Business Excellence: How to activate your inner excellence – blog series 2 of 10

Mediocracy Instead of Excellence(For the German version of this post, click Link).

Then there are the spectacular crashes like Nokia, Kodak or General Motors. Most firms however get stuck in mediocracy. These firms do survive, but ultimately offer only weak returns, jobs without great career prospects and a customer service that leaves a lot to be desired. Often success depends on a charismatic entrepreneur, when he leaves then the company falls apart.

In fact only few companies achieve the leap to the desired top performance – to Business Excellence. This article investigates the fundamental reasons for these challenges and possible approaches to overcome these.

The points of departure for companies often are astounding comparable. While one company evolves and generates high growth and profits, languishes the other company and will be taken over in the best case. The difference should be pointed out with an example from real life.

From Top to Flop – a Real Life Example

A topical example concerns a furniture manufacturer which boasted nearly €300 million of sales. The most reputable Lean consultants implemented a brand new process flow production system with all the modern methods – top notch. Their designs captured prestigious awards. The quality management scored coveted certificates. Internationalization was pushed globally.

However, during the crisis strong distortions appeared and a comprehensive efficiency program was launched. Despite all, revenue tanked continuously. Then the thunderbolt: a loss of 15% of sales, which dealt the company a heavy blow. 

The executive management was fired at once. The company could be saved from immediate insolvency just due to massive business retreat, generous credit write-offs and a change of ownership. The mid-term future and the jobs are still uncertain.

In contrast to that a direct competitor, which –  starting out from a difficult situation –  pursued an excellence strategy. With an investment of more than €10 million in automatization and process integration this company outperformed its competition with higher customer attraction and better process mastery. A considerate and effective customer strategy won them gradually market shares. A few years down the road the initially dismissed underdog managed to surpass the former darling of the stock exchange and achieved market leadership. The future looks promising and further growth is pursued aggressively.

This real example demonstrates that the required methods and conditions are available to all competitors. But only the challenger has effectively exploited his chance and achieved with decisive measures the desired excellence.

Naturally, every success has many fathers and a profitable business performance is never guaranteed. Therefore a more profound investigation of the root causes for consistent, sustainable Business Excellence is much-needed.  

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> >  This blog post is number 2 of the blog series “Business Excellence: How to Activate Your Inner Excellence.”  To be continued….

For further information about the path to Business Excellence contact the author Andreas Sattlberger, Executive Advisor for Business Excellence at the firm procon in Vienna, Austria. You can reach him at sattlberger@procon.at

Business Excellence: How to Activate Your Inner Excellence – Blog Series 1 of 10

“It is not enough to know, one must apply; it is not enough to want, one must act as well.”
Johann Wolfgang von Goethe   -  (For the German version of this post, click here).

Business Excellence means top performance. The meaning of it is the best performance that a company has the power to achieve. Excellence drives towards the effective realization of the business potential that is “hidden” in the company.

Top performance is rare, but rewarding

To achieve Business Excellence is challenging, but very profitable. Every percent of sustainable profit growth increases the company value exponentially by a 15 to 20 multiple.

Pursuing this goal and driven by intensified competition many manager start out on the path to excellence. Few keep up the way and reach the desired summit.

The highly successful companies apply for prestigious awards that confirm their top achievements. To name only the most important prizes, these are:

·         EFQM – European Foundation for Quality Management - Excellence Model

·         MBNQA - Malcom Baldrige National Quality Award

·         Deming Prize – Award named after Dr. W. Edward Deming

·         Shingo Prize for Operational Excellence

·         and many more national Quality Awards.

But awards by themselves don’t guarantee sustainable success. Firms like Motorola, Armstrong World Industries, Cadillac (GM), Dana Corporation, Wallace Company and AT&T were Baldrige Award winners and ended up in bankruptcy or as take-over targets. 

 

>> This blog post is number 1 of the blog series “Business Excellence: How to Activate Your Inner Excellence.”  To be continued….

 

For further information on the path to Business Excellence contact the author Andreas Sattlberger, Executive Advisor for Business Excellence at the firm procon in Vienna, Austria. You can reach him at sattlberger@procon.at

Purpose first, profit second

When talking with managers I am often surprised how basic truths are lost in the business world. Like the truth my grandmother taught me about to help out first and then expect something in return. And, she clearly looked through, when I feigned ignorance or inaptness.
 
Similarly, managers make big announcements on how they will grow the business, increase profits and make shareholders happy. However, little is said about how consumers profit, why they should bother and what benefit they derive. And the employees also do not really build up any motivation for serving, helping out and caring.

In the end no one cares. Neither the employees, nor the customers can find any purpose in the business. Therefore, without purpose the big goals falter, the high aspirations drop to the ground and the daily grind takes over. 

