Your Core Values Will Make or Break You

Your Core Values Will Make or Break You

I have often repeated Peter Drucker’s quote that “Culture eats strategy for breakfast.” This week someone said they thought is statement wrong as, without a strategy, you cannot achieve anything. I believe this is a misunderstanding of Drucker’s point. You need a plan, but if the culture is wrong, the strategy will fail because the culture is more important.

Like many things, COVID is accelerating the importance of corporate core values. During COVID and, more recently, BLM, many companies have not lived their core values. For example, if your core values are:

  • Do the right thing: What do you do when no one else is looking? Our teams act with integrity and honesty and focus on putting ourselves in the shoes of others; or
  • Make something better, today: We’re hungry, we’re passionate, and we love tough problems and new challenges. You don’t hear a lot of “I don’t know how” or “I can’t.” When faced with a hurdle, we jump.

Then how do you respond to the COVID crisis and BLM? I believe that doing nothing is not in keeping with your core values. Therefore, you must react and in a way that reinforces your values. Many companies are stuck not knowing how to respond to the BLM protests, to which I think the best answer is to look to your core values, they should guide you and will not allow you to make meanless statements, but do something that reflects the values.

Again, many companies that have their core values posted all around the office and on corporate stationery, but most employees couldn’t tell you what they are. One CEO I know went around such an office and offered any employee who could state the core values without looking at it $50. Out of 30+ employees, only one succeeded. In such an environment, you are not living them and using them to define your organization. Remember Enron had its core values – Integrity, Communication, Respect, Excellence engraved in its lobby. Then it collapsed and its many of its leadership team went to jail, so obviously its core values were not something it lived. If you want to see a great presentation of core values and culture, visit “Netflix Culture: Freedom and Responsibility.” Netflix says that its success and growth are down to its culture and it lives it.

As Jim Collins says, “Core values and purpose define the eternal character of a great organization, the character that endures beyond the presence of any set of people or individual leaders. In the long run, individual leaders do not hold an organization together; core values and purpose do. In the best organizations, leaders are subservient to the core principles, not the other way around.  …  core values and purpose as a defining boundary will become even more important. Given the obvious trends in organizations—greater decentralization and autonomy, wider geographic dispersion, increased diversity, more knowledge workers, technology and travel that make going into the office a less relevant activity—the bonding glue that holds organizations together will increasingly be in the form of shared values and common purpose. No matter how much the world and its organizing structures change, people still have a fundamental need to belong to something they can feel proud of.”

Tyler Cowen further emphasized what Collins said if you don’t have core values in a recent Bloomberg post, “In essence, without a local workplace ethos, it is easier to commoditize labor, view workers as interchangeable and fire people. The distinction between protected full-time employees and outsourced, freelance, and contract workers weakens. A company can make the offer of, ‘If you hand in your project, we pay you,’ to virtually any worker around the world, many of whom might accept lower wages for remote roles.”

If, as I suggested above, the organization pushes decision making down, then if its employees know the core values, they will make decisions that in the best interests of the organization, increasing its agility. Right now, agility is critical as we try to learn the “new normal” in a world were we don’t have clarity on what is happening. However, if they don’t know them or believe they are just pretty words, you will get conflicting decisions and confusion.

Again, as Jim Collins notes, the first of five things to look for when hiring people is, “The whole task is to find people who already have a predisposition to your core values…They must share the core values … those who do not have a predisposition to sharing the core values get ejected like a virus. Get escorted out the door by the organizational antibodies.” As companies pivot and adjust their human capital to reflect a new normal, this must be a vital part of the hiring process. It is more likely now that unlike prior generations, Millenials will self select those companies that reflect their core values. However, a good check of a prospect’s core values is to look at their prior employment, did those companies share your core values?

Finally, use this time of COVID, BLM, and other events to ensure your employees know your core values and culture. Build your organization folklore around how you live your core values, because as humans, we identify better with stories. If there many stories of how the organization lives its culture, the easier it will be for employees to learn and know the culture.

