7 Success Factors - How 2 Stay on Top Amidst VOLATILITY AND DISRUPTION

Success was never permanent, but never more so than today. Life has transformed for everybody. People live and work differently than what they were used to. Online platforms have become not only central to work-life but also to education making students to align themselves with new normal, as is the idea of work from home. The pandemic is restructuring social interactions and metamorphosing social bonds. Businesses are no exception and going cataclysmic shifts.

A latest study by researches quantifies just how quickly high-flying companies fall back into the pack, with some plunging to the depths of their industry sector in record time. However, with the right mind-set and strategic approaches, the competitive advantage of only few companies persists. 

A major Question that arises in front of us is

Why only few companies shows right mind-set, Strategic approaches and Competitive advantage?

Terms such as ‘volatility’ and ‘disruption’ are often used to describe a world in which competitive advantage is increasingly difficult to maintain. The extent of such volatility and disruption is quantified ina Boston Consulting Group study that examined the performance record, relative to their competitors, of 20,000 companies over a period of 40 years. The researchers looked specifically at the decay rate of sector leaders - that is, how quickly top performers lost their advantage over the average performers in their industry.

Let’s take the example of a company whose annual total shareholder return (TSR) reaches a level that is 20% higher than the sector average. However, in the following years, the company’s advantage has a 50% decay rate. In other words, the company watches its advantage decrease by 50% every year: the 20% TSR advantage is cut in half the first year to 10%, cut in half again the following year to 5%, and cut in half to 2.5% the year after that. With a 50% decay rage, the company’s TSR falls in three years to barely above the average TSR for the sector.

Several decades ago, the decay rate for leading performers in a sector (that is, those in the top 20% of the industry) was not as dramatic as 50%. From 1980 to 1985, for example, the decay rate for the best performers was approximately 15%, which meant that high performing companies might slowly, over a number of years, lose their advantage over the average performers. 

For the past 15 years, the ability of companies to sustain their performance advance is dramatically different. On average, top performers have shown a 100% decay rate in TSR. The BCG researchers also confirmed that the shareholder metric, which could be influenced by such factors as changing shareholder expectations, is not skewing the results. Companies fail to maintain their advantage over the sector average on other metrics such as revenue growth, EBIT margin and return on assets.

In an age when competitive advantage was built on nearly immovable assets, including size and capital, sector leaders sustained their advantage. With dynamic competitive factors such as innovation and new technologies making the difference today, no competitive advantage is safe for long.

BUSINESS APPLICATION : Of the companies whose performance results over five years (2008-2013) put them in the top quartile of their sector, an astounding 83% would tumble from their perch in the following five years (2014 – 2019), showing a 100% decay rate. However, the remaining 17% would only suffer a meagre 5% decay rate during those same years.

Given the almost frenetic volatility of the digital age, how can some companies maintain such an advantage? 

We firmly believe that the companies who constantly search for new sources of competitive advantage are the only ones who can maintain such an advantage for example : Apple and Google.

Further companies can defy, “the gravity of average performance”, by taking care of following factors in account :

Agile & Growth Mindset  
No competitive advantage, no matter how strong it may seem, is immune to sudden industry disruption. Don’t sit back and wait to be knocked down; pre-emptively look for the next best thing.

Watch Out Your Success Metrics 
Growth and market share figures help for the present but don’t prepare you for the future. A better metric: how much of current revenues are based on recently developed offerings vs. offerings that were developed further in the past? If the ratio favours recently developed offerings, the company has a better chance of maintaining its success.

Use Two Sets of Strategies

Strategies focused on the present, such as fine-tuning the delivery of offerings, should cohabitate with strategies focused on the long term, such as the development of new offerings based on emerging technologies.

Develop New Organisational Capabilities
Organizational capabilities that support collaboration, diversity and organizational learning are required for the experimentation and development of innovating offerings that build future success.

Shorten Product Life Cycle
As the product life cycle duration has been shortened in the digital age thus Pace is the most important P for organizations apart from Other P’s like Product, Place, Price and Promotion. 

Opt for Planned Change than Forced Change
Companies should anticipate about the changing business environment and accordingly keeping in mind the future needs must opt for planned change rather than sitting idle and waiting for changing business environment to largely impact them and then go for forced change. Education Industry is one such example which is undergoing forced change - a monumental shift in conventional Education, re-examining the architecture & eco-system of education where EdTech is taking a centre stage and revolutionising the whole learning landscape.

Be Smart About Your Exit Strategy
It is imperative for businesses to pay renewed attention on their businesses / Offerings exit strategies. There is no point throwing good money after bad.

