Capital Is Expensive Again. Now What?
Engaged Employees Create Better Customer Experiences
How to Maximize the Impact of Each Generation in Your Organization
Looking Back—And Ahead—To Set Your Team Up for Success
The Questions Every Entrepreneur Must Answer
Critical Service and Reporting Criteria Using Site Risk Factors: Introducing the RFI (W.O.E. Relative Risk Factor Index)
8 Capital Is Expensive Again. Now What?
By Michael Mankins11 Engaged Employees Create Better Customer Experiences
By Denise Lee Yohn14 How to Maximize the Impact of Each Generation In Your Organization
By
TomHutchison, HOH Water Technology, and Chris Yee, Zenith Search Partners
18 Looking Back—and Ahead—to Set Your Team Up for Success
By Rebecca Zucker24 The Questions Every Entrepreneur Must Answer: What are my goals? Do I have the right strategy? Can I execute the strategy?
By Amar Bhidé36 Critical Service and Reporting Criteria Using Site Risk Factors
By Dave Christophersen4 Calendar of Events
6 Letter From the Editor
43 Advertisement Index
1300 Piccard Drive, Suite LL 14
Rockville, MD 20850
(301) 740-1421
• (301) 990-9771 (fax) www.awt.org
President
Stephen C. Hallier, CWT
President-Elect
Noah Baskin
Secretary
John D. Caloritis, CWT
Treasurer
Kyle J. Rossi, CWT
Immediate Past President
Fred Shurtz
Directors
Craig Bodenmiller, CWT
Tammy Faber, MBA
Michelle Lunn
Michael Bourgeois, CWT
Ex-Officio Supplier Representative
Pam Simmons
Past Presidents
Jack Altschuler
John Baum, CWT
R. Trace Blackmore, CWT, LEED AP
Michael Bourgeois, CWT
D.C. “Chuck” Brandvold, CWT
Thomas Brandvold, CWT
Brent W. Chettle, CWT
Dennis Clayton
Bernadette Combs, CWT, LEED AP
Matt Copthorne, CWT
James R. Datesh
John E. Davies, CWT
Jay Farmerie, CWT
Gary Glenna
Charles D. Hamrick Jr., CWT
Joseph M. Hannigan Jr., CWT
Matt Jensen, CWT
Staff
Executive Director
Denise Jackson
Deputy Executive Director
Sara L. Wood, MBA, CAE
Member Services Director
Angela Pike
Vice President, Meetings
Tina Schneider
Meeting Coordinator
Caroline Bentley Meeting Planner
Tim Foley
2023 Business Owner’s Meeting
October 3, 2023
Amway Grand Hotel
Grand Rapids, Michigan
2023 Annual Convention and Exposition
October 4–7, 2023
DeVos Place Convention Center and Amway Grand Hotel
Grand Rapids, Michigan
2024 Technical Training Seminar (East)
A pril 17–20, 2024
Cleveland Marriott Downtown at Key Tower
Cleveland, Ohio
2024 Annual Convention and Exposition
Mark R. Juhl
Brian Jutzi, CWT
Bruce T. Ketrick Jr., CWT
Bruce T. Ketrick Sr., CWT
Ron Knestaut
Robert D. Lee, CWT
Mark T. Lewis, CWT
Steven MacCarthy, CWT
Anthony J. McNamara, CWT
James Mulloy
Alfred Nickels
Scott W. Olson, CWT
William E. Pearson II, CWT
William C. Smith
Marc Vermeulen, CWT
David Wagenfuhr
Casey Walton, B.Ch.E, CWT
Larry A. Webb
September 10–13, 2024
Louisville Convention Center and Omni Louisville
Louisville, Kentucky
2025 Technical Training Seminars (West)
February 25–28, 2025
Doubletree Mission Valley
San Diego, California
2025 Annual Convention and Exposition
November 12–15, 2025
The Broadmoor Hotel
Colorado Spring, Colorado
2026 Annual Convention and Exposition
September 16–19, 2026
Oklahoma Convention Center and Omni Hotel
Oklahoma City, Oklahoma
2027 Annual Convention and Exposition
September 8–11, 2027
Cleveland Convention Center
Cleveland, Ohio
Exhibits and Sponsorship Manager
Brandon Lawrence
Marketing Manager
Mary Claire Gordon
Editorial Services Manager
Heather Rigby
Production Manager
Tiffany Ward
Director of Accounting Services
Dawn Rosenfeld
Publisher
Denise Jackson
Managing Editor
Heather Rigby
Production Manager
Tiffany Ward
Technical Editor
Michael Henley, (303) 745-3890, Email: mdhenleywater@gmail.com
Advertising Sales Manager
Carol Nettles, carol@adboomadvertising.com
the author and do not necessarily express the policies and opinions of the publisher, editor or AWT. Authors are responsible for ensuring that the articles are properly released for classification and proprietary information. All advertising will be subject to publisher’s approval, and advertisers will agree to indemnify and relieve publisher of loss or claims resulting from advertising contents. Editorial material in the Analyst may be reproduced in whole or part with prior written permission. Request permission by writing to: Managing Editor, the Analyst, 1300 Piccard Drive, Suite LL 14, Rockville, MD 20850, USA. Annual subscription rate is $100 per year in the U.S. (4 issues). Please add $25 for Canada and Mexico. International subscriptions are $200 in U.S. funds.
