Create a LEANer organization with Work-Out & Six Sigma

JWI 555 Organizational Change & Culture, week7 notes (continued), 5/25/13

Analysis by columns below shows Work Out and Six Sigma techniques can be combined to make a LEANer organization.

Dr DP

Criteria	Work-Out	Six Sigma	LEAN
1.Purpose	Give everyone a voice and bring every brain in the game to eliminate unncessary bureaucracy and promote good ideas	Reduce defects and drive down variation in products, services and customer experience	Eliminate Waste from supply chain
2.Frequency & Cost	An event that may be held at most a few times in an organization; Relatively inexpensive to conduct	An ongoing daily process - a way of life in the organization; expensive and time-consuming	way of life
3. Core values	candor, self-confidence, simplicity, speed	variation is evil; excel in production	variation is evil; excel in production
4.Leadership improvement	Leaders who can act in a transparent way, engage in real-time public discussion and decision making	analytical sophistication, common enterprise-wide approach to problems, fact-based data-driven decision making, commit to continuous improvement	analytical sophistication, common enterprise-wide approach to problems, fact-based data-driven decision making, commit to continuous improvement
5. Type of Problems to Attack	Organizational & Cultural issues - people issues in particular; promote latent ideas with potential	Repetitive processes where variation creates errors, defects, excess costs - process improvement in manufacturing, product design, HR, sales, services	All kinds - people, organizational, technical
6. Implementation	Planning, Teamwork, TownHall, Implement	DMAIC	Kano model - Dissatisfiers, Satisfiers, Delighters (especially important in service industry); PDCA - Plan, Do, Check, Adjust; Six Sigma DMAIC - Design, Measure, Analyze, Improve, Control ( with seven tools: check sheets, scatter diagrams, Fishbone cause and effect diagrams, pareto charts, flow charts, histograms, SPC); VSM - Value Stream Map to optimize business process; SIPOC - Suppliers, Inputs, Process, Output, Customer to enable business process transformation from status quo to desired state; 5S LEAN - identify all types of waste and get rid of them by sorting, straightening, shining, standardizing, sustaining; FMEA - Failure Mode and Effects Analysis; 8D - Eight disciplines of Structured Problem Solving (Prepare and Plan, Form Team, Problem statement, containment action, root cause analysis, Fix, Implement & validate, prevention, celebrate); Benchmarking - against best in class competition ; Kai Zen - Continuous improvement every day; Fool proofing - technique that prevents errors; Datamining - correlations; paretos; 4Ms for causes - Material, Machinery, Manpower, Methods; SPC - Statistical process control; Cpk control charts Source Inspection - to monitor and control the cause of variation
6. End Result	Organizational culture focused on candor, self-confidence, simplicity, speed	99.99967% parts defect free (only 3.4 defects per million), Improved operational efficiency, higher productivity, lower costs, Improved design processes, get products to market faster, build customer loyalty	Low cost leadership; an organization built to survive tough economic conditions
NET			LEAN = Work-Out + Six Sigma

Dr DP

Manage Risk, Generate income & add flexibility - using Derivatives & Options

JWI 531 Financial Management II, week7 summary, 5/23/13

This week was all about managing risk - by hedging against negative events - through derivatives and options. The lectures were fantastic this week as they explained in simple terms what the world of options looks like and gave us the insights needed to make our way quickly forward with risk take downs. Now I have a firmer grip on the options fundamentals.

Options fundamentals
Options are a form of financial derivatives -whose value is derived from one or more underlying assets, that serve three key purposes in running a business:
(a) mitigating risk - by purchasing the right to take a buy/sell action at a certain price and certain date in the future, a business can offset its risks. They give the business tools necessary to create advanced risk management systems (JWI 531 W7L1), hedging uncertainty and protect profits.
(b) generating rewards- by accurately reading the trends in an apparently volatile market, anticipating potential upsides or downsides, call or put bets can be made to generate outsized gains (JWI 531 W7L2).
(c) added flexibility - because options allow participation in price movements in the market without committing large amount of funds needed to buy stocks outright, they allow a firm greater flexibility (cboe.com). A firm can control many shares without sinking a lot of capital at risk.

Under what conditions do options investments become more appealing or less appealing?

Options offer an excellent risk mitigation opportunity that limit the down side for a firm. Options are also an excellent investment option - at the risk of losing only the the premium paid, a firm stands to benefit from the growth or fall of a stock by making call or put options. Investors who base their decisions on sound market research will better understand which stocks are likely to rise and which are likely to fall. When accurate market forecasts can be made, options trading can lead to significant income and therefore becomes quite appealing. 

On the other hand, speculative activity where options investment actions of a firm are based not on market fundamentals but on hunches and unproven theories can lead a firm into mortal danger (JWI 531, W7L1). Under such situations, instead of mitigating risk - through cheap insurance against negative events, options actually magnify the risk - through expensive bets, and can lead a firm to epic destruction.

In summary, it is important to have a clear understanding of market fundamentals, and well defined objectives including risk mitigation, income generation and flexibility needed. Risks associated with strategies need to be well understood through constant learning from multiple sources of insights and data. Options trading can then become a rewarding challenge.

References
http://www.cboe.com/learncenter/pdf/understanding.pdf

Dr DP

JWI 531 W7L1
*************

I. Risk Management Tools: Derivatives
**************************************
Risk is inherent in every move you make.
Avoiding risk restricts opportunity for gains.
Sophisticated orgs embrace risk, harness it in productive and profitable ways.
Corporate systems and processes that capitalize on risk is what risk management is all about.