The effect of such a purpose has been demonstrated in a study where two groups of students called alumnis to raise money for their university. Both groups had the same conditions besides one difference. One group was asked to read before the start of work five minute articles on how callers like them achieved personal benefits through this work (personal benefits group).

The other group read stories from university alumni who had received scholarships funded by the money this call center had raised, describing how those scholarships had helped them (purpose group).

The result was astonishing: The purpose group more then doubled the performance. The stories made the work purposeful and gave them a personal meaning. Working for a purpose: helping others and improving their life.  Then this is the well-known "secret": helping others first, getting a response second.

For questions and comments, post here or write an e-mail to asattlberger@gmail.com

Innovation and Efficiency - No Contradiction

In discussions with top executives we hear that efficiency is not the highest priority; innovation and new product development are. Therefore, the focus is shifting from improving the cost position and increasing the company performance to succeeding with new products and innovations.

However, innovation and efficiency are often perceived as contradictions: either a firm wants to be efficient or it wants to be creative. It can not be both at the same time, or can it?

Even more so, there is academic research that recommends to top executives to make up their minds: you should pursue cost leadership, customer intimacy or innovation (e.g. Treacy& Wiersma (1997)). 

In fact, our experience in the field teaches us a more differentiated understanding. Innovation and efficiency are very compatible concepts and need to be pursued in tandem. There are specifically these cases, where this is useful: 

1. Innovation itself is a process that should be efficient. Not only the amount of money that is poured into innovation is decisive. It is the effect per invested dollar or euro that counts. For example, Apple is investing a lot less than other much less innovative market players, but is extremely successful with its new products. Therefore, companies need to focus on efficient innovation.
     
2. Innovation and efficiency are based on the same disciplines of effective organizations. These success factors start with a strong leadership team, and goes on with highly motivated employees, strong results-orientation, high quality awareness and other virtues. That leads to the plausible conclusion that highly professional organizations do excel in efficiency and in innovation at the same time.
      
3. Process innovation is not just a slogan. It means the application of new ideas on processes and activities. With thousands of small ideas a lot efficiency is generated. These continuous improvement efforts can make the difference between a highly creative, but bankrupt operation, and a successful innovative company, which earns money with its new products.

These cases show that innovation and efficiency are two sides of a medal. However, there ARE big differences between both. Managers and executives just need to be clear on how these two concepts are understood and implemented in their organizations. 

For questions and comments, post here or write an e-mail to asattlberger@gmail.com

Customer Value As The First Principle of Lean Marketing

Customer value is the core of lean management. Paradoxically, exactly this basic principle too often is lost in lean organizations. As a customer, sometimes one has the impression to stand in the way of the processes of the company; as the saying goes: "Business would be easy, were it not for the customers!"

Those annoying customers, …

Quite to the contrary, specifically sales and marketing departments are needed to thoroughly understand customer value and to transform these insights into specific requirements. Unfortunately, many sales and marketing organizations fail at this task. Following symptoms reveal gross shortcomings in grasping customer value:

• Lost in translation: the customer asks for a ball pen, however, sales delivers a laptop
• Over engineering: a multitude of additional bells and whistles leads to solutions that are expensive and too complex for handling
• Customer complaints: price, conditions, dates, or attributes of the offer were not clearly agreed upon, get not delivered and are the cause for frustration
• Buyer´s remorse: marketing and sales people create unrealistic expectations that lead to disappointment
• Branding mistakes: weak and confusing messages blur the brand and damage the reputation
• Sub-optimal investment: old products and declining markets devour high marketing expenses at the expense of innovations and new initiatives
• Obsolete sales strategies: sales people deliver information, but could be done more efficiently through the internet.

These examples show the waste generated because customer value has not been understood clearly. Customer value here refers to the whole buying and usage experience of the customer, not only to the service or product itself; this reaches from the first information on the offer, to the purchase, to the use and up to the disposal of the product.

Customer value across the whole buying cycle

The task of lean marketing and sales consists precisely in creating a useful and valuable experience for each and every customer. This experience can be captured with process steps like these:

1. First acquaintance of offer
2. Interest on the benefits
3. Detailed information about the offer
4. Development of buying intent
5. Weighing of cost and risks / queries
6. Negotiation of conditions
7. Purchase and order
8. Delivery and payment
9. Usage of service / product
10. Request and receipt of customer service
11. Recommendation
12. Re-purchase and disposal of product

In every of these steps marketing and sales can prove themselves valuable or not. With a clear understanding of customer requirements they can increase the benefits each and every time. However, when service and support are lacking or bad, these benefits are lost.