Also, please note that the following AWT committees meet on a monthly basis. All times shown are Eastern Time. To become active in one of these committees, please contact us at (301) 740-1421.
Second Tuesday of each month, 11:00 am—Legislative/Regulatory Committee
Second Tuesday of each month, 2:30 pm—Convention Committee
Second Wednesday of each month, 11:00 am—Business Resources Committee
Second Friday of each month, 2:00 pm—Pretreatment Subcommittee
Second Friday of each month, 10:00 am—Special Projects Subcommittee
Second Friday of each month, 11:00 am—Cooling Subcommittee
Third Monday of each month, 9:00 am—Certification Committee
Third Monday of each month, 3:30 pm—Young Professionals Task Force
Third Tuesday of each month, 3:00 pm—Education Committee
Third Friday of each month, 9:00 am—Boiler Subcommittee
Third Friday of each month, 10:00 am—Technical Committee
Quarterly (call for meeting dates), 11:00 am—Wastewater Subcommittee
Electric Utility Chemistry Workshop, June 6–8, 2023, Champaign, Illinois
AWWA, Annual Conference & Expo, June 11–14, 2023, Toronto, Ontario, Canada
ACS, Fall National Meeting & Expo, August 13–17, 2023, San Francisco, California
WEFTEC, Annual Technical Exhibition & Conference, September 30–October 4, 2023, Chicago, Illinois
RETA, Annual Convention, November 13–16, 2023, Jacksonville, Florida
Cooling Technology Institute, February 4–8, 2024, Houston, Texas
The Analyst is published quarterly as the official publication of the Association of Water Technologies. Copyright 2022 by the Association of Water Technologies. Materials may not be reproduced without written permission. Contents of the articles are the sole opinions of
Intuitive Programming with Tap and Swipe on our New Color Touchscreen!
By the time you read this, I will have been the managing editor of Analyst for six months. It has been a challenging but rewarding time! There has been a lot to learn about the water treatment industry and the people within it. I did not expect to put that knowledge to use socially any time soon, but back in March, I found myself seated near a fellow who was talking about his work as a municipal wastewater specialist. A lull in conversation provided me an opening to excitedly introduce myself and ask if he was familiar with AWT and encourage him to familiarize himself. Sadly, not everything is as easy as barstool evangelism.
The past year has been a challenging one for a variety of reasons. Our AWT members, especially the business owners, may be feeling pinched from all sides— rising prices and interest rates, continued supply chain issues causing delays or shortages of needed goods, a fluctuating workforce with heightened tensions between generations of workers and rapidly evolving expectations of colleagues and managers, and a growing public focus on issues surrounding water contamination and illness. A business owner’s attention needs to be on a dozen things at once to be successful, and that can be a frustrating and lonely situation to be in.
Thankfully, the committed members of the Business Resources Committee support our business owners through the hard times and the easy times. There are tons of opportunities to network and learn from one another—like at the Business Owner’s Meeting—and resources to help fill in the gaps when it comes to personnel, crisis management, succession planning, and so much more. From webinars to this supplement currently in your hands, here at AWT, we are always looking for ways to give you the tools you need.
In these pages, you will find articles covering topics like the cost of capital and how employee satisfaction is a key to customer satisfaction. We are proud to include articles from within the water treatment industry in this year’s Business Supplement. I want to thank Tom Hutchison, Chris Yee, and Dave Christophersen for lending their expertise to this edition.