II. Manage risk to reach success
*********************************
Step1 - Look at and understand all the risks the firm faces
************************************************************
Decide which ones give you competitive advantage and which ones to hedge/offset/backup against
Hedge against scarcity of supply: move from single source => multiple suppliers
watch monetary shifts across the globe

Step2 - Look at which risks can be hedged against and which ones should be hedged
*********************************************************************************
Strategically Decide risks to mitigate
risks to leave alone

Example of effective risk mitigation
Google - hedges against failure to innovate, loss of creative talent
time, money, talent spent on projects that add nothing to bottomline
20% of time on pet projects

Financial risk management
- figure out what the firm is good at, focus efforts there, leverage those advantages fully
- reduce risks that are not central to the core mission

Rise of financial derivatives
******************************
Derivative: A security whose price is based on and derived from one or more assets
It is a contract between two or more parties who promise to fulfull specific elements of the contract at a certain date.
eg. futures on commodity prices, stock market indices
Value of a derivative is proportional to changes in the value of principal asset
Pay for the right to buy at a certain price over the next few years.
Tracks value of stocks, bonds, commodities, currencies, interest rates, market indexes
Futures contract - lock in a price for upcoming crop (prevent losses if the price falls or if glut in supply develops)
Derivative contracts exist for anything today
They offer the purchaser boundless flexibility
They offer business people the tools necessary to create advanced risk management systems
Gives great powers to gamble,speculate material gain vs mitigating material risk
Derivatives began as a way to reduce risk but evolved into a means to take on as much risk as possible using as little capital as possible.
Derivatives are financial weapons of mass destruction - Warren Buffett
They can compound gains but also losses
Mortal dangers are associated with derivatives.
Mortal dangers

Standard commodity based derivative
***********************************
value of the contract = opportunity to buy on a certain date at a certain price
market value fluctuates constantly
eg. $5000 payment today gives the ability to control $500,000 worth of notional value in oil

Property of a Derivative: Leverage
***********************************
Allows investors to control massive resources without expending much upfront capital

Speculation
***********
buying or selling securities based on hunches and unproven theories to expose yourself to greater gains & risks.
people bet on rise in price of gold and silver
futures contract allows control of precious metals while only having to put up a small fraction of that value in cash
Call option for a few bucks can multiply your money 10X if the bet is right that a tech stock will post great earnings next week

Example of epic collapse - AIG
************************
The firm sold derivatives based insurance policies against the likelihood some mortgage owners would fail to pay their bills.
Sold extremely cheap insurance policies for investors who what to protect themselves against small likelihood of something going wrong.
AIG was on the hook if something did go wrong.
AIG did not think US home values would drop drastically.
Huge leverage - the firm was responsible for much more financially

Risk & Reward
**************
Risk is part of business.
Smart companies mitigate events they might face.
Derivatives offer one way - a vital financial tool that is cheap and effective at risk mitigation.
Down side of derivatives - Speculation can lead to situations that quickly spiral out of control.

JWI 531 W7L2
*************
Risk Management Tools: Options
*******************************
Options are another form of derivative.
They derive their value from an underlying asset.
Several types exist - Stocks, bonds, commodities, stock options.
Excellent tools for generating income, protecting profits, hedging uncertainty, earning outsize gains
Excellent tool for risk management.

Stock option is the right to buy or sell 100 shares of a given stock at a predetermined price at a specified time.
ie it is a right to take Action at a specific price and a specific date
buyers are guaranteed a disproportionate amount of an asset based on the capital they put in.
investor can control 100 shares of stock without putting up the actual cost of 100 shares.

GOOG options: strike prices, bids, asks, expiration dates

Call Up, Put Down: Bet against an asset's price
*******************
Two types of options: Puts and Calls.
When you expect a company stock to go up, you buy a call, which appreciates in value as stock rises.
When you expect a company stock will fall, you buy a put, which appreciates in value as stock declines.

Buying Call Options: Contract based on situational event (price of stock going above a certain price)
********************
If the situation you anticipate happens you make money
You are buying the Right to take an action at a price at a date

Central idea: Take advantage of a rising asset without committing large amounts of capital to that risk position.Businesses use this to protect themselves from losing a lot of money and also from rising costs when compared to buying a financial instrument such as a share - multiplies exposure to an asset that is going up in price.

One stock option contract represents 100 shares of stock. Works as controlled leverage, enhancing potential returns while limiting potential losses to only what the user decides to invest buyers invest a much smaller amount than an equivalent stock purchase. An investor can control and benefit from many shares of stock without putting a lot of capital at risk

If you make the wrong call, the contract expires unused and investment goes to zero. Investors have lost everything as there is no claim on an asset such as a stock.

Buying Puts
***********
When you believe an underlying asset will decline in value, you can buy Puts
Excellent tool for betting against highly priced or troubled stocks, assets or sectors.
Your risk is limited to the amount you invest.

Taking a long position means to invest in the asset itself.
A short position means you are borrowing the asset to bet against it.

When in a long position you will want to protect the firm from declining stock.
Buy Puts to also protect a company's position in a large portfolio.When the stock or position declines puts will increase the value.

Speculative Activity vs Mitigating Risk
****************************************
Risk managers buy puts on stocks or other assets that they expect to decline in coming months.
People also use puts to hedge long positions they take directly or indirectly.
Risk managers purchase cheap insurance against negative events this way.

Options are a valuable tool for risk management
they can mitigate risk, generate rewards and bring added flexibility to an organization.

An investor who desires to utilize options should have well-defined investment objectives
suited to his particular financial situation and a plan for achieving these objectives. The successful use of options require a willingness to learn what they are, how they work, and what risks are associated with particular options strategies.

Drive Change in the firm through Work-Out & Six Sigma techniques

JWI 555 Organizational Change & Culture, week7 summary, 5/23/13

Work-Out & Six Sigma are two of the most important change leadership techniques. Learning about these methods and having a conversation with Jack Welch made this a very special week.

