ambitious than you think, but are less likely to put themselves forward for roles, so good succession planning which values the skills of transformative leaders will ensure that recruitment doesn’t happen 'in my image.'

Although in all generalisations there exists some truth I have to say find much of this patronising, particularly at a time when women are increasing pulling away from men in achievement at school and dominating university courses and the professions.

A similar list could be drawn up focussing on the needs of a lost generation of generally less mature, less articulate, less qualified, less accomplished, less motivated and less ready all-round-for-the-modern-world-of-work men who are trying to enter the workforce, but I’ve yet to see such a thing.
No matter. As I said it’s not about sex - it’s about skills.   

Tuesday 13 May 2014

Don’t Let Jerks Ruin Your Company’s Culture

Lord Myners' recent report identified how a 'manifestly dysfunctional' board had succeeded in rotting a culture that had underpinned the Co-op Group's purpose for well over a century. The c-word too loomed large in another Government-commissioned exercise in mystery unravelling - The Pollard Review. Whilst focussing on the Saville case, it pointed to a deep rooted and unhealthy 'competitive culture' in the BBC that is to blame for many of the ills that beset the broadcaster.
 
The impact of the lumpen bureaucracy and factional interests within the NHS and its Trusts, too frequently emerge as 'cultural issues' behind everything from sheer cruelty, to needless body counts. 'Cultural shortcomings' have been highlighted in the Salz Review as the reason for Barclay's LIBOR rigging, whilst 'cultural failings' resulted in the PPI scandal and the sale of interest rate hedging products to SMEs. 'Cultural misunderstandings' contributed to the BP Deepwater Horizon disaster and the ensuing blamefest. And so it goes on.

It's all very depressing. However, work over recent months with the UK Investors in People (IIP) Framework Governance Group has reinforced for me the idea that, unlike the above examples, organisations that succeed consistently over time are transparent high performers, investing in their people, their customers and their communities. This is because their people demonstrate specific characteristics. This should be no surprise, as organisations are the sum of their employees and they, in turn, take as their example the behaviours of executives placed in leadership positions. This determines the potential for more ethical behaviour just as it does for fraud, corruption or downright stupidity.

Entrepreneur Tony Hsieh built billion-dollar online retailer Zappos with a traditional organisational structure. But to take the company successfully into the future, this is currently being replaced with 'Holacracy'; a radical self-governing operating approach where there are no job titles and no managers. Instead of a top-down hierarchy, there's a flatter 'holarchy' that distributes power more evenly. The company will in future be made up of different operating circles — there will be around 400 circles once the rollout is complete in December this year  and employees can have any number of roles within those circles. Radical transparency is the goal. In the Zappos of the future there'll be no hiding behind titles or other trappings of corporate life.

Faced with all the challenges of ultra-fast growth business too, Netflix CEO Reed Hastings led the creation of a new people-centred culture in his company that combined high performance with unprecedented levels of responsibility with a clear and radical approach that we see today. For example, Netflix has a 'no vacation policy' for its employees. Staff can take off as many days as they want, as long as they do so responsibly.

Perhaps because they chime particularly with the approach to dealing successfully with rapid business growth that I've used over the years three other things stand out about the current 'Netflix way'. It hires 'outstanding' employees only. Netflix doesn't accept anyone who does an 'adequate' job. The company is driven by 'freedom and responsibility' - not 'command and control'. Employees get to make decisions, and managers act as coaches to give them the right context to do so. It also doesn't hire 'brilliant jerks', no matter how good they think they might be at their job. Jerks operate at the expense of others, so how do you avoid taking on such individuals and not experience the corrosive effect they have on cultural norms?

It starts with the realisation that your people are your most important resource. It follows if you are the founder, CEO or head of an organisation, you are in loco parentis of both the people and the culture. That function should occupy a substantial proportion of your time. That starts with the hiring process, and means you should be the first person to interview a candidate. Don't be the last – a hurried and distracted rubber stamp - as is so often the case.

 This is part of turning the conventional interview process on its head. Spend as much time as 90 minutes exploring how a candidate thinks, their motivations and if they're going to be a good fit for the culture going forward. Leave the skills assessments to your colleagues  the people they're going to be working with really closely. This, of course, is also indicative of the culture of trust, and transmits very powerful messages to staff and interviewee alike.

It's particularly important in jerk identification and avoidance to ask open-ended questions such as: How do you like to work? What should I do to get the best out of you? What would you do on your first day, first week, and first month? If the answer doesn't involve some reference to listening, relationships and team work, your internal alarm bells should be ringing, because it's a signal of the prime jerk characteristic  that it's 'all about them'. And if the candidate's descriptions of previous work experience are riddled with complaints about employers, colleagues and clients – none of which are any fault of theirs, of course  you should be backing away fast.