And thank you for your readership! Analyst is for you. I am glad to be a part of it.
Sincerely,
Heather Rigby
4-20mA Output
Factory calibrated for easy installation in the field
Remotely
The Pulsatron Series MP is a true microprocessor-controlled instrument delivering precise and accurate metering control. Packed with standard features, the Series MP includes automatic control via 4-20mA or 20-4 mA inputs, an external pace function with a stop feature, and a graphical LCD display with support for English, French, German, and Spanish languages. With models capable of flows ranging between 3 GPD (0.5 LPH) and 504 GPD (79.5 LPH) and pressure ranges from 20 PSIG (1.3 BAR) to 300 PSIG (21 BAR), and a turndown ratio of 1000:1, there is a Pulsatron MP Series pump to fit your process perfectly.
Provides a remote indication of pump speed
More accurately estimate chemical usage over time
4-20mA Output
confirm the pump’s speed is adjusting to your process parameters
This article was originally published by the Harvard Business Review at HBR.org on March 30, 2023. 2023 Harvard Business Review
For most of the last 15 years, capital has been cheap. Since 2009, the after-tax cost of borrowing for some large companies has been below the rate of inflation, making their debt in real terms cost-free. And for much of this time, the stock market moved steadily upward, consistent with historically low costs of equity. We estimate that in early 2022, the weighted-average cost of capital (WACC) for the average company in the S&P 500 hovered below 6%.
All that changed in March 2022, when the world’s central banks began raising rates to curb rising inflation. Over the next 12 months, the U.S. Federal Reserve increased its benchmark Fed Funds rate from an average of less than 3.5%1 and the yield on 10-year treasury notes2 climbed from 1.75% to almost 4% today. With rates on risk-free assets rising, the cost of debt for most large corporations also increased— from an average of less than 2.3% for most Baa-rated corporate debt in early 2022 to nearly
5.75% today3. And, finally, the cost of equity capital also rose for most large companies over this period—from less than 7% to approximately 10%, according to research conducted by Aswath Damondaran4 at the Stern School of Business at NYU. All in, the WACC increased by 50% or more in just 12 months—from less 6% a year ago to nearly 9% today.
In the face of expensive capital, companies need to reexamine how they allocate their resources and communicate their strategies. In the brave new world of dearer capital this will involve:
We all know the obvious ways that growth can destroy value, like pursuing unprofitable business models or pushing products with negative gross margins. But profitable growth can destroy value too. This occurs when the capital that is invested in growth initiatives generates an accounting profit but does not produce a return on capital that exceeds the business’s cost of capital. In today’s world, leaders should be much more discerning about growth investments—doubling-down on investments that are likely to produce attractive returns and putting low-return growth investments on the backburner.
To elaborate, as capital costs rise, the value of growth relative to the value of margin improvement changes significantly5. When the cost of capital is low, strategies that accelerate growth create far more value than those tied to boosting margins. This partially explains why so many companies pursued growth strategies over the last decade with considerable fanfare from investors—Adobe, Alphabet, Dell Technologies, even John Deere.
But as capital costs approach 9% or so (the current average for the S&P 500), the value of growth diminishes and strategies that increase profitability create more value. Many companies have already reached this tipping point. This is why the tech-heavy NASDAQ, comprised largely of growth stocks, declined so significantly last year 6 —from a high of more than 14,000 in early 2022 to a low of 10,500 at the beginning of 2023—and companies like Meta saw their market values collapse.
One company known for its focus on growth has begun describing its strategy and performance very differently
in lieu of higher capital costs. The tech high-flier Netflix recently announced7 that it would end the company’s focus on “net subscriber adds” as a key performance metric. Indeed, despite adding more than 10 million new subscribers in 2022, Netflix is placing much greater emphasis on revenue, operating income, and operating margin8 as the company’s primary performance measures. The message to investors is clear: In assessing the value of Netflix, you must consider the profitability of streaming customers, not just their number. Other growth companies are likely to follow Netflix’s lead with this kind of messaging.
In anticipation of a slowing economy, more than 3,150 companies announced layoffs in 2022, according to data compiled by AI-powered market intelligence platform Intellizence9. Amazon, Microsoft, Salesforce, Disney, and Philips led the way. In most cases, these layoffs were undertaken to increase efficiency, enabling each company to do the same, with less. In our experience, headcount actions can boost margins (at least temporarily), but they often make reigniting growth more challenging later— particularly if satisfying new demand requires significant rehiring. But the best companies find ways to increase productivity10 during slowdowns, not merely cut costs.