A. Work-Out, the Jack Welch way developed at GE

What is Work-Out ?
Work-out is a technique used to give everyone a voice and bring every brain in the game to eliminate unnecessary work and bureaucracy  (JWI 555, W7 L1). The end goal is to create an organization with a culture focused on candor, self-confidence, simplicity and speed - nimbly anticipating fast-changing business and economic conditions, eliminating unnecessary steps and activities continuously, giving people self-confidence to challenge the way things were done and take risks to do them differently.

What does Work-Out do to Leadership?
One of the most important cultural outcome of Work-Out is the grooming of leaders who 
(a) are prepared to act in a transparent way and
(b) have self confidence to engage in real-time public discussion and decision making

Three steps of Work-Out

Planning & Teamwork, Townhall meeting, Implementation are the 3 key steps in Work-Out.

(I) Planning & Team work: Participants define the problem statement, come up with ideas for business improvement, develop specific process and measurable solutions. Right people from across functional units - regardless of hierarchy -  are selected to implement. Thought-starter questions are used to stimulate dialog.

(II) Townhall meeting : Small groups brainstorm on improvement ideas, come together to remove overlapping ideas and begin detailed planning for top ideas. A presentation of recommendations is made a the townhall meeting. Decision makers - in front of a panel of senior mangers (for widespread buy-in and empowerment) - listen and managers are forced to make immediate Yes/No decisions.

(III) Implementation : an owner with a stake and passion is assigned and held accountable to take work steps forward. Business leaders anticipate energy dips and cheer lead when needed. The action plan is tweaked and the team is reconfigured as needed. Midpoint and final reviews are conducted for closure.

B. What is Six Sigma?

It is a quality improvement strategy and program that aims at transforming business processes
to reduce defects and drive down variation in products, services and customer experience. It overhauls a company's internal processes so that customers get what they want, when they expect it, every time.

It is an ongoing effort and a new way of life for the organization, not just a one-time project. It is expensive and time-consuming to implement and master. Requires commitment to major change
Requires training of internal consultants with different levels of expertise - green/black/masterblack belts.

Where does Six Sigma work best
*******************************
Best suited for routine and repetitive processes where variation creates errors, defects, excess costs
eg. manufacturing process improvement, product design, HR, Sales, Services

Benefits of Six Sigma:
***********************
99.99967% parts defect free (only 3.4 defects per million)
Improves operational efficiency
raises productivity
lowers costs
Improves design processes
gets products to market faster
builds customer loyalty
has a capacity to develop a great cadre of leaders - specific leadership skills,analytical sophistication
Better brand image (Duran & Deming used six sigma to turn "cheap & shoddy" perception of "made in Japan" brand to one of higher quality, lower cost, faster speed to market (JWI 555, W7L2))
Changes the culture of the organization - great value placed on evidence & continuous performance improvement,
creates strong set of shared values, common approach to problems, commitment to production excellence
Shifts everyone from internal focus to customer-focus & quality-focus

5 steps of Six Sigma (DMAIC)
*********************
(I) Define - Business Process
***********
Define where the process must improve
- problem statement                    Identify the problem eg. Voice of Customer; Outage
- where does process begin and end?             What is critical to Quality? Specify the process parameters based on internal & external criteria
- what is inside and outside the scope of the process?    get it to right experts, give customers a suitable target time for repair and resolution
- what are the outputs ?                Fix for the problem

(II) Measure-Metric to improve
*************
Define a quantifiable metric to provide a baseline and a yardstick for improvement
Count defects in the output of the process being improved.

manufacturing business
*********************
- #defects in products coming off assembly line
- delivery time
- payroll processing accuracy
- time to fill empty positions
- customer satisfaction ratings.

service business
****************
- customer defections
- customer satisfaction ratings
- service TATs (mean time to repair - MTTR)

(III) Analyze-What factors drive success or failure ?
**************
Through analysis, figure out what key factors to Maintain and improve

eg. in a telecon firm, an outage resolution process identified 8 areas to be analyzed:
- systemic causes of outages
- organization of fix agents (resolution specialists)
- use automated diagnostics-testing methods
- reasons for chronic recurring outages
- use resolution tools
- effectiveness of network monitoring
- process for notifying customers of resolutions
- automatic generation of trouble tickets

Some areas straightforward to analyze
Some areas need statistical analysis to assess key variables and impact on MTTR
Analyze by customer, product, fix-agent

(IV) Improve-the business process
*************
Optimize the process to drastically improve variation, improve crtical-to-quality (CTQ) parameters, reduce costs
handoff session with operating managers: give data analysis and opportunities for improvement; hold accountable for improvement; consult and assist with six sigma team
Set up mini teams - meet weekly and conduct formal reviews every 30 days, 100 days
deep dive into the data, brainstorm to improve, develop specific plans for next 100 days.
eg. focus on the biggest detractors in the pareto
measure the metrics that matter and get sign-off from people that matter
automate
quantify cost savings

(V) Control-the business process
************
Ensure six sigma quality levels are maintained and continuously improved as business conditions change
measure output quality, real-time measurement of specific operations at granular levels
develop a weekly dashboard for stats by product, customer, type of problem, tracking mean time to repair
drill down to different aspects of the process including lag times, TAT from start to sign-off
operations manager should continuously identify potential threats to quality & Attack them early

Dr DP

Corporate Life Cycle, IPO, M&A, Chapter11/7 Bankruptcy

JWI 531 Financial Management II, week6 summary, 5/18/13

Learning more about the corporate life cycle, pros & cons of IPOs, M&A, Private equity investment, Chapter11/7 bankruptcy made this another exciting week. I loved the lecture for the immense clarity it brought to these concepts. Increasingly I am gaining confidence in finance from the solid foundation I am getting here. I know I can build an intelligent financial infrastructure for my enterprise.

Great week. Takeaways below.
Dr DP

JWI 531 Financial Management II, week6 summary, 5/18/13

I. Cycle of Change
****************
Change is the norm in business world
Companies are constantly transforming
new opportunities lie in every turn
Change happens.
Adapt and thrive.

