Recently in Business Category

I got email from someone that was having trouble convincing a boss to spend money on new PCs. The current ones are 5 years old (or older). It is a small company, owned by one man, and he runs every detail. Part of my advice to him was:

Use "undeniable value" to describe requests.

State things in terms of "undeniable value". The statement "we need a faster PC" doesn't do that. To you it has undeniable value: faster is better and will solve a list of problems. But to a non-technical person they can't guess all the things in your head that it will solve. In fact, a non-technical person might think, "you're just trying to spend my money". A statement with undeniable value is one that has an obvious return-on-investment... one that creates profits directly.

So, if his salespeople are spending 3 hours a day typing invoices into these slow computers, and a faster one would let them do it in 1 hour, they could be spending 2 additional hours each day on the phone selling instead of bothering with the computer. "I have a plan that will enable your salespeople spend an additional 2 hours a day on the phone selling compared to today's workflow". That's undeniable value.

For a machine refresh policy: Computers, like old cars, need more maintenance the older they get. I'd have more time for your most important projects if I wasn't spending 15 hours a week repairing old machines. (Then do the math: 15/hours week is 35% of your salary which is $XX,XXX/year down the drain. By spending $XX,XXX on new machines, you'll free up time for me to do projects you find more important.)

Note that if the value can be profit or better efficiency. Your boss respects profit more than efficiency. Can you (or you and your CFO) work out a way to phrase things in terms of the profit it will bring? In fact, his priorities are probably: (from highest to lowest)

  1. Revenue. Guaranteeing a financial return. Actually making money from customers
  2. Increasing scarce productivity. Most attractive if product demand exceeds supply
  3. Cutting costs. Most attractive in a struggling company
  4. Competitive advantage. Even more attractive if your a behind the competition
  5. Technology for the sake of technology. For pizzazz or to maintain "cutting edge" reputation

"We need a faster PC" sounds like #5. "Sales people will spend more time on the phone, less time waiting for their computer" sounds like #1. They're the same thing to you, but very different to your boss.

Take the time to sit down and think out how you are going to describe your request in terms of undeniable value. It is very difficult. It will take a lot of time. You might want to beta-test it on a fellow employee, or maybe the CFO himself. The statement should be "undeniable": Nobody dislikes more profit, or making better use of a rare resource.

Your boss' priorities might be different than that list simply because as a small business person he's probably had to pave his own way, make his own rules, and do things differently. Maybe appealing to his ego or his sense of cheapness will be more successful. Maybe he's a wheeler-dealer and what would impress him most is that you've negotiated a "one time only" great price on these PCs; or maybe letting him do the price negotiations will stroke his ego enough to make it a worthy project.

Either way, good luck and let me know what happens. Also, I encourage people to post comments if they have thoughts and advice.

Posted by Tom Limoncelli in Business

For a long time I've had some serious issues with CEOs putting such a focus on the stock price instead of customer satisfaction. I've usually figured that I was an outsider, too ignorant of how economics or how business works to know any better.

In fact, there was a time (about 5 years ago) that I was seriously considering going for an MBA so I could understand this all better. However I realized that what I really wanted to do was wait for various principles to be explained (like, "focus on shareholder value") and bring up my all my counter-examples. That's not a good reason to get an MBA.

I suffered through the 1990s when most companies started adopting this mentality. A lot of people today don't realize there had been a time when "shareholder value" wasn't the top priority of most businesses. There was even a time when that wasn't even a phrase people used! In the 1990s it became important to "align the average employee's priorities with that of the CEO" therefore we all got stock options. I saw managers at Bell Labs do things that otherwise would be considered stupid and harmful but with these new incentives "it's what we'll have to do".

Meanwhile I keep seeing examples of companies that don't focus on "maximizing shareholder value" doing really well: Apple for example. I'm glad my current employer focuses on "putting the customer first".

So, it turns out I'm not the outlyer. Other people, all smarter than me, have been writing about this too. Now Forbes Magazine, not exactly a bastion of socialist thinking, has published this article that (1) captures a lot of what I've been trying to express, (2) gives 3 specific legislative changes that would turn things around.

The Dumbest Idea In The World: Maximizing Shareholder Value

His recommendations include:

  1. Repeal the 1995 Private Securities Litigation Reform Act

  2. Eliminate regulation FASB 142

  3. Eliminate the use of stock-based compensation as an incentive

Read the article for the details.

Tom

Posted by Tom Limoncelli in Business

 
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