[Views expressed are personal]

This article has been written jointly by Raj Gupta & Dr. Arun Sachar, who also collaborated to write the Book Titled - Go & Get Your Success - A Kaleidoscope of Leadership Models that Unshackles Usual Patterns.

About the Author -

Raj Gupta, Author of Multiple Books & Award-Winning HR Leader with 25+ Years of Experience
Dr. Arun Sacher, An Educationist & Management Consultant with 30 years of experience with Top multinationals and premium academic institutions. Author of Many books & research articles.

The article was originally published on LinkedIn. 

Global Exposure - My Top 5 Learning's

"Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, ambition inspired, and success achieved". Helen Keller

My existing organisation afforded me a privilege and opportunity to work amidst diversity of workforce, culture & nationalities in UK for little more than 2 years and it was indeed an amazing exposure. I also met some wonderful colleagues (as in above Photograph) who not only helped me settle in, however, added significantly to my experiential learning.

While this opportunity gave me a chance to deepen and broaden my domain skills (Human Resources), the stint also provided few learnings that I did not plan for. Some of the key learnings are as follows : - 

Persuasive Communication is a key - In certain culture, top down approach is the way of life while in others, participative & inclusive Management plays a critical role. 

It is important that instead of leveraging the Authority, we develop an ability to communicate in a persuasive manner. When you do so, buy in, is strong and that automatically helps in developing team bonding and also help improve overall morale of the workforce.

Watch out your own Unconscious Bias - Basis our exposure, we tend to form opinions and get used to certain ways of working. However, when we get exposed to a new workforce dynamics in a different country, it is important that we take cognisance of our own unconscious biases. Letting go of unconscious biases is not easy.

Having recognised the need to work on my own unconscious biases thanks to a persuasive nudge from the Leader with whom I was working with, it took roughly 6 to 9 months of constant practices and reminder to self before it got imbibed in the head and become an unconscious habit. This indeed helped me improve my ability to navigate through diversity of views & perspectives!

Seek to Understand before you seek to be understood : It is imperative to understand cultural nuances as work culture differ from country to country. Unless you understand workforce motivation dynamics & its nuances, it becomes extremely difficult to navigate through organisational interpersonal dynamics and hierarchical set up.

Socio-Political Understanding & its relationship with Business Economics: Business Economics and politics are inter-related. There is a significant shift in business & politics landscape in the VUCA world. While in the UK, I found the national dailies were all filled with deliberation on Brexit, its impact on businesses, Immigration crisis in Europe etc and that developed my interest in understanding the layers of global socio politics and its impact on business economics.While it took a great deal of time and efforts, however, building a broader overview of US, UK, Europe, Middle East politics through direct interface with respective nationals and broadly understanding its relationship with business economics has helped me not only expand my horizon however, has also helped in building multiplicity of perspective. 

Developing understanding of Workforce Legal & Compliance framework is critical - In a foreign country, it is imperative that you get at least an overview of workforce legal & compliance framework, if not develop a mastery. 

Knowing an additional language helps - Language learning is not just about learning a language, however, it exposes you to a new culture and its nuances. When you make a mental shift from one language to another, this automatically helps you build multiplicity of perspective over a period of time. If you are in Europe, knowing an additional language certainly goes a long way. Learning German helped me quite a bit during my travel in Europe, specifically, in France.

Don’t be a Jerk...if you are, Do something about it, before somebody else does!

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If employees don’t like their bosses, they will leave even when they are paid well, receive recognition and have a chance to learn and grow. In fact disliking the boss is one of the top causes of talent loss.

Recognising your ineffective and potentially damaging behavior is the first step to doing something about them. There is no harm in doing the self assessment. If you don't do it yourself, time will not be far when this would be done by your organization and may be, who knows, it would be very late by then. So it is always better to take the self assessment on our own volition. If you find you often exhibit jerk like behaviors, decide to change and if you don't, somebody, would be constrained to CHANGE you.

As we grow up the ladder, our opportunities to get critical feedback get limited as people tend to be cautious about saying anything negative about authority, hence, self reflection becomes critical to ensure that we keep correcting unwarranted behaviours that becomes part of our day to day functioning.

I have seen many good Leaders asking their sub-ordinates :  

What should they do to improve? 

What is my development need? etc.

However, seen people playing safe. They tend to say things that Boss would like to hear. 

It takes lot of efforts to elicit feedback verbally. I believe giving critical verbal feedback to your manager is tough, however, when you put some kind of anonymous framework in place, it does the trick.

I have tried below framework containing following and elicited quite an excellent developmental feedback:

• Things that I should stop doing 
• Things that I should continue to do 
• Things that I should do more of.