Boosting productivity requires that leaders identify the factors preventing their people from getting things done. In some instances, the problem is organizational complexity—that is, a combination of complex processes, organizational structures, and ways of working. Unless this underlying complexity is removed or otherwise dealt with, then any margin improvement will be short-lived. As one client executive recently remarked after overseeing her company’s third major workforce reduction in as many years: “We should have learned this by now. If you take the people out, but you don’t take the work out—or don’t change the way work gets done—the people will invariably come back.” Efficiency measures alone rarely create sustained improvements in profitability.
Enhancing productivity often requires investment—the substitution of capital or technology for labor. Some new technologies offer the potential to dramatically improve productivity, with modest investment. For example, AI-applications can enable many routine tasks
to be automated. Advertising copy can be generated by machine rather than armies of marketing professionals; call centers can be manned by optimized language models, trained to respond to customers, suppliers, and other parties in a conversational way11. Other technologies—most notably, factory automation—can require significant investment. But done right, technology investments reduce costs and increase productivity, allowing a company to improve margins in the short-term without sacrificing growth in the medium- to longer-term.
Most companies conduct capital planning on an annual basis. But the pace of change is necessitating a shift. CFOs need formal mechanisms to track changes in assumptions, risks, and opportunities continuously throughout the year. A plan to deploy capital midyear may need to be delayed, revised, or scrapped altogether12 , based on what takes place during the first half of the year.
Dynamic capital budgeting requires that organizations think about signposts, trigger points and related metrics13. Signposts refer to the critical market and competitive factors that most influence a company’s decision to deploy capital. For example, a critical assumption behind General Motor’s decision to invest heavily behind Battery Electric Vehicles (BEVs) was the rate of penetration of BEVs in the market. That number is driven by a few specific signposts—such as, the cost of batteries, changes in government mandates, availability of charging stations, competitor pricing actions, etc.
Each of these signposts has important trigger points that should impact the assumptions built into the capital plan. For example, if the number of charging stations in major metropolitan areas does not grow as anticipated this year, then the assumptions in GM’s capital plan would most probably need to change. By continuously monitoring signposts—relative to trigger points—companies can determine if (and when) they need to modify their capital plans to stay ahead of the competition.
The age of cheap money is over. In the face of rising capital costs, leaders should rethink their approach to resource allocation and capital planning. These processes must become more disciplined and dynamic. Once
“obvious” investments in growth may need to be reconsidered. And actions to improve margins must be mindful of productivity, not just efficiency. Capital—and its costs— must be measured and carefully managed. Otherwise, companies risk over-investing in the wrong opportunities and under-investing in the right ones, undermining future profitability, growth, and value creation.
1. Tepper, Taylor. “Federal Funds Rate History 1990 to 2023,” Forbes Advisor, 2023. forbes.com/advisor/investing/fed-funds-rate-history
2. yCharts. “10 Year Treasury Rate (I:10YTCMR),” 2023. ycharts.com/indicators/10_year_treasury_rate
3. Tracy, Matt. “Analysis: Overstretched U.S. Companies Feel Pinch of Higher Borrowing Costs,” Reuters, Sep. 2022. reuters.com/markets/us/overstretched-uscompanies-feel-pinch-higher-borrowing-costs-2022-09-20
4. Damodaran, Aswath. “Data Update 2 for 2023: A Rocky Year for Equities,” Seeking Alpha, Jan. 2023. seekingalpha.com/article/4571595-data-update-2-for2023-rocky-year-equities
5. Mankins, Michael and Karen Harris, David Harding. “Strategy in the Age of Superabundant Capital,” Harvard Business Review, Mar.–Apr. 2017. hbr. org/2017/03/strategy-in-the-age-of-superabundant-capital
6. Nasdaq. “Nasdaq Composite Index.” nasdaq.com/market-activity/index/comp
7. Ruby, Daniel. “40+ Netflix Statistics 2023 (Demographics, Facts & Figures),” Demand Sage, Apr. 2023. demandsage.com/netflix-subscribers
8. Welk, Brian. “Netflix Wants to Downplay Subscriber Numbers and Make Revenue the New Success Metric,” The Wrap, Oct. 2022. thewrap.com/netflixq3-earnings-analysis-subscriber-guidance
9. Intellizence. “Companies That Announced Major Layoffs and Hiring Freezes,” May 2023. intellizence.com/insights/layoff-downsizing/major-companies-thatannounced-mass-layoffs
10. Mankins, Michael. “Great Copanies Obsess Over Productivity, Not Efficiency,” Harvard Business Review, Mar. 2017. hbr.org/2017/03/great-companies-obsess-overproductivity-not-efficiency#:~:text=Our%20research%20suggests%20that%20 the,industry%20peers%20%E2%80%94%20and%20faster%20growth.
