Archive for the ‘Operations’ Category

Government Complexity and the New Federal Healthcare Mandate

Saturday, October 30th, 2010

As a follow up to my last post (“U.S. government operations can be incredibly complex”), I wanted to provide a chart of the new U.S. health care system.  Healthcare represents 17% of the U.S. economy.  Unfortunately, Obamacare was passed with no one having actually read the bill.

Obamacare is modeled on Romneycare, the system in place in Massachusetts since 2006.  In the several years since Romneycare has gone into effect, healthcare costs have soared far beyond the national average.  Massachusetts now has the highest health insurance costs, the highest medical costs, the fastest rising costs and the longest waits for doctors in the nation.

Complexity itself is a major problem in organizational function.  The chart below does not bode well for the nation as a whole.  A larger version of the chart can be accessed here.

More On Becoming a Leader

Monday, August 30th, 2010

As a follow up to my previous post, Warren Bennis, in On Becoming a Leader, asks, “Where have all the leaders gone?” in a book published in 1989.  That’s been a common theme in our society more than in recent times.  In fact, the political vitriol of today is nothing compared to, say, Lincoln or Washington’s day.  Sometimes, we recognize leaders long after they have vanished from the scene.  Bennis chose a theme that has occurred for generations.

Bennis states that leaders share at least some of the following:

  • A guiding vision: “The leader has a clear idea of what he wants to do – professionally and personally – and the strength to persist in the face of setbacks, even failures.”
  • Passion: “[T]he underlying passion for the promises of life, combined with a very particular passion for a vocation, a profession, a course of action.”
  • Integrity: Integrity, according to Bennis, consists of self-knowledge, candor and maturity, which create trust.
  • Curiosity and Daring: The leader wonders about everything, takes risks, doesn’t worry about failure, embraces errors, knowing he will learn from them.

On Becoming a Leader

Friday, July 16th, 2010

Warren Bennis is considered a pioneer in the field of leadership studies.  His books Leaders:  Strategies for Taking Charge and On Becoming a Leader have been translated into more than 20 languages.

In the latter book, Bennis notes that the leaders he’s interviewed agree on two points.  First, leaders are made, not born, and they “are made more by themselves than by any external means.”  Second, no one sets out to be a leader, but merely to express himself, freely and fully.  He distinguishes the second point from being driven, as many are, and leading, which few do.

Bennis writes that just because someone has the right ingredients doesn’t mean he or she will become a leader.  Motivation, type of character and luck all play a part.  His book On Becoming a Leader is a story of process, with no beginning, middle or end.  In his interviews with individuals in business, the media and arts, and others, he finds this story has many recurring themes:  the need for both formal and informal education, the need to unlearn, the need for reflection on what is learned, the need to take risks and the need to become competent and master the task at hand.

Force Majeure Provisions in Outsourcing Contracts

Tuesday, January 20th, 2009

Last week, I provided a general overview of some of the compelling reasons for outsourcing at E-Solutions Integrator.  Outsourcing contracts need to be carefully negotiated as problems can have a huge impact on the company that outsources.

Lawyers tend to use the same  boilerplate provisions despite the type of contract.  That can be a killer in an outsourcing transaction.  For example, one provision that should be carefully reviewed is the force majeure provision.

Force majeure literally means “greater force.”  Force majeure excuses a party from liability or from performing its obligation if some unforeseen event or circumstance beyond that party’s control prevents it from performing as required under the contract.  Thus, force majeure clauses commonly cover Acts of God, such as natural disasters, war, strikes or labor unrest, riots, and the failure of third parties (e.g., subcontractors, suppliers) to perform their obligations to the contracting party.

When negotiating an agreement to outsource on behalf of a client, one should read and limit the list of categories under which force majeure may be claimed.  Sometimes, the vendor’s contract provides includes an unnecessarily broad list.  Additionally, one should limit the duration of any enforced delay.  Consider how long a force majeure event lasts.  Forever?  If so, no one will provide the service.