People felt more comfortable providing feedback on the above lines.

Leaders should ensure that feedback comes anonymously and it should be used for your own awareness and development.

LEADER 'A' or LEADER 'B'? - CHOOSE YOUR OPTION!

A good leader takes a little more than his share of the blame, a little less than his share of the credit. Arnold H. Glasow

We all have a choices to become either Leader 'A' or Leader 'B'.  Leader 'A' as shown in the above pic goes beyond acceptable limits (both upper and lower), however, Leader 'B'  remains with in acceptable limits regardless of pressure or situation.  Let me share a brief example for both Leader 'A' & Leader 'B' from my experiential learning's. 

EXAMPLE OF LEADER 'A'

I do not want to see you in this Organization from Monday, SHOUTED one of the Senior  Leader on Friday late night" during my founding years. I asked, "what happened? Why are you so angry"? He said,"keep your MOUTH shut. I do not want to hear any excuse. then he banged the door and went out".

Being a Junior resource, I was at a loss initially. Upon digging the details, I found that some operating leader complained to him about some data issues and after coming from his office, he just launched.  After an hour, I called him and said "I have found the issue and have sorted it out. The mistake was committed by a senior colleague by oversight and I personally have nothing to do with it. He heard me and said, OK.

Monday, I met him expecting that he will express regret for his behavior and asked him, "Do you TRUST me"? He said, "on the trust scale, sometime I found  you 7 and at times 3 or 4". I said, "TRUST is a TRUST, either you trust or you don't. Anyway, I have LOST my TRUST in you. I love this company. Will you find me another job or should I find myself"?  I did find another job....

EXAMPLE OF LEADER 'B'

I saw this BOSS of mine first time wearing a necktie with an impeccable suit. He was supposed to make a presentation to C suits Executives that included his Bosses Boss. The presentation was scheduled at 9.30 AM winter morning in late 1990's. 

I reached office at around 9.15 AM and then he asked me to quickly take the OHP print out. (An overhead projector [OHP] is a machine that has a light inside it and makes the writing or pictures on a sheet of plastic appear on a screen or wall. and rushed for a meeting). 

At 9.30 AM, he called me from reception and asked where are the slides. As it was winter and our computers were not that fast, it took ~ 10 minutes for it to warm up and after 3 slides, the plastic sheet  got stuck in the printer. I told him that I have taken print out only on 3 sheets and he said, bring the sheets.  I took 3 sheets and gave it to him and he said, "give the rest to MD's secretary" and I did so.

After the meeting, he came to me and congratulated, Thank you Raj, thank you so much. It went very well and credit goes to you! 

I said, "sir, it seems there is something wrong with you or you think I am  a politician son". He asked what do you mean". I said, "instead of SHOUTING at me, you are congratulating me?" He asked, "why should he be shouting at me?" I said, "I did not get you the print on time, what if, other prints would not have come out". 

He said, "then it is SHAME on me if I can not present about my function without  PPT's. I have no reason to SHOUT at you as I TRUST you! Do I not know that you come by bus and would have started 30 Minutes early. Were you not here till 9 PM despite being unwell yesterday and worked on creating the presentation". I said, yes "I did start 30 Min early but there was much of rush. I could not get into the bus". 

"Now you understand Raj, that I do not have any reason to get angry with you, rather you did the best that you could and hence credit goes to you for making it a success", he said. 

Through these and various others positive  or not so positive incidents that I came across during my formative years, I learned a lesson that when I am going to be in a position of authority, in all situations, I MUST  

1. Instead of reacting, reflect and then respond

2. Either you Trust or you don't.

3. As a Manager, always remain in control and  maintain your EQUANIMITY

4. If you make a MISTAKE, accept it and say SORRY -  it will only enhance your stature.

5. Act on your GUT FEEL fearlessly.
6. Know your function well and always be ready to present with or without PPT's.

False sense of superiority complex ...does it help in building a great career?

I would rather have an inferiority complex and be pleasantly surprised, than have a superiority complex and be rudely awakened. Vanna Bonta

I have come across multiple situation wherein employee like to stick with their old bosses and comfort zones and if such bosses happens to be in senior roles, stickiness becomes far greater. It seems they tend to derive power and satisfaction out of it and keep looking for ways and means to continue to be associated with them. They are so lost in organizational hierarchy and their association with power that matters and in the process tend to loose sight of their potential and fail to leverage that. 

If people who are hierarchy conscious and have worked with powerful people then their is a huge possibility of seeping in of superiority complex. Problem arises when such people are aligned with less celebrated bosses within the organization. When as a new Manager, you try to help such folks, they say, I know all, I am not going to take anything from you without going into details on the concerned Manager background and credentials. 

