Author: zen-moser

Why do good boards fail?

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There are many current examples of organisational failures – often with no consequences for the board of directors who are accountable to the organisation and its shareholders.  Many of these failures can be attributed to organisations appointing directors with inappropriate skills and no sense of fiduciary responsibility.  However, there are circumstances where organisations still fail despite the efforts and good intentions of its board.  Why does this happen?

In my opinion, there is too little emphasis being placed on a structured approach to governing the organisation.  The roles of the board and management are not clearly defined and as such gaps start occurring in managing the risks facing the organisation.

There needs to be a systematic process or framework in place to address risk management within the organisation.  There are so many regulations and compliance challenges facing businesses today, that without such a framework it is very easy to overlook an area of the business which requires attention.  A good governance framework embraces much more than just compliance.  It also speaks to managing the operational and strategic risks facing the organisation.

This view is shared by the CGF Research Institute (Pty) Ltd who recently developed and published a Corporate Governance Framework® which clearly defines the areas of accountability of the board and differentiates these from those areas for which management will be held responsible.  This framework presents the board with a structured approach to pro-actively managing risk within the organisation.  It provides the board with a way to map and monitor those aspects of the business which require improved governance structures and processes.

Attached please find an interesting article which elaborates on this subject.

16 April’15-Sustainability depends on strong governance framework

Directors’ Silence

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Board members’ actions or lack thereof, has been very topical lately.  I found that the attached article released by the CGF Research Institute underlines the importance of appropriate dissent in the boardroom.  It also emphasises the role a functional board plays in contributing to a successful and sustainable organisation.

Directors are required to act in the best interests of the organisation.  This requires a director to have the appropriate inter-personal skills and the requisite knowledge and understanding of his obligations and responsibilities towards the organisation.  In addition to being committed to performing his duties to the best of his abilities, a director must be prepared to question actions and decisions being taken by the board.  He must also ensure that his differing views are properly minuted.

Constructive debate and dissent in the boardroom should be encouraged to ensure that business risks and proposals are properly explored and discussed so that appropriate governance and strategic guidelines can be communicated to management and the rest of the organisation.

Failure to voice and record your dissent as a director, may result in loss or damage to the organisation.  This in turn could expose you to potential personal liability as your silence/inaction may have resulted in a breach of your fiduciary and statutory duties!

29 Sept’14_Director’s dissent_Where your undue silence will be used against you

Can Your Business Survive If Your Factory Burns Down?

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The world as we know it has undergone a revolution! The introduction of the internet has forced us out of the Industrial Age and into the Networked Economy. We now have to deal with Facebook, Twitter, Emails, Skype etc. and the way in which these types of platforms and technologies have changed the way in which we do business.

In Seth Godin’s book “The Icarus Deception” he refers to the fact that the Industrial Age taught us that standardisation and mass production were the recipe to cost effectiveness and sustainability – and for a long time this was true! However, the new economy makes it possible for people to source bespoke solutions at a price which suits their pocket. The Networked Economy enables “endless choice and endless shelf space” – you can find anything or anyone you want anywhere in the world!

So how do you729-fire-420x0 differentiate yourself in a world where anything is possible? It is about building relationships that last! Consider the situation where your factory burns down. If over time you have built up a loyal customer base, your chances of recovering from this setback are good. However, if you lose your customers, having a factory is not going to make your business sustainable.

Think about the recent IT meltdowns at FNB and Standard Bank which resulted in errors in the processing of debit orders and temporarily inaccessible bank accounts. Despite a huge outcry from dissatisfied customers, particularly on social media, how many clients actually changed banks as a result of the problems that were experienced? I know that some would say that it is too difficult to try and change banks, but I would wager that the banks’ reactions to the problems as well as their ongoing customer engagement programs, made it easier for their clients to decide to keep their accounts with these banks.