A force majeure event for one of the vendor’s other customers should not be a force majeure event for your client.  Further, one should make a distinction between a supplier and a subcontractor, the latter typically being more easily and quickly replaced.  Depending on the type of contract, one should consider whether the failure of a supplier should be a force majeure event.

Force majeure events should not include power or equipment failures.  The vendor should have immediate backups when these events occur.  Similarly, software defects should not be force majeure events.

When a force majeure event occurs, it should not relieve the vendor from implementing its disaster recovery plan.  In fact, it must do so when such an event occurs.  The client should have its own business continuation plan as well.  The client should have insurance If the risk can’t be minimized in a particular area.

The Black Book of Outsourcing: How to Manage the Changes, Challenges, and Opportunities and The Outsourcing Handbook: How to Implement a Successful Outsourcing Process are good places to start when considering an outsourcing arrangement.

An Overview of Outsourcing

Saturday, December 13th, 2008

When I was with Day, Berry & Howard, I negotiated large, complex outsourcing contracts for a number of Fortune 500 companies.  For example, in one instance, it was more efficient for a pharmaceutical company to outsource its help desk to an expert provider of such services rather than to manage and maintain the resources necessary to operate the help desk function in-house.  In another instance, a bank outsourced its data processing function to an expert provider of data processing services for lenders.

This expertise I gained came in handy at E-Solutions Integrator, Inc. (e-SI). because it helped us to grow much more rapidly on limited resources. In the early days of e-SI, when we landed a project, we needed to quickly add software developers.  However, we didn’t want to hire full-time employees for a variety of reasons.  This was because the Internet – and our business – was growing so rapidly that it was hard to predict our needs and we didn’t want to take on employees we might not need in a couple of months when a project ended.  So we used the leverage of contractors and ultimately, we engaged hundreds of individuals  – in addition to our own core employees.

Outsourcing worked for us.  We hired contract organizations that provided employees in India.  This provided the flexibility we needed and increased our margins, as software developers in India cost significantly less than in North America.  Yet, we did have concerns and were careful to manage them.  These concerns included quality control, security issues and time constraints from having our resources on the other wide of the planet.

Broadly defined, outsourcing is subcontracting a process to a third party.  That process could involve a product or a service or part of either.  It could also involve a specific business function or a non-core competency of the organization.  We outsourced overseas, which technically, is called “offshoring.”

The Outsourcing Center is an Internet portal for information on methods to outsource information technology.  The Outsourcing Institute is a professional organization dedicated to outsourcing.  For individuals in the U.S. the Contract Employees Handbook is focused on helping contract employees manage their careers.

As it was, at e-SI, we grew and survived the Internet downturn because of the flexibility of being able to outsource.  Ultimately, though, we opened our own offices in India as our business prospered and our projects and customer list expanded.

Technological Change and Software for Boards of Directors

Saturday, August 30th, 2008

What is amazing about technological change is how quick it is in today’s world.  It seems as if the rate of change in human history can be compared to a snowball that grows bigger and bigger and rolls faster and faster down a hill as time marches on.

Only 25 years ago, printed material permeated our lives.  Today, electronic data has largely complemented or supplanted the print medium for many routine processes.  New software applications seek out niches to exploit like water seeping through the earth to fill all the cracks in a rock.

One niche in which electronic means are taking hold is in software for Boards of Directors.  New software for corporate governance allows for worldwide, instantaneous, 24/7 access via easy-to-use interfaces.  It means that printed materials don’t have to be dragged around or distributed.  Confidentiality and security are enhanced.

State corporate law statutes regarding Board meetings have evolved to reflect this technological change by allowing for meetings by remote communication and remote participation (See, e.g., Massachusetts Bus. Corp. Law ch. 156D, § 8.20).

Companies that offer software or online applications for Boards of Directors include BoardVantage (Director Suite) and Diligent (Boardbooks).  Collaborative content management software, such as that produced by EMC (Documentum eRoom.net), also could be used, although it is not specifically designed for corporate governance.

The (Not Exact) Characteristics of a Successful Leader

Thursday, August 7th, 2008

Once upon a time, a CEO I worked with critiqued the difference between our leadership styles.  He told me, “You’re like a coconut.  You’re hard on the outside, but soft on the inside.  People think you’re tough until they get to know you.  Then they realize you care about them.”

