Thursday, November 12, 2009
Courageous Training leaders see themselves as leaders, not administrators, of a training function, though training itself is part of what they do. They also do not see themselves as training vendors, though they do supply training and may bring in training companies to help provide high-quality programs. They do not see themselves as coordinators or brokers of training services, though they do help link people and organizational units with the learning and performance services they need.
Above all, they see themselves as leaders, with responsibilities to the business and the people in it, to ensure effective performance and worthwhile results—not just training results, but business results. Like other leaders in the organization, they are stewards of precious resources, and it is their duty to see that these resources are leveraged into the greatest value possible. Like other leaders in the organization, they have a responsibility to establish and inculcate a vision, to articulate a strategy, to set priorities and goals that reflect the strategy, to ensure effective execution of strategy, and to develop others' skills and talents so that they are maximally successful.
We know from decades of work in the training field that it is easy to fall off the "leadership horse" and succumb to pressures that conspire to devolve the training leadership role into that of a vendor, administrator, or broker of training services. We have seen firsthand how line managers can sometimes treat training staff as if they were simply order takers and delivery people. And we have seen training leaders respond as if the line managers were right.
THE COURAGEOUS TRAINING CODE
The Courageous Training Code is, like the Hippocratic Oath for physicians, a set of principles that is intended to guide conduct and action. Here is the code, summarized as a list:
- Decide to be a pioneer
- Think like a business partner, not a training vendor
- Raise customer expectations
- Embrace resistance, don't avoid it
- Negotiate tactics but don't compromise principles
- Be tenacious, don't get deflected
- Share credit, don't seek it
At various points in history and on every continent, pioneers have felt a sense of restlessness and dissatisfaction with their lives; they held a belief that they could improve their situation. Maybe they were not happy with their current economic situation; maybe they yearned for a better lifestyle with more freedom; or maybe they just wanted a new challenge. No matter what caused the dissatisfaction, at some point they made the bold decision to leave the relative safety, security, and routine of the village where they lived and ventured off into the unknown frontier in pursuit of a more rewarding existence. We list "Decide to Be a Pioneer" as the first code because we believe this is the principle that begins the Courageous Training journey. It is a decision to move on and to acknowledge dissatisfaction with the way things are at present.
Think Like a Business Partner, Not a Training Vendor
The training world needs vendors, just as the medical profession needs vendors for the dizzying array of drugs, devices, and tools that are available in the ever-growing health-care industry. The vendor's role is to represent its product, show the value of the product in solving the serious problems of prospective clients, and help those clients make a wise purchase decision.
But just as we would not want a pharmaceutical sales representative as our personal physician or managing our total health needs, organizations should not want their training leaders to play the role of training vendor.
Training leaders who operate from a vendor mentality will see their responsibility as selling as much training as they can. As we have pointed out, training department metrics often focus on numbers of training hours delivered, number of people trained, or some other dubious measure of productive value. Selling as much training as possible will help one look good against the metrics.
A training leader who adopts a business partner mentality, however, will see requests for service as expressions of dissatisfaction with the way things are or as a need for change. Their first and foremost action will be to learn more about the problem and why it is important to the client. They will see their primary and overarching responsibility as helping the client achieve business goals, all within the context of the larger organization's purpose and strategy. They will provide training if and when it is needed, but only in a way that will drive the optimal business results (and not just training results).
Raise Customer Expectations
We frequently make presentations to senior executives and line managers about the High Impact Learning approach during which we routinely ask the audience this question: "Based on your experience how much training do you believe actually sticks and gets applied back on the job and leads to business impact?" Without fail the answers we hear from these customers of training are estimates ranging from 5% to 20%.
We have had conversations with some training managers who, although they agree with the statistics, are threatened by this data. They have said they would never consider sharing this information with their senior management, because they don't want to draw attention to the failings of training for fear that their budgets will be cut—or worse yet, they themselves fired! Other training managers are content with this level of expectation. After all, if this is the typical range of results, then keeping expectations where they are is staying in safe territory.
In contrast, Courageous Training leaders do not want to hide these facts hoping that senior management won't notice or will be so busy with bigger problems that they will ignore the training's shortcomings. They look for the chance to stand up and say to senior management, "Are you happy with these results? Because I'm not satisfied, I am embarrassed by the return we are getting for our training investments, and I know we can do much better. The organization deserves better. And with your help I am convinced we can change these results dramatically and double or triple the return we get for our efforts and investments. Are you in?"
Embrace Resistance, Don't Avoid It
Being a pioneer and implementing the methods and tools of the Four Pillars is leading a change process. As is the case with all valuable organizational change efforts, there will be resistance.
Courageous Training leaders expect some resistance and do not despair. They recognize that the line on the graph of progress is not a straight line that ascends from low to high without dips. The line of progress will definitely ascend from low to high over time, but it will have peaks, and dips, and then new peaks. Courageous Training leaders are prepared for this roller-coaster ride, recognize that it is part of the natural process, and press forward when they hit these dips.
Negotiate Tactics but Don't Compromise Principles
If there is one prediction about Courageous Training work that we can make with great certainty it is this: try it, and you will be met with suggestion after suggestion that you make less demanding requests for cooperation and involvement from nontraining elements in the organization. When we first raise the topics of conducting Impact Boosters (where managers learn what they can do to help ensure that training works for their employees), what we often hear is this lament: "You have got to be kidding me. We can hardly get our managers to give up their time to go to any training. Now you want them to go to training about training?"