While dealing with such folks; as they sure would be excellent worker to get where they have got, at times as Manager, you sneer at them, however, when you get into reflection mode than you realize that underlying reason for their such behavior is anxiety and fear of treading the untrodden patth. It is imperative for the leaders to identify such outstanding employees and help them identify their gaps which for them are blind spots.

Such people tend to loose out the development opportunity and fail to harness their full potential. Sometime working long for an organization makes you comfortable alongside certain colleagues and bosses and you tend to stick around them thinking that they are the one who has brought you thus far, however, in majority of the cases, if thinking is not changed, they will get stuck in middle management positions and wont be able to realize their unharnessed potential. Therefore, it is essential that Leaders watch out the space and make sure that they bring such employees out of their comfort zone and expose them to variety of context and different leaders. 

Make Sure Problem Do Exist Before Working Hard To Solve It...

"Whatever failures I have known, whatever errors I have committed, whatever follies I have witnessed in public and private life, have been the consequences of action without thought." — Bernard Baruch

Alex who was working on a specific project got bogged down when he found that one of the senior person in the organisation has escalated the problem on which he was working on. The senior person did not realize the impact and blissfully thought that in the pursuit of excellence and acceleration, he is doing a favour to the organization. In fact, by not understanding the ground level details and shooting out note did consume avoidable time of leadership which could have been well spent on the progressive realization of worthy goals that organization is pursuing as he could not have done anything beyond what was being done. Alex also felt let down and demotivated.

This reminds me of a famous story which goes as follows : 

One fine day, a bus driver went to the bus garage, started his bus, and drove off along the route. No problems for the first few stops, a few people got on, a few got off, and things went generally well. At the next stop, however, a big hulk of a guy got on. Six feet eight, built like a wrestler, arms hanging down to the ground. He glared at the driver and said, "Big John doesn't pay!" and sat down at the back. 

The driver was five feet three, thin, and basically meek... Naturally, he didn't argue with Big John, but he wasn't happy about it. The next day the same thing happened -Big John got on again, said "Big John doesn't pay!" and sat down. And the next day, and the one after that, and so forth.

This irritated the bus driver, who started losing sleep over the way Big John was taking advantage of his size.Finally he could stand it no longer. He signed up for body building program, karate, judo and all that good stuff. By the end of the summer, he had become quite strong; So on the next Monday, when Big John got on the bus and said, "Big John doesn't pay!" the driver stood up, glared back and screamed, "And why not?"

With a surprised look on his face, Big John replied, "Big John has a Bus pass."

Alex story is not just an exception, however, it happens in many organizations. At times what baffles me in the corporate world is in the name of collaboration, taking people along performance get compromised and we tend to lose precious commodity that is time. At times to touch a tree which is just few inches away, you need to do a lot of dance around it before touching it which increases the lead time which could have been avoided.

We should keep this story in mind and make sure that there is a problem that exists before working hard to solve it. This will save hell lot of time for the organization.

Adversity is Strength of Mind...

An Arab proverb states, “Smooth waters do not make skillful sailors”. Strong people don’t ask the question, “Will storms arise?” Rather, they ask, “When will the next storm arise?”

I had a colleague who had made a move from public sector to Corporate and was struggling to cope up.  She was given timeline to bounce back or start looking for alternatives.  I remember her putting in so much of hard work that she would work till late hours in night and do everything by herself to get the grasp of functioning of various upstream and downstream processes and within 3-4 months, she was not able to just managed to pull the function together, however, she changed the perception of all the customers which had dipped a lot and topped the six sigma green belt certification. 

At times we as Leaders have to throw our people in deep waters and they eventually learn to swim with the fear of drowning, however it is imperative that we make sure they have the ability to bounce back and keep a close watch on them when they require us to be by their side to learn tricks of the trait.

Tough situations keep happening to all of us but if we don’t take a stride to fly with the fear to fall on ground we will never make it big.  We need to keep reinforcing the thought that humse hai zamaana, hum zamaane se nahi (World is because of us, we are not because of world).  It is a fact that when it gets tough the tough get’s going because mind of tough people is so strong that at the time of adversity they hunt for opportunities, build capabilities and over and above do believe in themselves and their ability to weather any storm.

To be fearless and strong you need to be cognizant of what worst can happen in adverse situation and cover it.  The moment your that side is covered you will be able to experiment and explore. The golden rule which I always follow is keep my liabilities minimal so that there is not much to lose even during the times of adversity and create alternatives which 
help me sail through and the fear is automatically taken care of.