He then said something shocking.  He said, “I’m just the opposite.  Everybody likes me instantly.”  “But I’m hard on the inside,” he continued, waving his arm at a group of people working for his company.  “I could care less if any of them walked outside and got hit by a car.”

What was shocking to me was not his statement, but that he admitted it.  He was not a very nice person, but he was so confident that he could admit it and not care what people thought about him.

This CEO started with a few people and built a publicly-traded company.  As could be expected, he’s not good at maintaining long-term relationships with most of his employees.  Once they figure him out, they move on.  He can’t be trusted; I’ve seen him break contracts that he signed, but later decided not to honor.  Plus, every few months, the company had a new strategy.

Nonetheless, he’s been successful if judged only in terms of building a company and creating wealth.  He has the smarts, he’s crafty and he has tremendous confidence.

That caused me to think about what the characteristics of a successful leader are.  There are thousands of books on the topic.  If you google “what makes a good leader,” in a fraction of a second, you get more than 1.5 million entries.

Having been an attorney who’s worked with hundreds of companies and in leadership roles myself, what I’ve learned is that there is no one type of leader.  No one combination of characteristics exists that leads to the corner office at the top of the skyscraper.

Vision is overrated.  It’s important, but once you have the vision, you need to be able to act on it.  This requires a certain amount of organization – the ability to get things done.  You need ambition, so that you actually do act on it.  And you have to make people believe in you; that’s where the confidence comes in.  Plus, there are a few other traits that the books mention, such as keeping cool under pressure and making tough decisions on time, among others.

Yet good leaders come in a myriad of combinations.  What works in one organization or situation may utterly fail in another.  So to say that there’s any one, two, five or ten characteristics that define a leader is wrong because the mix of traits or lack of any one trait depends on the company, the circumstances and the individuals involved in the endeavor.

A difference exists, though, between leaders and those that stand out as great leaders.  The great ones I’ve met have the ability to listen, and let people feel like they’ve been listened to.

And I do think integrity is critical.  The CEO I mention above was successful, but was constantly losing good people.  Had he kept them, his company would have been much larger and much more profitable.

General Colin Powell offers some good thoughts in this leadership primer.

A Management Flaw – and Financials Disasters That Shouldn’t Have Happened

Thursday, July 17th, 2008

One critical flaw that has hobbled and even killed companies is not managing growth.  Companies that don’t manage their growth produce unhappy customers, unhappy vendors, unhappy franchisees and sometimes, spectacular flame outs.  Why would a company put itself in this position?  Lots of reasons . . . attempting to grab market share, be the first into a new market and dominate a niche, management hubris or just plain greed.

Here’s an example of management hubris:  I interviewed for an executive position with a $700 million company that started growing extremely rapidly (It had doubled in the past 2 years.).  I spent 1.5 hours with their head of HR.  He told me, “We don’t have competition” and “I’d rather have someone do C+ work and get it done tomorrow than A work and get it done next week.”  Those sort of red flags say to me that when this company falls, it’s going to fall hard.

Two companies that should’ve been category killers, but ended up flaming out, are Boston Chicken (which changed its name to Boston Market) and Krispy Kreme Donuts.  Both had fanatics among customers and captivating products.  Both were loved by Wall Street.  In both cases, there was no dominant national chain in their niche, a la McDonalds in the hamburger category (KFC offered fried, not rotisserie, chicken.).  Both flamed out.

In Boston Market’s case, large loans fueled growth that occurred much too quickly.  Essentially, the company began to see itself as a financial, not food service, company, making money selling franchises instead of focusing on growing steadily and producing high quality meals.  The company failed to build a strong management team and had high executive turnover.  Food quality varied from unit to unit and even in individual units, depending on the time of day and number of customers.  Even its marketing strategy, with constant coupons, led to higher growth and lower margins.  Eventually, it filed for bankruptcy.