The task of lean marketing & sales consists then in the set up of specific standards and to deliver on these ever better. In this effort the size of the product assortment, the complexity of the channels, the multitude of customer segments and the range of media (off- and on-line) describe formidable challenges.

Thus, these marketing and sales organizations will win, which not only package the principle of customer value in slogans and as lip service, but who implement it in practice. Because, they win the most valuable: content customers.

For questions and comments, post here or write an e-mail to asattlberger@gmail.com

Getting Real: Baked-In Marketing

"Baked in: Creating Products and Businesses That Market Themselves" is a brand new book by the two US authors Alex Bogusky and John Winsor about marketing. This book provides a refreshing perspective on the purpose and the progress of marketing.
(Disclosure: I do have no business relationship with the authors or their firms; they have sent a free copy of their book for review to me.)

Actually, the authors are top ad guys in the U.S. with Crispin Porter + Bogusky. They know what they are talking about and they have made a convincing case why mass marketing is dead.

And, they show, what we can do instead. Because, it is time to put a stop on this kind of "marketing", where the CEO orders the marketing manager to try to sell some kind of product or service that nobody really wants.

Add-on Marketing Is Extinct
In fact, this "add-on" marketing - first to produce something and then to try to sell it - was never really marketing. However, the fact that this worked at all was temporarily possible due to an era when mass media reigned supreme.

Because, there was a time - our parents know it - when nearly all families viewed the same news, shows, soaps and, yep, advertising.

These times of mass media are long gone, but the advertising industry is still struggling about how to regain the power of the campaign: Spending millions and moving the masses .... It was just so simple and profitable. And it´s over. Face it.

The Single Most Powerful Marketing Tool
However, Bogusky and Winsor propose in their small, but essential book that today, marketing must be baked into the product and service.

Basically, they demand that we should use our creativity and integrate marketing, product design and advertising into one highly useful, value-loaded package of consumer delight.

The message of the book is clear: the product / service itself is the most powerful marketing tool. Yes, we all know that. However, why don´t marketers act on this knowledge?

In fact, the new product failure rate is up in the 90% range. At the same time we get dozens of similar offers every day. We are flooded with communication, ads and direct mail garbage shouting at us to buy a me-too version of some commodity.

Instead of pouring their hard earned money into really hot and useful products and designs, the marketing guys are trying to dupe us to buy the same-same once more. They call it "creating awareness", "brand preference" or "purchase intent"..... Shareholders call it: a waste of money.

Creativity Is the Key to Baked In
This is the key idea and premise of the book: Stop wasting money and start using your creativity of your people to deliver something consumers really want, love, take part in, co-create, embrace, recommend, enthuse about, adore, desire, etc., etc.

The biggest part of the book consists of 28 "recipes" on how to go for creating value and how to bake in marketing into the product itself.

Some recipes are really tasty, others we have cooked before (with Tom Peters, Blue Ocean Strategy, Market Busters, Lateral Marketing / Kotler, etc.), and others may turn out inedible (that´s okay, at least we tasted it).

Nevertheless, they provide a great many ideas with examples on how to make it better. From culture, through organization, to stories, to thinking habits, to attitudes, to processes and so on. Each recipe can bring some flavor to the process of creating a better product with baked in marketing.

One of the strengths of the book are the real world marketing and brand examples, which make the read easy and enjoyable, but also provides a tangible dimension to applied creativity.

Twitter @Bakedin #Recipe
There is a cool twist to the recipes. Because for each recipe the authors set up a twitter name that can be found on their blog www.bakedin.com where the cooking is going on in real time. This is user generated brewing & boiling of the finest cuisine, a la Web 2.0.

This crowd-sourcing allows every reader of the book to actually help to write forth a current and online version of the book. So if you do not like the taste of some recipes, just change it or make an entirely new one and post it on @Bakedin.

Does Baked In Work in the Real World?
When starting to "bake in" the marketing in our business, does the book help? Yes, definitely. The best way is to just test some recipes and you will cooking for a while on each of them.

When applying the recipies, I found the book makes a somewhat idiosyncratic journey in terms of the suggestions. For more structured minds, we would miss an organizing bracket that relates the various recipes to each other. Even if it would restrict the highly creative spirits.

We should not hold the authors´deep background in marketing and their strong creative streak against them, however, there are some non-marketing issues that are neglected. In fact, many of the suggestions aim to improve the processes of organizational learning and applied creativity.

These change management issues are tough challenges, especially for companies caught in functional fiefdoms and traditional structures.

Nevertheless, the book provides more than enough value for anyone seriously interested in winning the trust and the business of customers.

Baked In Applicable for European Marketers
Sometimes European marketers are sceptical towards the great enthusiasm of their US colleagues about such new trends. Therefore, the question of how the book is applicable for the European situation deserves an answer.