Because the Impact Booster approach is new and requires some extra work on the part of managers, it almost always gets some resistance. When meeting resistance (or even just anticipating resistance), it is tempting for the change leaders to avoid pushing for managers to participate in an Impact Booster session. The stakeholder may say, "We don't have time for this, because the managers are too busy. Just send the Impact Map out to the workshop participants."
Courageous Training leaders recognize this request for what it is—a disaster waiting to happen. Although sending out the Impact Map to the participants would enable them to avoid the conflict with the senior stakeholder and give them a warm feeling that they are taking action to keep the process moving, in the long run it will undermine the process and significantly reduce the extent to which the training initiative will lead to business results.
Be Tenacious, Don't Get Deflected
We considered not even including this tenacity principle in the code, as perhaps it is too obvious. But we opted on the side of inclusion, and we did so because including this prescription serves as a forewarning. It says to expect obstacles, to be prepared to divert from initial plans and make compromises on tactics, and above all, to be ready to be tempted to give up and lower your expectations. Expect the temptation to want to quit, but make a commitment to stay the course. The goal of doubling or tripling business results is indeed possible, and well worth the pursuit.
Share Credit, Don't Seek It
Throughout this book we have made the following key points: Training alone never produces results. Getting training to produce results is a whole-organization responsibility. When training does work, it works because a host of players and factors were aligned to make it work. And when training does not work, these players and factors were not aligned---or the players did not take the necessary actions.
Courageous Training leaders hold these beliefs close to the heart. Each of them recognizes that he or she is the maestro for the symphony of change. As the maestro, the leader plays a critical role in producing a good performance and yielding good results. However, the leader also recognizes that the maestro alone cannot produce the results, so Courageous Training leaders look for ways to publicize how the entire process is working and how the various players (stakeholders) are enabling it to work. They never try to seek the credit for themselves or the training department alone; they always aim to share credit and consistently communicate the message that results are a team effort for which no one individual can take credit.
We believe that most training professionals are not so self-serving that they would seek to take all the credit for success when training works. But there are concepts and tools frequently used by training professionals that belie the "share credit" principle. Several ROI evaluation methodologies that are currently popular among the training profession attempt to parcel out the degree or percentage of a positive outcome that can be attributed to the training alone. Even if it were methodologically possible to do this in any definitive way (which it is not), trying to arrive at a training-alone estimate is just bad strategy.
First, it flies in the face of the reality that business results require a systemic performance improvement process that involves several factors---not just training. Second, data that attempt to estimate training causal contribution are likely to be viewed by senior or line managers as self-serving, lacking credibility, and naïve. Third, it will inevitably undermine the hard work done to build bridges to the non-training partners. Better to leave it alone.
The principle of sharing credit applies not only to how and why training leaders pursue evaluation and measurement, but also how they comport themselves in all interactions with stakeholders. The attitude from the first interaction to the last, and all in between, should be one of equal partner: a business colleague with some special expertise and talents to lend, for sure, but also a person who knows that no one party or role alone can accomplish the goals that Courageous Training targets.
The members of our users group who have successfully implemented the Courageous Training process helped us formulate the Courageous Training Code. They didn't help us formulate the code by telling us the practices; they helped us create the code through the instinctive behaviors and highly successful actions they took in their projects. Watching them work, talking to them about their actions, and analyzing their successes for how they accomplished things helped us codify these high-leverage practices.
For most people who start on the journey, the prescriptions of the Courageous Training Code begin as specific, planned, and purposeful actions they try to take in their implementations. As they gain more experience in the process, training leaders will internalize these practices. The code will eventually become part of the leaders' unconscious repertoire, their philosophy, and how they view the world.
Excerpted from Courageous Training, by Tim Mooney and Robert O. Brinkenhoff. Copyright 2008 by Timothy Mooney and Robert O. Brinkenhoff. Permission to excerpt the material from this book is given by Berrett-Koehler Publishers, Inc. To purchase the book, visit www.bkconnection.com
In business affairs mistakes are inevitable, what matters is how we respond to them.
When a company is not ready to manage a crisis and it breaks, your attitude is reactive, as being unexpected, nothing is planned and what remains is to be reacting to each attack, or each holder of negative media communication.
In a crisis situation there are 'two media unexpected ways' to react:
1. To respond in a negative way, covering up the facts, avoiding public confrontation, in which case it will be difficult to recover the image.
2. Do not break out before the crisis, to stand and act in an organized manner with the potential to restore the image and reputation.
What almost always happens in a sudden crisis is that many officers are left to carry the emotional factor and start to make mistakes, and without realizing it, suddenly they are making statements to the press on the subjects of their adversary: From this point you are setting the agenda and have lost control of the subjects of public debate by getting carried away by emotions.
It is not recommended that the Crisis Committee is led by highly emotional people who confuse aggression with effective action. These people can not act as spokespersons for it is easy to lose control and make mistakes at every turn.
It has been repeated many times in history that those aggressive managers or directors who have conducted a series of bold moves as a reaction according to them, has given them a high apparent power and control over their adversaries. But this is temporary because the thoughtlessly carried out act and strong emotions are enemies, which later get joined.
Being permanently reactive makes a company and its officials exhausted, until they can no longer irretrievably continue.
You must ask the question: What is the point if we never have to react frantically to control the situation? Why do we always have to react to events rather than direct?
The answer is simple: We have a misconception of power.
In crisis management, where the company has to act immediately, strategic thinking must prevail even over reason and emotion to take power. The essence of power is the ability to maintain the initiative, to make others react to our actions, to ensure that opponents are always on the defensive. This will enable us to always drive the agenda, having the power and control issues of public debate.