In order to encourage someone to do business with you rather than with someone else, you need to get noticed and build a relationship of trust. You can no longer only supply the same standard products or provide the same standard service – you need to go above and beyond and your business strategy needs to take this into account! More and more the company’s value system is playing a role in differentiating it from its competitors. It is therefore important to define what the company stands for and how it does business. As we know, trust is earned and not given. As such, consistently excellent performance in all areas of the business becomes even more vital in building brand loyalty. A badly worded advertisement or the wrong delivery address could do irreparable harm to your reputation and your business if you have not built solid relationships with your customers.

In the new Networked Economy, you need to be able to “touch” customers in order to build brand loyalty. Your product/service, the way you make it, the way in which you advertise it, as well as the manner in which you deliver it needs to resonate with a potential customer in order to encourage him to make the decision to buy! Bear this in mind when designing your business strategy.

Strategic Alliance with CGF Research Institute

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Palmer Business Concepts is pleased to announce that it has formed a strategic alliance with CGF Research Institute (Pty) Ltd. Jene’Palmer, Chief Executive Officer, will act as Lead Independent Consultant to CGF on matters pertaining to Business Rescue and Turnarounds.

CGF is a Proudly South African, Level 4 BBBEE compliant company that specialises in conducting desktop research on Governance, Risk and Compliance (GRC) related topics, amongst other related company secretariat, regulatory and compliance services.

The alliance with CGF enhances Palmer Business Concepts’s ability to serve its clients by expanding its knowledge base and enabling it to offer a broader range of services. CGF has developed numerous products that cover GRC reports designed to create high-level awareness and understanding of issues impacting a CEO through to all employees of the organisation.

Through CGF’s Lead Independent Consultants, the organisation’s capabilities include the aggregation of local and international best of breed governance reporting services and extend to strategic management consulting, business re-structuring, executive placements, executive coaching, board assessments and evaluation, out-sourced company secretarial functions, facilitation of Corporate Governance Awareness workshops, IT governance through to Enterprise Risk Management (ERM) consulting. These services cater for large corporates, small and medium sized businesses and state owned organisations.

To find out more about CGF, its Lead Independent Consultants and Patrons access www.cgf.co.za or www.corporate-governance.co.za.

Going Concern – Sailing Through Rough Seas?

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TitanicAre you rolling your creditors? Are you “robbing from Peter to pay Paul”? Are you barely “saving” your cash to pay salaries every month rather than paying creditors or investing in the business? Is the delay in paying or the non-payment of your creditors impacting on your ability to satisfy your customers? Do your customers get their products and services on time? Are you making your revenue targets?

Are you on the Titanic?

If the above sounds familiar, then it is very likely that the time taken to convert your raw materials/stock into cash is increasing. This means that your working capital requirements are also increasing, while your accessible credit facilities are likely reducing. Your business is in trouble and your responsibilities as Captain of the ship just got more onerous!

In terms of the Companies Act, if a company is financially distressed, the board of directors is obliged to inform all affected parties (this includes shareholders, creditors, customers, employees) in writing of its reasons for NOT adopting a resolution to voluntarily place the company into business rescue. Whilst such a resolution is adopted by the board as a whole, the board will look to the CEO for a motivation on the company’s going concern assertions.

The question then arises: what should you as the CEO be looking at in this regard?

Importantly, do not delegate this exercise to the CFO and absolve yourself of all responsibility! The CFO will need guidance from you on what to expect from the business in the foreseeable future in order to prepare the necessary information for the board. Understand that the objective of a going concern assessment is to confirm that the company will be able to pay its expenses and debts as they fall due during the normal course of business. As a minimum you need to look ahead for a period of 12 months following on your balance sheet date.