If you want to see a great example of the effect of core values, find a copy of Eco-Challenge – Borneo (a summary is here, but the 4-hour show is hard to find). Eco-challenge was a Mark Burnett production before Survivor, which involved co-ed foursomes competing non-stop for 11 days with almost no sleep through some of the most outrageous obstacle courses anyone could imagine. It’s not all about the specific feats of strength, the devastating effects on the body are many, including head wounds, spinal injuries, and malaria cases are plentiful. Teams from New Zealand and Australia were annual favorites and winners because one of their core values was – “They never argue.” An American squad comprising Armed Forces members could not agree on leadership and values leading to many arguments and disqualification early because two of their players forgot a map and end up swimming away from one of the many checkpoints.

So as you chart a new direction, ensure your core values are correctly identified, shared by all, and reflected in your decisions.

 

Copyright (c) 2020, Marc A. Borrelli

Where are you?

Where are you?

Last week I discussed how business trends had accelerated 5 – 10 years as a result of COVID, thus whatever the critical trends in your business were in March, take them forward 5 – 10 years, and that is where you are now. This acceleration applies to all companies, but the ones we see most easily are move to online retailing and the death of malls.

If that is where your business is, then as I have also said before you need to:

  • Revisit your BHAG. Hopefully, you have one, and make sure it is still relevant. Your Big Hairy Audacious Goal is more than just “goals,” a true BHAG is clear and compelling and serves as a unifying focal point of effort– often creating immense team spirit.  It has a clear finish line, so the organization can know when it has achieved the goal; people like to shoot for finish lines. However, if your BHAG aimed at ten years out, and we have moved 5 – 10 years in the last few months, we may have passed, or it may no longer be relevant.

  • Review your corporate mission and vision statements, again to ensure they are correct given where everything has moved;

  • Look at your “Why.” Is it relevant in a COVID/post COVID world, or does it need changing? Is it a “Why” that has relevance with your future workforce. If you are not sure about your “Why,” here is a link to Simon Sinek’s “Start with your Why” as a refresher. Millennials are here, and regardless of what you think about them, you need them. The good ones will want to work of organizations where they believe in its “Why.” Now is the time to fix it.

  • Take a hard look at your Corporate Culture, is what you live, or are they just pretty words? I have come across many examples over the last twelve weeks were organizations are flouting their cultural beliefs and not even realizing it. Look at your behaviors during this period and have you lived your culture. If not, you need to change one or the other.

  • Develop a new strategy – urgently! As I have said before, not only have we moved forward 5 – 10 years, but the game has changed. There are new rules and players. Thus you need a new strategy.

  • Revisit your capital investment plans. With a new strategy and market, your prior capital priorities are not necessarily correct. You need to revisit your investment plans and ensure that you are focused on investing in technology and processes to keep ahead of your competition.

  • Revisit “How You Make Money.” How You Make Money is a fundamental understanding of every employee in an organization. It must be something simple that everyone understands but drives the appropriate decisions making and behavior. Herb Keller at Southwest Airlines put it best with “Wheels Up.” So how do you make money, and has it changed in this new environment?

  • Revisit your capital allocation. Right now, interest rates are at an all-time low and should remain here for some time. With lower interest rates you need to revisit your capital structure, assets and operations to determine the most efficient capital allocation from a cost of capital and tax perspective and

  • Revisit your operations. Taxes are at an all-time low, but I don’t expect them to remain so as the significant increase in government debt will need financing at some point. So look at your operations and some assets, should you sell them now and reinvest the proceeds more efficiently, given where we are. One of my clients is about to sell his office building and is looking to do a 1031 exchange into a new investment property. While that is the standard consideration; however, if you expect taxes to rise and value of investment property to rise more slowly as the world adjusts to the post COVID landscape, would it be better to pay the taxes now. That is a question each person needs to determine, but one I would ask.