In conclusion: Crisis management must be more strategic than emotional, just as we must be proactive rather than reactive.
Learn the difference between proactive and reactive thinking and increase your creative capabilitiesThere are some people who always seem to be starting new projects. These projects are not always very sound and not even particularly creative. The point is that such people seem motivated to be proactive, whereas most people seem to be reactive.
Maintenance is the general management idiom. Things are to be kept running very much as they are now running. In any case, activities should be following the strategy and plans. There is the notion that the 'course' has been set, and it is now a matter of following the course.
This is all good sense. How can you get somewhere if you do not know where you are going? Obviously there are tight plans and looser plans. In the Six Action Shoes framework the navy shoe stands for strict routine. At every moment you do exactly what you are supposed to do. The brown shoe is more entrepreneurial. You have a given objective and must work within guidelines of budget and legality, but the rest is up to you.
Because of the notion of following a set course there is as much emphasis on deviations as there would be with maritime navigation. From this arises the concern with 'problem-solving'. A problem is a deviation from what should be. A problem is something that prevents you from doing what you are supposed to do.
In the teaching of creativity it quickly becomes obvious that most people want to use creativity to 'solve problems'. This is excellent and a very important use of creativity. As with a headache or a stone in your shoe, you know that a problem is there. You do not have to look for it. What is even more important is that the 'benefits' that will arise from solving the problems are obvious from the start.
That is the real attraction of problem-solving. If you can cut the cost of distribution, then you know the benefits you will have. This is much more satisfying than proactive thinking. In proactive thinking you set out to do something, but cannot foresee the benefits until you have the idea. 'We want a new way of closing a tube of toothpaste.' You may think of lots of ideas, but you are not guaranteed benefits from any of them. You might just have wasted your time.
In almost all cases improvement can be phrased as a problem: 'we need to speed up this process'. But in attitude an improvement belongs to proactive rather than reactive thinking. If you very clearly define the direction of improvement (reducing time, cost, steps, pollution, etc.) then you do seem to be tackling a problem: 'this is too slow'.
There does have to be the 'belief', however, that an improvement is possible. It is not as if something has gone wrong. You are not reacting to this problem. You are dealing with a wish of your own or a perception ('this is too slow'). If you do not solve a problem, you may be held up or otherwise in difficulty. If you do not set out to make an improvement, nothing much happens.
The need to make an improvement can easily become a problem. If a competitor has reduced the price of making cardboard cartons, you are in trouble if you cannot improve your own processes so as to match the reduced price.
It is also possible, though much rarer, to have in mind open-ended improvement: 'we want to improve this process in some way'. Obviously, quality efforts and suggestion schemes permit individuals to conceive of different ways in which a process can be improved. Quite often fashion provides the direction for improvement (for example, downsizing, cost-cutting, re-engineering, etc.).
An opportunity may be reactive to changes in legislation or regulation. An opportunity may be reactive to new technology. An opportunity may be reactive to changes in the market place. In any particular case, it is always difficult to determine whether an opportunity is reactive or proactive.
A proactive opportunity means looking around to see how an opportunity can be created. When AeroVironment (largely owned by a friend of mine) developed a way of charging lead acid batteries in ten minutes, a lot of opportunities were potentially created: both for AeroVironment, but also for others. For example, Ford has announced a joint venture to charge up electric cars.
In the end it does not matter whether an opportunity is reactive or proactive. It still has to be assessed and developed as an opportunity. What does matter is how much thinking effort goes into proactive opportunities. If there is no proactive thinking at all then assets are being under-used.
In my seminars and workshops I point out that there are two very broad types of focus. The first is Purpose Focus. The second is Area Focus.
There is no difficulty at all with Purpose Focus. What do we want to do? What is the purpose of our thinking? What do we want to achieve? Purpose Focus is almost exactly the same as normal management thinking. What is the problem? What is the objective? We want to know where we are going in order to find the way there.
To my surprise there has always been a big problem with Area Focus. This is surprising because nothing could be more simple than Area Focus. With Area Focus we simply state 'where' we want ideas. I want ideas ' in this area'. You simply define the area. The area can be broad: I want ideas in the area of tourism. The area can be very tight: I want ideas in the area of breakfast times in a two-star hotel.
Of course, there is a purpose even in Area Focus. The purpose is simply to get any ideas 'in that area'. But there is no attempt to achieve a defined objective. The ideas can be of varying types and can offer very different benefits. When I ask seminar participants to put down both Purpose Focuses and Area Focuses, more than half of the Area Focuses are really Purpose Focuses. Why is there such difficulty in doing something so very simple?
The answer lies in the difference between reactive and proactive thinking. With Purpose Focus a problem or objective is presented. We then 'react' to this. We may seek to recognise the situation. We may analyse it down into recognisable elements. We define needs. All this is reacting to the desired end-point. Then we look through our repertoire of standard responses. Morale is low. So we determine we need 'incentives'. What are the standard incentives? These could be money, time off, recognition, titles, etc.
So standard thinking seeks to recognise standard needs and to apply standard remedies. There is nothing wrong with this. The system is highly effective. That is what a doctor does in diagnosing and treating a patient. Medicine could not function otherwise. The bulk of our thinking needs to be like this.
The standard thinking has to be 'reactive'. We have to react to a problem or need. This standard thinking does not work with proactive thinking. There is nothing to react to with an Area Focus. That may be why so many people have difficulty with Area Focuses. An Area Focus provides only a starting point. We cannot work backwards from the end-point, because there is no end-point.