II. The corporate life cycle - Adulthood to the End of Life
********************************************************
Mature Organization Stage
*************************
Early stage decisions affect capital structure dramatically
Mature organizations expected to produce consistently profitable growth
- major financing events predictable
- additional capital through Debt and/or Equity financing from private parties & financial institutions
- culmination: IPO

III. IPO
****
Size: 100s of Billions
Register company's equity on exchanges such as Nasdaq or NYSE
Equity becomes public equity - anyone can now buy or sell shares of company's stock
IPO filing time must be carefully and strategically chosen - # IPOs/month correlates to S&P500 (Bespoke Investment Group, 2010)
Offer the company's shares to the market ONLY when there is appetite for stocks

IPOs Pros
**********
Rewards risk-taking of early-stage investors
Provides massive infusion of capital for long term growth

IPOs Cons
**********
Public shareholders demand significant ROE, consistent growth, structured strategic vision
Complex process
Numerous regulatory hurdles
>50% of IPOs decline in price within first 12 months
Significant compliance costs
Restrictions on liquidation of owner's stake
Financial statements available publicly to competitors and potential suitors

Alternatives to IPO
********************
Acquisitions
Debt
Cashflow from operations

IV. M&A
*********
Genetic mutation that can push a company in a new direction
Mergers: companies look to form strategic relationships to generate competitive advantage
Acquisitions: Bigger firms acquire smaller firms (eg. competitors) to expand, enhance product offering and strengthen strategic position
M&A: business owners can liquidate stakes and move on
M&A is correlated with health of economy ie S&P500
Straight cash offerings, stock, options, stock swaps
M&As fail >50% of the time due to poor strategy, culture clash, integration roadblocks
Key to plan ahead for bumps in the road

V. Private Equity Investment
*****************************
size: $ 2.5Trillion
Hands-on style of financing
Comes towards end of life of business
Investors take over Ownership in a privately held business, pay a healthy premium, take over operations, turn the business around or strip it apart or sell off assets
helps a firm in economic distress when market is unwilling to offer financing
investors get intimately involved in investments, day to day operations, efficiency optimizing, reaping benefits
Advantages: no public registration, financial and operations secrets can be kept inside

VI. Chapter11 Bankruptcy: End of Line
***************************************
death of equity ownership at the point in time
all other possibilities tried and exhausted: selling at discount to a competitor, attracting new investors and owners, offering individual assets for sale
offers breathing room to restructure an organization's obligations to debt holders - company and financiers work it out
some companies recover (eg Airline industry), most vanish

VII. Chapter7 Bankruptcy
*************************
Liquidate the company
company's assets are frozen
trustee appointed to oversee process
inventory of assets taken and distributed to seniors: debt holders, senior creditors

********************
DQ Exercise
********************

I. Why M&A
***********
M&A is the fastest, most powerful tool a company can use to change its competitive game. It adds real fire power to growth arsenal. M&A gives twice the talent to pick from.


II. Potential Benefits of Mergers & Acquisitions:
**************************************
Allows a firm to obtain in a single transaction
- capabilities or resources that would take years to develop
- reduced costs through consolidation and eliminatiion of redundant positions and activities
- increase in firm's market share & competitive advantage from greater size

III. Problems with M&A
*********************
Majority of M&As fail (http://www.businessweek.com/managing/content/jun2010/ca20100622_394659.htm)
Benefits of M&A are many times not realized.
It feels like death to most people in the acquired organization, with lives turned upside down (Welch, 2006). This is why only the most experienced M&A experts should be selected for the job and tasked with the responsibility of completing the merger successfully from start to finish.

IV. How to avoid common traps in M&A and make a successful merger or acquisition?
*********************************************************************
1. Check if the same business result can be achieved at lower risk with a partnership or organic growth.
2. Does it make strategic sense and further the strategic objectives of the firm ?
    Is this acquisition aimed at getting quick results that organic growth cannot match ?
    Is this to Acquire a competitor?
    Is this to move quickly into an area where you don't currently compete?
3. If acquisition is justified, are clear criteria for selection of target company set ? How will the new company look like? (businessweek.com, 2010)
4. Does the acquisition create value? Does it extend the capability of the firm ? Does it have scalable IP? Can the acquired organization take advantage of the firm's strengths to grow rapidly ? (IBM annual report, 2012)
5. Before starting the merger process, stay aware of the common traps in M&A (Welch, 2005)
Sin#1 - Beware of merger of equals. Anticipate people dueling over who is really in charge. Identify roles and responsibilities ahead of the acquisiton.
Sin#2 - Cultural fit based on values of the two companies is as important as strategic fit that is based on products, technologies and numbers. Some cultures don't combine, they combust. Cross-cultural differences in a merger are usually not addressed until it is too late.
Sin#3 - Reverse hostage situation
Due to deep concessions given, the acquired firm is in charge in the end. Don't pay too much for something you don't own.
Sin#4 - Being afraid rather than going boldly
Complete the integration process within 90 days of closing (eg. Lou Gerstner at IBM managed transitions successfully by drawing attention to the firm-wide priorities of the 90-days). Do not let uncertainty morph into inertia or fear.
Sin#5 - Conqueror syndrome
Don't march into new territory and install your people everywhere.
For new and expanded firm to survive, it needs the best team - you may need to let go of some of your own.
Sin#6 - Paying too much
Beware of deal Heat that comes from overheated desire.
Don't get caught in the negotiation frenzy fanned by competitive bidders and investment bankers.

