The well-known Barings Bank had individual investors on bonus offers in the thousands yet in the lasting these enthusiastic people were not satisfying the company’s objectives. Even when an individual’s benefit system is based on entirely proper efficiency signs, resulting in the company s success and he or she is rewarded, there may still be issues arising from the large differential between wages of senior people and those of center management. A repayment system that depresses or demotivates 10 they for each one it encourages may not be the most effective for the company.

Wise organizations are for that reason trying to reward and inspire all team to ensure staff act to promote the corporation s passions both short and long-term and feel they have actually been treated rather. Nonetheless there have to be properly in position the hyperlink in between the items on which they are being rewarded and the activities they have the ability to take affect the wanted result.

A wise organization accepts that:

It is reasonable for the individual manager to act in his or her own passions.
Managers help they not organizations and want to satisfy the superiors closest to them, or failing that, their peer team.
Supervisors want to achieve and will certainly be brought in to those activities at which they understand they can easily prosper, usually preferring the short-term at the cost of the lasting.

The clear implication is that a company ought to lay some foundation prior to depending on a reimbursement framework to alter efficiency and habits. Simply puts the administration and organization system should be in balance with the compensation system.

There are 5 major pre-conditions to the setup of an effective reward framework.

1. Dimension: If you put on t step it you gained t obtain it. There are several dimension systems of which Balanced Scorecard, which establishes numerous goals and is utilized by Tesco, is maybe the very best known.

2. Monitoring: If the performance steps are not monitored effectively or oversaw in an evaluation at the year end, it could offer the supervisor signals that they wear t really issue or, worse still, that failure serves offering all the managers fall short with each other.

3. Command of the tools for the job: The company ought to guarantee that the person is not over based on variables outside his command to obtain the efficiency determines specified out (this is the just how part of the equation).

4. Consistency: Ensuring that short term organisational aspects wear t over-influence managers or steer them from their true goal. The company must also ensure that its very own style (be it governmental or loose) is suitable to what is being asked of supervisors.

Reward and approach in line: A company’s accomplishing a clear strategy is not an event that will certainly take spot in the future; it is a trip. A compensation system could be placed into a company even when it has actually a reasonably muddled approach supplying that organisational and administration disputes are fixed by recommendation to technique and the well balanced rating card.

Based on these 5 pre conditions, there is a to-do list of 10 aspects that the effective reimbursement and benefit framework have to attain:.

1. Support the business method.
2. Urge the wanted behavior.
3. Award appropriate efficiency.
4. Be decent.
5. Be substantial.
6. Be tax effective.
7. Be timely (The benefit ought to happen near to the achievement).
8. Integrate non monetary benefits (Acknowledgment can be as essential as money).
9. Be company (A benefit lost through missing out on target must not be recoverable whereas a raise ought to only be postponed till target is hit).
10. Be crystal clear.

Also when an individual’s incentive system is based on entirely suitable performance signs, resulting in the company s success and he or she is awarded, there may still be troubles arising from the huge differential between wages of senior people and those of middle management. Award and method in line: An organization’s achieving a clear technique is not an event that will certainly take spot in the future; it is a journey. A compensation system could be put into a company also when it has a pretty muddled method giving that organisational and administration disagreements are settled by reference to method and the balanced score card.

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by Anna Faherty

As an east London resident I’m mightily excited by the prospect of the world’s largest sporting event happening on my doorstep. I’ve already been to the Olympic Park for two sneak preview test events, and cleared my diary for both the Olympics and Paralympics schedules. As the date draws closer, however, I – like many Londoners – am starting to worry about the impact the games will have on both my personal and professional life.

Transport, it seems, will be a nightmare. For businesses, the answer according to the Cabinet Office’s London 2012 document Preparing your business for the games is to:

“arrange for staff to work more flexibly during Games time and this may require them to work from different locations, such as from other offices or home, or at different times than usual.”

Many businesses are seriously considering following this advice, with O2 recently running a major trial where 2,500 staff worked away from their Slough offices on a single day.

