Should Leaders enjoy comfort of opinion without the discomfort of thought?

“If someone isn't what others want them to be, the others become angry. Everyone seems to have a clear idea of how other people should lead their lives, but none about his or her own.” ― Paulo Coelho

Opinion may be the result of a person's perspective, understanding, particular feelings, beliefs, and desires. It may refer to unsubstantiated information, in contrast to knowledge and fact-based beliefs. Few questions comes to mind - Does opinion of people around you matters? Yes it does. Having a low opinion of self is modesty?  In my view answer is "No".  While opinion do matters, however it is imperative that we use our discretion while seeking them.

It is ironical that most of us want to stand out of the crowd and make our mark as individuals however only feel comfortable with the sense of inclusion in the group.  . There is a thin line difference between pride and proud. Being proud of one's uniqueness is not ego.

Many times, we are too bogged down by what others think specially upwards management and peer group. We tend to take as many opinions as we can before we take a decision and in the process loose the track of times. 

When we too often rely on opinion of others we start making decisions from their mind and tend to play safe and work around things highlighted by others, more so to have their buy in and to be part of the larger group.  At the same time, we start losing our perspective and lose  track of reality or ground level situations as opinions come handy and we do not have to put effort of gathering our thoughts from real time scenarios.

There are some people who are not too bothered about what others think about them.  They are self motivated and do not need external force to drive them.  Irrespective of what situation and what working conditions they are put through they find their way, create their rules and people around them get influenced by their aura and start emulating them over a period of time. They primarily are thinkers and thought leadership is their core competency.  Such people do not hesitate in challenging the status quo and bring about change.  They would be farsighted and would be able to anticipate outcomes of decisions.

It is also true that when you reach closer to top you lose connect with ground reality and it becomes imperative that you rely on other’s opinion to assess situation, however there is a good possibility that people who are giving opinion are not apt enough or have some hidden interest and do not give you the true picture of the situation.  At that time it becomes even essential that time and again you do a reality check yourself and look at the world from your eyes. 

Ancient history is filled with great example that are worth emulating. King Ashoka who used to disguise himself as common man and roamed on the streets of his kingdom to get a true picture of what masses were going through rather than completely depending on his people and blindly believing what he was being told.  Not going that far, we even witness companies reaching out to larger employee base and doing a sense check of implication of certain policies even before they are launched or take feedback from them in the form of surveys to get the sense of ground reality. 

Though effort is more and you will have to move from your comfort zone and gather facts, analyze, think through, than just depending on a group of individuals for their opinion however your decision would be just and fair; you will be looked upon by others and will further sharpen your thought leadership which shall help you command respect of your workforce due to your disposition instead of demanding it due to your position. 

Organizational Grapevine and its impact...

There is so much good in the worst of us, And so much bad in the best of us, That it hardly becomes any of us, To talk about the rest of us. ~Edward Wallis Hoch

Grapevine is the most uncontrolled form of communication which spreads in all directions informally and unofficially by means of gossip and rumor and at a very fast pace just like a grape fruit vine and that is how it got its name.

We will find people pretty much in every organization who enjoy spending time being part of grapevine and also some people who would act friendly face to face, however, try to make their capital out of gossip mongering and twisting facts and at times would not hesitate a bit in drifting towards the personal. Unfortunately at times such folks, even get away with good ratings / raise as well. The worst scenario happens when the whole base of information is incorrect. Hence it becomes a total waste of time and energy both at individual and organizational level. It has been witnessed that organizations spend lots of time and resources in validating the information through this communication channel and doing damage control thereafter.

You all must have played Chinese whisper during your child hood and would be able to relate that how a communication gets distorted when it flows from mouth to ear of one person to another.  Similar thing happens in grapevine most of the time as information gets distorted during the flow more so because those people are not authorized and trained to handle such communications and also they tweak it to their convenience.  We are normally taught to believe that there is no smoke without fire, you will be surprised that this proverb can completely falter when it comes to grapevine.  

It is a well accepted fact, however, ignored by most of us that whoever gossips to us will gossip about us and what is told in the ear of a man is often heard 100 miles, in spite of it, we tend to engage and become party to grapevine.

In its most uncontrollable and devastating form people start making critical decisions basis the grapevine without validating the authenticity. Research and studies have concluded that informal communication occurs either when insufficient or ambiguous information is transmitted through formal communication.

