Category: growth

Screening for Leadership Experience

tomkapostasy2 Comments

As firms return to a normal economy where success is determined by the ability to set and implement a distinctive strategy, develop new products, processes and customers, and align functional resources in a project based matrix structure, it is time one again to screen for leadership in the hiring process. For the last 2 years, with an abundance of candidates and a preference for risk aversion, hiring managers, human resources and recruiters have laser focused on finding the very best match between a candidate’s industry, functional and positional experience for an open position, without regard to long-term considerations. Hiring managers should insert more behavioral interview questions about leadership into the process and they should screen for evidence of leadership success in the resume review and screening interview process.

Ask ten experts to define “leadership” and you’ll get ten different answers and lists of competencies, but they’ll cluster into a few areas such as building teams, being self-aware, growing personally and professionally, displaying trust and integrity, communicating effectively, motivating/influencing/persuading, helping others to succeed, setting and sharing a strategic vision, taking risks, innovating, being responsible, making tough decisions, showing tenacity and taking a long-run view of what is best for the organization as a whole. A simple leadership checklist can be used to identify candidates who have the leadership experience needed to succeed.

Leadership Screening Checklist

1. Positional responsibility, staff count, manager count, functional variety.

2. Cross-team member, positional leadership, selection by others, larger projects.

3. Non-work leadership roles, professional and civic groups.

4. Progressively responsible roles and promotions across career.

5. Professional mastery/certification and CPE in one or more areas.

6. Five year tenure at most employers.

7. Variety of recommendations available/given in 360 degree fashion.

8. Internal or external teaching, training and documentation experience.

9. Projects/assignments in new, challenging or unpopular business areas.

10. Projects/assignments in high value, visibility or risk business areas.

11. Matrix experience in product development, IT, M&A, national account management.

12. Formal mentoring, association or accountability partner experience.

13. Strategic, product, marketing, financial or operational planning leadership role.

14. Top-level responsibility for a function or business unit of any size.

15. Variety of headquarters/field, line/staff and domestic/international experience.

16. Variety of industry, function and organization size experience.

17. Change management experience through start-ups, rapid growth, turnarounds, recessions, acquisitions or reorganization.

18. Implementation of new professional methods and technologies.

19. Human resources recruiting, retention, promotions, transfers and morale.

20. Responsibility for new products, sales, suppliers and negotiations.

Organizational success today requires leaders who are experienced and confident in challenging and ambiguous environments. Screening for this broader experience and capacity may be more important than hiring someone who has done exactly the required role at the closest competitor for the last five years.

10% Labor Force Growth, 1998-2007

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 US Employment by Industry         
         
   1998   2007   Change   Pct 
 Extraction/Utilities       2.3      2.5          0.2 9%
 Construction       6.2      7.6          1.4 23%
 Manufacturing      17.2    13.7         (3.5) -20%
 Wholesale/Retail Trade      18.1    19.8          1.7 9%
 Transport/Warehouse       3.9      4.3          0.4 10%
 Information       3.1      2.9         (0.2) -6%
 Finance/Insurance       5.4      6.0          0.6 11%
 Real Estate       1.7      2.0          0.3 18%
 Profl, Bus, Adm Services      21.2    25.0          3.8 18%
 Education       2.0      2.7          0.7 35%
 Health Care      11.2    14.3          3.1 28%
 Arts, Entertainment, Recreation       1.4      1.7          0.3 21%
 Accommodations/Food       8.1      9.4          1.3 16%
 Other Services       5.3      6.0          0.7 13%
 Government      18.7    20.2          1.5 8%
    125.8   138.1        12.3 10%

Where Have All the Dollars Gone?

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Economists enjoy the sense of security provided by the “National Income Accounts” where Gross Domestic Product, the value of all goods and services produced domestically, is always equal, by definition, to Consumption plus Investments plus Government plus Net Exports.  Reviewing the changes in the share of economic activity in the components of C+I+G+NX goes a long way towards explaining our current and future economic predicament.  The economy has changed dramatically since 1960. which will serve as a baseline for the post-war era.