Word soon gets around about a 'no jerks' policy. You'll notice you start getting the right people pursuing you, wanting to work at a place where they are treated like intelligent, responsible people by their leaders and colleagues and enjoy the challenge. In sheer commercial terms, 'no jerks' is a vehicle to help entrepreneurial firms make more progress, faster, with fewer distractions — and deliver on any organisation's prime function: to delight its customers.

If you haven't gone down this route already, I suggest you try it. Even Ian Read, CEO of Pfizer, who is trying frantically to woo the so far unconvinced shareholders and staff of Astra Zeneca, says he has a 'no jerks' rule in his company. That's probably subject to peer review as well as market testing.
 

Thursday 1 May 2014

Business Success Requires Nurtured Relationships

I'm amazed constantly at what a small world we live in these days. I know I shouldn't be. Thanks to our internet-enabled hyper-networked existence, life is more connected than ever. Therefore, the chances of repeatedly encountering people you have worked with, met online or offline, or people-that-know-people-that- you-know during your career are huge.

The 'brand me' that you shape over the years from every chance encounter to every deep relationship can powerfully determine success in business, particularly when it comes to attracting the best customers and people to develop your firm.
It was always true in the age of linear corporate careers that you should be nice to people on the way up, as you might meet them on the way down. However, as life becomes a succession of projects things have become much more circular so need to be more than nice – you need to nurture relationships.

Thankfully, successful modern organisations are increasingly flat and collaborative with teamwork coming to the fore. Forward-thinking companies dispensing with divisive trappings of pointless hierarchy -  staff cubes and glass executive corner offices, for instance.

With no where to hide and with false barriers removed, success in this environment requires the realisation that it takes all sorts to make a world, and not everyone is like you or shares your views. That doesn't make them any less important. In fact, I could argue it might make them more worthwhile getting to know. But no matter how hard we try, in the world of work we make enemies eventually.

This can be because of something we've actually done, or more often than not for vicarious reasons to do with another individual's insecurity. If you've done something to genuinely offend someone however, you should ensure you put things right and as soon as possible. It may be that the other party doesn't want to know and would prefer to sullenly stick pins in a wax doll of you for an extended period. If that's the case so be it. Back off and mark it down to experience in the sure knowledge that time is a great healer.

One way to avoid creating adversaries is to make sure you and those you know can tell the difference between 'business' and personal' issues. Confusion of these concepts has wrecked many an individual's prospects and a business's chances of success. This is never truer than in the difficult situations I mentioned earlier. One of the most pressured times that anyone will endure in building a business, is when they have to let someone go. Hiring and firing is the basic stuff of managing business, but rarely is it, nor does it have to be, personal.

If you are firing someone – rather than making them redundant – it's usually because it's emerged their skill set does not match a particular position. It's not because they have done something unacceptable and they may ultimately go on to thrive in another environment. It's important in such a situation that you consciously and explicitly separate the individual from the job, and help give them the confidence that it will be the case.
If you are on the receiving end of an axe when a contract isn't working out or something else unpleasant, put yourself in the other person's shoes. See the situation through their eyes. It can quickly put things into perspective. You may still not like it, but at least you can both respect and learn from it.

As an entrepreneur, being ready to reveal your vulnerability is a powerful leadership trait – not a sign of weakness, more a sign of inner strength and confidence. It's also a key characteristic of the sort of person that people trust and want to work with – those most valuable of commodities in creating value in a fast-moving businesses.

In my time, I've seen myself and many a previously confident and competent colleague, struggle temporarily as personal challenges get in the way of professional performance. Even the most accomplished people are not just the person who turns up to work. Neither are they robots. They are in fact flesh and blood, and they take on too much. They make mistakes, exercise poor judgement or just let things get out of hand.
We all make mistakes, and for most of us that's the best way to learn. What matters most is that when something happens we own up to it, seek help to minimise any damage and take another opportunity to learn. Similarly, if you don't have an answer in a situation you should explain why. Perhaps suggest an alternative instead of obfuscating, and never attempt to protect yourself by shifting the blame. Honesty will most likely win you respect and increase the quality of the bonds with people that surround you. Mendacity will be sure to achieve the opposite.

Nurturing your relationships is not a nice-to-do, but a must-do. It's something you should work on every day. After all, we have the means to communicate at our fingertips and around the clock. We ignore that possibility at our peril.