6. Before the merger, consider the risks you are about to take (JWI 540, Week8, Lecture1)
(i) The people in the acquired firm could prove difficult to manage
(ii) The people in the acquired firm may be used to different objectives

To counter the risks and ensure a successful merger & acquisition
(i) Manage actively
(ii) Have clear and shared goals with well-defined targets
(iii) Have clearly defined and quantified benefits supported by strong business rationale
(iv) Monitor progress - Explicit metrics and detailed reporting must be used to ensure targets are met, problems are resolved quickly and effectively.
(v) Create and encourage formal and informal connections between the two firms
Provide multiple channels of communication about both opportunities and problems.
Ensure clear accountability so there is never any doubt about who is in charge and where decisions will be made.
(vi) Place qualified managers chosen from both firms - It is vital to select, prepare, support, reward qualified managers. Wisdom to know what not to do - and not doing it - is among the most valuable contributions of a strategic manager (JWI 540, Week8, Lecture1)
(vii) Manage expectations across both firms and encourage a learning mindset

7. During the merger, keep the following four key factors in mind.

(i) Pace:
*******
Some acquisition situations will reward the swift; but in some cases, rushing with deal heat can hurt. Consider your Assumptions and frame of mind - You are probably thinking that the deal must get done and quickly. You may even be afraid that rivals may swoop in and snatch away your target. You have a bias for action and measure your effectiveness by how fast you can get the deal done. However, moving forward too rapidly can result in a due diligence process that fails to produce information that would be helpful in deciding whether to go forward with an acquisition. Focus instead on the spirit of discovery-driven strategy: how quickly can you discover whether there is any future in this deal ?

If there is value in the acquisition, move the process forward. But, as a merger may represent a strategic shift for the organization, think carefully about fundamental changes needed to realize the full strategic potential of the acquisition. Then rush to integrate the firms within 0 to 90 days of closing, to capture advantages, reduce uncertainty, fear, low morale and inertia in minds of people.

On the other hand, if the value of acquisition is inadequate, move on and explore other opportunities.

(ii) Power:
**********
Get with the top leaders of the firm you are acquiring and read the power bases in your respective firms. Senior leaders from both sides should consider and discuss how conflicts will be resolved, how decisions will be made and how ideas will be assessed. Simply assigning job titles and agreeing on formal job definitions is not enough. Look beyond the organizational charts - many decisions about resources and agendas do not fall into one person's job domain.

In every firm, informal power network influences key decisions. Create a power map of the new organization - to evaluate options, explore opportunities, and investigate financing.

Formally or informally, where will key strategic decisions be made ?
Who will make staffing and investment decisions post-merger ?
Who will control scarce resources and key assets?

Do not end up arguing endlessly about whose systems and culture to use.
Make the leadership call early on, clarify who is in charge, take the pain, get the transition over with fast, and don't worry about stepping over toes of people. Err on side of speed rather than being too sensitive about stepping on toes (Welch, podcast, JWI 540, Week8)

(iii) Information:
*************
To reduce anxiety, avoid miscommunication and increase trust in the firm, provide information to the employees of the firms, before, during and after the acquisition. Messages are often complicated; information cannot always be shared openly. Different audiences need to get different information at different times and in different formats.

Common errors in this area are: Sharing too much too soon or too little too late.
Define an information sharing process that works for the firm. Develop good measures and feedback around the information sharing to ensure same problems do not recur in future acquisitions.

(iv) People:
*********
People are stretched thin before, during, after an acquisition. Demands of integration come on top of regular work. New processes need to be learned and new tasks mastered. Most people are on edge emotionally, struggling to adapt to changes, worried about losing their jobs. This is why the following people management challenges need to be handled with care:
- match right people in right jobs in the new organization to build the skills needed to exploit the strategic advantage an acquisition creates.
- Prepare to face resistance from many people unhappy with the changes.
- Face the unpleasant task of deciding whom to let go and also deal with emotions of those who go and those who stay.
- Balance the needs of the top 20% versus the middle 70%

V. Examples of M&A successes & failures
****************************************
AOL/TimeWarner - largest M&A disaster ever. AOL purchased Time Warner for $182 Billion in 2000. The merger was reduced to 1/7th of its value and AOL was spun-off in 2009.

Tata/Jaguar - Acquisition allowed Tata access to world class engineering talent with which the firm developed a winning Range Rover product for growing markets such as India and China. Tata stock selling at the higher ever value today.

References

Welch (2005), Winning

http://www.businessweek.com/stories/2006-10-22/the-six-sins-of-m-and-a

http://www.tutor2u.net/blog/index.php/business-studies/comments/6-essential-ma-cases-tata-group-buys-jaguar-land-rover

Deliver Rapid Results through Quick Wins & Motivation Levers

 JWI 555 Organizational Change & Culture, week6 summary, 5/18/13

What I learned this week about the importance of quick wins helps me grow as a leader. I understand that supporting a long vision by generating a series of quick short term wins is a key leadership technique. This is precious to me. I will apply this principle at work now and in my non-profit mission quite gainfully.

Another great week of learning at JWMI.
Takeaways below
Dr DP

JWI 555 Organizational Change & Culture, 5/18/13

I. Quick wins play a vital role in major change initiatives
*********************************************

Overall transformation effort on a large scale change will take a long time.
Generate steady stream of short-term wins to get there.
Demand immediate results.

Early winds drive rapid learning and prepare people to take on greater challenges
build confidence, capabilities of frontline people carrying out change

II. Kotter (p127)
**************
1. Provide evidence that sacrifices are worth it.
2. Reward change agents with a pat on the back.
3. Help fine-tune vision and strategies.
4. Undermine cynics and self-serving resisters.
5. Keep bosses on board.
6. Build momentum.