The depth and complexity of the going concern assessment will of course vary depending on the nature and size of your business, but I have found the following practical guidelines useful:

1. Don’t take your eye off the ball – know what is going on in your business at all times:
In my opinion, the going concern assessment is not an exercise which should only be performed at year end – by then it might be too late for you to implement the necessary corrective action. At the risk of stating the obvious, as CEO you should at all times have a good idea of what is going on in your business. This means that you should be reviewing your management accounts at least monthly, so that you know whether or not your business is performing in line with expectations. Weekly management meetings are also a good way to stay in touch with what is happening and, importantly, what is not happening. Be alert to early warning signs indicating the need for corrective action and don’t fall into the trap of accepting “it is just a timing issue” as an excuse from your salespeople. This false sense of security will just delay critical decision-making and cost you valuable cash flow.

2. Recognise that circumstances change:
Are you preparing budgets and forecasts? The budget is a financial interpretation of your business plan and is an important tool which summarises the business’s expected performance and capital requirements over the next 12 months. It is normally prepared just before year end and acts as a roadmap for the next financial year. This is certainly one of the documents which the board will want to review when considering the going concern assumptions. Yet, far too often, the budget is filed in a drawer to gather dust! The drawer is only opened when it is time to pay incentives and bonuses – obviously decreasing the budget’s value as a management tool.

Admittedly, there are some limitations to a budget in that it is fixed at a point in time and does not take changing circumstances and performance into account. I therefore prefer to work with a rolling 12 month forecast which incorporates changing trading conditions such as lost deals, the entrance of a new competitor or a downturn in the economy. This way you have a more realistic idea of how your business is actually going to perform over the next few months. The 12 month rolling forecast also improves cash flow forecasting. It timeously highlights the need for additional cash/increased borrowing facilities which gives you more time implement any corrective measures or secure the additional financing you need before the sustainability of your business is brought into question.

3. Do some scenario planning:
Do you have a plan B and C? I have always found it very useful to spend some time evaluating alternative courses of action especially for those critical events which could make or break your budgets or your company. For example, what will happen if you lose a significant customer? What is the likelihood of this happening? Are your relationships as secure as you think they are? Can you make up the revenue elsewhere if you do lose such a customer? What other material uncertainties are facing your business? How will this impact on cash flow? If you don’t have some answers to these types of questions, your business continuity risk profile increases significantly – particularly in situations where customer and supplier relationships are deteriorating as a result of declining cash flows. Don’t lose sight of the fact that business rescue can be forced on you by the courts on application by a creditor. You don’t want to be caught unprepared because the business rescue process does not leave a lot of time for planning. Being better prepared shortens the time to action when crises do present themselves and increases the prospects of your business recovering.

4. Know how much runway you have available:
Make sure that you know how much cash your business consumes on a monthly basis when revenue remains low i.e. how long will it take for the business to run out of cash if business plan does not unfold as predicted? Don’t be surprised if it is not as long as you think! Your runway will give you an indication of the extent to which the business can withstand certain crises and weather poor trading conditions. The longer the runway, the better the chances of surviving!

5. Recognise when you need assistance:
A captain does not steer his ship on his own. He has a team of qualified people with clearly defined roles helping him to get the ship safely from one port to another. Likewise, the CEO must ensure that he has placed the right people in the right roles to ensure that the business can navigate itself through rough seas. However, it is sometimes also necessary to take on some independent advice, particularly when conflicting information is being presented and you suspect you are “too close to the problem”.  An unbiased review of your strategy and performance can help to identify the bottlenecks and unbalanced risks.

If you have the above information at your finger tips, you will be able to answer any questions the board or the auditors might have regarding your business’s sustainability and its ability to continue trading as a going concern at any point in time. Let’s face it, there is nothing like a cash crunch to sharpen the senses and focus your activities – but it is far less stressful to avoid the iceberg in the first place!

The Ultimate Human Race vs. Strategy Development

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When doing a post-mortem of800px-Marahon_shoes my last Comrades marathon, I was once again reminded of how important strategy is to virtually every task one tackles!

You may be wondering how on earth I can draw parallels between business strategy and running the Comrades Marathon. For those of you who have run this race before, I am sure that my story will sound very familiar.