Always remember that initiative, creativity, resilience, morality and values will always make you stronger at times of adversity, you just have to look at the positive side of it.

Success is all about imagining possibilities rather than rationalizing current realities

In psychology and logic, rationalization (also known as making excuses is a defense mechanism in which controversial behaviors or feelings are justified and explained in a seemingly rational or logical manner to avoid the true explanation, and are made consciously tolerable – or even admirable and superior – by plausible means. 

To achieve extraordinary results, ordinary people need to endure extraordinary hardships and get transformed in the process. When we look at organizations, mindset of leadership is to keep doing what has been successful then and working around improving the baseline and rationalizing the same instead of questioning the status quo and imagining what could work better now. We all know change is inevitable and as long as we can create alternatives and imagine additional possibilities and perspectives at a time when obvious would be oblivious, we will thrive else it will become difficult even to survive.

It becomes imperative every now and then that we think beyond the obvious and throw limitation out of window and start thinking about things that would be considered impossible as impossible also says i m possible... As Mahatma Gandhi said, “Man often becomes what he believes himself to be. If I keep on saying to myself that I cannot do a certain thing, it is possible that I may end by really becoming incapable of doing it. On the contrary, if I have the belief that I can do it, I shall surely acquire the capacity to do it even if I may not have it at the beginning.”

Majority of the inventions worked on the same principal and people of those times thought these visionaries were foolish and unrealistic. We now know where we are because of them.

We all know what Facebook has brought to the world, it has connected people who could never even think they could connect. But few thought even bigger and different, they created that experience just by click on your phone. So what Whatsapp did was many steps ahead of facebook so much so that Facebook had to buy Whatsapp to thrive in business. This world has experienced transformation because few people think differently.

Steve Jobs is another example of our times who always would do something which the world would never imagine. He would hire musicians, theater artists or people in that field with relevant experience and believe that they have a better creative bent of mind than others and would be able to make the difference, his famous quote being “While some see them as the crazy ones, we see genius. Because the people, who think they are crazy enough to change the world, are the ones who do.” 

Steve is a classic example of an innovator which distinguishes him as a great leader. He actually proved that a leader is one who takes you where you want to be however a great leader is one who takes you where you ought to be and this is not possible if he is not a visionary and cannot imagine possibilities. 

Alternative is the virtue of creativity however you need to have that mindset. I have experienced leaders setting targets which may seem un-achievable and people around them would laugh, however, the difference is made when you think differently and then the mind also starts working to create possibilities for the impossible. 

Synergy - Key to Organizational Vitality & Business Success...

"The leaders who work most effectively, it seems to me, never says 'I'. And that's not because they have trained themselves not to say 'I.' They don't think 'I.' They think 'we'; they think 'team.' They understand their job is to make the team function. They accept responsibility and don't sidestep it, but 'we' gets the credit.... This is what creates trust, what enables you to get the task done." - Peter Drucker

Synergy in the context of business is the benefit derived from combining two or more elements so that the performance of the combination is higher than that of the sum of the individual elements. Getting good players is not as difficult a proposition, as making them stick together to achieve common objective. Not everybody likes what you do as a Leader and understand the significance of your action at the start itself, howsoever, good or great they are and in some people there is a strong urge to criticize and find fault without providing alternatives. I have seen great leaders reinstating in their  team that if you feel an urge to bad mouth about someone then better it be me than you doing it for each other.  I think the reason for making such a statement is somewhere in their roots as they have been made to believe throughout their career that you can be a great leader and your teams can be progressive if right synergies are created.  

People should work with each other rather than working against each other and they will always be winning teams.  If you can relate there was a very famous film of Shahrukh Khan “Chak De India” and the whole films plot was based on the same methodology.   Throughout the movie he worked upon creating synergies within his team and in the end he categorically mentioned that they will not be able to win the finals if any of the players is playing against another team member and not with him.  That is the power of synergies.  

I, at times, wonders as to why some leaders practice an entirely opposite methodology adopted by Britishers “Divide and Rule”.  I am still not able to figure out. Is it the lack of confidence in the team and their capabilities or an autocratic style of working or self insecurities which make them do so?.  

In such scenarios people tend to get engrossed in forming associations depending on where the power center is.  They would project themselves as loyal and informers to the Leaders and such Leaders would see the picture from their eyes rather than being in touch with ground level reality.  Decision making would be biased and there would be dissatisfaction in the whole environment.  The time which should be involved in positive thinking is unnecessarily wasted into conflicts, justifications, blame game and doing damage control.  Not sure if some personal aspirations are met however it is rest assured that Organization suffers in the long run.  We would witness that in such situations the top performers who are away from such political dynamics and focused on performance and growth get frustrated and either retreat in silos or quit.