My answer to this is: even more; In many respects the Europeans need the lessons of this book even more badly. Because the attitude in Europe still too often is: "we know better" than the customers or a "we tell them what´s right" kind of elitist smartass arrogance.

The best cure to that kind of delusion is to jump right into the kitchen and - together with your colleagues, with real, tangible customers and with other creative spirits - "bake in" real marketing innovations in your products and services.

How to Ignore the Customer

A case study on how not to attempt a marketing campaign has just launched in Austria. The BawagPSK bank announced its new "Unternehmen Österreich" campaign. It is a well intended, but however badly advised, effort to regain lost trust with their customers. Because, it will destroy trust. Why?

First of all, the problem of lost trust cannot be healed by telling people: "Trust me." A better approach would be to behave in a trustworthy way: in all branches, in all dealings and in all interactions with clients. This is hard work, yes, very hard (much harder than airing some commercials). And, it takes time and a lot of effort on the ground. However, BawagPSK is on the right track on this, see my post from January.

Second, in advertising school we learned, once the CEOs and/or animals appear in commercials, then the ad agency has not targeted the company´s clients, but the executives. Would the BawagPSK executives like the ad campaign? I bet! Do customers gain any immediate, specific benefit? I doubt it. So, why should customers be interested in listening to it?

Third, the campaign Web site has been announced as an interactive platform. If this would be a joke, then it would be a cruel one. The so-called interaction on the internet site is limited to that you can click on pictures of executives which produces pop-up windows (boring).

Then you can read their great ideas! Yeah, that´s what customers were waiting for.... In reality, interactivity in the Web2.0 era means a real dialogue with customers. And, banks do not have a choice in this. See the Bank of America Debtor Revolt Begins Now, here and here. Better to give them a voice on your own terrain, than have them complain in youtube.

Fourth, clients need banks they can trust. The ideas and the concept of making banking business transparent, simple and safe are correct.
However, the most damaging advertising is that which promises too much. Because, when clients enter a retail bank branch and have high expectations on the "Unternehmen Österreich" promise, but if then get badly disappointed, that creates a terrible damage to the brand and destroys the trust they had.

Fifth, what really is missing in this campaign are the customers. The stilted dialogues in the videos do not invoke a real need in the viewer. What, you got loans? What a surprise, I knew that! Banking clients do have real needs in dealing with banks, but they are sorely lacking in that campaign.

Sixth, today customers do have choices and are better informed than ever. The real proof of the pudding is in the eating. People decide about their relationships with banks on the basis of their real world experience:

• how they are greeted in the branch (not!),
  
• if the teller get´s up from his butt to serve the long queue (is not),
• if transactions are processed correctly all the time (who cares?),
  
• if the bank manager takes responsibility for service mistakes (does not), etc. etc.
  

No news here: the retail banking business is a service business, and it is tough to deliver great service all the time for every customer. Therefore, it is easier to launch a nice ad campaign.

However, it does not work, because banks have no place to hide. Customers look through the advertising veil and judge on the performance they actually receive. Today. Tomorrow. Every day. In every branch.

Back Into the Future: Word of Mouth - Turbo Charged

What could be more everyday than word of mouth? We all have a mouth and most of us use it often too much, to our own detriment (especially marketers). Therefore, it long escaped the attention of marketing experts, how important the word-of-mouth-share was in buying decisions.

You could measure the significance between industries and between products, but in most cases word of mouth (WOM) contributes 90% or more to the final decision in a purchase process.

Exceptions apply for new product trials, but WOM catches up with that pretty fast. How often have you asked friends to give you their take on the latest movie? Was your decision impacted? I bet.

This did nothing to bolster the self confidence of marketers, quite the contrary. Therefore some clever marketing guys invented the concept of "Word-of-Mouth"-Marketing, also known as "Viral Marketing", "Buzz Marketing" or similar.

However, this was just a creative way to acknowledge that customers have their own darn mind, when it comes to making buying decisions. And then these thankless consumers also talk to their friends about it (particuarly if they did not like the product). And it does not matter a lot what the product manager concocted with his ad agency (or how much that had cost).

In terms of customer retention and loyalty it is well researched that customers talk with each other about staying or leaving with companies. Really great experiences are talked about as well, alright, but really interesting are the lousy encounters. Such stories are spread a dozen times more and damage the reputation of a brand pretty fast.

Slowly, marketing and media managers meekly admit to their big moneyed clients that despite all the advertising, a bad product will not become better through them - or sell more. Blame it all to the good ol´word of mouth.