When Krispy Kreme opened in new areas, cars waited in long lines.  Although founded in 1937, its downturn came when it saw how lucrative franchising could be.  It sold its first franchise in 1995 and went public in 2000.  Its stock soared.  Yet it grew too rapidly without addressing a fundamental flaw:  stores that were too big – for selling just doughnuts – and cost too much to operate.  Some stores were too close together.  The company later began selling doughnuts to supermarkets, cannibalizing franchisees’ sales and flooding the market with product, lessening its cachet.  Franchisees paid high equipment and supply fees.  Ninety percent of sales were doughnuts, a much higher rate than competitors that diversified their offerings.  In other words, the company grew much too rapidly without first proving their franchise model.

On June 29, private equity firm MGL Asset Management Group LLC bid $7.25/share to take the company private.  But the company once traded at almost $50/share.

The Death of Customer Service?

Friday, July 4th, 2008

One-hundred percent of businesses talk about how important customer service is, how their customers are number one, how much they value their customer relationships. My experience is that, for many businesses, customer service is something to talk about, not do. Only a small percentage of companies make it a primary focus. Here’s a case in point.

Since December, 2007, I have been trying to get a major metropolitan newspaper to deliver a Sunday paper to me. My goal, as I’ve stated to them, is that “I want to wake up when I want on Sunday morning. I would like to make a cup of coffee, open my apartment door, look down and see the newspaper.”

I’m between houses and am renting in an urban area, so what I’ve asked for shouldn’t be a problem, given that distribution is one of the primary functions of a newspaper. Yet, the company’s inability to consistently provide me with a newspaper one day a week has led even their publisher to agree that their performance is unsatisfactory . . . but nothing has changed.

I first subscribed to the paper when I moved to Massachusetts in 1999. On March 9, though, I wrote a letter to the publisher canceling my subscription and asking for an explanation why they couldn’t deliver my paper. Here’s what I wrote:

“I did not receive delivery of my newspaper on the following dates: December 9, December 16, December 30, January 6, January 13, February 10 and March 9. Formal complaints have been filed, promises have been made. Alas, all to no good.

Instead of receiving my Sunday paper, I have, however, received many, many excuses from those in your organization and from your distribution center in Chelmsford. I’ve learned that there continually is a new driver (that’s the main excuse), that the driver is having a problem, that they have ‘visualized the driver leaving the paper there.’

Today, I heard again that ‘we don’t have a key for the building,’ which was not true because I’ve heard it before and spoke with the management office about it. ‘Management won’t give us a key’ is another common excuse that’s also untrue. Even if that were true, I did discover my newspaper on one afternoon, thrown out in the snow in front of our building on one of the dates in February that I did receive it, so they could at least do that.

Again, today, I was told (once again) that I would receive a replacement paper within an hour and the driver would ring me. Of course, it never showed up and no one contacted me (once again).

I’ve also heard, over the past couple of months, that ‘I don’t know what else to tell you.'”

I cannot fathom why this organization has so much difficulty performing a function so basic to its business. With increased competition from other media, one would think that in an era of declining newspaper circulation, publishers would make an extra effort to ensure customers are satisfied. Particularly in urban areas – and in my case, in a large apartment building – the marginal revenue of a single additional subscription pretty much goes to the bottom line. I can’t believe I’m the only subscriber having these problems.

The publisher wrote back to me that “the management of our circulation department has been made aware of the delivery problems you have experienced” and he hoped I would give them a chance to win back my business. The editor, who I’d also copied on the letter to let him know why his news was being read by one less person, wrote me that he forwarded it to the Senior Vice President for Circulation and Marketing and to the Director of Call Center Services (who is also listed as a “Relationship Marketing Director”).

Consequently, I was disappointed that over the next four weeks, I received only two Sunday newspapers. Opening my door was like playing Russian roulette: I never knew if a paper would be there or not. I called once and was told the paper was delivered to the wrong address. But I never received a replacement.

So I contacted the paper’s management again. The relationship director emailed me that the “horrible service . . . makes no sense” and “It will be fixed.” The publisher wrote me that “50% service is unsatisfactory.” He assured me that my delivery problems “have not gone unnoticed.”