11. OpenAI. “Introducing ChatGPT,” Nov. 2022. openai.com/blog/chatgpt
12. DeLoach, Jim. “Proced, Delay or Cancel: Reevaluating the Capital Allocation Process,” Forbes, Oct. 2022. forbes.com/sites/jimdeloach/2022/10/24/proceed-delay-orcancel-reevaluating-the-capital-allocation-process/?sh=51b8472a54b9
13. Mankins, Michael and Mark Gottfredson. “Strategy-Making in Turbulent Times,” Harvard Business Review, Sep.–Oct. 2022. hbr.org/2022/09/strategy-making-inturbulent-times
Keywords: Outdoor Advertising; Layoffs and Job Reductions; Standard & Poor’s 500 Stock Index; Walt Disney Company; Credit and Debt; Business; Interest Rates; Inflation (Economics); Rose (1997); Treasury Department; Amazon.com Inc; Standard & Poor’s Corp; Deere & Company; Electric and Hybrid Vehicles; United States; Netflix Inc; Corporate Taxes; Banking and Financial Institutions; Austin (Tex); Batteries; United States Economy; Nasdaq Composite Index; Texas; Productivity; Obvious (Art Collective); Enterprise Computing; Dell Inc; Microsoft Corp; Television; Stocks and Bonds; Federal Reserve System; Advertising and Marketing; Banks, Jillian; Rationing and Allocation of Resources; New York Times; Corporations; Movies; New York University; Harvard Business Review; Company Reports; Computers and the Internet; Salesforce.com Inc
Michael Mankins is a leader in Bain’s organization and strategy practices and a partner in Austin, Texas. He is a coauthor of Time, Talent, Energy: Overcome Organizational Drag and Unleash Your Team’s Productive Power (Harvard Business Review Press, 2017).
This article was originally published by the Harvard Business Review at HBR.org on April 5, 2023.
2023 Harvard Business Review
An organization’s employee experience1 has been connected in recent years to how it delivers its customer experience (CX). Given changing dynamics in the labor force and all the ways technology makes it possible for companies, employees, and customers to be connected, I believe it’s time for leaders to double down on the idea that EX is now the key driver of CX and to find smarter, strategic ways of connecting the two.
Consider the workforce challenges that currently vex most companies: the dearth of workers skilled for the new demands of business, high turnover rates and the associated costs of recruitment and training, and difficulties in engaging employees given hybrid and other new ways of working, people’s elevated expectations for authentic DEI, and broadscale shifts in workers’ values. Amid all this, companies struggle to ensure they have a knowledgeable, experienced, and motivated workforce—one that is equipped to deliver a good customer experience.
And EX has grown in importance to customers. As more customers look to align their purchase decisions with their values, they have become increasingly interested in how companies engage with employees and tend to prioritize doing business with those that value their employees, treat them fairly, and prioritize their well-being. And employees are interacting with more customers more directly—and because of that the nature of employee engagement has more impact on customers.
According to PwC2 , companies that invest in and deliver superior experiences to both consumers and employees are able to charge a premium of as much as 16% for their products and services. And MIT researchers3 found that companies in the top quartile of EX developed more successful innovations, deriving twice the amount of revenues from their innovations as did those in the bottom quartile—and their industry-adjusted Net Promoter Scores (NPS) were twice as high.
EX is defined as the sum of everything an employee undergoes throughout his or her connection to an organization, from the first contact as a potential hire to last touchpoints after the end of employment. It requires a holistic, focused, and purposeful approach, but most companies design and manage EX as a set of discrete elements of employment, e.g., flexible work arrangements, rewards and recognition programs, or wellness initiatives. That mode of thinking is outdated. Today’s EX is created through the overall company culture, and all the in-between moments, including the ways managers engage employees on a daily basis.