I do believe that growth can be best gained when we stay progressive and take the teams along. There are always 2 ways to make a line look longer than the other, either you rub one line short or extend the other line parallel to it and make it long. My experience suggests that the later is better as it is progressive. The moment you stop making efforts to grow, become stagnant and indulge in the practices which are not conducive you would be surrounded by insecurities and you will not just do damage to yourself and to all the people associated with you but to the Organizational as well. We must never forget that teamwork is a critical function for organizational success and personal fulfillment.

Should Leaders Enjoy Comfort of Opinion Without Discomfort of Thought?

“If someone isn't what others want them to be, the others become angry. Everyone seems to have a clear idea of how other people should lead their lives, but none about his or her own.” ― Paulo Coelho

Opinion may be the result of a person's perspective, understanding, particular feelings, beliefs, and desires. It may refer to unsubstantiated information, in contrast to knowledge and fact-based beliefs. Few questions comes to mind - Does opinion of people around you matters? Yes it does. Having a low opinion of self is modesty?  In my view answer is "No". While opinion do matters, however it is imperative that we use our discretion while seeking them.

It is ironical that most of us want to stand out of the crowd and make our mark as individuals however only feel comfortable with the sense of inclusion in the group.  . There is a thin line difference between pride and proud. Being proud of one's uniqueness is not ego.

Many times, we are too bogged down by what others think specially upwards management and peer group. We tend to take as many opinions as we can before we take a decision and in the process loose the track of times. 

When we too often rely on opinion of others we start making decisions from their mind and tend to play safe and work around things highlighted by others, more so to have their buy in and to be part of the larger group.  At the same time, we start losing our perspective and lose  track of reality or ground level situations as opinions come handy and we do not have to put effort of gathering our thoughts from real time scenarios.

There are some people who are not too bothered about what others think about them.  They are self motivated and do not need external force to drive them.  Irrespective of what situation and what working conditions they are put through they find their way, create their rules and people around them get influenced by their aura and start emulating them over a period of time. They primarily are thinkers and thought leadership is their core competency.  Such people do not hesitate in challenging the status quo and bring about change.  They would be farsighted and would be able to anticipate outcomes of decisions.

It is also true that when you reach closer to top you lose connect with ground reality and it becomes imperative that you rely on other’s opinion to assess situation, however there is a good possibility that people who are giving opinion are not apt enough or have some hidden interest and do not give you the true picture of the situation.  At that time it becomes even essential that time and again you do a reality check yourself and look at the world from your eyes. 

Ancient history is filled with great example that are worth emulating. King Ashoka who used to disguise himself as common man and roamed on the streets of his kingdom to get a true picture of what masses were going through rather than completely depending on his people and blindly believing what he was being told.  Not going that far, we even witness companies reaching out to larger employee base and doing a sense check of implication of certain policies even before they are launched or take feedback from them in the form of surveys to get the sense of ground reality. 

Though effort is more and you will have to move from your comfort zone and gather facts, analyze, think through, than just depending on a group of individuals for their opinion however your decision would be just and fair; you will be looked upon by others and will further sharpen your thought leadership which shall help you command respect of your workforce due to your disposition instead of demanding it due to your position. 

Organizational Grapevine and its impact...

There is so much good in the worst of us, And so much bad in the best of us, That it hardly becomes any of us, To talk about the rest of us. ~Edward Wallis Hoch

Grapevine is the most uncontrolled form of communication which spreads in all directions informally and unofficially by means of gossip and rumor and at a very fast pace just like a grape fruit vine and that is how it got its name.

We will find people pretty much in every organization who enjoy spending time being part of grapevine and also some people who would act friendly face to face, however, try to make their capital out of gossip mongering and twisting facts and at times would not hesitate a bit in drifting towards the personal. Unfortunately at times such folks, even get away with good ratings / raise as well. The worst scenario happens when the whole base of information is incorrect. Hence it becomes a total waste of time and energy both at individual and organizational level. It has been witnessed that organizations spend lots of time and resources in validating the information through this communication channel and doing damage control thereafter.

You all must have played Chinese whisper during your child hood and would be able to relate that how a communication gets distorted when it flows from mouth to ear of one person to another.  Similar thing happens in grapevine most of the time as information gets distorted during the flow more so because those people are not authorized and trained to handle such communications and also they tweak it to their convenience.  We are normally taught to believe that there is no smoke without fire, you will be surprised that this proverb can completely falter when it comes to grapevine.  