Web 2.0 - The turbo charger

Now enter Web 2.0 and the word of mouth factor multiplies dramatically. Not only will my family and friends listen to me, no: even stranger heed my two cents. This we will call Word of Mouth - turbo charged.

The turbo as we know it now at engines was invented in 1905 by a Swiss, here. In marketing we know the Web 2.0 and I would suggest to apply the analogy of Word of Mouth - turbo charged to it.

The Web 2.0 world puts the charger on WOM with social media, user generated content, customized online ordering, crowdsourcing, semantic web, etc ..... what the heck else will they cram into the Internet anyway?

The WOM turbo will be the default, normal, run-of-the-mill marketing. Bad news for ad agencies, but guys - the times they are a-changin´.

What really happened is the end of classical mass marketing, which was the actual aberration. It is abnormal to produce millions of the same goods and then expect that people - who are endlessly different and vain on top of that - will buy it.

This was just possible in times of scarcity and when people were still fascinated with television. But, these times are long gone and with new customization, database and mobile technology will never return.

Therefore we are back to the normal world: I want mine, and that is not like yours. And I tell my story, which is mine and not like yours.

And so we all can feel we are different and unique: a free, individual person. Thanks God. And I will tell everyone who wants to hear it.....

P.S.: And, by the way, you cannot control word of mouth. And don´t even try with WOM turbo.

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The 7 Top Marketing Mistakes

In my work with boosting sales and restoring profitability for companies, the Marketing function mostly is the least developed. While managers realize that strong products and industrious sales people are required, it often is less clear what role marketing should play.

Here are some of the top marketing mistakes and misunderstandings that I found:

1. Marketing is Creativity: "While other departments need to worry about facts and numbers, marketing takes care of the creative and soft side of the business."

Advertising agencies like this argument, because that allows them to produce "emotional" brand campaigns "that will catch the customers´ hearts."

While it is true, that customer appeal needs to include emotional elements, marketing needs to lay the groundwork with facts and empirical work to deliver results: market research, segmentation, positioning, channels, campaign, media selection, messages, PR, leads, contacts, etc.

For all these outcomes marketing has to focus on data and empirical facts. While experience will support good decisions with a "gut feeling", it is ridiculous to base huge budget decisions on a "hunch" instead of on a solid data foundation. See also here.

2. Marketing as Service: "Marketing should support Sales with brochures, advertising and trade fair help."

Sure, salespeople need brochures, advertising and working campaigns. However, marketing has a much more important role today: Marketing needs to identify, select and deliver paying customers. As Kotler said, "Targeting and positioning are the keys to business success. Nail these two decisions and everything good follows."

While other functions need to serve customers as well, marketing is primarily responsible for creating and keeping customers. However, in many firms the marketing function is relegated to a quite junior person with little influence and resources ("the Marketing Lady"). The results of this marketing then are limited to the scope of the position.

3. Marketing without Controlling: "Marketing does not need to be measured for profitability."

In the good ol´days, half of the advertising budget was wasted, they just didn´t know which half. Today, marketing needs to be controlled around measurable objectives and metrics.

Every euro that is spent needs to be measured for the results it delivers. If campaigns do not measurably improve relevant metrics, then they need to be cancelled. Some key metrics are:

• Market share (volume or value)
• Awareness
• Relative price (market share value/volume)
• Number of customers
• Number of complaints (level of dissatisfaction vs. recommender)
• Customer satisfaction
• Relative quality
  
• Distribution / availability
• Perceived quality / esteem
• Loyalty
• Return on Investment (ROI) on the marketing budget
  

4. Marketing lacks Customer Orientation: "Marketing should market our fantastic products and solutions."

Especially in engineering driven organizations, managers expect the marketing and sales functions to sell what R&D have decided customers need. Unfortunately, this product-orientation is long obsolete, but nevertheless still alive and kicking.

Even so, some managers insist to spend big budgets and enormous resources for branding and promotion in order to "persuade" customers to buy. But, in today´s hypercompetitive marketplaces, if a product or service does not hit the customers´taste or need, then even big dollars will not change that.

It is better to ask marketing to really understand the customers´s needs, what they are willing to purchase, and the favorable price targets. This information must be researched on basis of facts and data and then fed into the R&D process. It sounds simple, however, it still is seldomly done systematically.

5. Marketing as a Department: "The marketing department should stick to their stuff."

When marketing is relegated only to the marketing department, then customers have lost the most important advocate in the company. Marketing concerns the customers and therefore the marketing mindset needs to be reinforced across all functions.

With a limited marketing perspective, customers are left alone with their problems. In fact, customers do not care which department screwed up their order. They judge the overall relationship with the company. If they are not happy, they will leave for the competition.

Marketing is more than a department, it is the mindset that customers decide about the fate of the company. Therefore, marketing staff & managers needs to reinforce and coach this attitude across the company.