It starts off by declaring your vision: to run the Comrades Marathon. Bearing in mind that only a few thousand people in the world have completed this race, this is no ordinary goal. You have now set your vision and you tell all your friends and family of the challenge that lies ahead. This piles on the pressure – you just have to make it work!

Despite the fact that I had run this race before, my next reaction was to panic – I am unfit and I need to start training immediately! Luckily, common sense prevailed, and I realised that before I blindly hit the road and start running, I needed to work out a plan. This plan needed to take into account my existing fitness levels and how much time I had left to get fitter. I needed to find out what was new on the running front – what had changed as far as the qualifying races and times were concerned, were there new diets to be considered, did I need to change the shoes I was using? These were only a few of the questions which raced through my mind and needed to be considered. Thankfully, although competitive, the road running community is very supportive and many people are happy to share their advice and experience on training programs and eating plans. And let’s be honest, it is always reassuring to know that others are experiencing the same doubts and challenges that you are facing. However, it was also important to realise when expert advice was needed and to consult with the required professionals when necessary on things such as injuries and training programs – you need to be humble and admit there is always stuff you just don’t know, no matter how experienced you think you may be on the subject.

Setting interim milestones was an important way for me to gauge whether or not I was ready to tackle the race. I also needed to be flexible and adjust the training program when life interfered, and very importantly, I needed to make sure that I did not get sick or injured in the 6 weeks leading up to race day. I wanted to make sure that I got a chance to run even if I had to compromise a bit on the training!

And just when I thought the planning, measuring and monitoring was behind me, I had to work out my plan to tackle Race Day! What pacing chart should I follow? What would I eat along the way? Where would I be meeting my support team? These were just some of the questions that I needed to plan for in order to ensure the best probability of success on race day. Many runners will know, that you don’t try anything new on race day – only tried and tested tactics are to be applied! At this late stage, I took personal advice from Lindsey Parry at the Comrades expo on how to pace myself throughout the race. (He and Brad Brown from Run Talk SA hosted a monthly Comrades webinar in the build up to Comrades which provided some very useful advice and tips for the race).

And so it was that with detailed planning, committed execution, great family support and a bit of luck, that I was able to complete my ninth Comrades Marathon in 10h45.

So at this stage you are probably asking: where are the parallels to business? Let me set it out in a manner which makes it more obvious:

  1. Establish a vision or future goal to be achieved.
  2. Assess the external environment in which you are operating and identify the important elements which could possibly impact on your business.
  3. Analyse the competitive landscape. Know who is doing what and how, and more importantly, who are the potential new entrants to the industry.
  4. Perform a comprehensive SWOT analysis with emphasis on identifying elements unique to your business.
  5. Confirm your approach to market and desirable timelines.
  6. Set milestones (targets or objectives) which can be used to benchmark your performance and confirm the progress being made. Work out the action plans needed to achieve these milestones.
  7. Identify positions (market share, skills, technology etc.) which need to be defended and outline your defensive actions in this regard.
  8. Identify the resources required to ensure successful implementation of the action plans.
  9. Extract and monitor the critical success factors which can jeopardise the entire strategic plan.
  10. Monitor progress and take corrective action timeously.

Strategy development is stressful and puts a lot of pressure on you, but it is very rewarding when you do achieve your goals. Success motivates you to go out and do more!

Is Your Business Ready To Scale Up?

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Most entrepreneurs investing time and money into a business want to see it evolve from a small business to a large and successful concern! Unfortunately, this is not always the case. While many startups fail, others go on to achieve decent organic growth and a few like Amazon scale up significantly.

Investopedia describes a scalable company as “one that can maintain or improve its margins while sales volume increases” in other words, being able to channel more through the business without increasing costs. Others define a scalable business as one whose sustainability is not completely tied to ownership in that the business has managed to grow beyond the founder by focusing on something that is teachable to its employees, valuable to customers and repeatable in a way which generates a recurring stream of revenue. In my opinion, the most general definition is simply being able to grow your business to the next level.