It is a well accepted fact, however, ignored by most of us that whoever gossips to us will gossip about us and what is told in the ear of a man is often heard 100 miles, in spite of it, we tend to engage and become party to grapevine.

In its most uncontrollable and devastating form people start making critical decisions basis the grapevine without validating the authenticity. Research and studies have concluded that informal communication occurs either when insufficient or ambiguous information is transmitted through formal communication.

The flip side is that surprisingly, large part of all organizations’ practices, policies, and procedures are shared through grapevine communication. Though there is a negative thought about grapevine communication, studies have shown that the employees find informal communication such as grapevine communication to be more effective than formal channels of communication when it coexists with the formal communication system. Grapevine at times,  is also used by management to spread the information that either cannot be shared officially or they just want to test the waters before taking critical decisions.

It is imperative that leadership at organizational level do not become susceptible to Grapevine and misdemeanor of gossip mongrer. They should make conscious efforts to avoid leveraging it for short term gains.

How The Leader in Me deal with organizational power and politics....

Nearly all men can stand adversity, but if you want to test a man's character, give him power. -Abraham Lincoln

Leadership is at its core all about power and influence. Leaders use their power to get things done. Power is usually attached with negative connotation, however, as a matter of fact, everyone wants to be powerful. Though power is not a negative thing, it depends on what kind of power a person has and how he uses or abuses it which makes it positive or negative. That is why it is rightly said that the true test of a man's character is when he is in a position of power. Also it is largely believed that it is not power that corrupts but fear. Fear of losing power corrupts those who wield it and fear of the scourge of power corrupts those who are subject to it.

We often witness that politics and power are very closely associated. In an environment where obligations are created, groups  are formed, information is controlled by few individuals, high tolerance of politics, people blame each other, no serious consequences for non performance, decision making is complex, ambiguous and haphazard, people are prone to blaming, paternalism and patronage are seen as stepping stone, networks are cultivated for scoring self goals  In such scenarios, negative politics thrives and trust of workforce in leadership depletes. Hence, It is imperative for leaders to be cognizant of these signs and inculcate a positive and conducive work environment so that the employees are committed and compliant and an eco-system is created whose bedrock is nothing but meritocracy. 

We also witness that many people in some way or the other want to be associated with powerful people. People close to powerful Leaders tend to believe that they are powerful themselves. It is the sense of power which is gained by knowing and being listened to by influential Leaders which they thrive for. They always look out for the ways and mean to make powerful leaders happy; forgetting in the course their core job is to ensure that they make their Leader look good in other eyes rather than spending their time and energy in looking good in his / her eyes.

It is a well established fact that an increasing connections and mastering political networking leads to a greater potential for connection power. A person with connection power has to tread cautiously as people around him / her may not respect him immediately until he earns hi stripes and god forbid, if this power is used just to show authority, throw weight around and serve individual motivation and self goals, not only can it destruct the image of that person but also the leader who he / she is associated with.

Good leaders also at time get intoxicated by power and fault and engage in avoidable behavior only because they think that they can get away with it and get themselves subjugated to pleasantries. Next line also tend to abide by ensuring and tending to their short term interests.  I witnessed one such scenario in my professional career where a very promising Leader at a position of significance fell for pleasantries and chose  quantity over quality, shallowness over depth, impropriety over propriety resulting a serious damage to business interests. Of course over a period of time, he was booted out, however, it was too little and too late. 

Hence it is imperative for the Leaders to watch out and ensure that while there is no "abuse of power", at the same time they should be conscious about not extending  "power to abuse" to  such people. They must foster an institution of trust through an environment where people grow because of meritocracy and not because of connections, personal loyalties and pandering to individual liking.

Must know for HR....Basic understanding of Business Finance - Part 8

In business, words are words; explanations are explanations, promises are promises, but only performance is reality.Harold S. Geneen

Having understood some general economic terms like Bank Rate, Recession, GDP, Government Bonds, Quantitative easing, Market Capitalization and also getting a hang of relationship between economic consumption and investment, financial statements, Ratios etc.  it is important that we understand Performance Measures that are key to Corporate Success. While there are innumerable measures to analyse corporate performance, the market is most interested in profits. This is logical, because without profits, there is not much value in a listed company. But there are other important financial numbers too. Let’s look at them. 