During the bright days of Camelot, Consumption was 63%, Investment 15%, Government 21% and Net Exports +1%.  In 2008, Consumption was 70%, Investment 15%, Government 20% and Net Exports -5%.  In simplest terms, we are consuming 7% more thanks to the generosity of other exporting nations! 

Investment averages 16% of GDP: 11% business and 5% residential.  Business investment has reached peaks of 12-13% in 1978-85, 1998-2001 and 2007-08.  It experienced troughs of 9-10% in 1960-64, 1991-93, and 2003-04.  Business investment responds to tax and market opportunities, adding a pro-cyclical boost to the recovery.  Residential real estate follows its own pattern, reaching 5-6% peaks in 1962-64, 1972-73, 1977-79, and 2004-06, alternating with 3-4% troughs in 1966-67, 1975, 1981-82, 1990-93, and 2008.  The 3.3% share in 2008 is the lowest in the period, followed by an even lower share in 2009.  Residential real estate experienced an unprecedented 13 year run without a down cycle.  The over expansion in 2004-2006 means that the usual residential real estate recovery will be delayed for a few years.

Government consumption expenditures, excluding transfer payments, declined from 21% to 20% of GDP across the period.  Direct federal government, non-defense expenditures remained flat and immaterial at 2.5%.  National defense started at a high 10% in 1960 and remained at that level as late as 1968 before declining after the Vietnam conflict wound down.  The peace dividend allowed defense spending to fall to 6% for 1977-80.  Defense spending rose again in the waning years of the Cold War, reaching 7.4% in 1985-87, before sliding to as low as 3.8% from 1998-2001.  The terrorist response has triggered an increase to 5.1% of GDP by 2008.  Delivering the “Great Society” initiatives, state and local government spending grew from 9.5% in 1961-63 to 12.5% in 1974-76.  State and local government declined to 11% in 1983-85, remaining at 11.3% as late as 1998 before growing to 12.2% in 2002-03.  State and local government spending will act as a drag on the economy for at least 2 years.  Defense spending shows no clear trend.  Federal government spending on stimulus measures may be 3-5% of GDP in 2010.  The expected decline in stimulus spending will act as a drag on the economy in 2011.

Across 50 years the United States rejoined the world economy after the unusual post-war period of self-sufficiency and high global demand for U.S. goods.  Exports of services tripled from 1.3% to 3.9% of GDP in this period.  Exports of goods doubled from 4% to 8%, reaching 8.8% in 2008.  Total exports increased from 5% to 13% of GDP.  On the other hand, service imports doubled from 1.4% to 2.9%.  Goods imports increased five-fold, from 3% to 15% of GDP.  This 12% of GDP change has outpaced the growth in exports. 

A 2-3% trade deficit was experienced from 1984-88.  The competitive response reduced the deficit to an average of 1% for the next decade.  The deficit rapidly grew to 4% in 2000 and a high of 5.7% in 2005-06.  As pundits have noted, no nation has ever been able to run a 5% trade deficit for decades.  The unique situation of the US as the world’s currency and safest investment home, plus the growth of China’s economy and its willingness to finance the trade deficit has allowed this to continue.  In the long-run, the US dollar will fall relative to China’s currency and trade will rebalance.  There is no way to predict the timing of this change.  For a decade, the U.S. has consumed 5% more than it produced.  Consumption will fall.

Consumption is the 800 pound gorilla of GDP accounting.  Its rise from 63% to 70% of GDP is the counterbalance to the trade deficit.  Durable goods production held its own, maintaining 9% of GDP through 2003, before falling to 7.6% as the auto recession began in 2008.  Non-durable goods production dropped from 25% to 16% of GDP by 1995 and maintaining that level through 2008.  The 9% decline in non-durable goods production has been replaced by an increase in services from 30% to 47% of the economy. 

The service share was 30% as recently as 1969, so this 17% switch occurred in just 40 years.  The service share reached 45% in 2001 and has inched up slowly since then, reflecting the “jobless recovery” of the 2000’s.  Durable goods production will recover from its low level as autos and equipment age.  The trend in non-durable goods moving to import sources is likely to continue.  Without changes in the health care industry, this part of services is likely to keep growing: a short-term benefit for jobs and GDP.