III. Rapid Results
***************
- produces quick results with which you need to win the game
- is a technique to deliberately set up the conditions of a crisis with a challenging goal and a short time frame
ie recreating the creative forces associated with urgency in a change project
- leads to sustained change
- is fun and challenging
- punches through resistance faster
- success is clear and measurable
- focus is on result to be achieved
- fosters willingness to experiment and innovate, moving away from the way things were always done
- short term structure forces people on doable, bite-sized ideas that have the greatest impact
- scope creep is not an issue
- feelings of participation and team work are high
good ideas are welcomed from anyone regardless of formal position and acted upon quickly
- can become a cultural idea of how we do things
- people learn to be better team members and leaders

IV. Rapid Results Project
**************************
(1) fills a compelling need
****************************
- creates urgent demand for action and results

Role of Senior Manager
- Establish urgency
- Demand change
- Serve as a senior sponsor: set expectations, help form the team, oversee progress
(2) A Team must form and be empowered to take action
*****************************************************
- people are closest to the issue and to the work
- includes frontline people and managers
- must have range of expertise and perspectives relevant to the results to be achieved
- reach out to others to add missing skills and insights necessary
(3) The Team agrees to a challenging, measurable goal to be achieved in 100 days or less
*****************************************************************************************
balance level of energy and experimentation vs set up to fail
(4) After brainstorming, the team develops a solid work plan for implementing high-impact ideas.
***********************************************************************************************
shared roadmap:what needs to be done, timetable and accountability
(5) Disciplined follow up
**************************
Enjoys management oversight.Weekly meetings. Track measurable progress towards the goal

V. Emergencies create
**********************
- a great sense of urgency
- a clear, shared agreement about what success looks like
- removal of competing agendas
- team work
- experimentation
- amazing productivity and creativity

VI. To Drive Change with Rapid Results
***************************************
Identify most current, high-impact problems
Generate ideas to fix them
Create a dedicated SWAT team to move quickly
Use a Good project management - work plan, accountability
achieve goal - 30-90 days , energize
Expand effort to more challenging goal

VII. How to meet and address resisters
************************************
Resistance smothers motivation and reinforces dysfunctional behaviors:
Culture, Calcification & Complexity can suck the life out of change efforts.
Pull the motivation levers !!!

Different people in a corporation are motivated by different things(Gerstner, 2002)
*******************************************************
- money
- advancement
- recognition
- fear
- anger
- learning
- opportunity to make an impact, see efforts produce concrete results
- rouse with a threat of extinction
- inspire with a compelling vision of future
- being part of something bigger than you

Off Balance Sheet Financing & Corporate Life Cycle

JWI 531 Financial Management II, week5 summary, 5/12/13

I have gained a much better appreciation for basing a lease vs buy decision on sound financial fundamentals that apply to the context of the firm. There are no set answers and one must decide based on the changing marketplace realities.

Understanding different types of leases and becoming aware of off-balance-sheet financing practices (W5, L1), I can now - for the first time - begin to see through the Enrons of the world.

The corporate life cycle (W5,L2), beginning with an idea and a strong champion shows me how businesses evolve. I can see how the financial needs of the firm change and what sources of funds are best suited for the various stages of the life cycle. I can see this course neatly leading up to the New Business Ventures course and preparing me with financial wings to take off and fly.

Solid week. Enjoyed it much. Takeaways below.
Dr DP

JWI 531 Financial Management II, week5 summary, 5/12/13
********************************************************

I. Week5 Lecture1
**************

Debt is a measure of assets & risks

Off-balance-sheet (OBS) financing are debt obligations that do not appear on the balance sheet
*********************************
Some companies misuse OBS financing to hide problems and make balance sheet look better than it actually is
the company's debt can be assigned to an off-balance sheet entity to improve financial ratios
value of operating leases can be much more than stated debt figures
noncancelable leases = debt and appear in 10Ks
Study OBS financing carfully to understand commitments, value a company, before deciding to invest

OBS financing can be
*********************
- leases
- sale of receivables
- limited partnerships
- Joint Ventures

Four Legitimate uses of OBS (financialweb)
****************************
(i) Pursue similar business opportunity
(ii) Explore new business
(iii) operating lease for expensive equipment
(iv) building leases

Presentation of lease obligations under balance sheets instead of 10K 10Q foot notes make it more transparent

A lease refers to an arrangement by which you use an item that belongs to another party for a certain period of time and pay a fee for the privilege.  A capital lease, also known as a finance lease, runs for most of the useful life of the asset and has various advantages and disadvantages.

Two kinds of Leases: Operating & Capital
(i) Operating lease   
Pros - Rent an asset; Only rental payments, no asset sale,  heavy debt; use asset without handicapping balance sheet,leverage ratios or cash flow eg. retailers in a mall. Accounted for by cash outflow from operations

(ii) Capital lease   
Cons - Treated as a sale; Ownership rights transferred to lessee; Risks of ownership transferred to the balance sheet
Accounted for by split up into operating activities & financing activities       

Formula
Value of Noncancelable Operating Leases * 8 = Debt Equivalent of Operating Leases
Add this to debt amount to understand financial leverage

From the standpoint of a business owner, what is the relative appeal of lease arrangements?
**************************************************************************
Leasing conserves Cash upfront
Cash-starved firms often have to decide between buying or leasing equipment or properties. Buying can give long term ownership and total control of resources but will also tie up capital early on and could restrict choices - due to loss of liquidity - for a business subsequently.
A lease refers to a more flexible financial arrangement by which one can use an item that belongs to another party for a certain period of time and pay a fee for the privilege (ehow.com). There are two kinds of leases: operating & capital (JWI 531, W5 L1).
Operating Lease
In this case only rental payments are made by the lessee to the lessor. This is accounted for as an expense - cash outflow from operations - and the balance sheet is not impacted. Maximum flexibility is enjoyed by the lessee as she can focus on running her business and walk away from the arrangement practically any time to react quickly to changing market place and business needs - particularly in a fast paced or highly competitive business.
Example: PC retailers renting spaces in a mall may need all the resources they can muster to survive and adapt in a new era where smartphones and tablets have invaded.
Capital lease
This arrangement is treated as a sale with ownership rights and risks of ownership transferred to the lessee. Capital leased properties are accounted for as an asset as well as a liability in the balance sheet. Therefore the lessee's net worth is unchanged but the presence of the added liability leads to a degrade in Debt/Equity ratio that may be frowned upon by investors. However, the lessee may be able to use the asset for up to 75% of the asset's life and may also be able to buy the asset at a price discounted from the market price. Also, tax deduction can be claimed on (a) the cost of the capital lease as a depreciation - a deduction each year over the life of the asset  and (b) interest paid on the lease each year (smallbusinesschron.com).

