Leadership - Improving Your Staff's Self-Confidence

A good leader is the one who has a high level of self confidence and has an infectious habit of raising self-confidence of this team. Only when the team is confident about its skills & talents, it can perform consistently at high levels.
Last week, I just took out my team for a lunch. The team lunch was a token on my appreciation of the hard work done by the team and the goals accomplished by this team. The team had achieved great progress last year in handling customer issues, and reduced the total number of outstanding customer issues by whopping 73% from January 2008 to Dec 2008. At this team lunch we celebrated the success & vowed to improve on the track record. The team spent sometime looking back at their own accomplishment and that builds their self-confidence. At that time, I made a point to write down a few pointers on how to motivate the team and keep up the self-confidence of the team.
Given today’s grim economic outlook and falling sales, it is very important to maintain a healthy dose of self-confidence. One need not be CXO level leader to really inspire; even a team leader can do miracles to the team morale and self-confidence. Raising self-confidence has several rewards to the individual, the leader & the team.

• Self-Confident people get more respect from everyone. This in turn increases team morale.
• Self-Confident people are prudent risk takers. Risk taking in crucial in the business world. While self-confident people tend to take reasonable risks and avoid excessive risks.
• Self-Confident people are decisive by nature. Once people have confidence in their skills & abilities, they can take quick decisions for themselves instead of dithering around.
• Self-Confident people take up new initiatives for the benefit of the team & the individual. People who are confident often will not wait for orders, instead they will take the initiative to do the right thing.

Having a team with high self-confidence levels is a great feeling, but the leader must be prudent to avoid over-confidence and arrogance. The leader must make people perceive their abilities accurately and then assign tasks/challenges that they can handle.

How to build Self-Confidence?

So how does one really build self-confidence in the team?
When a leader is assigned to a team, one of his first tasks is to know the capabilities of the team members accurately and then he must accept it as it stands. Take San Antonio Spurs as an example, the team has certain members who perform consistently above the rest – Tim Duncan & Tony Parker. But there are members of the team who can play in spurts: Manu Ginobili, Michael Finley, and then there are other good players but they are definitely not in the same league as Tim Duncan.

As a coach or the team leader, your first task is to know each team member’s capability and accept it as a base line. There may be scope for improving each individual performance, but that needs to be carefully worked on.

Accepting the person’s capability as is, sends the signal that the member is a part of the team and reassures him/her of their place in the team.

Each member needs some reassurance from time to time. Do not constantly compare one member against the other – this might bring a short term gain, but will eventually destroy the team chemistry.

Instead of criticizing, use praising for the good work done. Always use positive reinforcement approach. Praise good work instantly & in public. But criticize in private – good constructive criticism is always needed – but ensure that it is not personal and is done in private.

Good team sprit & confidence also needs appreciations. Individuals & the team must receive appreciation from leaders & others. It is the leaders responsibility to seek out appreciation from persons benefited by his team and ensure that the team & the individual gets the well deserved appreciation.

Once a team starts to perform, it must be constantly be encouraged to reach new heights. A constant encouragement is needed to sustain the morale and self-confidence. Typically, once a team or even a team member is made aware of his/their capabilities, they would like to improve on it. Therefore a leader should create adequate opportunities for the team/individual to improve. Ideally, one should come up with a development plan to help each individual improve and reach a new level. Such a constant encouragement to improve will do wonders to the team performance.

Closing Thoughts
Leaders play myriad roles, keeping up the morale & self-confidence is one of them. The team which keeps it head held high even during tough times is more likely to perform better than the rest. The process of building self-confidence is a very rewarding one, the process invariably also increases the self-confidence & morale of the leaders as well, so it is time well invested.

Leadership during Tough Times – Cash & Customers

Business Guru Ram Charan in his latest book “Leadership in the Era of Economic Uncertainty: The New Rules for Getting the Right Things Done in Difficult Times” has extolled the importance of cash & cash management during tough economic times.

