J. Miller and Company Blog

October 29, 2002

On the Cost of Lost Trust, on the Un-CEO, on Show me the Cash Flow

“The High Cost of Lost Trust” by Tony Simons, page 19 “When employees doubt a manager’s integrity, the problems can show up on the bottom line.” A survey of 6,500 employees of Holiday Inn hotels asked workers to rank the manager’s “behavioral integrity” on a scale of 1 to 5. The author notes that an improvement of 1/8 point resulted in an increase in profitability of 2.5% overall. This suggests that management hypocrisy, which can range from blatant lying to the more common hidden agendas not only affects company-wide morale but also profitability. The moral: develop a team built on honesty and trust to increase morale & decrease employee turnover. The author says “the notion that behavioral integrity is important should be common sense: align your words and actions in a way employees see. Keep your promises. It seems simple, but if it’s so simply, why is it so rarely observed?”

“Growing for Broke” the monthly HBR case study on page 27, focuses on a tool company which intends to develop a growth strategy based on acquisitions. While this scenario seems more applicable to manufacturing than to construction, there is evidence to support greater study into the affects of acquisitions in the remodeling market. Often smaller contractors bring not just employees, tools and a client list but also years of experience. If both companies operate from similar philosophical principals, mergers and acquisitions could very much become a standard method of growth for mid-sized regional remodeling firms.

“Crucibles of Leadership” by Warren Bennis and Robert J. Thomas, page 29, makes a strong case that the very qualities which allow some people to extract wisdom and strength from their most difficult experiences are also those qualities which make great leaders.

Fortune, September 26, 2002:

“The Un-CEO” by Katrina Brooker (page 88) AG Lafley turned around Proctor & Gamble in 27 months. Between 1990 and 2000 P&G failed to double its sales, for the first time since 1940. Profits were falling and in six months the stock price fell by half. But two years later the company is “in its best shape in ages” because of the steady “workaday dull” management by AG Lafley. “He doesn’t have that superstar CEO personality. In truth, Lafley … wouldn’t be all that interesting to watch were it not for the fact that he’s so darn good at his job.”

Lafley says: ”even when you’ve got a complex business, there is a core and the core is what generates most of the Cash, most of the profits. The trick is to find the few things that are really going to sell and sell as many of them as you could.”

Competition spurs results, in Lafley’s view. Quarterly he reveals all managers’ results to everyone at the meeting. He believes “it motivates people who are performance-oriented. For the few people that it doesn’t motivate, we are probably not the right place for them.”

“The Question Authority: Kill your Career with Charisma” page 40 makes a strong statement when it says that “charismatic authority has always been the worst kind of authority. …This is how primitive societies used to behave. … The whole victory of Western society was in overcoming this charismatic view.”

“Show me the Cash Flow” by Alfred Rappaport (page 192) argues for a revised income statement which “will allow investors and analysts to see what really drives earnings and make it tough for companies to mess with the numbers. At the core of this proposed income statement is cash flow. Without cash flow to fund growth and pay dividends, a company’s shares are essentially worthless.”

Constructech (www.constructech.com), August 2002:

“The Coming Revolution” by Carly Koprivica, page 33 argues for developing a “lean” production model for increased efficiency and profitability. “Lean construction is ultimately a philosophy accompanied by a set of strategies and techniques designed to help construction firms cut down on wasteful processes, making them more competitive and profitable.” Although Constructech focuses on larger general contractors, much of the substance of the magazine applies equally well to smaller remodeling companies.

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