So if you’re new to managing remote workers, what can you do to make this approach as smooth and productive as possible? Here’s my top six tips for getting the most out of remote workers:

1. Don’t assume the worst

Many people think remote workers lounge around in their pyjamas all day doing the minimum amount of work. While they might never get dressed, this is far from the truth. Numerous research reports show that remote workers are actually more productive than their office-based colleagues. In Microsoft’s Remote Working Research Summary over 70% of employees said they were more productive when they worked away from the office.

2. Keep in touch

When you’re separated from your team, it’s far too easy to drop the everyday communication that keeps people up-to-date and motivated. Make and schedule time to call each team member regularly for an informal chat, involve everyone in important discussions and publicly reward work well done. If you spot an email disagreement, encourage your staff to address the conflict over the phone. If you need to gather people together, use technology to help you run virtual meetings or conduct face-to-face conversations.

3. Provide enabling technology

There’s nothing worse than not having the tools for the job. If your staff need access to mobile email, shared drives or video-conferencing software, let them have it. This might mean installing software on their own home PCs, smartphones or tablets. You could also set up new online workspaces to share and collaboratively create files. Don’t forget to train staff on any new tools, and to make sure there is an effective way for them to access IT support when they are away from the office.

4. Be clear, direct and predictable

Make sure everyone in your team knows who is doing what, and when different people are likely to be available. Clearly define individual roles, responsibilities and goals so there is no potential for confusion. Set up agreed protocols for appropriate communication channels and expected response times, and advertise your availability through shared schedules. Encourage everyone to write effective emails, like those advised by Stacey Hanke in BusinessWeek.

5. Measure output not hours

Be flexible about when your staff put in their hours. Unless they have to be available at specific times of the day, give them some slack and let them watch the sports that interest them. Rather than measuring how much time they appear to be working for, keep track of what they deliver. So long as they meet their targets, does it matter if they do it at odd times of the day?

6. Make it fun

Find ways to recreate the informal chatter and banter from the office. Encourage people to bring coffee and donuts to virtual meetings, chat about the Games or hold a virtual office party.

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The course looks at the context in which the concept of risk management has developed, the sort of infrastructure and processes it requires, and the impact it has on traditional control systems, as well as looking at some of the problems which have made national and international news.

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by John Mardle

DPO

Sometimes it can be tempting to delay payments to suppliers to help working capital, but suppliers should be ‘respected’. They are the lifeblood to most SME’s and to curtail payments to them could cause them to withhold supplies and therefore jeopardise your customers or worse still close down altogether. Furthermore if you do not have an alternative supplier or one that you have already ‘vetted’ re. quality, capability and delivery performance then your business could be damaged irreparably. Negotiation will establish the grounds and criteria for payments i.e. certain tranches of cash could be paid at certain times. These payments though should never be missed once agreed as credibility can be seriously eroded. One should also consider interest payments on any outstanding monies if this has been previously agreed bearing in mind that legislation exists to levy 8% on top of current averaged base rates on outstanding monies.

Inventory/ Stock

Stock and work in progress accounts are part of inventory that requires special attention in these turbulent times. Stock monitoring should identify when demand for certain products/services is declining and steps need to be taken to reduce these purchases. However due to previously agreed ‘forward’ type contracts it may require extensive negotiation and/or mediation to ensure the revised contract if indeed it is agreed, to meet your new stock criteria.

Work in Progress can in some industries impact SME’s dramatically as these accounts can be subject to wildly differing valuations that can be very ‘subjective’. Recognising revenue and associated profit in advance of receiving cash can be exceptionally ‘dangerous’ to the credibility of the balance sheet and therefore to the company and its employees too! SME’s should attempt to clarify the contractual milestones for cash on major contracts so that they may mirror these in their own terms of supply. (It has already been admitted that many SME’s on the Olympic Games Construction site are severely cash ‘strapped’ because they having to work well in advance of any cash being paid to them and in some cases it may not be forthcoming at all!) Furthermore costs posted to work in progress accounts should be scrutinised by SME’s for accuracy and legitimacy as to write off a ‘non-invoicable’ amount, particularly at the year end and in full view of the auditors, could not only seriously impact that SME’s cash flow but also cause auditors some concern too regarding the rest of the balance sheet accounts.