Our traditional thinking methods are based on analysis and judgment (including recognition). So they work well with Purpose Focuses, but not at all with Area Focuses. Some of the lateral thinking techniques make it possible to think in an Area Focus. For example, the 'Random Entry' technique can be used with any Area Focus and can open up new ideas. The 'Challenge' technique can also work on what is there and seek to develop new ideas.
It is not my purpose here to suggest that there is anything the matter with reactive thinking. That would be absurd. Nor do I wish to suggest that there is a sharp philosophical distinction between reactive and proactive thinking. There is a huge amount of overlap. The danger is that some people will argue that there is no real distinction and then proceed to spend all their thinking time on thinking that is clearly reactive. Opportunities will be missed. Creativity will be under-used.
There is a spectrum. At one end are those matters which are purely reactive. At the other end are matters which are purely proactive. In between there are matters which have elements of both reactive and proactive. What is needed is an investment of creative effort in proactive thinking. The simplest way to do this would be to include some Area Focuses on the Creative Hit List. It is practice in proactive thinking that is important. We get plenty enough practice in reactive thinking.
JOURNEYS AND EXPLORATIONS
Can you start a journey without knowing where you want to go? The answer is 'yes'. You can set out to explore an area. You may impose a framework such as grid or simple compass directions. You may set sub-targets. But in the end your objective is not a particular destination but exploration of an area. In the matter of thinking the purpose of the exploration is to find new ideas, new possibilities and new opportunities.
How will you know that you have got somewhere useful? This is where the 'value sensitivity' encouraged under the yellow hat comes in. There is the habit of sensing and detecting potential value at an early stage. Without this, proactive thinking is going to be much less effective.
Tuesday, November 10, 2009
Excerpt from:WHAT GIVES A MAN OR WOMAN THE RIGHT TO LEAD?
The Right to Lead by John Maxwell
It certainly isn't gained by election or appointment. Having position, title, rank, or degrees doesn't qualify anyone to lead other people. And the ability doesn't come automatically from age or experience, either. No, it would be accurate to say that no one can be given the right to lead. The right to lead can only be earned. And that takes time.
The Kind of Leader Others Want to Follow
The key to becoming an effective leader is not to focus on making other people follow, but on making yourself the kind of person they want to follow. You must become someone others can trust to take them where they want to go. As you prepare yourself to become a better leader, use the following guidelines to help you grow:
One of the ironies of leadership is that you become a better leader by sharing whatever power you have, not by saving it all for yourself. You're meant to be a river, not a reservoir. If you use your power to empower others, your leadership will extend far beyond your grasp.
- Let go of your ego.The truly are not in leadership for personal gain. They lead in order to serve other people. Perhaps that is why Lawrence D. Bell remarked, "Show me a man who cannot bother to do little things, and I'll show you a man who cannot be trusted to do big things."
- Become a good follower first.Rare is the effective leader who didn't learn to become a good follower first. That is why a United States Military Academy teaches its officers to become effective followers first - and why has produced more leaders than the . such as the
- Build positive relationships.Leadership is influence, nothing more, nothing less. That means it is by nature relational. Today's generation of leaders seem particularly aware of this because title and position mean so little to them. They know intuitively that people go along with people they get along with.
- Work with excellence.No one respects and follows mediocrity. Leaders who earn the right to lead give their all to what they do. They bring into play not only their skills and talents, but also great passion and hard work. They perform on the highest level of which they are capable.
- Rely on discipline, not emotion.Leadership is often easy during the good times. It's when everything seems to be against you - when you're out of energy, and you don't want to lead - that you earn your place as a leader. During every season of life, leaders face crucial moments when they must choose between gearing up or giving up. To make it through those times, rely on the rock of discipline, not the shifting sand of emotion.
- Make adding value your goal.When you look at the leaders whose names are revered long after they have finished leading, you find that they were men and women who helped people to live better lives and reach their potential. That is the highest calling of leadership - and its highest value.
- Give your power away.
In The Right to Lead, you will hear from and read about people who have done these same things and earned the right to lead others. Because of the courage they found and the character they displayed, other people recognized their admirable qualities and felt compelled to follow them.
The followers who looked to these leaders learned from them, and so can we. As you explore their worlds and words, remember that it takes time to become worthy of followers. Leadership isn't learned or earned in a moment.
| Written by Mario Moreira |
|Tuesday, 15 August 2006 07:29 |
|There is always talk about improving application quality. In many instances, a large quality program gets initiated that either takes a lot of resources and time or introduces change that is too challenging for the organization (or project team) to handle. It is usually better to start on a smaller scale. Focusing on improving application quality in the programming phase, a couple of suggests are: 1) initiate Peer Reviews (e.g., code reviews) and/or 2) initiate Pair Programming. While Peer Review is more widely known and used in the software development industry, Pair Programming offers more problem solving possibilities. Both are known to reduce defects and improve quality. The key is to introduce a small initiative like peer review or pair programming ensuring you are building the practice for success. |
Implementing a peer review is analogous to adding additional sets of eyes to your work. A peer review provides the owner of the item under review with the added insight of other individuals also wanting a better software deliverable. Peer reviews can help both reduce defects and improve quality. The first place to start is to define and document the peer review practice you plan to use. To ensure you are building a peer review practice for success and have more perceived value, consider the following:
Working in a Closed Loop
There is a danger that peer reviews get seen as a nice exercise but with no validation that corrections get made. It becomes essential that the peer review has a closed loop process where the important defects identified get reported and tracked through closure. Using the code review as an example, there may be a number of defects found and they should be classified in a way that the critical defects (e.g., those considered severity 1 or 2) can be identified amongst all defects. Those critical defects should then be documented and tracked to ensure that the defects are corrected. This ensures the time spent on the code review has a positive conclusion.