Government budget, trade and savings deficits need to be repaid.  The retiring Baby Boomers need to be replaced in the labor force at high productivity rates.  Some form of improved health care market, incentives or rationing is required to limit the growth of this sector.  The U.S. has significant economic challenges to be faced.  The transition from Keynesian fiscal stimulus and easy money to a sustainable course is a necessary first step.  U.S. economic productivity, competitiveness and innovation have not been undermined by the Great Recession.  The business cycle provides a natural boost to recovery from inventory replenishment, capital spending and durable goods demand as we are already seeing.  Let’s hope that the president can have a real meeting of the minds with Congress and begin to address the long-term structural challenges faced by the country that go far beyond the 2010 and 2012 elections.

A Rising Tide Lifts All Boats

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“A rising tide lifts all boats”.  When economic progress is steady, or at least not interrupted for too long, this saying seems to hold true.   When everyone benefits from progress, people invest their effort into getting ahead.  Today we face the greatest economic disruption in 75 years.  Without a clear path forward, people of all political views are turning their thoughts enviously towards the boats others.  International trade, labor, spending, health care and tax policies are all being reviewed through the lens of protecting current advantages or redistributing funds.

The classic focus of redistribution is on the “rich” and the “poor”.  Bankers and corporate executives have lost the “entrepreneurial” and “value added” shields of the last 30 years.  Citizens are now concerned about the distribution of income and are willing to consider tax and regulatory changes that would have been unthinkable a decade ago.

The share of income captured by the top 1% of earners receives the most attention.  From 1917-1941, through boom, bust and preparation for war, the top 1% earned 15% of all income.  This changed dramatically during WWII and afterwards, leading to a 35 year period from 1953-1987, where income at the top was cut in half, with 8% of the total going to the top 1%.  Top 1% income grew rapidly in the late 1980’s, reaching 13% and then 15% by 1999 and 17% by 2007. 

The spread of income within the center of the population has also broadened in the last 40 years.  In real 2007 dollars, average household income has increased 30% since 1967, from $40,000 to $52,000 per year.  Families at the 20th percentile have also seen a 30% increase, rising from $17,000 to $22,000 per year.  The dollar and percentage growth at the higher percentiles has been much greater.  Households at the 80th percentile have gained 55%, with incomes rising from $67,000 to $104,000.  Those at the 90th percentile have gained 66%, boosting incomes from $85,000 to $141,000.

There is no “natural” or “optimal” distribution of income.  The US has historically had a greater concentration of wealth or income than other economically advanced nations.  As shown by the top 1%, the concentration can change dramatically through time.  However, most economists agree that there is a level of marginal taxation on income, wealth, dividends and capital gains that significantly reduces incentives for hours worked, innovation, risk taking and entrepreneurship.  

Small changes to the taxation and incentive structure of the US economy are not likely to cause too much damage.  Significant tax increases could do significant short-term and long-term damage to the economy and to those at the lower end of the economic pyramid who depend upon the rising tide to lift their boats in the long run.

Indiana Metro Growth Trends Continue

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Since 1900, a majority of Indiana counties have grown by less than 0.4% per year.  These 47 rural counties have been trapped in a time machine, slowly evolving from 20,000 to 24,000 people per county.  In 1900, they accounted for 38% of the population.  This dropped to 23% in 1950 and 17% in 2010.  These counties account for half of the counties and land, but only one-sixth of the population.  The urbanization of Indiana continues slowly, decade after decade.  The 47 rural counties had a population of 960,000 in 1900 when William McKinley of Ohio was elected president and only 1,120,000 in 2010.

 On the other hand, the urban counties have more than tripled in population (+241%), increasing from 1.6 to 5.3 million.  Indiana has grown by 155%, from 2.5 to 6.4M people.  Fully 96% of this growth has taken place in the 45 urban counties.