References
http://www.ehow.com/info_12092374_advantages-disadvantages-capital-lease.html
http://yourbusiness.azcentral.com/advantages-disadvantages-capitalizing-lease-eyes-lessee-5505.html
http://www.finweb.com/investing/4-legitimate-uses-of-off-balance-sheet-financing.html#axzz2Slhn1rf0
http://people.stern.nyu.edu/adamodar/New_Home_Page/AccPrimer/lease.htm
Brigham & Ehrhardt (2009), Financial Management
http://smallbusiness.chron.com/tax-benefits-operating-vs-capital-lease-21643.html


II. Week5, Lecture2
****************
The corporate lifecycle
*******************
Embryo -Early days of a company: All you have is an idea; ntrepreneur with skin in the game - credit card & savings
Birth- A strong champion willing to nurture that idea marks the birth of a business - Friends & family loans & small business loans
Adolescence-Depends on strengths of business; Angels ($100K-$1M)& VC investors ($500K-$10sM) - Profitable, growing, good cash flow
Adulthood - Strategy; Grow fast and achieve great scale
Win-Reward customers, employees, owners through each step of the process
End-Bankruptcy; M&A

Business Plan & a Dream
**********************
Venture Capital: A form of private equity investing
Typically fun firms within 1-3 yrs of existence
Choicest ideas with the largest probability of success, market opportunity, potential payoff.
Industries with high pay off: technology, pharmaceuticals, biotech, media and communicaitons
Require capital in millions of dollars & poised for extreme growth
Extraordinarily high risk investments that most banks will balk at.
Portfolio approach - Few wins, 70%-80% fail
VC funds: pool money from high net worth individuals, institutions and spread the risk across opportunities

Business Process Redesign - Best practices, VSM, employee empowerment, obstacles removal, Focus on Results

JWI 555 Organization Change & Culture, week5 summary, 5/12/13

Improving an organization's capability must first begin with reviewing what already works best ie the best practices. Second, Value Stream Mapping (VSM) can  be applied to methodically to identify waste - time delays and increased expenses, redundancy, bottlenecks, reworks and communication misses. Alternatively, fundamental redesign of processes from a clean slate can also be attempted. Third, employees need to be empowered to generate good ideas and act on their wisdom. Fourth, dis-empowering obstacles such as obstructing  formal structures, misaligned middle-management bosses, skills deficit, thankless compensation systems need to be addressed. Finally, the change agents need to be focused on results, not activities.

This five step framework is already valuable in helping me drive positive change through the organizations I work with. The Team project allowed us to apply and internalize these concepts. I have enjoyed working with my TeamB colleagues Alexandra, Shalonda and Michael - they taught me what shared leadership experience can do in a team, with each one contributing differently but equally.

Another great week of learning and sweating in the process. Great to know we are at half-way mark in the marathon. Onward and ahead !
Dr DP

JWI 555 Organizational Change & Culture, week5
*****************************************
(I) Best Practices
***************
Identify and share best practices (W5 L1)

(II) Process redesign (VSM)
***********************
(1) Map the process end to end to create a shared view
 - document key activities, decision points, timing, interdependencies, and players
(2) look for problems like bottlenecks, delays, unnecessary waste, redundancies, communication misses, and rework
(3) Eliminate the problems

Fundamental Redesign of process
********************************
Begin with performance goals to achieve breakthrough in performance
Get stakeholders together from different stages of process
Create new process from a blank slate

(III) Empower Employees
*********************
Candid dialog, open-ended discovery
empowered participants can implement good ideas they generate

(IV) Address Disempowering Obstacles
*********************************
Formal structures make it difficult to act
Bosses discourage implementaton of process and practice changes
Employees lack skills to take action successfully
HR evaluation, compensation, promotion systems block needed action or changes

(V) Focus on Results from beginning, not on activities
********************************************
Be Results-driven vs Activity-Driven - Robert Schaffer, Harvey Thomson (1991)
Successful change programs begin with results, not activities
1. Identify crucial business challenges - provide context with a vision
2. Translate vision into sharp and compelling expectations for short term performance achievements
Ask each unit to set and achieve a few ambitious short-term performance goals.
3. Review progress periodically, capture essential learning and reformulate strategy
4. Institutionalize changes that work, discard rest

Business profitability assessment methodologies for investment decisions

JWI 531 Financial Management II, week4 summary, 5/5/13

A practical approach to assessing business development opportunities would include:

I. Business development - assess the return and profitability of projects/opportunities. 
Real world Methodology (courtesy CH):
Go out five to seven years and map out the following:
    1. Determine Assumptions (pricing, market size, competitive positioning, etc.)
    2. Year by Year Revenue stream - this in itself can be fairly complicated
        product/s and/or services
        pricing
        volume
    3. Year by Year Costs at a high level
        Margin
        Sales Channel costs  (distributor margins, direct sales costs, whatever)
        Marketing costs
        Development costs
    The above allow you to figure year by year revenue and gross margin
    4. Determine the payback/breakeven
    5. Compare against other opportunities/scenarios if there are any
    6. Determine market impact (market share gained/taken, available market (size in dollars), market potential (in dollars), etc.)
    7. Highlight key risks / barriers
    8. Highlight additional opportunities that may be achieved
    9. What-If Scenarios - e.g., what if sales are lower than expected... what % off can you be before your calculation goes negative (you lose money)
    10. Highlight key dates (start by, must finish by, etc.)