When you think of a peer in your profession, who do you think of? Within the context of a peer review, the peer should be someone who is within two levels of experience above or two levels of experience below. Including folks too junior can make the peer review a waste of time and including folks too senior can be overwhelming and intimidating. Also, including your boss or a person who has perceived position over you can be threatening. Therefore, consider who your peers really are and include them.
Identifying and conforming to a common set of standards help the peer review practice move from a subjective review to a more objective one. As an example, if coding standards are defined for a code review practice, then the standards can form the basis for the evaluation of code modules under review. Otherwise the code review can turn into a "my method for coding is better than yours". An effective way of keeping an eye on the standards is to create a defect checklist that includes the standards (coding standards, style standards, etc). Also ensure coding standards training is provided. Implementing coding standards helps objectify the code review leading to reduced defects in the current release. It also makes it easier to debug defects found downstream when common standards are applied.
Documented Requirements & Defects
Along with standards, it is important to have the requirements or defects available that form the basis on why a particular code artifact is being created, changed, or fixed. Having this information can help your peers evaluate the change you are making in relation to the reason for the change. Again, this helps both provide background on the item under review and further objectify the peer review.
Implementing pair programming is analogous to always having someone who is looking over your shoulder and looking out for your best interests. The approach to paired programming is when two developers work side-by-side taking turns on the same artifact or deliverable, one working on the code (and other items like design elements) at a single computer, while the second is constantly reviewing the other's work (e.g., like a continuous peer review). The first place to start is to define and document the pair programming practice you plan to use and share this information with the paired teams so they understand how to work together. To ensure you are building a pair programming practice for success and have more perceived value, consider the following:
Similar to a peer review, when you are implementing a pair programming approach, it is important to ensure that two programmers are peers of one another. But unlike peer review, the 2 programmers really should be professional equivalents (e.g., roughly at the same level of experience). Pairing folks that are at different levels can be intimidating to the more junior person unless the senior person is a nurturer. Pair programming should not be used as a training program to bring more junior level folks up to speed. The senior member may become unhappy and it may be an ineffective use of their time. While the levels of experience should be similar, the areas of expertise can vary (e.g., one can be more skilled in data engineering while the other is more experienced in workflow). Therefore, consider who the peers really are (e.g. those at or near the same professional level of experience) and pair them appropriately.
Working as a Pair
Many programmers simply work better in isolation. They like to review the requirement or defect and individually derive the best programming solution per their skill level. Then they like to code as and when they want to code without restraint of another's schedule or work hours. In pair programming, the two programmers work together constantly and will be assessing each other's deliverables continuously. This means they must work roughly the same hours and agree to the working process. Most importantly the pair must enjoy each other's company, have similar personalities, have flexible egos, and be constantly open minded of each other's ideas and opinions. Otherwise, this working relationship can be frustrating to one of both of the pair.
Focusing on problem solving work
Pair programming is not for all types of programming work. For example, it may be an ineffective use for maintenance or routine enhancement work. For this type of work, applying a peer review (e.g., code review) at regular intervals may be more efficient. When initiating a pair programming program, identify the better types of work that can make pair programming a success like "Release 1" of a product that requires considerable problem solving (in design and coding), or projects that have challenging defects to resolve, or work that requires getting into the flow or zone while also requiring documentation (one member of the pair can keep in the zone while the other does the documentation).
Introducing a Peer Review or Pair Programming practice into an organization (or project) can be an effective way to improve quality while minimizing culture change. Peer Reviews in the form of a code review can be effective way of identifying defects and therefore improving application quality. When establishing a peer review practice, the following can help to ensure success: establishing coding standards; identifying appropriate level of peers; establishing a closed loop defect system to ensure corrective action; and providing requirements and/or defect records to understand why a particular code artifact is being created, changed, or fixed. Pair Programming can also be an effective way of identifying defects and in solving problems, thereby improving application quality. When establishing a pair programming practice, the following can help ensure success: identifying appropriate level of peers; finding people that work well together; and focusing on problem solving work. Once you have started either (or both) practices, continually monitor its effectiveness with both metrics and feedback from the people involved for continuous improvement.
Mario Moreira is a Columnist for CMCrossroads Journal, a Director/Architect of Technology, an Author of CM publications, and has worked in the SCM field since 1986. He has experience with numerous SCM technologies and processes and has implemented SCM on over 100 applications/products, which include establishing global SCM infrastructures. He has an MA in Mass Communication with an emphasis on communication technologies. Mario also brings years of Project Management, Software Quality Assurance, Requirement Engineering, IT Governance Architecture, facilitation, and team building skills and experience.
How To Make Restructuring Work for Your Company
|Published:||October 1, 2001|
|Author:||Stuart C. Gilson|
Executive Summary:A bungled corporate restructuring can turn a good idea into disaster. In an excerpt from his new book, HBS professor Stuart Gilson outlines the keys for a successful corporate makeover. Plus: Gilson Q&A.
About Faculty in this Article:
1. Design. What type of restructuring is appropriate for dealing with the specific challenge, problem, or opportunity that the company faces?
2. Execution. How should the restructuring process be managed and the many barriers to restructuring overcome so that as much value is created as possible?
3. Marketing. How should the restructuring be explained and portrayed to investors so that value created inside the company is fully credited to its stock price?
Failure to address any one of these challenges can cause the restructuring to fail.