6. Marketing Chaos: "It is difficult to plan for branding, service and customer communications."

Lack of planning in marketing is a perennial complaint of managers. Of course, marketing is extremely dynamic and many of the market events cannot be anticipated. The above mentioned creative streak adds to the perception that marketing is chaotic and plan- & glueless.

Nevertheless, it is imperative that marketing prepares detailed plans for product development, campaigns, distribution, customer communication (CRM), campaigns, market research, customer service and all other of their duties with deadlines, accountability and budgets.

After the planning phase the marketing managers are responsible to implement these plans and observe deviations so that countermeasures can be devised and implemented on time.

7. Inverse Marketing Logic: "That´s all the budget you get."

Together with the lack of measurement (see Mistake #3), here the marketing logic is perverted. When managers maintain, we cannot afford more marketing budget, then this shows that cause and effect have been inverted.

Nobody should "afford" marketing in good times, just to cut it when it is needed (when customers do not buy). Marketing is an investment and therefore Return on Investment (ROI) is the metric that counts.

Therefore, the marketing budget should not be put together by looking at the competition, the last year or the available cash flow. The key question needed to ask is: How much budget does marketing need to maximize the return on the invested cash? This, of course, requires a bottom up marketing planning.


Of course, there are many more misconceptions in applying marketing principles in today´s competitive markets. E.g. the use of e-business, mobile marketing, global issues, senior customers, social media, etc. In case you know about such a mistake, add it in the comment box below.

Leadership in Financial Reform - or Not

The global recession was caused by financial hubris and a nearly maniacal expansion of credit. Risk considerations were ignored and subdued until the risk exploded into all our faces.

Now, after having cleaned up the first mess, financial regulators try to appease us with timid reforms. One example is the white paper of the British governement: Darling rules out radical changes in City white paper. The US government is embarrassed by the humongous bonuses of the bank manages, while the economy and the unemployed suffer, here and here

Why kill the goose, that lays the golden eggs? But, were the eggs so golden and then for whom? And, who has to clean out the pen? In the end, financial managers found their personal profit perpetuum mobile: Leverage your equity until the hilt, if it explodes, turn the risks over to the governments and taxpayers. If it works out fine, pocket the cash and buy a big yacht.

These managers are all right and good people and fathers & mothers for the most part (besides outright fraudsters). It must be understood that their behaviour is not as much a question of values, but of reasons. Who on earth would give up risk-less money? The problem is not the individual, it is the regulations and incentives.

Why can´t we make the high-risk bankers eat their own losses? The answer is that it would destroy our economy. That is right. But why do we let our banks and financial institutions put us in such a situation? Because the central banking system provides the banks a shelter from free market forces. This is the crux of the problem.

The central bank is the "lender of last ressort" for banks and their money (credit). This creates a government sponsored monopoly. And as such, market forces break down and the situation we experience now is the sad result.

What would leadership mean in this situation? Financial regulators need to wake up to their responsibility towards not only the financial players, but to the society overall and institute a money system that does away with these artificial monopolies given to banks.

For the theoretical background on these see Rothbard. Practically, however, it is a sad state of affairs to know that our government budgets will wreck and bankrupt over the next years, while on the other hand completely reasonable changes are ignored.

It seems to me, here our political leadership is in the situation of the leading class of the U.S.S.R in mid-80´s. They know they got a problem, but reform is too hard. They would have to change the basis of their power structure, which they are unwilling to do.

As a result, our current leaders are leading us down a path that leads to more waste through government sponsered "deficit spending," which only means throwing good money (that we do not have) after bad money. Bailouts, subsidies and other nonsense destroys value on a scale not seen after the fall of Soviet-style communism.

It is ironic - if not foolish as well - to make new debts to cure the crash, which was caused by too much debt. In the end, the budget deficits will explode and suppress further growth for years to come (think: Japan).

Also, to call for less markets and more government, or even to ask leftist philosophers and other theoreticians to propose the establishment of a " better world" makes me feel scared. We do have fine market systems that made us successful, prosperous and even happy over the last 50 or 100 years. (Better than any other known to mankind.)

Now it is up to the enlightened leadership to preserve the working elements (e.g. markets) for all economic sectors: it is time now to let market rules work for the money and financial system.

Leadership Beyond Old Boy´s Networks

In many traditional business cultures, the main criterion for business leadership was the social background as part of the establishment. Business competence - even the ability to read financial statements - was often an afterthought. And, by the way, the social order was led by "alpha males".

Now, we see some disturbing results from this selection of leaders out of the limited pool of the "Old Boy´s Network". Some of these highly praised "leaders" wreaked havoc with their entrusted companies.