Expenses are an integral part of SME’s cost base that need to be regularly reviewed to see whether limits on value are overly generous or whether the forms provide accurate enough information. Of particular interest would be forms that clients/customers may see as they are the basis for invoicing the client/customer. Furthermore if these forms are also the ‘entry’ forms for Work In Progress accounts then one should ensure that not only checks and balances are in place to ensure timely and accurate entry into balance sheet, but also to ‘guarantee’ invoicing can occur and payment of cash is not ‘challenged’ on the grounds of incomplete, inaccurate expense forms. Timesheets are another source of ‘disharmony’ that can cause internal friction and therefore diversionary costs to increase and could also lead to customer/client relationships being ‘soured, and therefore like expense forms need very careful scrutinising.

Look out for the final piece of this John’s blog, when he will identify the ten most common mistakes made with regard to WCO.

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By John Mardle

Why does the Trade Working Capital formula (DIO plus DSO less DPO) undermine accountants, credit agencies and the financial accounts therefore causing obstacles to funding?

The standard, but not the only, formula for working Capital is current assets less current liabilities and when describing the trade working capital element the terms are calculated in days as follows:

Days Inventory Held (DIH) = Inventory/ (Cost of Sales/365)

Days Sales Outstanding (DSO) = Receivables/ (Sales/365)

Days Payable Outstanding (DPO) = Payables/ (Cost of Sales/365)

Therefore the Cash Conversion Cycle (CCC) = DSO + DIH – DPO. However from the above formulae one can deduce that each one has its subjective element.

As an example all formulae use the rule of 365 days in a year. However every business has a ‘unique year’. They could have year ends at any point in the calendar year. The company may be very seasonal i.e. a holiday camp company or Christmas driven company. A company may have commenced or ceased business during the year, had to close the business due to a catastrophic event, say flooding, or moved premises all of which may have decreased the number of days to trade.

Two of the formulae use cost of sales which itself can be very subjective. For instance in the construction sector work in progress is generated in many cases on the back of a method called percentage of completion (POC) where the percentage of the estimate cost to complete is used to generate the revenue figure which itself generates a profit equivalent to the gross margin percentage estimated on the contract. Thus 50% cost completed generates 50% revenues and at 10% net margin generates 90% cost of sales on that revenue recognised. All of this is very subjective.

Finally the DSO figure could be the most reliable however many systems are found to be wanting when attempting to even compare month on month or quarter on quarter figures as the month of February only has 28 days (or 29 in a leap year) and indeed at Holiday times like Easter and particularly Christmas the number of trading days in any given month i.e. December/January in the case of Christmas could have up to 12 trading days ‘missing’.

However, if one consistently reports the exact same results using the exact same formulae then any comparison can be made say, year on year.

The new approach is not only to take account of the constraints of the formulae above but also to deliver consistently more accurate results by determining such working capital formulae by using ‘working capital drivers’ that are driven down into the bowels of the organisation and truly reflect the KPI’s around each of the trade working capital metrics. For instance DPO (Days Purchases outstanding) may require metrics that reflect goods returned notes where the quality is suspect, incorrect goods supplied or where the goods/services are non-compliant in other ways.

One still cannot compare company to company in either the DSO or DPO areas as each company may have totally different terms and conditions of sale and purchase. These company’s’ could even be trading in different countries where  terms and conditions regarding settlement are different (Scandinavian countries typically have payment terms of 14 days whereas as you move into Southern Europe it moves to 90 days) and if they were even in the same country they may be impacted by specific trading conditions that affect one company more than the other i.e. the use of transport to move goods by ferry or air by one company due its location in a remote area may be impacted by weather conditions or natural disasters like flooding, tsunami, earthquake, erupting volcano etc.

