INTERVIEW WITH MICHAEL MARSHAL, ‘THE BUSINESS DOCTOR’
Mid Fall 2008 Part 4
With all of the current business events, our membership is asking a lot of questions.
Why are so many businesses of all types and sizes struggling or failing?
What are the business issues?
What are senior executives doing or not doing?
What things are being done in the more successful business organizations those others should be doing?
What are businesses doing wrong to cause so many failures?
There are many other questions being raised.
Some of these questions and comments are pretty broad.
These questions are important for business organizations of all sizes in all markets and just not the financial market.
Do you have some specific questions that your membership is commenting on or asking about most often?
Yes, there are several specific questions and things that we would like some information from you about.
How do you change the attitudes of senior executives and the attitudes of a business culture?
What skill sets do senior executives normally have to lead a business and how do they keep them current to be effective leaders?
What do most senior executives and businesses think about when it comes to taking care of their customers?
How does having new products and services or not having new ones, affect business?
How long does it take for new products and services to help increase sales and help a business grow?
Are all new products and new services successful in increasing sales and helping grow a business?
Everyone hears about quarterly and annual P & L, profit and loss, top line versus bottom line, and how this can be contributing to business decline.
How do these things affect businesses?
These seem to be the subjects most often asked about and discussed, recently.
These are more than a few questions.
Each is worthy of extensive discussion and study.
I can combine some of them under the same subject to discuss.
All of these questions apply to all businesses of all sizes in all markets.
All directly apply to ‘Business Development’, which is my expertise and passion.
We have our pens and paper ready.
Please share with us information and insights like you normally do.
Lets’ start with your first two questions about senior executive skills, how they keep them current to lead, how to change executives and organizations attitudes and mind sets.
These two questions go together for some simple reasons.
Often, the top senior executives of owners, presidents, CEO’s can be very knowledgeable of the products and services.
They may have been the founders of the business organization because of their knowledge or been promoted into the senior leadership position because of their product knowledge.
Often they do not have the skills and knowledge to lead and manage all of the important functions and departments of the business organization: marketing, sales, business development, customer service, finance, human resources, purchasing and material procurement, quality control, shipping and logistics, production, finance and accounting, etc. etc. etc.
The challenge and critical components for any chance to be an affective leader and senior executive, basically comes down to four things.
They themselves must get up-to-date education and training in these disciplines to help them understand how to lead affectively.
This education and training need to be continual and not just one time.
They need to find, hire and retain top talent and highly skilled individuals to lead and manage these important functions.
If the senior executive does not have the appropriate education and training in these areas they will not make the best choices.
They just do not know any better.
They need to monitor these functions, departments and managers to make sure all of the important and progressive things are successfully being done.
But again, they cannot do this if they are not educated and trained in these important functions and areas of expertise.
They need to aggressively support these functions and managers to assure success in each area.
But again, they cannot support what they lack knowledge, education and training in.
I am strongly advocating the importance for the top senior executives to acquire up-to-date education and training in all of these areas on a continual basis so they can be affective leaders and assure that the business organization survive and grow.
Don’t most senior executives have this knowledge and skills and continually get education and training in these areas?
To be politically correct and politically sensitive, let’s just stay, not as many as there should.
You are not getting off the hook that easy.
Would you say that the majority or the minority of senior executives seek out continual education, training and competence in all of the important business areas?
You would have to put me in a corner to answer such a politically sensitive question.
I would not say that the majority have this broad level of competence and actively seek out continual education and training in all of these important areas.
Would you say that this applies to only a specific industry, market or size of business organization?
This situation is common in all markets, industries and size companies.
It does not have to be this way though.
Senior executives, leaders and management level people have a choice about all of this.
It does take effort, time and a healthier mind set.
This is very interesting, thinking about business leadership in this way but it is a little disturbing to recognize it as a big issue.
You can easily understand how this significantly affects business organizations’ strengths, weaknesses, struggles, failures, growth and successes.
It is looking at things from the top down.
