|Leverage and Business Risk
If you have been paying attention to the economy lately, and who hasn't, you have heard a lot about
deleveraging. It seems that many of Wall Street's most successful companies were more leveraged than
they should have been. This practice was not confined to Wall Street. Many consumers have discovered they
are upside down on their home mortgages or struggling with credit card debt.
Leverage is a powerful tool if you know how to use it. With a big enough lever you can move the world.
What many forgot is that leverage and risk go hand in hand. All the power that leverage gives you
on the upside is turned against you and often magnified on the downside.
Inability to identify and manage business risk is the single greatest source of business failures. The
greatest risks are the ones we don't see. These risks are hidden but not diminished by extended periods
of strong market growth. The cruel reality of business is that these risks are hardest to see just before
the market turns and the trouble begins.
|Leader as Teacher
I believe that many leaders overlook their role in the development of the next generation of leaders within
their companies. When I review job descriptions and see how managers are evaluated and rewarded, I don't
see much emphasis on the development of the people that report to them.
There was a time when experience and the trial and error learning process was the primary mode of learning in
the business world. Back then things moved at a slower pace. People stayed with one company for their entire careers.
Today's business environment is more dynamic. People are expected to learn in months what used to take years.
I believe the primary role of a leader is to transfer as much knowledge and experience as possible to the
next generation. This is accomplished in many ways. Designing assignments to provide a specific experience or
build a particular skill is a powerful method. Another method is to help analyze an important decision or a
difficult situation. Day to day, a mentor provides a sounding board, advice when requested, and a role model as
an effective leader.
|The poll question last quarter asked: How likely is it that the $700B bailout will allow the U.S. to avoid a major recession?
Here is the result:
|Our poll question this quarter is: How likely is it that we saw the bottom in the US stock market back in November?
|We will report the results in the next issue. Click here to participate in our poll.
You may return to the Poll Page to monitor the results as often as you like.
|Over the last twenty years we have seen organizations become much better at planning. Most organizations have an
effective planning process that recognizes the need to involve the management team in the decision making process.
The decisions that come out of the planning process are focused on what is best for the long-term future of the organization.
Unfortunately, there is still a significant gap between planning and execution of the plan. Many rely entirely on the momentum
generated by the planning meeting to carry the organization forward. However, this momentum is quickly lost if additional
steps are not taken. There is a rich and growing set of tools for helping with plan execution. They include performance tracking
systems like balanced scorecard and performance dashboards. Other tools like performance-based pay, internal reporting, and
communicating and celebrating successes can also help an organization better implement the plan.