  • Revisit your decisions making process. As we move through a time of significant change and confusion, you need to move the decision making down from the top to where the information is. As I have said before, this is a time for effectively A/B testing outside of just the software world. Having everything flow up and down through the organization slows the decision-making process down too much for such times. To have effective decision making at the front lines, your employees need to know the Mission, VIsion, your Why, How You Make Money, and the Company’s Culture. If they genuinely understand those, they will make the right decisions for the organization.

The most beautiful thing about the current environment is you can change all of these things without too much of an issue. Because of COVID and the adjustments required, Scared Cows can get slaughtered. Prior commitments and beliefs that could not be touched are fair game.

Now is the time to implement John Boyd’s OODA Loop – observe–orient–decide–act.

While developed for military strategy, this is an ideal OODA loop environment. An organization that can process this cycle quickly, observing and reacting to unfolding events more rapidly than the competition, can “get inside” the opponent’s decision cycle and gain the advantage. Raw information or observations of the evolving situation are processed or filtered to drive all decisions regarding the problem.

While everyone is still figuring out what is happening, take advantage of the confusion and move quickly. Those organizations that emerge ahead for this crisis will have market leadership for the next decade.

 

Copyright (c) 2020, Marc A. Borrelli

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Your African American Employees Need Empathy and Support

Your African American Employees Need Empathy and Support

Over the last ten weeks, a theme I have recommended for CEOs and business leaders is showing empathy for their employees and key customers. That means more than a quick how are you doing, but truly listening to their issues as they deal with the stress of COVID, working from home, financial pressures, etc. While many may dismiss this, it is my opinion that those CEOs who do show genuine empathy will build relationships and a culture that defines their business for the next decade.

Well, “Houston, we have another problem.” The last week has seen massive protests across the country arising from the killing of George Floyd. Listening to interviews and reading much on the subject, what has struck me the most, is the fear and concern that African Americans have for themselves and their kids in the day to day environment from interactions with law enforcement. I cannot begin to understand this, but hearing successful executives like Peter HenryCharley MooreRalph ClarkLee Pelton, and Fredrick Baba talk about their experiences and what they have to tell their children is shocking. Adding to this seeing the videos of Christian Cooper being accused by Amy Cooper of threatening her life and Steve Locke’s post from 2015 just brought home how different our experiences are. As Peter Henry says, “a heart-stopping moment is . . . encountering a random law enforcement officer in an uncontrolled environment.”

The stress your African American employees are experiencing you cannot relate to. COVID is far more damaging to their community; they are taking the brunt of unemployment and wealth destruction while daily being scared that they may have a negative encounter with law enforcement. They are worried about their families and themselves, and especially at this time, their stress is off the charts. Now is the time to show empathy and listen.

I have heard that the new job interview question is “What are you working on?” The purpose is to look for clues that show how their resume translates into the needs of the current world and how involved that person is in today’s most critical missions. Well, CEOs must realize that the “A players” are going to ask them the same question. For all the complaints and grumbling about millennials, they are the largest segment of the workforce, so you need them, and they are saying, we’re not going to tolerate it anymore.

Look at Drew Brees, the New Orleans Saints quarterback Drew put out a statement saying that taking a knee would never be acceptable to him as it disrespected the flag. Within hours there was a response from his teammates decaying Brees’ stance, especially a strong rebuke from Malcolm Jenkins. It was apparent that Drew had lost the support of his team. A quarterback, no matter how good, needs his team to win. So after trying to figure out how to straddle the fence, Brees gave up and apologized for his earlier comments.

So decide on what you are going to do to show empathy and support. However, whatever you do, do not put out an announcement as the NFL did initially, which said nothing! If you are going to say nothing of consequence, say nothing. As Cynthia “Cynt” Marshall, CEO of the Mavericks and the first black female CEO in the NBA, said, “As a leader, it’s’s important that I’m clear about what I stand for and what I am against. I abhor racism, disparate treatment, inequities, and inequality.” Adding, “more importantly, [business leaders need] to listen to their employees.” If you stand for nothing it is best not to make it obvious.

I think Mark Cuban put it best when he said, “Dear White People: We are the ones that need to change.” So as Emerson College’s Pelton asked, “The most important question is: What are you going to do?” I would ask you to rise to the occasion. You will be measured by it for a long time.