Apart from Cash, there is one more key component for success during tough times – customers. Put together, I call it “Focus on Cash & Customers as the key to success”.

Cash is king. No doubt about it. Without customers, there will be no cash and without cash, company will die. Thus the mantra ““Focus on Cash & Customers as the key to success”.

Many companies have lost their entrepreneurial sprit

All businesses are stated by entrepreneurs who have a definite idea of meeting the customer needs and know how to make money by doing so. Entrepreneurs always have their minds & hearts set on creating customer satisfaction profitably. As a startups the founders know the importance of cash and they tend to have a maniacal focus on cash.

As the company grows, the need for capital increase, which forces the company to seek outside investments. The new investors have different objectives than the original entrepreneurs. Thus slowly the founders make way for professional management. Thus with growth, companies tend to lose its entrepreneurial shine. Focus on customer gets replaced by focus on Wall Street. Focus on cash gets replaced by focus on EPS.

During tough economic times, companies that have a close connection to customers are the ones that survive and those companies that can focus on cash and the customer will thrive.

To illustrate take a look at some of the struggling companies today: Nortel, Mervyn’s & Motorola. If these companies were to disappear tomorrow, not many would shed a tear. For most customers, these vendors have become irrelevant. This is a real case of losing customer focus and thus stumbling for a big fall.

On the other hand look at Apple, Intel, Wal-Mart, & Costco. These companies have lots of loyal customers and customers feel the need for these vendors.

Basics of Business

To understand the importance of Cash & customers, one need not go to fancy B-school. Even running a corner coffee shop will teach this basic lesson.

Years ago, I knew a businessman whose nickname was “Cash”. He ran a small business (roughly ~$1-2 million) of supplying computer parts/peripherals in Bangalore. Given this of business, most of the sales was on credit – thus putting an enormous strain on this working capital. As I knew him well, he shared his thoughts on the business. At all points of time, he exactly knew his cash position, his cash requirements for the week, and the expected cash flow for the week. He also knew which customer owed him how much and when to approach the customer for the cash. His maniacal focus on cash led to the nick name “Cash”.

In today’s Wall Street driven companies, I have not seen such an entrepreneurial focus either on customers or cash. Managers in these large companies are more focused on process (rather than customer interests), managers are driven by different sets of expectations – net sales, product development, efficient operations etc. Thus losing focus on the basics of business.

Even in my current organization, I once asked for financial data regarding my product line. I wanted to know the income from sales and the net costs associated with the product. In most large organizations such data is hard to come by. Similarly in my company also the data was either not available or the process based bureaucracy prevents such data being shared. Therefore as a product manager, I cannot exactly say how profitable is my product? Instead I have to rely on an educated guess. Given such an environment, it is hard to make information based decisions.

In one situation I have seen a complete breakdown of customer focus. Customer on one hand wanted a new version of the software released with a set of features, but since we do not have the financial information to make a decision, we negotiated to a smaller set of requirements based on the engineering resources we were willing to deploy. The account manager who is responsible for the sale was interested in seeing the product release as a milestone and not the features/customer needs. Corporate businesses have developed tones of management mumbo-jumbo to mask the internal failures and show a failure as a success. In the bigger scheme of things, a large fortune-500 company lost focus on the customer thus antagonizing the customer.

Large companies can afford to lose a customer once a while and still prosper as new customers are added continuously. BUT during tough times adding new customers becomes tricky and thus losing existing customers can quickly snowball into a disaster. So chasing short term revenue at the cost of long term customer relationship will only lead to failure.

Closing thoughts

Economic recession is merely an indication of changing times which causes hardships. It is vital to keep focus on the basics of business at all times – even more so during tough times. This even means disregarding the advice from the Wall Street when necessary. Costco resisted the demands to increase its prices when commodities price soared in mid-2008, thus earning customer loyalty instead of focusing on quarterly results.

The best way to survive and thrive during tough economic times is to build an entrepreneurial culture which encourages managers to focus on cash & customers, and then allowing them to make decisions. Managers & leaders from various departments are perfectly capable of making the right decision if they have the right guidance and information.
Always remember that it is the customer who provides the vital cash needed for the company’s survival, so focus on the customer such that your cash position is comfortable.