If such senior executives and leaders by chance have highly skilled and knowledgeable management staff in spite of their own lack of education, training and knowledge in all of these important areas, how well do these managers work with the senior executives that lack adequate education, training and knowledge?
Well, there’s ‘the big rub’ so to say.
There are challenges, issues, disagreements and sometimes lack of adequate support for doing important things to help a business to grow.
This is one of the big reasons for skilled and knowledgeable individuals to possibly get frustrated, leave companies and business organizations to move on to others.
When such skilled and knowledgeable people leave a company or business, who then replaces them?
Well, here’s the other ‘big rub’ so to say.
Sometimes less skilled, less educated, less trained and less knowledgeable people replace them, which then contribute to the organization spiraling down.
Such replacements can come from outside the organization or internally through being promoted.
On my website of www.AskTheBusinessDoctor.com one of my libraries of information discusses this.
I wrote this library of information several years ago and it is still valid and applicable.
It is referred to as ‘The Rule of Ten”
We will go back into the website and find that specific library to read.
Can we proceed, onto some of these other questions?
We skipped over talking about how to improve and change the attitudes of senior executives and business organizations.
From our discussions we can answer this.
Let’s see how well you understood what we have discussed already.
Tell me what you think
The answer seems obvious.
To have a chance at possibly changing attitudes of senior executives and a business organization, several things can help including:
senior executives seeking education and training in all areas
continual education and training of the senior executives as well as others
finding, hiring and retaining top talent and those individuals with highest knowledge, education and training
senior executives monitoring all of the important functions and departments to make sure all of the progressive things are successfully happening
senior executives aggressively supporting the management and functions or departments
This all seems so logical and easy to understand.
You have been listening and clearly understand.
You get an A+.
From our discussion it all seems so obvious.
Yes it is but you cannot make individuals do things they do not want to do.
So much of knowledge and skills come from continual up-to-date education, training and gaining knowledge
As discussed this has to happen with the senior executives as well as with the management level staff and employees of the organizations.
This is how it gets into an organization.
It tends to be affective when starting from the top.
It does not happen any other way as some would like to think.
Knowledge and skills do not get into a business organization by the heating and air conditioning ducts; and does not get into the work and office areas from the vents in some kind of a magical mist.
I think we have covered these first two questions as brief as possible without getting into a long discussion.
Let’s get on with some of the other questions you have and would like some information on.
Let’s go on to the subject of what business organizations and senior executives think that taking care of customers is all about.
Often, organizations think fast delivery, easy to do business with and avoiding customer complaints is taking care of customers.
In today’s business world this is not enough and can lead a business into difficult and struggling times.
For businesses that sell products and services, they need to know more about their customers’ needs and their marketplace than the customers themselves know.
Customer’s current needs and those in the near future must be uncovered and discovered.
A business organization or company cannot wait until the customer figures it out and tells them.
With business customers (not consumers), employees and staff turnover can dramatically change business relationships quickly.
A significant effort has to happen to keep track of who’s who and who is coming and leaving in all customers.
Also keep track where your key contacts move onto as well since this could provide an opportunity for a new customer or account.
A significant effort is needed to network to multiple contacts in all departments and functions and at all levels to uncover and discover current needs; possible future needs and build a stronger business relationship.
Using the fundamentals of value added marketing and value added selling;
your value to customers is composed of the following.
1.avoid a problem
2.solve a problem
3.avoid expenses and costs
4.reduce expenses and costs
5.enhance their products
6.enhance their business value or position in their marketplace
7.expand their markets
9.increase profit margins
11.be more competitive
If a dollar value cannot be assigned to something it may not have a strong value.
This is referred to as ‘Dollarizing’.
All of these things are in the perception of the customer and not the seller.
In today’s business world, these things are now a critical part of helping the customers.
It is now the burden of sellers to uncover these things and not to rely on customers to know and tell the sellers.
Value added marketing and value added selling is one of the libraries on the website as well.