The following Tuesday, I received a daily paper, which I do not want. The relationship director wrote that “That should be fixed.” I received emails from him about all the people in the organization he’d spoken with. But I’m not interested in how they do it. I just want to open my door and see a newspaper on Sunday morning.

Over the next three weeks, I received two Sunday papers. I also received a call from someone at the newspaper asking again about how they could get a key to the building. Since I had answered the question over and over, I referred him to the relationship director. Once more, I wrote the director. I said, “I can’t spend any more time answering anyone else’s questions on how to get your operations done. I just want my paper.”

Last week, my intercom rang early on Sunday morning. The delivery person brought the paper up and handed it to me, along with a lecture when I asked him to please just bring the paper and leave it in front of my door.

Now, I understand what it’s like to deliver newspapers. I had a rural route for years growing up, trudging through snow, in the hot sun, seven days as week – and those Sunday papers, full of ads, were heavy. I got up early before school and even had an after-school route, until the afternoon paper shut down. I learned that customers were golden – they paid your bills – and you never, ever spoke harshly to a customer.

What’s clear, other than the disconnect between management and the folks on the ground, is that customer service is not valued in this organization. It’s not a priority of the paper’s leadership and that attitude flows right down to the delivery people. A newspaper needs to write news. It needs to sell ads. But if you can’t provide that information to your customers, what’s the point? Eventually, you’re going to go out of business.

This major metropolitan newspaper is going through all the motions of customer service, but the low priority they assign to it means it is highly ineffective. I’ve written the publisher and the relationship director that “I don’t think my expectations are too high, but you can’t get the job done. Please leave me alone.”

I’ve received a response. They say that the problem is deplorable and has now been fixed. The saga continues . . . .

Performance Appraisal

Thursday, June 26th, 2008

In late March, Sheryl Sandberg left Google to join Facebook, the social networking site, as COO.  She immediately instituted new management and operations processes.  These included guidelines for identifying and recruiting new employees, management training initiatives, and employee performance review procedures.

Fast-growing, entrepreneurial companies like Facebook are so busy that formalizing HR processes often are on the back-burner.  In fact, even larger companies (and some public companies I know) neglect setting up appropriate HR processes.  This not only can lead to liability, but to potential employee performance and satisfaction issues.

In the early part of my career, as an attorney at Day, Berry & Howard, we had only top down performance reviews that came from the partners with whom one worked.  With my own subordinates, I went further and instituted a more in-depth review of my own performance.  I regularly asked my assistants and occasionally, junior attorneys with whom I worked, questions like “How am I doing?”, “How can I do better to make us more efficient?” and “How can I help you to help me?”  To do this, you need to be open to criticism, which is something many hard-charging attorneys with Type A personalities have difficulty with.

For me, it paid great dividends.  I established excellent relationships that, for example, allowed me to delegate more of the mundane work to my assistants, which freed up my time for substantial work and allowed them to feel they were really contributing to our team.

360 performance review, which I understand that Ms. Sandberg initiated, incorporates more than just getting feedback from one’s superiors and subordinates.  It also can include getting feedback from departmental coworkers, those in other departments, suppliers and sometimes, customers.  Supposedly, it provides a more accurate picture of one’s strengths and weaknesses and ways to improve them (although there are some concerns about 360 performance appraisals).

At E-Solutions Integrator, we grew very rapidly from the outset.  We did not use 360 performance review during my tenure, but developed this performance evaluation form for both the reviewed employee and his or her manager to complete.  Each company needs to develop performance evaluation metrics that fit the needs of that particular organization, taking into account the job position, the requirements of that position, the type and size of the business, and the company’s stage of growth.  This form worked well for us in the early stages of our existence.

A Very Cool Chart!

Saturday, May 3rd, 2008

As a business lawyer for many years, I worked with clients in a wide variety of industries. One such niche in which I worked was the telecommunications industry. My clients ran nearly the full gamut: wireline, wireless, cable and wireless cable, Internet and even early wireless Internet (nothing with satellites or outer space, as I recall). The Office of Spectrum Management, part of the National Telecommunications and Information Administration of the U.S. Department of Commerce, developed this very cool chart of frequency allocations in the U.S. radio spectrum.