Having a Business PurposeRestructuring is more likely to be successful when managers first understand the fundamental business/strategic problem or opportunity that their company faces. At Humana Inc., which jointly operated a hospital business and a health insurance business, management decided to split the businesses apart through a corporate spin-off because it realized the businesses were strategically incompatible—the customers of one business were competitors with the other. Alternative restructuring options that were considered, including issuing tracking stock, doing a leveraged buyout, or repurchasing shares, would not have solved this underlying business problem.
Chase Manhattan Bank and Chemical Bank used their merger as an opportunity to both reduce operating costs and achieve an important strategic objective. Combining the two banks created opportunities to eliminate overlaps in such areas as back-office staff, branch offices, and computing infrastructure. Management of both banks also believed that larger and more diversified financial institutions would increasingly have a comparative advantage in attracting new business from corporate and retail customers. The merger was therefore also viewed as a vehicle for increasing top-line revenue growth. Internal cost cutting alone would not have enabled either bank to achieve this second goal.
Knowing When to Pull the TriggerMany companies recognize the need to restructure too late, when fewer options remain and saving the company may be more difficult. Scott Paper's new CEO was widely criticized in the news media for the magnitude of the layoffs he ordered. However, such drastic action was arguably necessary because the company had taken insufficient measures before that to address its long-standing financial problems. Some research suggests that voluntary or preemptive restructuring can generate more value than restructuring done under the imminent threat of bankruptcy or a hostile takeover. 7
Several companies featured in this book undertook major restructurings without being in a financial crisis. Compared to the rest of the U.S. airline industry, United Air Lines was in relatively strong financial condition when its employees agreed to almost $5 billion in wage and benefit reductions in 1994. And Humana was still profitable when it decided to do its spin-off.
What can be done to encourage companies to restructure sooner rather than later? In the case of United Air Lines, management in effect created a crisis that made employees more willing to compromise. Early in the negotiations, management threatened to break up the airline and lay off thousands of employees if a consensual agreement could not be reached. Management made the threat real by developing an actual restructuring plan, containing detailed financial projections and valuations. Moreover, United's CEO at the time had a reputation for following words with deeds, and he was not liked by the unions. (With hindsight, it is debatable whether he really intended to pursue the more radical restructuring plan; however, what matters is that the unions believed he would.)
In Humana's case, the company culture encouraged managers to constantly question the status quo and consider alternative ways of doing business. This sense of "organizational unease" was encouraged by Humana's CEO-founder, who twice before had shifted the company's course to a brand-new industry. As the company's integrated product strategy began to exhibit some problems—although nothing approaching a crisis—a small group of senior managers decided to investigate. This effort, which took place off-site and lasted several weeks, uncovered a serious flaw in the strategy itself, setting the stage for the eventual restructuring.
At each of these companies, there was a set of factors in place that made early action possible. However, some of these factors—a strong or visionary CEO, for example—are clearly idiosyncratic and company-specific. Thus it remains a question whether firms can be systematically encouraged to preemptively restructure. One approach that has been suggested is to increase the firm's financial leverage (so it has less of a cushion when the business begins to suffer); another is to increase senior managers' equity stake so they are directly rewarded for restructuring that enhances value. Such approaches are not widespread, however. 8
The Devil Is in the DetailsThe decisions that managers have to make as part of implementing a restructuring plan are often critical to whether the restructuring succeeds or fails. In the language of economics, implementation is the process of managing market imperfections. The challenges that managers face here are many and varied.
In a bankruptcy restructuring, for example, one obvious objective is to reduce the firm's overall debt load. However, cancellation of debt creates equivalent taxable income for the firm. Flagstar Companies, Inc. cut its debt by over $1 billion under a "prepackaged" bankruptcy plan. In addition, if ownership of the firm's equity changes significantly, say because creditors exchange their claims for new stock, the firm can lose the often sizable tax benefit of its net operating loss carryforwards. 9 When Continental Airlines was readying to exit from Chapter 11, it had $1.4 billion of these carryforwards. However, to finance the reorganization, the company sold a majority of its stock to a group of investors—virtually guaranteeing a large ownership change.
Companies that try to restructure out of court to avoid the high costs of a formal bankruptcy proceeding can have difficulty restructuring their public bonds. If such bonds are widely held, individual bondholders may be unwilling to make concessions, preferring to free ride off the concessions of others. Thus it will be necessary to set the terms of the restructuring to reward bondholders who participate and penalize those who do not—all the while complying with securities laws that require equal treatment of creditors holding identical claims. This was the situation facing the Loewen Group Inc. as it stood at the crossroads of bankruptcy and out-of court restructuring.
Before a company can divest a subsidiary through a tax-free spin-off, management must first decide how corporate overhead will be allocated between the subsidiary and the parent. The allocation decision can be complicated by management's understandable desire not to give away the best assets or people. It is also necessary to allocate debt between the two entities, which will generally entail some kind of refinancing. The transaction must meet certain stringent business purpose tests to qualify as tax-exempt. And if the two entities conducted business with each other before the spin-off, management must decide whether to extend this relationship through some formal contractual arrangement. Humana's two divisions transacted extensively with one another before its spin-off, and abruptly cutting these ties risked doing long-term harm to both businesses.