The challenge is therefore to deliver trade working capital drivers that reflect the individuality of each company.

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By John Mardle

With banks tightening their credit lines not only between themselves but also with their business interests and in particular the SME, the focus has turned to generating cash ‘internally’ through analysing working capital balances.

Working capital is regarded as debtors –days sales outstanding (DSO), creditors-suppliers days purchases outstanding (DPO) and inventory –stock turns being the metrics that most accountants are familiar with. However an SME with 60 days DSO, and 70 days DPO could be considered ‘so called’ cash positive i.e. they are receiving cash faster than they are paying it however this can be and normally is very misleading.

DSO

Take for example the issue of ‘timing’. If an SME’s terms and conditions of sale are payment to be received 30 days from date of invoice then why should that SME accept 60 Days DSO? Maybe that SME regards it as being the ‘usual’ benchmark DSO for that type of business/industry? But is that really a ‘fair measure’ as it is sub-optimising its commercial strategy and therefore damaging its cash flow!

Maybe it should be aiming for no more than 40 days DSO –therefore allowing for postal delays, weekends and holidays etc? Which brings us onto the question of timing, regarding metrics, particularly at Christmas, Easter or summer when DSO’s normally increase, but is this really acceptable?

If one is forecasting cash then it makes good sense to ensure that work/materials that can be legitimately invoiced just before a holiday period commences, should in fact be invoiced and that invoice RECEIVED by that customer prior to that holiday period commencing (or indeed prior to that customers payment processing run IF known) such that the customer records that invoice for payment. To leave raising an invoice knowing that it will be received by a customer whose premises are closed for a holiday could lead to an invoice not being processed and therefore not paid for another 30 or even 45 days in worst case scenarios! This payment could of course be absolutely critical to an SME’s cash and balance sheet statement if this was at the Year end i.e. December.

John continues his discussion soon by looking at the importance of DPO’s and inventory/stock in the working capital process.

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by Anna Faherty

In 1968, Science magazine suggested that the greatest long-term benefit of the Apollo Program wouldn’t be technological but managerial, because NASA were providing ‘better knowledge of how to plan, coordinate, and monitor the multitudinous and varied activities of the organizations required to accomplish great social undertakings’.

The cost and complexity of tackling John F. Kennedy’s bold 1961 pledge to put a man on the Moon within a decade certainly required a new approach to project management. So NASA waved goodbye to their authoritarian top-down management approach, where a single project manager allocated resources and tasks to subordinate NASA staff. Instead, they said hello to a more consensual system designed to deliver energy, creativity and effective decision-making.

This ‘matrix’ approach united NASA’s internal research and development with research, development and manufacturing activities contracted out to over 500 companies, universities and other government agencies. These contractors worked with a further 250 subcontractors themselves. The number of ‘outside’ people involved would startle even the most competent manager of virtual teams today.

Because of the nature of the project, the matrix had to handle constantly changing priorities and working patterns – something NASA’s traditional management approach couldn’t do. In the new structure, each sub-team (whether they were ultimately controlled by NASA or not) was influenced by each other, and each struggled for a share of the overall project’s resources, often competing or disagreeing with each other. This element of ‘competition’ was viewed by NASA as a good thing, ultimately leading to a more precise and viable programme. It wasn’t easy to manage, though, and some disagreements persisted for many years after the project was completed.

Although Neil Armstrong and co are living proof that NASA’s approach delivered the goods, the challenges of matrix management mean it has lost some of its sparkle in the years since they plummeted back to Earth. Multiple and blurred reporting lines, confusion over accountability, competing goals and conflict can all lead to employee stress and reduced productivity. Constantly changing work teams also disrupt the working relationships on which they are built, losing knowledge, experience and organisational know-how in the process.

Executive coach Gill Corkindale says executives report “utter frustration” when operating in matrix management systems. In a blog post for Harvard Business Review, Corkindale outlines a number of useful tips for surviving the experience, including

getting everyone on board in terms of shared values and behaviours,making sure goals and objectives are aligned both vertically and horizontally,building your communication skills to become a great networker, influencer, coach and facilitator,using your personal network to influence people you have no management responsibility for,empowering teams to prioritise tasks and resolve conflicts at a local level andallowing the structure of the team to evolve over time.