Worst examples are Arcandor (Quelle), Constantia Privatbank, Citibank, GM, and more. After the fact it seems obvious that the leadership of these companies lacked management skills, personal integrity, or both.

Now, with a much more harsher business climate, owners and boards of companies need to look out for professional management talent. And they will need to tap into leaders that often do not conform to their "tried and true" stereotypes.

For example, women in boards still amount to less than 10%, here and here. Also, many countries only recruit out of their local networks. Or, they only consider graduates from their own university. In some countries, a key to a successful career still is the affiliation with a political party.

Leadership is not defined by background, color or gender, nor by other traits per se. Leadership is a question of results. In order to tackle the tough decisions of the next years, we need strong leaders that can deliver these results together with their teams.

Therefore, we need a more open minded leader recruitment approach. The criteria must include more than a nicely polished background and blind loyalty. Keys to success include the ability to face reality, the professional experience required for the job and the integrity to serve as an example.

And most likely, the best contenders are not only found within the Old Boy´s Network or Club rooms ....

Marketing Cost Cutting in Downturn

Marketing budgets have been severely cut during the economic downturn. A recent study by the Finance Marketing Association in Vienna found that up to 60% of financial marketing departments have responded to the crises by cutting costs. Is this wrong? Not necessarily.

Looking at the dire situation from the point of view of the agencies, they should shoulder some of the blame for this reduction of marketing budgets. Why? Because in economically strong times the agencies sold anything and everything to image-obsessed CMOs and CEOs.

The main consideration seemed to be that the client manager was "happy" at the moment of campaign launch. Concerns about the Return of Investment (ROI) of such campaigns were an afterthought, if at all. Maybe they were eager to win one of the prestigious prizes, but it was not cash they were after.

Insightful is the fact that the only category getting more budget in the crisis is direct marketing. This makes sense, because direct marketing is much more performance oriented and supports the hypothesis that performance was lacking until now.

Also, the explanation that companies cannot "afford" the marketing budgets seems odd. This sounds like marketing is something like luxury, reserved for good times. In fact, marketing needs to be an investment. And like every investment it needs to return the cash plus a profit margin.

Taken it from this angle, the solution is quite simple: rigorous marketing controlling with pre-testing and performance measurement, based on hard data.

However, this is not an entirely new thought and many agencies would offer it to their clients. The only question then is why it was not marketed before?

Just 18% Happy With Own Leadership Performance

This result that just 18% of leaders are content with their own leadership performance was the outcome of a recent study by Dr. Seliger (PDF German). In addition, the conclusion stated two major shortcomings:

1. Leadership instruments are choosen without facts, on the basis of "gut feelings"
2. Lots of communication does take place, but it lacks plain-talking language

The consequences of this lack of performant leadership on the organizations are highly detrimental. Typical outcomes of bad leadership are: trends overlooked, growth targets missed, performance deteriorating, costs too high, employees demotivated, customers and owners disappointed, insolvency a clear danger.

The study uncovered some of the reasons, which conform with my experience. There are serious misconceptions that undermine performant leadership:

• Leadership is reduced to "charismatic" leaders, neglecting the process of leading
  
• Separation of thinking and doing, whereby the leader commands people to do (not to think, so they stop thinking)
  
• Disregard for genuine leadership work in favor of operational work (i.e. sales manager is his best salesperson)
  
• "Hero" conception of leadership versus the reality of daily housewife-type leadership chores to achieve consistent and sustainable results

These wrong myths of leadership prevent a more profound approach. What does such an approach need to contain? Here, my experience suggests not to fall into the trap to extend a "catalogue" of tasks or traits. Quite the contrary, less is more: principles come before attributes.

Sure, leaders need to follow standard work with high discipline, the core of leadership does not consist of tasks. The heart of leadership are the results delivered, which in turn means accountability for these results.

This may sound simple, but it requires the courage to define a clear vision on basis of personal responsibility. Especially in times of crisis, leaders are called upon to confront the new situation, investigate the reality and face up to uncomfortable truths. Not a job for the faint of heart.

Despite being in the center of social networks, leadership contains a lonesome responsibility and no consultant or clever method can substitute for standing up to it. Too often have we been fooled by the drappings of leaders, while the actual results then turned out to be dreadful.

Instead of impressing their stakeholders with results, these so-called leaders went through the motions of leadership only - in fact duping the public (i.e. just to mention the most famous: Enron, WorldCom, Tyco, Parmalat, Madoff, Bawag, etc.). More substance, measured in results, is needed for times like ours.

For our leadership practice we should bear in mind that your next most suitable leader may well come from a different class, a different country or a different gender than yours. But, he/she will be the one that delivers results. Take´m.