II. Use 10K 10Q reports of competitors and figure out for the following for the firm:
    Revenue by Market
    Equipment pricing
    Disposable pricing
    Num salespeople (fixed costs)
    Num clinical support people (fixed costs)
    Ratio sales:clinical support
    Revenue per sales person
    Product sold per sales person
    # of accounts
    Avg Revenue per Account
    Avg Equipment/Rev per Account
    Avg Accounts/(Salesperson & Support)
    COGS
    Margin
    Avg. Margin per Salesperson

III.Leaders checklist for investment decisions
*************************************
As leaders, we needs to make sound investment decisions based on several factors including:
(i) strategic goal of the organization and the fit of the project vs the goal
This is the single most important factor.
If a project deviates from the strategic direction, success may be short lived and the firm may get in deep trouble sooner or later.
(ii) opportunity cost of investment
Every project needs to be measured with the next best alternative.
(iii) risk/reward of a project
Potential for higher reward means higher risk needs to be embraced.
Distribute the risk by betting on parallel projects with:
Higher risk - longer payback, higher potential upside
Modest risk - push the boundary
Bedrock - protect the business with minimum returns
(iv) profitability of the project vs cost of capital and hurdle rate
The higher the profit potential over the hurdle rate, the more attractive the projec
(v) time it takes to get to profitability ie break even and pay back period
The shorter the time, greater the incentive
(vi) liquidity to meet working capital needs ie cash-needs in short and medium term
investing in the project should not cause a hole in the firm's cash flow management

IV. Break-even Analysis
************************
Break-even analysis is a financial tool that allows an estimation of number of units of a product a company needs to sell in order to break even (hbsp.harvard.edu).

Pros
+ Captures the moment in time when an investment becomes profitable and therefore self-sustaining (JWI 531, W4 L1)
+ Helps working capital allocation decisions
+ Firms with irregular cash flows can plan ahead and benefit

Cons
- It assumes price and cost structure for the product are constant which may not hold true
- Gets more complex to calculate for multiple-product multiple-cost situation

V. Payback period analysis
************************
It is the length of time taken for investors to recoup all of the costs incurred to make the project happen (JWI 531, W4 L1).

Pros
+ Helps assess Liquidity and Risk ie shorter the payback greater the liquidity and lower the risk (Brigham & Enhrhardt, 2009)

Cons
- Hidden Costs need to be accurately captured
- Cash earned beyond the payback period is ignored
- May not correlate to stakeholder's wealth

When used carefully, break-even and payback analysis can help make informed decisions,
especially when used as a complement to other project valuation and analysis methods.



Dr DP

Engage Stakeholders, help employees breathe the vision, translate vision to reality with extended vision matrix

JWI 555 Organizational Change & Culture, week4 summary, 5/5/12

This week I attained greater clarity about the concept of stakeholders. I was able to rank them somewhat in the order of importance. This gives me a valuable framework to be a more inclusive leader. Those who ignore key stakeholder segments could risk running the firm into troubled waters. Stakeholder mapping technique allows a practical way to manage and drive change in the firm.

The discussion about Dos & Don'ts in making employees live and breathe the vision helped me see what levers to push and what pitfalls to avoid while communicating a vision.

I also learned the importance of vision statement in focusing and motivating the organization. The expanded vision matrix metrics - strategic, financial, operational, organizational - equip me with practical knobs to turn in making the vision a reality.

Takeaways below. Great training this !

Dr DP

JWI 555 Organizational Change & Culture, week4 summary, 5/5/12

I. Stakeholders:
****************
Customers
Founder & CEO
Local Community
Stock holders
Executives
Line Managers
Technical domain experts
Individual contributor employees
Partners
Suppliers
Government
NGOs

II. Stakeholder map
*******************
Visualize
Identify those most receptive to change and work with them early on
Figure out resiters and reason for their resistance
Relocate "professional resisters" to other projects

III. To Make employees live and breathe the vision:
***************************************************
Do;Don'ts
1. Set a clear goal & communicate a clear direction;     Confuse stakeholders with Vague talk and Jargons
2. Model the core values through daily actions starting from the CEO & his top leaders;     just stop with posters and words
3. Be consistent with stated values; Say one thing and do another
4. Attend to every employee; Just ensure top leaders get it and ignore the rest of the employees
5. Over-communicate; Say it a few times, check the box and assume everyone gets it
6. Align rewards to vision, mission and values - use Jack Welch's values vs numbers matrix to do this;
Just focus on numbers when compensating people and forget about values when it comes down to the bottomline
7. Reinforce with rewards and make vision leap off the page and come to life (Welch, 2005, p69);    
Assume people will do what you expect ("people do what you inspect, not what you expect", Gerstner, 2002)
8. Ensure the business model is based on Growth; Remain in a stagnant industry
9. Appeal to emotion and the logic - the heart and the brain (JWI 555, W4, L1);    Just focus on logic

IV. Vision statement should have the power to focus and motivate the team by:
********************
Clarifying the general direction for change . . . and simplifying more detailed decisions;
Motivating people to take action in the right direction; and
Coordinating the actions of different people.  (Kotter, Leading change, 2012 pp. 68-69)

V. Expanded vision matrix metrics help to translate vision into reality
*********************************
Strategic: product/service focus, customer/market focus, unique positioning, differentiation
Financial: guiding financial-performance indicators; success metrics; significant financial commitments or decisions
Operational: essential manufacturing/service/delivery capabilities; technology priorities; key performance indicators
Organizational HR recruitment, selection, retention, development priorities, leadership decisions, structural considerations