The flip side is that surprisingly, large part of all organizations’ practices, policies, and procedures are shared through grapevine communication. Though there is a negative thought about grapevine communication, studies have shown that the employees find informal communication such as grapevine communication to be more effective than formal channels of communication when it coexists with the formal communication system. Grapevine at times,  is also used by management to spread the information that either cannot be shared officially or they just want to test the waters before taking critical decisions.

It is imperative that leadership at organizational level do not become susceptible to Grapevine and misdemeanor of gossip mongrer. They should make conscious efforts to avoid leveraging it for short term gains.

How The Leader in Me deal with organizational power and politics....

Nearly all men can stand adversity, but if you want to test a man's character, give him power. -Abraham Lincoln

Leadership is at its core all about power and influence. Leaders use their power to get things done. Power is usually attached with negative connotation, however, as a matter of fact, everyone wants to be powerful. Though power is not a negative thing, it depends on what kind of power a person has and how he uses or abuses it which makes it positive or negative. That is why it is rightly said that the true test of a man's character is when he is in a position of power. Also it is largely believed that it is not power that corrupts but fear. Fear of losing power corrupts those who wield it and fear of the scourge of power corrupts those who are subject to it.

We often witness that politics and power are very closely associated. In an environment where obligations are created, groups  are formed, information is controlled by few individuals, high tolerance of politics, people blame each other, no serious consequences for non performance, decision making is complex, ambiguous and haphazard, people are prone to blaming, paternalism and patronage are seen as stepping stone, networks are cultivated for scoring self goals  In such scenarios, negative politics thrives and trust of workforce in leadership depletes. Hence, It is imperative for leaders to be cognizant of these signs and inculcate a positive and conducive work environment so that the employees are committed and compliant and an eco-system is created whose bedrock is nothing but meritocracy. 

We also witness that many people in some way or the other want to be associated with powerful people. People close to powerful Leaders tend to believe that they are powerful themselves. It is the sense of power which is gained by knowing and being listened to by influential Leaders which they thrive for. They always look out for the ways and mean to make powerful leaders happy; forgetting in the course their core job is to ensure that they make their Leader look good in other eyes rather than spending their time and energy in looking good in his / her eyes.

It is a well established fact that an increasing connections and mastering political networking leads to a greater potential for connection power. A person with connection power has to tread cautiously as people around him / her may not respect him immediately until he earns hi stripes and god forbid, if this power is used just to show authority, throw weight around and serve individual motivation and self goals, not only can it destruct the image of that person but also the leader who he / she is associated with.

Good leaders also at time get intoxicated by power and fault and engage in avoidable behavior only because they think that they can get away with it and get themselves subjugated to pleasantries. Next line also tend to abide by ensuring and tending to their short term interests.  I witnessed one such scenario in my professional career where a very promising Leader at a position of significance fell for pleasantries and chose  quantity over quality, shallowness over depth, impropriety over propriety resulting a serious damage to business interests. Of course over a period of time, he was booted out, however, it was too little and too late. 

Hence it is imperative for the Leaders to watch out and ensure that while there is no "abuse of power", at the same time they should be conscious about not extending  "power to abuse" to  such people. They must foster an institution of trust through an environment where people grow because of meritocracy and not because of connections, personal loyalties and pandering to individual liking.

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Must know for HR....Basic understanding of Business Finance - Part 8

In business, words are words; explanations are explanations, promises are promises, but only performance is reality.Harold S. Geneen

Having understood some general economic terms like Bank Rate, Recession, GDP, Government Bonds, Quantitative easing, Market Capitalization and also getting a hang of relationship between economic consumption and investment, financial statements, Ratios etc.  it is important that we understand Performance Measures that are key to Corporate Success. While there are innumerable measures to analyse corporate performance, the market is most interested in profits. This is logical, because without profits, there is not much value in a listed company. But there are other important financial numbers too. Let’s look at them. 

Break Even Analysis :  Break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". A profit or a loss has not been made, although opportunity costs have been "paid", and capital has received the risk-adjusted, expected return. Break even analysis can be a substitute for estimating an unknown factor in making project decisions. If most expenses are known, the other two variables, profit and demand, may be varied. The analysis can help determine the cash flow the level of demand needed and what combination of price and demand will yield the hoped-for-

profit. Break Even formula : Break Even sales = Fixed Costs + Variable Costs

Operating Profit: This measures the profitability of the core business and is roughly expressed as sales minus all costs except interest, depreciation and taxes. Income from other sources (such as sale of property) is excluded. Derived from operating profit is operating profit margin (OPM), which is OP as a percentage of net sales. OPM measures the strength of the business relative to a period, competitor or industry average. Operating profit is the most important measure of performance and not net profit or PAT.