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5 Symptoms of Weak Leadership

When talking with senior managers about effective actions for improvement, these 5 symptoms regularly crop up:

1. Confusion about goals, roles & responsibilities
2. Insufficient or weak communications
3. No clear means to solve problems, make decisions and resolve conflicts
4. Leadership perceived as not leading and being out of touch
5. Lack of commitment to action

As one can see, these flaws are devastating for any organization. However, often they are denied like the "white elefant" in the living room and nothing is done to counter them. While the symptoms often are just signs for deeper problems, the first step is to acknowledge them.

As a resolution we often have started a formal change management inititative to counter the resistance to necessary and urgent transformations. Other reasons often are behind such situations and need to be identified and verified on basis of facts and data.

Whatever reasons cause such failings, in the end leadership is the major culprit and called upon to act!

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Intuition and the Senior Executive

In an age where management data has grown exponentially, executives are drowning in too much data. While the average manager still in the 1980´s had a limited amount of data, today´s managers are deluged by masses of data from multiple information sources.

In practice, however, most managers survive on pretty little information. Most of it is not even formalized data, but based on observations, random encounters, and informal exchange of experiences. Therefore, executives gauge their understanding of strategic and choice situations by checking with co-managers and with their own intuition.

The information from such non-formal data sources act as an important anchor for decision making. Whereas, formal data only supports the decision, or - with clever, disciplined managers - serves as a counter-test or check, in case the decision turns out wrong in the end anyway.

Realistically, managers are by far not the impartial information processors that compute the "objective" data and then spit out the right decision. Still, it is troubling to see managers blindly following the trend to just decide on their mood or feelings only. The best managers exercise a kind of disciplined intuition that contains both data and a feeling for the right direction.

What is required for the success of such "disciplined intuition" as a basis for decision making?

1. First of all, the executive needs to have enough experience (10 or more years) to develop such a gut feeling for the right "patterns" of how things work, i.e. expertise
   
2. Also, executives need to have the freedom to fail; more exactly, they need to be able to make mistakes and learn through trial and error; see here
   
3. Executives then need to be part of networks, where they can sound off their ideas and feelings with congenial colleagues; free, open discussion is critical, whereas singular decision making easily leads to disaster; see here
   
4. Intuition needs to be disciplined with rigorous thinking and testing, otherwise the executive manages the business to the ground, see Drucker´s warning: “I believe in intuition only if you discipline it. The ´hunch´ artists, the ones who make a diagnosis but don´t check it out with the facts, with what they observe, are the ones, who, in medicine, kill people and, in management, kill businesses.”

Hopefully, then, managers are leading with both experience and data. One alone would lead to disaster and crisis, only together they show the path to performance and success.

Leadership for Generations

When a stock trader was asked what his planning horizon was, he answered, "Mostly short-term, but in some cases I am trading long-term." Then he was asked "How much time is long-term for you?" His answer: "With long-term I mean 5 minutes."

Compare this thinking to Felix Montecuccoli´s. He recently presented his views at the Hayek Institute in Vienna. Mr. Montecuccoli is leading the Agriculture & Forest Association, German site. These farm & forest owners are thinking long-term as well, meaning in generations. Not surprisingly, their profit motive is of somewhat lower priority. But on top of their list are values, with which they are managing quite successfully their properties; these values, such as industriousness, creativity, private property, sustainability, long-term profitability, or family traditions have served them well so far.

Family managed enterprises do experience a renaissance, not only for farmers or traditional aristocrats (of which heritage many big land owners still are in Europe). Examples of successful family-led businesses are not only found in the German "Mittelstand", but also in many Asian family companies, see as a famous example Toyota. Even in the US, familiy businesses have survived since 1776 and before, and are a force in the USA today, article (in German).

The keys to success and here in family business are founded on seemingly simple principles. Interestingly, these principles often help the businesses to prosper and survive over the long term. And they seem to have achieved alignment between the interests of the owners and managers better than stock-owned companies.

And this mis-alignment of owners and their agents, like managers and workers (see: agency theory), is one of the core challenges of big, publicly listed companies today. Not only in cases were outright fraud is perpetuated, but also where the managers are paid big bonuses, while the owners need to take losses, see here.

Also, it seems frivolous, when experienced top executives are scolded by twenty-something analysts to not follow any long-term strategy, but to sacrifice it for short-term shareholder value. Even great minds like Peter Drucker have struggled with that problem. It is a genuine leadership issue and needs to be resolved.

Another strong value of family businesses is sustainability, not only of the firm itself, but also for society and ecology; because family leadership thinks of future(s) not only in terms of stock options, but, even more so, of the future of their children and grand-children. That means then leadership for generations.

Updated 12.02.2009