 The ten medium-sized cities and their immediate counties increased by two-thirds between 1900 and 1950 and then by one-sixth through 2010.  They accounted for 460,000 people in 1900, increased to 760,000 in 1950 and maintained minor growth to 870,000 in 2010.  Evansville, Anderson, Muncie, Terre Haute, Kokomo, Marion, Richmond, Bedford, New Castle, and Huntington grew from counties with 30-70,000 residents in 1900 to counties with 40-170,000 citizens across the century.

 The five largest cities – Indianapolis, Fort Wayne, Gary and South Bend/Elkhart – grew significantly faster.  They increased from about 0.4 million in 1910 to 1.4 million in 1950 to 2.2 million in 2010.  The rapid growth from 1900 to 1950 has since tapered off.  These 5 areas have grown from one-sixth of the state’s population to slightly more than one-third.  

 The greatest changes have taken place in the suburbs.  Fully 28 counties plus Lafayette and Bloomington have benefited from the growth of metropolitan areas.  These 30 counties have grown from a 1900 average population of 23,000 (abut the same as the rural counties) and total of 680,000 to 860,000 in 1950 (up 26%) to 1,950,000 (up a stunning 186%) in 2000 and an even higher level of 2,250,000 in 2010.  The suburban counties have increased from 27% to 35% of the Indiana population.

 Indiana’s population growth is expected to drop back to 6% for the 2010 decade after a 10% increase in 2000, 1% in 1990 and 6% in 1980.  This follows a post-war period where 15% growth per decade was the norm.  This decade continues to show very unequal growth.  The 30 suburban counties show a 14% growth of 305,000 people.  The other 62 counties increased by only 1%, from 4.1 to 4.2 million people.  The 30 suburban counties have 88% of the population growth. 

 Indiana has been blessed to have 6 urban areas that drive significant population growth: Chicago/Gary, South Bend/Elkhart, Ft. Wayne, Indianapolis, Cincinnati and Louisville.  The state legislature would be wise to adopt policies that reinforce this century long trend.

The Effective CFO: Black and White!

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A friend of mine has been a highly successful CFO with middle market companies for 25 years.  I pondered what made him succeed in a variety of companies and industries.

 He’s professionally competent and intellectually curious.  He’s always had a large professional network.  He is a good listener and is especially skilled at cutting through ambiguous or complex situations to identify the core problem or most promising solution.  He understands the basis for business success in his industry and he’s a good negotiator.

 On the other hand, he’s sometimes overly direct, not a technical leader in the CPA profession, not someone who automatically attracts the spotlight, doesn’t outsmart the quantitative business analysts and doesn’t often lead cross-functional projects.

 I think he succeeds because he has established a role and the skills to guide all key players to honestly confront the gray reality of situations.  He offers the financial perspective, but is just as quick to insert a sales, strategy or cultural viewpoint.  He ensures that risk versus return is considered through numbers, stories and analogies.  He contrasts short-term with long-term factors.  He plays devil’s advocate as needed to derail quick decisions or to shore up support for a tough alternative that must be chosen.

 In addition to these decision making skills, he has the wisdom, courage and skills to anticipate the perspectives of the key roles and to guide players into greater self-awareness and understanding of other perspectives.

 He helps finance, accounting, HR and IT staff to see that the fully integrated system and a 1,000 page policy and procedure document, without exceptions, is probably too structured.  He encourages engineers and six sigma black belts to reduce variation and to consider financial and strategic implications.

 He works with entrepreneurial owners to support change and risk taking, but to also gauge how much can be digested, how it can be hedged and what an ideal portfolio looks like.

 He works with boards and shareholders to understand that stock values do not always go up in a predictable manner, unless the books have been “managed”.  The long-term growth in shareholder value includes short-term fluctuations.

 He works with IT, engineering and product developers to have resources, time and authority to learn, experiment and develop new products – within a framework of long-term evaluation.

 He provides sales and marketing teams with the freedom and flexibility to meet company goals, but ensures that measures of final results are fair and the system can’t be beat.

 The effective CFO serves as a fulcrum in Jim Collins’ world of “both/and”.  Stakeholders and role players must be able to leverage their talents and preferred styles AND the contrasting factors which must also be considered for long run success.  CFO’s need to be more than gray; they need to be both black AND white.