Corporate downsizing also presents managers with formidable challenges. In addition to deciding how many employees should be laid off, management must decide which employees to target (e.g., white collar vs. factory workers, domestic vs. foreign employees, etc.) and set a timetable for the layoffs. It must also carefully manage the company's relations with the remaining workforce and the press. This process becomes much more complicated when management's compensation is tied to the financial success of the restructuring through stock options and other incentive compensation. And when layoffs are the by-product of a corporate merger, it is necessary to decide how they will be spread over the merging companies' workforces. This decision can significantly impact the merger integration process and how the stock market values the merger, by sending employees and investors a signal about which merging company is dominant. 10
Bargaining Over the Allocation of ValueCorporate restructuring usually requires claimholders to make significant concessions of some kind, and therefore has important distributive consequences. Restructuring affects not only the value of the firm, but also the wealth of individual claimholders. Disputes over how value should be allocated—and how claimholders should "share the pain"—arise in almost every restructuring. Many times these disputes can take a decidedly ugly turn. A key challenge for managers is to find ways to bridge or resolve such conflicts. Failure to do so means the restructuring may be delayed, or not happen, to the detriment of all parties.
Inter-claimholder conflicts played a large role in Navistar International's restructuring. The company had amassed a $2.6 billion liability for the medical expenses of retired Navistar workers and their families, which it had promised—in writing—to fully fund. This liability had grown much faster than expected, to more than five times Navistar's net worth. Claiming imminent bankruptcy, the company proposed cutting retirees' benefits by over half. With billions of dollars at stake, the negotiations were highly contentious, and an expensive legal battle was waged in several courts.
FAG Kugelfischer also faced a major battle with its employees over the division of value. Kugelfischer's high labor costs—the average German worker earned over 40 percent more than his/her U.S. counterpart—had made it increasingly difficult for it to compete in the global ball bearings market. However, opposition from the company's powerful labor unions made cutting jobs or benefits very difficult. Moreover, under the German "social contract," managers historically owed a duty to employees and other corporate stakeholders as well as to shareholders. So any attempt to cut labor expense could well have provoked a public backlash—especially since at the time the company's home city of Schweinfurt had an unemployment rate of 16 percent.
For publicly traded companies, the success of a restructuring is ultimately judged by how much it contributes to the company's market value.Sometimes disputes over the allocation of value arise because claimholders disagree over what the entire company is worth. In Flagstar Companies' bankruptcy, junior and senior creditors were over half a billion dollars apart in their valuations of the company. Since the restructuring plan proposed to give creditors a substantial amount of new common stock, their relative financial recoveries depended materially on what the firm, and this stock, was ultimately worth.
To bridge such disagreements over value, a deal can be structured to include an "insurance policy" that pays one party a sum tied to the future realized value of the firm. This sort of arrangement sometimes appears in mergers in the form of "earn-out provisions" and "collars." 1112 Despite how much sense these provisions would seem to make, however, in practice they are relatively uncommon. The reasons for this are not yet fully understood. 13 The terms of United Air Lines' restructuring included a guarantee that employees would be given additional stock if the stock price subsequently increased (presumably because of their efforts). And in some bankruptcy reorganization plans, creditors are issued warrants or puts that hedge against changes in the value of the other claims they receive under the plan.
Getting the Highest PriceFor publicly traded companies, the success of a restructuring is ultimately judged by how much it contributes to the company's market value. However, managers cannot take for granted that investors will fully credit the company for all of the value that has been created inside.
There are many reasons why investors may undervalue or overvalue a restructuring. Many companies have no prior experience with restructuring, so there is no precedent to guide investors. Restructurings are often exceedingly complicated. (The shareholder prospectus that described United Air Lines' proposed employee buyout contained almost 250 pages of text, exhibits, and appendices). When it filed for bankruptcy protection in Thailand, Alphatec Electronics Pcl had over 1,200 different secured and unsecured creditors, located in dozens of countries. And restructuring often produces wholesale changes in the firm's assets, business operations, and capital structure.
So in most restructurings, managers face the additional important challenge of marketing the restructuring to the capital market. The most obvious way to do this is to disclose useful information to investors and analysts that they can use to value the restructuring more accurately. 14 However, managers are often limited in what they can disclose publicly. For example, detailed data on the location of employee layoffs in a firm could benefit the firm's competitors by revealing its strengths and weaknesses in specific product and geographic markets. Disclosing such data might also further poison the company's relationship with its workforce. In its public communications with analysts, United Air Lines' management could not aggressively tout the size of the wage/benefit concessions that employees made to acquire the airline's stock, since many employees entered the buyout feeling they had overpaid.
Management's credibility obviously also matters in how its disclosures are received. Many restructurings try to improve company profitability two ways, by both reducing costs and raising revenues. Scott Paper Company's restructuring was also designed to increase the firm's revenue growth potential by leveraging the brand name value of its consumer tissue products business. Management was quite open in declaring this goal. However, experience suggests that investors and analysts generally reward promises of revenue growth much less than they do evidence of cost reductions. In public financial forecasts of the merger benefits, Chemical and Chase management downplayed the size of the potential revenue enhancements, even though privately they believed the likely benefits here were huge.
When conventional disclosure strategies are ineffective in a restructuring, sometimes more creative strategies can be devised. As part of its investor marketing effort, United Air Lines began to report a new measure of earnings—along with ordinary earnings calculated under Generally Accepted Accounting Principles (GAAP)—that excluded a large noncash charge created under the buyout structure. The new earnings measure, which corresponded more closely to cash flows, was designed to educate investors about the buyout's financial benefits. Acceptance of this accounting innovation by the investment community was uneven at first, however.
Of course communicating with investors is relatively easy when the company is nonpublic and/or closely held. But having no stock price is a double-edged sword, as the case of Donald Salter Communications Inc. illustrates, since it is then harder to give managers incentives to maximize value during the restructuring.