With all its moving parts, the customer experience requires the consistent, cohesive engagement throughout the organization that EX excellence can foster. To tap
the power of EX to create compelling CX, business leaders must align the two, directly connect employees and customers, and use tools and processes to identify and report on the impact each has on the other.
Identify the parallels between the employee and customer experience. So how do leaders design EX to better align with CX?
First, identify where the biggest gaps exist. A company cannot expect to deliver a tech-enabled, seamless, and intuitive CX, for example, if everything it does with employees is on paper, slow, and bureaucratic. And it’s unlikely that employees will deliver highly empathetic, caring, and personal service if their employer doesn’t cultivate an organizational culture that embraces those values.
But when employees understand that their experience is aligned with the desired CX, they intuitively start contributing to it through their own actions and decisions. For an example, consider the fun and freedom that empowers Southwest Airlines4 employees to make its CX so enjoyable.
Second, to improve CX through EX, companies should find creative ways to directly connect employees and customers regardless of whether “customer service” is in their job description. Adobe5, for example, uses listening stations where employees can go either virtually online or physically in an Adobe office location to hear from customers directly and learn about their successes and challenges.
By shortening the distance between employees and customers, managers enable employees to cultivate the customer understanding and empathy needed to identify and make CX improvements. It also increases employees’ sense of purpose and agency because they see the impact they make, which also leads to better customer experiences and could also positively impact employee retention to boot.
A third way to leverage EX in CX efforts is to integrate customer and employee journey maps to identify and diagnose customer problems. Some CX problems result from gaps or inconsistencies in employee skills and knowledge—or ineffective policies and outdated systems that negatively impact employees’ attitudes and their ability to do great work.
A map that correlates and calibrates the journeys of customers with the journeys of employees helps identify employee pain points that negatively impact the customer as well. Insights into what employees are experiencing provides a unique perspective on customer processes and systems that can’t be derived from customer data alone.
For example, when Best Buy 6 mapped its employee journey, it discovered that employees were having trouble adopting a new point of sale (POS) system it had rolled out. And at the same time, the company knew customers were complaining about long waits at checkout—and could have written it off as a standard customer service issue. Instead, Best Buy used employee research and an experience design approach to improve the system and to bring in new technology that reduced POS training and transaction time. At the time these changes were rolled out, they reduced frustration for employees, which improved employee retention, while improving CX.
Have a single view of performance across both dimensions.
Finally, providing visibility into CX and EX performance together further advances CX efforts. Companies can provide a complete view of the interlinked employee and customer experience by integrating KPIs from both areas into a single view with a dynamic report instead of using separate datasets and dashboards.
With simplified, integrated reporting, managers can better diagnose and track issues. Healthcare facilities services provider Medxcel7 uses a composite site-level metric to assess how each of its sites is doing on customer relationship health, customer transactional performance, and employee engagement.
Also, when employee performance is reported relative to customer metrics, employees tend to become more engaged with the organization and adopt a stronger orientation to business results. When O28 , the telecommunications business that is part of Madridbased Telefónica, wanted to transform from a mobile service provider to a digital telecommunications brand, it published an employee dashboard that summarized customer results from activities related to the initiative and reported the results in weekly leadership team presentations. This prompted employees to feel more
ownership for the transformation and to want to develop innovations that advanced the company’s new identity.
When you have better employee understanding of the desired CX and their impact on it, you can also inspire greater commitment to the organization and its goals. Even more evidence that it makes sense to prioritize EX in CX efforts—especially now.