Profit after Tax (PAT): Also called net profit, Profit Margins. Profitability varies from one sector to another and determining the fundamental worth of a company, margins are the only way to compare across sectors and within a sector. Highly profitable companies such as software companies can have an operating margin of 35% and above. Operating profit and OPM are the best measures of efficiency, cost pressures and the core strength of operations. The gross profit margin or gross margin is just another measure of profitability, which takes into account financing costs. Net profit margin is what is left after all costs are included including taxes. It is often distorted by taxes, interest costs and other income and so a mechanical comparison of net margin even among companies within the same sector makes no sense.

Earnings per Share: The most important measure according to the market is earnings per share (EPS). EPS is expressed as net profit (profit after tax) divided by the number of shares. EPS can be distorted by adjustments and other income as reflected in PAT. But a continuously rising EPS is one of the most reliable predictors of future price rise.

Cash Flow: Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation. Reported PAT and EPS may not show a clear picture as PAT is an accounting number arrived at after lots of adjustments. Smart investors prefer to focus on operating cash flow, which is a little complicated in calculation. A company can show healthy PAT but may have a poor or negative cash flow. PAT will not reveal this internal weakness. Negative cash flow also indicates that there is a fundamental problem with the operations: either the profitability is too low or money is stuck in high inventories and receivables. Companies that do not generate healthy cash flows are bound to run aground. 

Return on Equity: Companies that are generating profits more efficiently than others are obvious favourites. One number that can identify such companies is Return on Net Worth, which is known internationally as ‘Return on Equity’ (RoE). It is PAT as a percentage of total shareholders’ funds or net worth. ‘Equity’ in this case is net worth and is calculated by adding reserves to equity capital. RoE shows how profitable the business is for shareholders and how efficiently the company is using the shareholders’ funds. RoE is an important driver of long-term value, subject to market moods and fancies. A rising RoE helps investors determine if a company is earning enough money on an incremental basis. 

Return on Capital Employed: RoCE is calculated by dividing profit before tax and interest by capital employed. Capital employed is the total of all equity and preference capital, reserves and all debt. As opposed to RoE, which measures only the return on shareholders’ money, RoCE measures how the entire money invested in business is doing. RoCE is best compared to the cost of borrowing. If the interest on fixed deposits is earning 11% whereas a company is earning just about 13% as RoCE, clearly it is not a great business for shareholders. RoCE is low for companies that are capital-intensive. For companies with insignificant debt, RoE and RoCE are the same. RoCE has little impact on stock prices by the time it is known and is used only in case of valuing companies during a takeover. 

Return on Assets: This is a measure of how much the assets are producing for the company. RoA is simply net profits divided by total assets and reflects the efficiency in making its assets sweat. As in case of RoE and RoCE, the benchmark for RoA is interest rates or the cost of company’s capital. RoA also exposes whether the company has too much of debt, a fact that RoE may not be able to capture. RoA, like RoCE may be best used in valuing assets for buying and selling.

Dividends: Regular dividends to shareholders gives them confidence that the company is in sound financial health. When dividends are increased, the message is that the company is prospering. This in turn stimulates greater enthusiasm for the stock. The payout ratio shows the percentage of net earnings being paid as dividends. It can range from zero at companies that pay no dividends to more than 100% when companies are earning lots of cash and cannot re-invest them. 

Other Indicators: One key indicator of superior operational strength is how fast the company is turning over its inventories and receivables, which reflects the efficient use of capital. These can be measured by a specific ratio: number of days of average inventory or debtors. The first is arrived at by dividing the cost of goods sold by average inventory while the second is arrived at by dividing sales by average debtors. The average figure comes from adding the opening balance and closing balance of inventory/debtors and dividing it by 2. The lower the number of days for which inventory and debtors are held, the better it is. Even better, if the number shows a falling trend, it means that the company is squeezing more and more out of debtors and stocks. If a company’s collection period is growing longer, it means that it has dumped its products on the market and is unable to recover the money now. These numbers really make sense when compared to other companies in the same sector.

With this I would conclude this series and hope this has given you a broader sense of Business Finance which has become  must know for all Leaders / Managers including but not limited to  Human Capital Management professional.