I thought this was pretty interesting stuff and I wrote a few articles that appeared in publications ranging from the ACUTA Journal of Telecommunications to Cabling Systems to Utah Business. While the technology has moved forward, these articles provide good info on the basics. Here’s Understanding Wireless – Medium and Long-Range Technologies and A Short Primer on Optical Networking, the latter of which I wrote with my brother, Ed.

Software as a Service (SaaS)

Monday, April 28th, 2008

There’s a strong movement towards Software as a Service (SaaS) now as being more cost-efficient than traditional software licensing. In SaaS, the software provider develops, hosts and operates a web application over the Internet (A third-party provider may host and operate the application.). Customers use, but do not own, the application. It is a subscription model that may generate recurring revenues for the provider.

Here are some resources to learn more about software licensing and SaaS:

* Jim Geisman is a software pricing expert with MarketShare, Inc. He’s written Guide to Software Licensing Models, which reviews more than 30 types of models.

* The Software & Information Industry Association has produced a new whitepaper, Channels For the New SaaS Industry, which discusses differences between traditional IT channels and SaaS channels.

* Eric Esperne of James River Consulting wrote an article for Mass High Tech that discusses the pros and cons of SaaS compared with traditional licensing, Is SaaS Really Better Than Software Licensing? He offers a more detailed white paper, Is SaaS Really Better For Business Than Software Licensing?

* An article from McKinsey, Delivering Software as a Service, includes a discussion of the economics and total cost of ownership of SaaS.

How to Prepare and Deliver World-Class Presentations

Monday, April 21st, 2008

Tim Ferriss has an excellent post on planning and structuring presentations, as advised by Dan Pink, Al Gore’s former chief speechwriter.

Integrity in Business

Wednesday, April 2nd, 2008

Honesty is the only way to get aheadand stay therein the business world. This sounds like common sense, but it’s surprising how many people don’t understand it, from the juniormost employee to the Chief Executive Officer.

Developing a reputation for being an honest and trustful person is the most valuable asset you have. Without it, all the intelligence or assets you have are meaningless. Contracts, for example, are based on trust. While a written contract should includes protections against disagreements between the parties, few will sign a contract if they expect to end up in litigation because of a a trust issue.

Here’s a situation I know of where trust became a major issue in a mid-sized company. After a merger, the CEO wanted to cut costs. He told an executive to reduce a manager’s pay by 20%. The manager, a popular and effective employee, was in a bind for personal reasons, so she reluctantly accepted the pay reduction. When the CEO heard that the pay reduction was accepted, he told the executive to fire the manager.

Getting rid of the manager had been the CEO’s goal, but the way he did it was dishonest. When word of this incident traveled through the company, it unnerved people. Some of them were shocked at what had happened. The CEO’s action’s didn’t just affect the one individual, it lowered morale among many other employees. Within a couple of months, several key executives and managers left.

The CEO achieved the result he wanted, which was to terminate the manager, but at a great cost to the company. He could have achieved the same result, but if he handled the situation in an honest manner, the effect on others would’ve been greatly diminished.

Trust can be the hardest thing to build, but it’s so easy to lose.

Emailing Bad News…The Sandwich Approach

Wednesday, March 26th, 2008

I’ve previously written that communication in writing is the worst way to communicate. But what if you have to communicate that way and on top of that, you have bad news to deliver? Whether in a letter or an email, one technique can make the bad news a little less disheartening.

Write your message like a sandwich. Put the bad news in the middle. If you can find some good news to start with, and end with a positive tone, then it makes the bad news easier to consume.

This method isn’t the only way to deliver bad news in writing. Another way is as an open-faced sandwich, with the bad news in the beginning, but with positive reinforcement thereafter. Here’s an example of that approach, in a rejection letter to a candidate for a law clerkship:

“Although I am unable to offer you a position, I very much appreciate the interest you expressed in a clerkship with me. Your talent is evident, and I regret that demands on my time precluded an interview with you.

With best wishes for a rewarding career in the law….”