I wrote this several years ago and this is still valuable and applicable
We will look this library up on the website to read, as well.
The information seems fairly logical and easy to understand.
We hate to ask but generally speaking, do most companies, business organizations and senior executives understand the importance of working with customers to this depth and extent?
From observing businesses around us everyday we do not see this happening too often.
We can also understand that if more business did this, many of the problems and crises could be avoided and far more businesses would be growing instead of struggling and failing
You answered the question with your own observations.
You get another A+.
Let’s go on to the next questions.
Our discussions and understanding the issues seem to be going faster.
It all seems easy to understand and see the possible fixes or improvements needed.
You are personally experiencing first hand the power and strength of acquiring knowledge, education and training.
Knowledge with continual education and training is a key.
It makes sense and it actually feels good to gain knowledge, education and training.
It gives us a sense of self worth, strength, confidence and direction.
If only more business organizations, senior executives and others would understand this and do something about it; many things would improve.
You get another A+
You are catching on and starting to understand things.
Let’s go on to the next questions.
We can combine the next three questions.
1.How does having new products and services affect business organizations?
2.What length of time does it take for new products and services to increase sales and help business grow?
3.Are all new products and services successful?
I often say:
New products and new services are the life-blood of all business organizations.
Without this life-blood you whither, decline and die.
Most products and services have a product life cycle that affects sales, selling price and profits.
This is pretty fundamental business.
One wonders about this when you see businesses struggle over this basic proven principle.
As products and services age, more competition enter the market, other new products and services enter, sales, price and profit margins on the earlier products and services often decline.
Common sense should indicate that to keep sales and profits up, continually introducing new products and services is needed.
This can help businesses stay in business.
Researching customer needs, market changes and advancements has to be ongoing.
This effort needs to feed into the development of new products and services.
This needs a dedicated effort supported financially.
Not all new products and new services become good sellers or in demand.
Customer needs, markets, competition and technology advancements, change at a rapid pace in today’s business world.
This is why numerous new products and services need to be developed to give a better chance of some becoming successful, in demand and profitable.
Depending on market need and customer acceptance for the new products and new services; it often takes 3 to 5 years to penetrate just one half of the market and remember you will only get part of that one half.
About this time, more competition arrives, there are changes in the market and customer needs and technology advances.
Unfortunately, businesses lacking dedicated effort and financial support for new products and services, only get motivated to support such when they have allowed their business to spiral downward into the low depths of struggling and possibly near failure.
Then they want fast improvement with significant sales and profits within a short time frame far from the norm and realities, which does not happen quite this way.
Of course these types of situations or organizations think they will be the exception to the norm.
We can understand why continual new products and services are needed and why it requires a lot of effort and financial support.
We can also understand why companies and businesses not putting out such efforts will have serious issues and problems
Only the strong survive and only the strong are doing these things affectively.
The next questions tie into this subject.
Annual and quarterly profit and loss P & L’s, top line versus bottom line results?
We would have thought that education, training and level of skills influence this the most.
Well, you cannot have an A grade on everything.
Education, training and level of skills do contribute to adequate research and development of new products and services commonly referred to as R & D but
the P & L and financial support for such is the main issue.
Wait just a minute.
Are you saying that even if a company or business organization knows they need new products and services to survive and grow, they may not aggressively support this due to a P & L and these top line and bottom line factors?
Now you get another A+
Let’s back up a little.
What is top line versus bottom line?
Why does the P & L affect so drastically the critical financial support for research and development of new products and services?
Top line refers to sales dollars and bottom line refers to profits from those sales.
Bottom line often refers to the gross profit after some of the costs are figured in.
Remember net profit is after all costs are accounted in and gross profit does not account for all costs, just some.
This is important to understand.
Increasing sales but with decreasing profit margins can decrease total profits.
Normally, this is not good for a business.
Most everything cost money to make or to do.
If sales are increasing, to be able to meet that demand some costs may increase.
If the profit margins and total profits are declining, you are heading towards breakeven or possibly a financial loss.