Five Questions for Stuart GilsonHarvard Business School professor Stuart Gilson fielded some questions regarding his new book in an email interview with HBS Working Knowledge editor Sean Silverthorne
The first is the need to address poor financial performance. Here, the warning signs are usually pretty clear: declining or stagnating sales, accounting losses, or a falling stock price. In extreme cases such poor performance may cause the company to default on its debt, resulting in bankruptcy. Restructuring the debt can be difficult and costly, although in some cases legal strategies are available that can greatly accelerate the process. In the U.S., bankruptcy can also be used to revitalize the business—for example, by allowing companies to reject unfavorable leases, or sell unwanted assets in a competitive auction.
The second reason to restructure is to support a new corporate strategy, or to take advantage of a business opportunity. For example, in an equity spin-off, a diversified firm's businesses are split apart into independent entities, each with its own common stock. Spin-offs can make sense when a high-growth business is being held back by a bureaucratic corporate parent, or when it no longer makes sense for a company to be vertically integrated. Here, one sign that restructuring may be necessary is evidence that the stock market is valuing the entire company for less than its separate businesses would be valued if they were separate, independently-traded companies. (In other words, 2 + 2 = 3) To make this diagnosis, one obviously has to make all kinds of assumptions, but sometimes the implied value gap is just enormous.
The third reason companies restructure is to correct a large error in how the company is valued in the capital market. This problem, like the previous one, is especially prevalent for large diversified companies that operate in many different businesses. Financial analysts and investors may have an especially difficult time understanding what's going on in these companies, or may lack the industry expertise to assess the business prospects of all the company's operations. Even though each of the businesses may be well-run, investors may place too low a value on the overall portfolio. Restructuring tools like tracking stock, stock buybacks, or leverage buyouts, can be used to reduce this kind of value gap.
Q: My book is also targeted at corporate executives, general managers and practitioners. Hopefully, investment bankers, strategy consultants, and attorneys will find it to be a useful guide or reference. In addition to the case studies, the book has chapters that describe the different techniques for restructuring companies, and summarize scholarly research on corporate restructuring. There is also a chapter that describes techniques for valuing companies in a restructuring situation. I think the case study method is ideally suited to teaching best restructuring practices, because it forces you to put yourself in management's shoes, and understand the issues and challenges that managers actually face in these situations. The case study method is all about getting you to ask the right questions.
6. The computing technology used in open architecture systems uses more standardized components than mainframe computing technology (e.g., microprocessors in personal computers). The manufacture of these components was easily outsourced to low-wage countries like Thailand and Indonesia, creating redundancies in the workforce at home. However, the mainframe business continued to be profitable due to a core group of customers that found it too costly to switch technologies, such as schools, governments, and churches.
7. Gordon Donaldson, Corporate Restructuring: Managing the Change Process from Within (Boston: Harvard Business School Press, 1994).
8. For an overview of these issues see Michael Jenson, 1993, "The Modern Industrial Revolution and the Challenge to Internal Control Systems," Journal of Finance 48: 831-880. Wruck shows how a company can deliberately increase its debt load to encourage the organization to restructure more quickly (Karen Wruck, 1994, "Financial Policy, Internal Control, and Performance: Sealed Air Corporation's Leveraged Special Dividend," Journal of Financial Economics 36: 157-192). However, other research suggests that most companies do not undertake significant restructuring unless they are confronted with a crisis, such as a takeover threat or bankruptcy. (See David Denis, Diane Denis, and Atulya Sarin, 1997, "Agency Problems, Equity Ownership, and Corporate Diversification," Journal of Finance 52: 135-160.) One reason equity incentives may not be used more widely is the risk of a public backlash, if managers appear to be profiting at the expense of those hurt by the restructuring (Jay Dial and Kevin Murphy, 1995, "Incentives, Downsizing, and Value Creation at General Dynamics," Journal of Financial Economics 37: 261-314).
9. There are some exceptions. For a description of tax issues in bankruptcy restructuring, see Stuart Gilson, 1997, "Transactions Costs and Capital Structure Choice: Evidence from Financially Distressed Firms," Journal of Finance 52: 161-196.
10. Many mergers that are publicly portrayed as "mergers of equals" often appear to end up as anything but. See Bill Vlasic and Bradley Stertz, Taken for a Ride: How Daimler-Benz Drove Off with Chrysler (New York: William Morrow & Co., 2000 ).
11. When a merger is financed by swapping the stock of the bidder company for the stock of the target company, the target company shareholders face the risk that the stock they receive will subsequently lose value. A collar would directly compensate them for this loss.
12. See Stuart Gilson, Edith Hotchkiss, and Richard Ruback, 2000, "Valuation of Bankrupt Firms," Review of Financial Studies 13: 43-74.
13. See Micah Officer, 2000, "Collar Bids in Mergers and Acquisitions," University of Rochester Ph.D. dissertation paper.
14. Academic researchers have studied how discretionary corporate disclosures can increase firms' market values. For example, see Paul Healy and Krishna Palepu, 1995, "The Challenges of Investor Communication: The Case of CUC International, Inc.," Journal of Financial EconomicsContemporary Accounting Research 16: 485-520. Note that the idea of helping investors better understand the firm's market value is not inconsistent with the well-known efficient markets paradigm, which states that traded financial assets are correctly priced on average. This does not imply that every asset is always priced correctly, and so provides an opportunity for managers to correct mistakes in how their companies are valued. 38: 111-140; and Paul Healy, Amy Hutton, and Krishna Palepu, 1999, "Stock Performance and Intermediation Changes Surrounding Sustained Increases in Disclosure,"
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