Surviving Tough Times – Master the art of Pricing

Today, Jan 14th 2009, Nortel Networks filed for chapter-11 bankruptcy protection, Google announced a small lay-off, and the bad news on the economic front continues. This recession is nothing different than the past ones, surviving tough times takes lot more business prudence and guts.

Companies that survive such tough times are the ones that are still relevant to their customers and are the ones that still provide value to customers. Where “Value” is defined by the goods/service provided for a fee – which the customer considers as value. To be more precise, the price of the sale – determines value.

Companies typically tend to make two major mistakes when it comes to pricing:

1. Over-pricing the product.
2. Under-pricing the product

In both cases, the results can be devastating – if the mistakes are continued for a long period of time.

In this article, let us examine the case of two technology titans that are suffering today due to pricing mistakes.

Case of Over-pricing
Companies such as Nortel Networks stumbled in 2001 – when the tech bubble burst, and since then they still haven’t got their pricing strategy right. Customers feel that Nortel’s prices are too expensive and are shopping for alternatives from Huawei, Cisco, & other vendors.

Nortel Networks sold networking & telecom equipment for a long time, and over the period, it developed several proprietary technologies which enabled it to sell at a premium price, but as IP networks became pervasive, the technology advantage of Nortel stated to erode. But Nortel had built an expensive base and the company refused to embrace IP technology wholeheartedly. As a result, the cost structure at Nortel was high – which in turn forced Nortel to sell at a higher price – and that ultimately eroded the customer value.

Case of Under-Pricing
SUN Microsystems is another struggling company today – which is expected to file for chapter-11 bankruptcy protection soon. The company suffers from twin pricing problems: Over pricing on their server products and under pricing on their software offerings. Sun mainstay is their proprietary servers based on its UltraSPARC® processors and Solaris® Operating systems. Initially when these servers were introduced 20 years ago, they had a huge performance lead over the competition and customers loved its products. During the heights of the DOT.com bubble, SUN servers were so pervasive that SUN called itself as the DOT “.” in the “DOT.Com”. With the advent of Linux & powerful Intel processors, the technological advantage enjoyed by SUN began to disappear and soon customers came to realize that they can replace the expensive SUB servers with cheap Lunix-Intel based machines. Thus SUN started to lose its value proposition.

If losing the server value proposition was bad, SUN committed blunders by creating JAVA – a free to use software. JAVA was created by SUN, but it could run on any hardware platforms including Intel server platform and was free. Customers loved the “free” concept and started developing JAVA based applications for Intel platforms – which resulted in zero revenues for SUN. Adding more to this blunder SUN opened its Solaris OS to Intel platforms – for “Free”. This allowed small time vendors to create powerful servers based on Intel/AMD processors and with Solaris OS. All this meant that SUN will not make any money from this. Lastly to rub salt on its self-inflected wounds. SUN decided to buy MySQL for ~$1 billion, thus throwing valuable cash in exchange for a non-revenue generating product.

On the software side of its business, SUN was leaving lots of money on the table. On one hand SUN was spending money to develop & maintain this software and was getting very little in return. Thus under pricing its offerings to a point where it was suicidal.

Art of Pricing

Every businessman – including the roadside food vendor knows about pricing his wares, but few really master the art of pricing. Pricing is very complex because value is very subjective and is solely determined by the customer. As a result most business are guilt of either over pricing or under pricing ( mostly under pricing & leaving money on the table).

In a large complex business, pricing is often so opaque that hardly anyone in the organization can really justify the price. So people resort to cost plus margin based pricing, which is easy to understand – but has almost no bearing on the value delivered to the customer.

Leaving Money on the Table

Probably the biggest mistake one does when it comes to pricing is leaving money on the table – i.e., providing freebies to the customer. The next common mistake is to under price or offer unnecessary discounts by wrongly packaging & thus under pricing the offering.