If you are retaining customers with low profit margins, declining profit margins and possibly declining sales with them; and not gaining or retaining customers purchasing products and services with higher profit margins and possibly increasing sales; this can be a significant business issue.
Your stronger and wiser business organizations monitor this closely.
New products and services are a major contributor to keeping better profit margins, increasing sales, replacing the sales from products nearing end of product life cycle, and attract new and additional customers in your normal market that you supply to and possibly new markets.
This is a lot to say all in one sentence but do you understand this.
Again, the way you explain things, it seems logical and easy to understand.
But how does quarterly and annual P & L profit and loss financial statements affect supporting the development of new products and services that are needed to grow the business.
Well, here comes the cold water being thrown on you, so to say, that will probably dishearten you about some business practices.
Things in a line item budget and the dollar amount in the budget to spend are based on profits.
Profits are based on both top line sales and bottom line profits.
The financial budget for supporting research and development (R & D) is based on projected profits.
These profits support all costs and a financial return on investment of the moneys spent.
The business organization or company wants to make a profit.
So does the bank or financial backers that may be financing the organization and stockholders who may have stock in the company.
Profits, expenditures, paying off debt, other debt and ROI return on investments, all affect cash flow and a business organization’s ability to acquire financial loans to run a business.
It also affects the loan rate.
Businesses and companies want to qualify for the lowest loan rate possible.
Simply speaking, lower company debt, increasing sales and profits help qualify for lower loan rates.
This can be a balancing act to keep all of this at levels that put the business in the best position.
If profits or sales do not meet the projected levels, budget adjustments often occur to compensate for it.
This can happen quarterly or anytime during the year whether on a fiscal or annual accounting method.
Are you saying that if sales or profits do not reach a target level, that financial support for research and development (R & D) on new products and services that are needed to help the business to survive and grow, can be decreased or cut out all together?
Well, you just earned another A.
Yes, this is how businesses are managed.
Keep in mind that not meeting forecasts of sales and profits do not always cause a budget reduction in financial support for new products and services.
Sometimes budget reductions are applied to other areas of the organization or other budget line items.
Financially supporting the development of new products and service may remain.
Sometimes a reduction is applied across all line items.
Every business organization is different as well as every situation.
If profit levels do not meet their target or forecast but the business organization is still making profits, will the budget supporting new products and services still get reduced or eliminated?
Again, every business organization and every situation is different.
It seems logical and smart that as long as businesses are making profit beyond all costs, that adequate financial support for developing new products and services remain constant.
Since new products and services are the businesses’ life-blood as you say and are needed to assure business organizations survival and growth, doesn’t it make sense that financial support for such is never reduced or interrupted?
What could ever motivate anyone to not see it this way?
Some outspoken people will say that possibly executive and management bonuses that are tied to certain levels of sales and profitability is to blame.
Some say that budget cuts may happen just to keep profitability to target levels to assure bonuses get paid out whether to many or just a select few.
Other outspoken people will say that executives and management level people are heavily judged on the level of profits achieved.
This creates a situation where decreasing the budgets of critical future growth type things such as development of new products and new services may be needed to keep profits up to a level that will help executives and management keep their jobs.
The business system and the situation motivates’ such decisions.
Some of this may happen but I think the situation is far more complex than only this.
If a more extensive discussion is needed with this, P & L, gross profit versus net profit,
cash flow, debts, loan rates, budgets and adjusting budgets, top line versus bottom line and how these things are used in business, a smart corporate financial professional is more appropriate than I.
They have far more knowledge and expertise in this area than me.
My expertise is business development, sales, marketing and growing business.
We have gained a lot of information and insights from you on several important business subjects.
You have discussed this information in a way that is easy to understand.
The financial things with the P & L, top line versus bottom line, gross profit versus net profit, costs and how all of this affects budgets and financial support for critical things, is still something we would like to understand far more.
We will take your advice and seek out a corporate financial professional to learn more about these things.
Again, you have made it easy to understand many things.