These tips aren’t just the secret to surviving matrix management, they’re important for any virtual team, using any management approach. So, for rather different reasons, it looks like Sciencemagazine’s prediction was right. Fighting to survive NASA’s management approach has produced some truly practical advice for anyone coordinating teams working at a distance. And that’s most managers today.

You can read more about NASA’s management approach in their retrospective analysis of Project Apollo and their report on the project management of the ill-fated Apollo 13 mission.

If you find yourself lost in a matrix management system, check out Global Integration’s Matrix Monday blog posts, which tackle a key issue every week.

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by Brian Plowman

Case study 2 – An aerospace company

Background

A defence and aerospace manufacturing business faced the prospect of a substantial loss for the first time in its history. The directors were willing to face up to the painful decision to shed costs from the business. But they were equally determined that whatever was done had to lay a sound foundation for future growth and profitability. The aim was clear: this had to be the start of a process that would revitalise the business and ultimately place it firmly among the ranks of the best in the sector.

Because costs were too high, the company was losing business. They were shocked by feedback from their largest customer that, although their products were technically highly-regarded, bids were often as much as 25 to 40 per cent higher than competitors’. The high cost base was jeopardising the prospects of winning new contracts.

Lack of profitability meant that new products, two of which were potential world-beaters, were starved of resources and funds for investment. Across the whole of the business, teams were stretched, with some in desperate need of additional resources. Customers were becoming increasingly vocal about failure to meet delivery dates and inadequate technical support. The parent company was becoming increasingly concerned.

Reducing cost while improving service

How can a business overcome the apparent dilemma of significantly reducing resources, while maintaining volume and actually improving critical services?

The answer lies in understanding activities in current processes – improving methods, reducing or eliminating noise activity and reducing service levels where there is little or no risk in doing so, and then using the freedup resources to enhance the core activities that deliver real value to customers.

This invariably results in a rebalancing of resources both within a department and across departments and functions. Overall savings usually lie in the region of 10 to 20 per cent or more, even after allowing for the effects of putting more resources into critical services.

Revitalising the business

Change involving substantial job losses is invariably traumatic. Although morale suffers for a time, people’s confidence will grow if there is a sense of direction that never existed before, a momentum for change such that change ceases to be threatening, and a sense of involvement in decisions that affects the work that they do.

Having improved current processes, the business successfully restructured into five ‘value chains’. Instead of a confused and poorly-understood business strategy, each value chain now had a clear direction that was understood at every level. Within the value chains, enthusiasm grew as people developed confidence in the direction the business was taking and found opportunities for involvement and participation that had never existed before.

To support leaders through the difficult process of changing behaviour, members of the change team were placed in the value chains as change agents, to provide coaching and encouragement.

Revitalising the business

Within three months, an action plan to reduce resources by over 20 per cent had been prepared, and implementation started. Within nine months, processes across the whole of the business had been reengineered, and a new organisation structure put in place.

The challenge facing the business was to reduce costs by a quarter – enough to restore profitability and provide the sales force with the flexibility to offer more competitive pricing. But this had to be achieved while maintaining business volumes, improving service to customers, and reducing the time taken to bring new products to market. Simple cost reduction options, such as eliminating marginal products and taking out the resources associated with them, were not feasible in the time scale – the improvement had to be rapid, and could only be achieved by improving processes. Although the parent corporation had issued no threats, the survival of the business was not guaranteed.

Within fourteen months, the business achieved a 25 per cent improvement in operating efficiency, despite having a sound world-class manufacturing programme already in place. Bids for new contracts were consistently at least competitive in price and the success rate in winning new business had improved markedly. New-found competitiveness meant it was often able to undercut competitors.

Next week will see the final post in this series of blogs from Brian Plowman which will focus on Business Process Management and how it relates to BPR.

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