 

Copyright (c) 2020. Marc A. Borrelli

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Is Social Unrest Coming?

Is Social Unrest Coming?

The 2008 Recession led to the Tea Party, Occupy Wall Street, and other movements. Of these, the Tea Party had a more enduring effect due to the large amount of funding it received. Now COVID.

In just over two and a half months, the U.S. has lost more jobs than those gained over 101 months of continuous wage growth since the 2008 Recession. To see how the recovery has primarily benefited the wealthy through higher asset prices, just look at the Dow Jones Industrial Index.

However, workers have not benefited from the largesse of QE and its progeny. According to the Pew Research Center U.S. hour wages have increased about 10% in real terms since 1964!

As Yogi Berra so aptly put it, it is “Déjà vu all over again.” While the Administration is expecting a quick return to normal, most economists do not share that view. Below are areas that I think will cause more economic pain.

Bankruptcies – Corporate

With all that the Fed and Congress’s stimulus, several significant firms have announced bankruptcies since March, which is likely to make 2020 the worst year since 2009. Recently, firms ranging from Ravn Air, Neiman Marcus, J Crew, Gold’s Gym, and Hertz, have filed bankruptcy, and Chesapeake Energy is considering it. In May, 27 companies reporting at least $50 million in liabilities sought court protection from creditors, the most significant number since 2009.

Source: Bloomberg

While the Fed’s backstop of the corporate debt markets has helped investment-grade borrowing nearly $1 trillion through May, non-investment grade companies are turning to the bankruptcy courts as their revenues have evaporated.  According to JP Morgan Chase, in April, corporate borrowers defaulted on $36.7 billion of bonds and loans, the fifth most enormous monthly volume on record. In the last two months, the amount of distressed debt rose 161% to over half a trillion dollars. Industries which are in trouble are:

  • Retail

  • Restaurants,

  • Mining,

  • Transport,

  • Auto,

  • Utilities,

  • Churches, and

  • Higher Education

Of the above, in many cases, the closure of colleges will have huge ripple effects in the local communities, leading to many other businesses closing. New research from economists at three Federal Reserve banks shows coronavirus-related bankruptcies could rise by 200,000 to reach almost 1 million unless government stimulus programs offset the increase.

Finally, many small companies across the country will close for good regardless of their industries.

 

Bankruptcies – Personal

Along with corporate bankruptcies, many lawyers expect a dramatic rise in personal bankruptcies. American consumers already had a high level of debt before COVID, and with the level of unemployment expected, they will not be able to meet their obligations. Even those with jobs could see reduced hours, wages, or both, which will further strain their finances. Given that foremost, this is a public health crisis, many people who have had COVID and required treatment will be facing substantial medical bills. Many reports show that most Americans cannot face an unexpected $500 charge; however, costs for COVID treatment are about $30,000 with insurance. As COVID has disproportionally affected lower-income minorities, whose jobs do not provide health insurance or who have lost their jobs, many will be unable to meet their medical bills leaving bankruptcy as the only option.

Unemployment

Approximately 41 million Americans have applied for unemployment in just ten weeks, and the unemployment rate is 14.7%, the highest since the Great Depression, according to the Department of Labor. However, even as things open up, unemployment still faces some strong headwinds, including:

According to Goldman Sachs’ latest estimates, the unemployment rate will peak at 25%, rivaling the worst period of the Great Depression. Further Goldman expects the so-called real jobless rate, the percentage of Americans who want a job but have given up trying to find one, to peak at 35%.

While the Federal Government is providing an additional $600/week in unemployment insurance (“UI”), that will end at the end of July. However, as the states provide most UI and have a maximum duration of 26 weeks in a year, except for Michigan, Missouri, and South Carolina who limit it to 20 weeks, and Florida, Georgia, and North Carolina, which restricts it to 12 weeks. By the end of July, those who let go at the start of the shut down will have been unemployed for 20 weeks. Furthermore, many states only provide about 50 percent or less of weekly earnings.