1. Yohn, Denise Lee. “Why Every Company Needs a Chief Experience Officer,” Harvard Business Review, June 2019. hbr.org/2019/06/why-every-company-needs-achief-experience-officer
2. Puthiyamadam, Tom and José Reyes. “Experience is Everything: Here’s How to Get It Right,” PricewaterhouseCoopers, 2018. pwc.com/us/en/advisory-services/ publications/consumer-intelligence-series/pwc-consumer-intelligence-series-customerexperience.pdf
3. Dery, Kristine and Ina M. Sebastian. “Building Business Value With Employee Experience,” MIT Sloan Center for Information Systems Research, Research Briefing, Volume XVII, Number 6, June 2017. avanade.com/~/media/asset/thinking/ mit-research.pdf
4. Southwest Airlines, Southwest Careers. careers.southwestair.com/culture
5. Morris, Donna. “Building a Customer-centric Culture—Five Lessons Learned,” Adobe Blog, July 2017. blog.adobe.com/en/publish/2017/07/11/building-a-customercentric-culture-five-lessons-learned
6. Ruff, Corinne. “Why Best Buy is Investing in Employees,” Retail Dive, Feb. 2018. retaildive.com/news/why-best-buy-is-investing-in-employees/516497/
7. Achievers Solutions, Inc. The Future of Employee Engagement, 2019. achievers.com/ wp-content/uploads/2020/10/The-Future-of-Engagement-CHRO-Panel-2019_web.pdf
8. Marketing Society. Marketing Society Excellence Awards, 2016. marketingsociety.com/ sites/default/files/thelibrary/Telefonica%20O2%20-%20Rally%20Cry_Redacted.pdf
Keywords: Executives and Management (Theory); Labor and Jobs; Layoffs and Job Reductions; Health Insurance and Managed Care; Senses and Sensation; Real Estate (Commercial); Business; Customer Relations; Telephones and Telecommunications; Research; Books and Literature; Innovation; Workplace Environment
Denise Lee Yohn is a leading authority on positioning great brands and building exceptional organizations and has 25 years of experience working with worldclass brands, including Sony and Frito-Lay. Denise is a consultant, speaker, and author of What Great Brands Do: The Seven Brand-Building Principles that Separate the Best from the Rest and the new book How Integrating Brand and Culture Powers the World’s Greatest Companies
Introduction
It seems that navigating the complexities of a workforce has never been more challenging than in 2022. In particular, we see the different generations in our companies (perhaps because so much attention is given to defining “boomer,” “millennial,” “Gen X,” etc.), we sense that each generation has different priorities and concerns, and we wonder how to communicate with each of our employees in all generations to accomplish organizational goals.
And in the water treatment industry we see important changes in the job description of a water treatment professional. Consider:
• The sales/service process: For veterans in the industry, sales and service were both the responsibility of one person. But today, in many companies, there is a separation of responsibility,
whereby one person owns the service of an account, another owns the account management of the same account, and perhaps a third person is solely responsible for new business development.
• The impact of technology: Smart controllers; electronic service reports; innovations in testing procedures—it is crucial that the water treatment professional not only adapts to these changes, but also incorporates them into their natural rhythm of service and sales.
• Communication with decision makers: The sales and management process are more complicated than ever—corporate accounts; buying groups; centralized decision making. It is not the same “as it used to be.”
How do we maximize the impact of each generation represented in our organization, understanding that to do so is to treat them with the most respect and achieve our company objectives in the process?
The purpose of this paper is to answer the question. Our goal is to help you visualize what you want your team to look like in the future (say, five years); a picture of the impact each team member can have in their time frame, regardless of generation; and how they can get there –what conversations and strategies need to be developed and executed.
In a paper presented at the Society for Human Resource Management (SHRM) Annual Conference in September of 2021, five different generations of employees in the workforce were identified. The next month, CareerBuilder published an article with results of a study to see how long each generation stays in their jobs and what each generation values. Results are summarized below:
• Traditionalist (76 years and older)
• Baby Boomer (57 to 75 years old)
• Generation X (41 to 56 years old)
• Millennial (26 to 40 years old)
• Generation Z (25 years old and younger)
While the need to understand each employee individually is the priority, it is still useful to note general characteristics of each category. In fact, paying attention to these general characteristics can help in better understanding each person’s unique needs.
• Baby boomers value position, prestige, and stability.
• Generation X members value self-sufficiency, resourcefulness, and freedom.
• Millennials value self-confidence and work-life balance.
• Members of Generation Z value individual expression, societal change, and pragmatism.
On a macro level:
• Traditionalists tend to be loyal to the organization. They often have long-term commitment and tenures and see a career as equaling opportunity.
• Baby Boomers tend to be loyal to the team, adding value by going the extra mile, and see career as translating into self-worth.
• Members of Generation X often are loyal to their manager and may exceed expectations and deliver results but perceive career as just one part of who they are.
• Millennials tend to be loyal to colleagues. Millennials expect equitable treatment and see their careers as an opportunity to add value and contribute.
• Members of Generation Z tend to be loyal to the experience and are invested in their careers, which they see as a way to grow.
• Traditionalists tend to have respect for authority and the hierarchical system, where seniority and job titles are valued. They have the attitude of “tell me what I should do for you.”