Whatever your interpretation, at least 3 common themes are evident in ensuring that your business can grow:
1. Focusing on the future
Do you know what is happening in the market? Are you paying attention to new trends and new entrants? What is the competition doing? Can you leverage your strengths? Are their opportunities for acquisitions? These are all strategic questions which should be considered by management/owners who have their eye on growth.

2. Being in the right place
It is important to find and establish key relationships and networks that you can tap into in order to glean information on circumstances and opportunities which may impact on your business. To some, building relationships comes naturally, but others may require an actionable strategic plan to put these relationships in place.

3. Readiness to scale up
If the failure of a competitor suddenly provides you with an opportunity to grab additional market share, would you be able to seize the moment and deal with increased sales volumes? Alternatively, have you considered whether or not your products/services, people and systems are ready for growth into new regions or markets? Consideration will need to be given to amongst other things your organisational culture and the ability of your people to deliver increased volumes without compromising on service excellence. Do you know what products/services you will be able to sell into a competitor’s installed base or into a new region and what your approach to market will be? How will your supply chain be affected if you had to suddenly increase your order size or stock holding? Will your technical support, finance and administration systems be able to manage an increase in workload on a sustainable basis? Do you have access to capital to fund an increase in working capital or a possible investment in additional/new facilities? The answers to all these questions and more, need to be factored into your strategic plans.

Are you asking yourself some of these questions? Whatever your stage of readiness, it is important to think strategically and plan for success!

In a previous article I provide further insights into the strategic thinking process.

Strategic Thinking and Small Businesses

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According to a study conducted by the Management Research Group, 97% of a group of 10,000 senior executives surveyed thought that strategic thinking was the most critical leadership skill for an organisation’s success. This is very interesting bearing in mind the limited amount of time organisations spend on strategic thinking.Good Point

What is strategic thinking? It is the process of generating ideas and possible solutions to current and future circumstances and challenges. It requires one to see the big picture, challenge the status quo, perform objective analysis and implement forward thinking and planning. This process is fundamental to an organisation’s sustainability. Far too often, current day-to-day operations and fire fighting take up all our management time and too little time is spent considering the future and the impact of changing circumstances on our businesses. We only realise this error in prioritisation once the walls start closing in and cash flows start suffering.

During the strategic thinking process, we ask questions such as “What might happen? When will this happen?”. We have to make strategic decisions around “What will we do?” and develop strategic plans incorporating “How will we do it? Who will do it and by when?”. We need to understand our connections and interdependencies with the external environment and how to align our internal capacities with the changing and dynamic external environment in which we operate in such a way that our business continues to flourish. As you have no doubt already deduced, this is not a once-off process, but rather something which needs to become ingrained into the organisation. In addition to holding dedicated strategy sessions, I have found that documenting your business plan and introducing budgeting and regular forecasting mechanisms can be useful tools to stimulate such strategic thinking.

Contrary to poplular belief, strategic thinking is not a process which falls solely within the domain of the CEO, but is rather the responsibility of every employee within the organisation. The power of harnessing your employees’ energy and drive in one cohesive direction can only lead to superior results! In my experience, it is therefore also important to create a corporate culture which encourages everyone in the organisation to think strategically. The strategic plan needs to be documented and communicated to everyone in the organisation so that all employees understand their role in achieving the organisation’s objectives. Consider rewarding your managers and staff for forward and proactive thinking and for generating longer term solutions. Encourage your staff to voice their different viewpoints and challenge the status quo in order to constantly improve efficiencies. Don’t be afraid to share information with your staff especially if it can help them achieve better, more sustainable results!

Article issued by CGF Research Institute and DQS South Africa

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The article issued by CGF and attached below is a stark reminder of a growing risk facing businesses.  The absence of appropriate and adequate processes and controls to protect customer information could result in severe reputational damage as well as significant penalties and fines.postit-Important for Risk

It is important for the Board to get clear and accurate feedback on the steps taken by management to protect customer information so that the Board can appreciate the extent of the risk and how this may impact on the future sustainability of the organisation.