 

Evictions

In 2015, approximately 48.5 million people rented their homes in the U.S. Most states put a moratorium on evictions, which is providing some temporary relief.  However, there are significant variations from state to state, as the Eviction Lab scorecard shows. According to the Department of Housing and Urban Development, almost half of the rental units are owned by individual investor landlords who depend on rent to meet their expenses. Once the courts open up, I expect a rise in evictions, but for those evicted without jobs, where will they go.

Food Insecurity

For the wealthiest country in the world, it is a sad fact that many people in the U.S. are food insecure. In 2018, 37.2 million people lived in food-insecure households, meaning they are often forced to skip meals, eat less at meals, buy cheap non-nutritious food and/or feed their children but not themselves. Furthermore, one in six children in the U.S. is food insecure. 5.6 million U.S. households experienced severe food insecurity. Since 2018 things have worsened with food insecurity in households with children under 18 has increased by about 130 percent since 2018.

The Administration’s recent cut to SNAP has reduced food assistance to 700,000 Americans affecting them, their families, and households. With schools closed where many lower-income children receive most of their meals, their food insecurity has grown. The lines at food banks are increasing across the county.

Safety

Regretfully, we have seen the killing of Ahmaud Arbery and George Floyd, which unfortunately shows the different standards minorities face in the U.S.

The “boogaloo” movement, which is seeking a second Civil War against a seemingly tyrannical or left-wing government, minorities, police, and public officials, partially in response to a perceived threat of widespread gun confiscation, is growing. What is concerning is that the use of the term has grown nearly 50 percent on platforms like Reddit and Twitter over the last few months. Also, as the armed protestors, many boogaloo members, take over government buildings supported by wealthy donors, the lack of consequences further shines a light on the difference in treatment between races. These actions will further undermine the feeling of security by many.

What does it all mean?

If you look at Maslow’s Hierarchy of Needs, the two basic needs are:

  • Psychological Needs – food, water, warmth, and rest

  • Safety Needs – security and safety

With evictions and food insecurity, many are not having their Psychological needs met. Nearly all revolutions start in the spring as people are food insecure from the winter, so increased food insecurity is never a good sign. With increased demonstrations, health scares, and no homes, security, and safety are of growing concern. Thus many will be lacking Maslow’s basic needs. In such a situation, many feel a loss of self-worth as they cannot provide basic needs for themselves and their families.

With a loss of self-worth, lack of basic needs, many will feel little stopping them from openly protesting, as we have unfortunately seen across the country, but especially in Minneapolis and other major cities this weekend. Furthermore, there is evidence of out of town people from both sides driving these riots. Solving the crisis will not be easy. While the police and national guard can put down the protests, it does nothing to address the underlying issues, but would further inflame tensions. Many states’ Concealed Carry and Stand Your Ground laws will enable situations to spiral out of hand even quicker. Data shows that Stand Your Ground laws increase firearm homicides, but have no measurable effect on other violent crime. Finally, the President’s Tweet, “When the looting starts, the shooting starts,” does nothing to help the situation.

Social unrest is coming; however, the key questions are how much and how bad? That will depend on whether we are willing to reconsider how our economy works, because as Scott Galloway puts it“there is evidence of a Hunger Games economy everywhere.” Also, there is evidence that America’s failing safety net is primarily racially driven, something that needs change. We need empathy, more effective government policies, and to retrain workers whose industries have gone.

 

Copyright (c) 2020, Marc A. Borrelli

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Do You REALLY Know Your Business Model?

Do You REALLY Know Your Business Model?

Bringing clarity to your organization is a common theme on The Disruption! blog. Defining your business model is a worthwhile exercise for any leadership team. But how do you even begin to bring clarity into your operations? If you’re looking for a place to start, Josh Kaufman’s “Five Parts of Every Business” offers an excellent framework. Kaufman defines five parts of every business model that all flow into the next, breaking it down into Value Creation, Marketing, Sales, Value Delivery, and Finance.