How CEOs Can Help Jump Start The Economy:

7 Tips For CEOs

John W. Olmstead, MBA, Ph.D, CMC

Introduction

Although the economy is beginning to show some life as a result of aggressive tax cuts, deficits, a weaker dollar and historically low interest rates – something is missing. Recent weeks economic reports and trends include:

§         Second-quarter worker productivity was revised to show its biggest gain in more than a year, and jobless claims jumped to their highest level since mid-July.

§         Employers cut jobs for a seventh consecutive month in August.

§         Nonfarm business payrolls declined by 93,000 in August. The cut, the steepest in five months, brought total job losses since the start of the year to 431,000.

§         Employers keep cutting payrolls due to a surge in productivity, which rose to 6.8% in the second quarter. This has allowed companies to delay hiring.

§         Exporting of service-sector jobs overseas. Forrester Research estimates a loss of 400,000 jobs this year alone and 3.3 million by 2015 – the equivalent of 7.5% of all present U.S. jobs. Gartner estimates one in ten jobs at specialty IT firm in the U.S. will move abroad within the next 16 months, along with one in 20 IT jobs at general businesses – a loss of 560,000 positions. Some companies are experiencing a backlash as a result of their offshore outsourcing in the form of product boycotts by consumers.

Corporate CEOs do not appear to reacting with the enthusiasm and confidence that is usually associated with renewed growth. Business spending is very tentative and corporate managements are reluctant to hire new workers. In general, CEOs are reluctant to take the risks and make the investments that in past times have brought the economy back from periods of stagnation or recession.

Tips for CEOs

TIP #1:            Think long term. Focus on making the quarter’s numbers has never been more intense. Layoff and outsourcing are increasingly the methods already lean firms are using to hit their targets. Avoid the following pitfalls:

§         Letting stock prices dictate strategy

§         Ignoring customers

§         Inaction because of over concern about regulation and fear of scandal

Despite the continued uncertainty and lack of confidence in the economy a number of successful CEOs are starting to turn their attention from squeezing out costs to increasing revenue. Many companies have eliminated all unnecessary expenses, refined processes, and dumped unprofitable products and business units. Innovative CEOs realize that efficiency is not a growth strategy and such strategies are necessary for the long term. They understand that “the old way” of doing business is gone forever and they must use lessons from present times to plant the seeds for future growth.

TIP #2:            Be proactive. Research shows that more corporate failures are a result of managerial inaction as opposed to inappropriate managerial action. Many companies have become so risk averse that innovation has taken a back seat to “quick fixes.” Don’t let concern about regulation or fear of scandal undermine your business confidence and pursuit of your vision and strategy.

TIP #3:            Balance profitability with social responsibility (business ethics). Companies must rebuild trust with employees, customers, and the public. Enron has forever changed the ethical landscape of business. There is more to business than what is good for the stock market and CEOs stock options. CEO’s should also consider the impact of their actions upon their country and fellow citizens as well. As recently as a decade ago, many companies viewed business ethics only in terms of compliance with legal standards and adherence to internal rules and regulations. A 2001 Environics International Study found that more than two-thirds of 20,000 consumers surveyed across 20 countries around the world believe that large companies should do more than “focus on making a profit, paying taxes, providing employment and obeying all laws.” Often framing their concerns in ethical terms, activist groups pose another challenge in their ability to pressure corporations and damage reputation through campaigns, protests and even denial-of-service attacks. As a result, ethics officers who once focused solely on legal compliance now find themselves answering questions about bioethics, privacy, child labor, offshore outsourcing, and CEO compensation. Business ethics also play a role in strengthening employee commitment and boosting financial performance. A 2002 DePaul University study showed that firms making an explicit commitment to an ethics code provide more than twice the value to shareholders than companies that do not. Other results of this and other research demonstrates that socially responsibly performance results in:

§         Improved financial performance

§         Reduced operating costs

§         Enhanced brand image and reputation

§         Increased sales and customer loyalty

§         Increases productivity and quality

§         Increased ability to attract and retain employees

§         Reduced regulatory oversight

§         Access to capital

If CEO’s do not take a proactive role in cleaning up their ethical practices, lawmakers will do it for them.

TIP #4:            Avoid management fads, quick fixes, gimmicks.  The most rigorous study of management practice, The Evergreen Project, ever undertaken reveals that managements can achieve and sustain superior performance by excelling in each of the following primary management practices:

§         Strategy

§         Execution

§         Culture

§         Structure

The study also concluded that management must excel in at least two of the following secondary management practices:

§         Talent

§         Innovation

§         Leadership

§         Mergers and Partnerships

CEOs must work towards developing and maintaining  a clearly stated focused strategy, flawless operational execution, performance-orientated culture, and build and maintain a fast, flexible, flat organization. In addition corporate CEOs must develop competencies in  recruiting and retaining talented employees, making industry-transforming innovations, developing leaders who are committed to the business and its people, and seeking growth through mergers and partnerships. This cannot be accomplished by focusing on “this quarter’s numbers” or short term metrics.

TIP #5:            Invest in your people. People, a company’s intellectual capital, will increasingly become the company’s most important asset and a key future component of the company’s overall strategy and competitive advantage. People will come from different career paths and with varied backgrounds and experiences. In the future, all company personnel will be considered as key assets and every bit as critical as plant, equipment and product.

Companies should safeguard and protect this key asset. Skill development and training should be a major component of a company’s capital investment budget.

TIP #6:            Invest in your company’s future. Don’t copycat. Focus on your plan and roadmap and go with your gut. Move beyond simple cost cutting strategies. Consider:

§         Hiring for the long term

§         Reinvesting in operations

§         Innovate and invent

§         Begin acting like an entrepreneur

§         Increase research and development activities and focus on next generation products

TIP#7: Adopt a positive outlook. Positive outlooks allows us to see possibilities and opportunities as opposed to negative outlooks which focus on limitations and risks. CEOs with a positive outlook look for opportunities, growth, and expansion; generate and implement new ideas – they are willing to invest time and money in the short term in order to benefit the company later. CEOs with a negative outlook are primarily concerned with what might go wrong and what won’t work; focus on risks of new ideas rather than the potential rewards; believe that life is a zero-sum game; and avoid investments that don’t show immediate returns.

John W. Olmstead,  MBA, Ph.D, CMC is a Certified Management Consultant and president of Olmstead & Associates, Management Consultants, based in St. Louis, Missouri. The firm provides management, marketing, and technology consulting services to law, other professional service firms, and other business firms to help change and improve their organizations. Founded in 1984, Olmstead & Associates serves clients across the United States. Dr. Olmstead is the Editor-in-Chief of “The Lawyers Competitive Edge: The Journal of Law Office Economics and Management,” published by West Group. He is President of the St. Institute of Management Consultants – St. Louis Chapter. Dr. Olmstead may be contacted via e-mail at jolmstead@olmsteadassoc.com. Additional articles and information is available at the firm’s web site: www.olmsteadassoc.com