17 Feb’14-Obligation to protect customers information

 

 

Issues facing Small Business in South Africa today

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This was taken from the following URL : http://www.investopedia.com/articles/pf/12/small-business-challenges.asp .

Starting a business is a big achievement for many entrepreneurs, but maintaining one is the larger challenge. There are many standard challenges that face every business whether they are large or small. These include things like hiring the right people, building a brand and so on. However, there are some that are unique to small businesses – ones most largecompanies have grown out of long ago. We’ll look at the 5 biggest challenges in this article.Good Point

Client Dependence

If a single client makes up more than half of your income, you are more of an independent contractor than a business owner. Diversifying the client base is vital to growing a business, but it can be difficult – especially when the client in question pays well and on time. For many small businesses, having a client willing to pay on time for a product or service is a godsend.

Unfortunately, this can result in a longer term handicap because, even if you have employees and so on, you may be still acting as a sub-contractor for a larger business. This arrangement allows the client to avoid the risks of adding payroll in an area where the work may dry up at any time. All of that risk is transferred from the company to you and your employees. This can work out fine provided that your main clients have a consistent need for your product or service. However, it is generally better for a business to have a diversified client base to pick up the slack when any single client quits paying.

Money Management

Having enough cash to cover the bills is a must for any business, but it is also a must for every individual. Whether it is your business or your life, one will likely emerge as a capital drain that puts pressure on the other. In order to head off this problem, small businesses owners must either be heavily capitalized or be able to pick up extra income to shore up cash reserves when needed. This is why many small businesses start out with the founders working a job and building a business simultaneously. While this split focus can make it difficult to grow a business, running out of cash makes growing a business impossible.

Money management becomes even more important when cash is flowing into the business and to the owner. Although handling business accounting and taxes may be within the capabilities of most business owners, professional help is usually a good idea. The complexity of a business’ books go up with each client and employee, so getting an assist on the book keeping can prevent it from becoming a reason not to expand.

Fatigue

The hours, the work and the constant pressure to perform wears on even the most passionate individuals. Many business owners, even successful ones, get stuck working much longer hours than their employees. Moreover, they fear that their business will stall in their absence, so they avoid taking any long breaks away from work to recharge. When fatigue sets in, the weariness with the hours and the results can lead to rash decisions about the business, including the desire to abandon it completely. Finding a pace that keeps the business humming without grinding down the owner is a challenge that comes early (and often) in the evolution of a small business.

Founder Dependence

If you get hit by a car, is your business still producing income the next day? A business that can’t operate without its founder is a business with a deadline. Many businesses suffer from founder dependence, and this dependence is often caused by the founder being unable to let go of certain decisions and responsibilities as the business grows. Meeting this challenge is easy in theory – a business owner merely has to give over more control to their employees or partners. In practice, however, this is a big stumbling block for founders because it usually involves compromising (at least initially) on the quality of work being done until the person doing the work learns the ropes.

Balancing Quality and Growth

Even when a business is not founder dependent, there comes a time when the issues from growth seems to match or even outweigh the benefits. Whether a service or a product, at some point a business must sacrifice in order to scale – this may mean not being able to personally manage every client relationship or not inspecting every widget.

Unfortunately, it is usually that level of personal engagement and that attention to detail that makes a business semi-successful. Therefore, many small business owners often find themselves tied to these habits to the detriment of the company’s growth. There is a large middle ground between shoddy work and an unhealthy obsession with quality, so it is up to the business owner to navigate the company’s processes towards a compromise that allows scale without hurting the brand.

The Bottom Line

These are challenges, but not death sentences. One of the worst things a would-be-business owner can do is to go into a small business without considering the challenges ahead. We’ve looked at some things that can help make these challenges easier, but there is no avoiding them. An important step in overcoming a challenge is knowing the size of that challenge. Besides, a competitive drive is often one of the reasons people start their own business and every challenge represents another opportunity to compete.