Break Even Analysis :  Break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". A profit or a loss has not been made, although opportunity costs have been "paid", and capital has received the risk-adjusted, expected return. Break even analysis can be a substitute for estimating an unknown factor in making project decisions. If most expenses are known, the other two variables, profit and demand, may be varied. The analysis can help determine the cash flow the level of demand needed and what combination of price and demand will yield the hoped-for-

profit. Break Even formula : Break Even sales = Fixed Costs + Variable Costs

Operating Profit: This measures the profitability of the core business and is roughly expressed as sales minus all costs except interest, depreciation and taxes. Income from other sources (such as sale of property) is excluded. Derived from operating profit is operating profit margin (OPM), which is OP as a percentage of net sales. OPM measures the strength of the business relative to a period, competitor or industry average. Operating profit is the most important measure of performance and not net profit or PAT.

Profit after Tax (PAT): Also called net profit, Profit Margins. Profitability varies from one sector to another and determining the fundamental worth of a company, margins are the only way to compare across sectors and within a sector. Highly profitable companies such as software companies can have an operating margin of 35% and above. Operating profit and OPM are the best measures of efficiency, cost pressures and the core strength of operations. The gross profit margin or gross margin is just another measure of profitability, which takes into account financing costs. Net profit margin is what is left after all costs are included including taxes. It is often distorted by taxes, interest costs and other income and so a mechanical comparison of net margin even among companies within the same sector makes no sense.

Earnings per Share: The most important measure according to the market is earnings per share (EPS). EPS is expressed as net profit (profit after tax) divided by the number of shares. EPS can be distorted by adjustments and other income as reflected in PAT. But a continuously rising EPS is one of the most reliable predictors of future price rise.

Cash Flow: Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation. Reported PAT and EPS may not show a clear picture as PAT is an accounting number arrived at after lots of adjustments. Smart investors prefer to focus on operating cash flow, which is a little complicated in calculation. A company can show healthy PAT but may have a poor or negative cash flow. PAT will not reveal this internal weakness. Negative cash flow also indicates that there is a fundamental problem with the operations: either the profitability is too low or money is stuck in high inventories and receivables. Companies that do not generate healthy cash flows are bound to run aground. 

Return on Equity: Companies that are generating profits more efficiently than others are obvious favourites. One number that can identify such companies is Return on Net Worth, which is known internationally as ‘Return on Equity’ (RoE). It is PAT as a percentage of total shareholders’ funds or net worth. ‘Equity’ in this case is net worth and is calculated by adding reserves to equity capital. RoE shows how profitable the business is for shareholders and how efficiently the company is using the shareholders’ funds. RoE is an important driver of long-term value, subject to market moods and fancies. A rising RoE helps investors determine if a company is earning enough money on an incremental basis. 

Return on Capital Employed: RoCE is calculated by dividing profit before tax and interest by capital employed. Capital employed is the total of all equity and preference capital, reserves and all debt. As opposed to RoE, which measures only the return on shareholders’ money, RoCE measures how the entire money invested in business is doing. RoCE is best compared to the cost of borrowing. If the interest on fixed deposits is earning 11% whereas a company is earning just about 13% as RoCE, clearly it is not a great business for shareholders. RoCE is low for companies that are capital-intensive. For companies with insignificant debt, RoE and RoCE are the same. RoCE has little impact on stock prices by the time it is known and is used only in case of valuing companies during a takeover. 

Return on Assets: This is a measure of how much the assets are producing for the company. RoA is simply net profits divided by total assets and reflects the efficiency in making its assets sweat. As in case of RoE and RoCE, the benchmark for RoA is interest rates or the cost of company’s capital. RoA also exposes whether the company has too much of debt, a fact that RoE may not be able to capture. RoA, like RoCE may be best used in valuing assets for buying and selling.

Dividends: Regular dividends to shareholders gives them confidence that the company is in sound financial health. When dividends are increased, the message is that the company is prospering. This in turn stimulates greater enthusiasm for the stock. The payout ratio shows the percentage of net earnings being paid as dividends. It can range from zero at companies that pay no dividends to more than 100% when companies are earning lots of cash and cannot re-invest them. 

Other Indicators: One key indicator of superior operational strength is how fast the company is turning over its inventories and receivables, which reflects the efficient use of capital. These can be measured by a specific ratio: number of days of average inventory or debtors. The first is arrived at by dividing the cost of goods sold by average inventory while the second is arrived at by dividing sales by average debtors. The average figure comes from adding the opening balance and closing balance of inventory/debtors and dividing it by 2. The lower the number of days for which inventory and debtors are held, the better it is. Even better, if the number shows a falling trend, it means that the company is squeezing more and more out of debtors and stocks. If a company’s collection period is growing longer, it means that it has dumped its products on the market and is unable to recover the money now. These numbers really make sense when compared to other companies in the same sector.

With this I would conclude this series and hope this has given you a broader sense of Business Finance which has become  must know for all Leaders / Managers including but not limited to  Human Capital Management professional.