I do not claim myself to be a master of pricing, but I do know the basics of price theory. I can also confess to the mistakes of leaving money on the table.

The most common reason why companies leave money on the table is “Customer service” or perceived customer value by offering free services. This mistake often happens with large customers. Companies are so enamored with such large customers, that they are willing to offer several freebies in the hope of keeping the customer happy. This practice in turn makes the customer even more demanding and that can soon turn into a death spiral if things are not brought under control.

Surprisingly, there is a very easy way to control this problem – Say “Yes – we can offer that (service/product additions) for a fee”. Customers tend to push the supplier as much as possible and they will push till the point the vendor says he will have to charge for it.

Under pricing

Under pricing occurs when the vendor is willing to sell a product/service at a price point below what the customer is willing to pay. For example, the customer is willing to pay $100 for a product, but the vendor has marked the price as $75. In such cases, the customer appreciates the discount provided and quickly grabs the product. Such pricing errors are quite common in everyday business – especially when it comes to intangible services.

Couple of years ago, I happened to meet an entrepreneur – Shankar Subramaniam who runs a consulting/training firm called NineDots. Within the first few meetings, I became clear to me that Shankar was under pricing his services. We then looked at the service offering and repackaged/re-branded it as results driven consulting services. This simple exercise helped him raise the fees by almost 3x!

How to catch pricing errors?

Pricing errors happen in almost all businesses and is often difficult to catch small errors. But big mistakes such as Over pricing or heavy discounting is easy to catch - via accounting data.

If a product/service is over priced, then the demand for the product/service drops at a rate disproportional to the industry standards, thus indicating over pricing error. Folks at Nortel know that the demand for their products is falling or their market share is falling. Customers were opting for Huawei or Cisco equipment. Even the investors knew it and punished the stock price, yet the management could do little.

In small businesses, entrepreneurs know by instinct that when demand drops disproportionately, they need to lower the prices. But in very large businesses – things are not that easy – but that does not mean that it can’t be done.

In case of under pricing error, the demand raises rapidly and to a point that it can overwhelm the company. But entrepreneurs know that when demand increases beyond a point, they have to raise prices. The easiest way to catch such pricing errors is to do a basic Du-Pont analysis for your business line & compare it with that of the nearest competitor. Simply stated if your ROI (return on Investment) is lower than that of the competition, then there is a pricing error. Du-Pont analysis helps in determining if the errors exist, but it does not tell much on correcting it, so it is a good starting point.

Multi-Part pricing & Dynamic Pricing

Thanks to world of computers, today companies can run sophisticated pricing models which allows dynamic pricing. Sabre Systems developed by American Airlines allows AA to reprice tickets every 6 minutes based on the demand & capacity. Similarly there is complex software for pricing for retail clothing, commodities etc. This system of dynamic pricing allows little pricing errors.

Multi-Part pricing is another way to reduce pricing errors. Multi-part pricing allows for pricing at different levels: One price for product acquisition, another price for maintenance and another price for service etc. Gillette is a very good example of multi-part pricing. Gillette sells razors at a discount and makes money on the blades. Similarly HP sells printers at a very low price (sometimes at a loss) and makes money on the cartages. Similarly Oracle, SAP etc have developed multi-part pricing for their products.

Closing thoughts

Pricing is an art. Of the 4 P’s of marketing, Price is the most complex. To get the right price almost requires the 5th P – Prayer. If you are in business, then spend great amount of time on regular basis to determine if you have got the right pricing.

My marketing professor once told me “As a marketer, your best friend must be an accountant” This lesson is not to be forgotten – so if you are involved in making pricing decisions, then befriend the accountant and go through the valuable accounting data to come up with your pricing analysis, and from that analysis develop your selling price.

In tough economic times, it is vital to get the pricing right. Correct pricing and aligning the operation costs with the price becomes the key for success in these tough times. Take this opportunity to revisit your pricing and cost structures so that you can emerge out of this recession stronger and better than your competition.