• Baby Boomers challenge authority and desire flat organizations that are democratic. They tend to have the mindset of “let me show you what I can do for you,” according to the paper.
• Members of Generation X may be unimpressed by authority and expect their competence and skills to be respected. Their approach may be “tell me what you can do for me.”
• Millennials respect authority figures who demonstrate competence. Their attitude tends to be “show me what you can do for me right now.”
• Members of Generation Z respect the process and follow direction but want to be engaged. Management should avoid one-way conversations with them, which can be difficult for some leaders. Compared to other generations, Gen Z members tend to be less trusting of authority and authority figures.
• Traditionalists tend to follow the rules, thinking that change is necessary mainly when something is broken.
• Baby Boomers like a structured organization, challenge the rules and yet are cautious about change.
• Members of Generation X tend to be flexible, want to change the rules and see change as opportunity.
• Millennials have more fluid work styles and expect to create the rules with change equaling improvement.
• Members of Generation Z are agile and seek balanced rules, seeing change as simply reality.
• Baby Boomers: 8 years 3 months
• Generation X: 5 years 2 months
• Millennials: 2 years 9 months
• Generation Z: 2 years 3 months
Finally, the paper noted that almost half of the Millennials and Generation Z’s feel stressed most of the time, while 36% of Millennials and 53% of Generation Z think they will leave their current employer within two years. This is confirmation of the importance of this topic—the stakes are high.
Consider your own organization—at HOH, we have significant representation in all these generations, excepting the Traditionalist category. We have a stated vision of what we want to look like in five years. But each individual’s five-year vision looks very different. The characteristics listed above can help you as a leader to tailor your conversations in a way that speak to individual needs while at the same time reinforcing the company mission.
While it can seem daunting to understand all the differences in the generations represented in our companies, there is also the comforting reality that every employee, regardless of age, thinks about the same things and needs the same things.
• Do the leaders of my company have a clear vision for the future? Everyone wants to be part of something bigger than themselves. They want to be part of a successful, growing company; they want to buy into the vision. They also want to be part of a stable organization, to feel as secure as possible. Knowing that leadership has a clear vision helps everyone feel secure and part of something they can get excited about.
• Does my company prepare me for success? This is about individual empowerment. We all want to feel that we have the ability and opportunity to succeed in our career. When the company provides training, regular feedback and support, the employee,
regardless of age, knows the company
with them to help achieve their individual success.
• Does my manager keep me informed of what’s going on? (And is he or she kept informed?)
Gallup research says that employees who receive daily feedback from their manager are three times more likely to be engaged than those who receive feedback once a year or less. It is not enough to hear the leader communicate a clear vision, like a general encouraging the troops on what victory looks like. It is also necessary to for the manager (i.e., captain of team) to regularly provide the data on how the battle is going. It will make us soldiers try that much harder.
• Trust: Patrick Lencioni, in The Five Dysfunctions of a Team, identifies an absence of trust as the underlying dysfunction which prevents organizations from achieving results. Every employee needs to trust their manager and their company’s leadership. The subject of trust is obviously too much to deal with in detail in this paper, but organizational trust certainly includes:
» Clear, honest communication—clarity builds trust. It is said that “reality is your friend; even negative reality.” This is true because we all feel more trusting when we know where we stand. Clear, honest communication will involve direct feedback, and it also works both ways—the employee builds trust by being direct and honest about their performance and being willing to accept feedback that will ultimately make them more effective.
» Predictable behavior—trust is built when you “say what you will do, and then do what you say.”
• Compassion: Gallup has done research that shows managers who demonstrate compassion with their employees improve their performance. In their Gallup Q12 engagement survey, they ask for a response to this question: “My supervisor, or someone at work, seems to care about me.” Employees who agree with this are more likely to:
» Experiment with new ideas,
» Be advocates for their employer,
» Support coworkers personally and professionally, and
» Feel equipped to strike a balance between their work and personal lives.
Compassion includes learning what matters most to each employee. And as we have shown, this will, at a minimum, vary with the different generations in your organization. Pay attention to what each person needs and then show compassion by responding to those needs. Another old saying applies here: “People don’t care what you know until they know that you care.”
• Stability: Stability is about the present moment. Can we be stable during uncertainty? No matter the generation, employees feel stable when they can depend on you to answer their questions, hear their ideas, and address their concerns. How you communicate affects the stability of your team.
• Hope: Back to the Gallup survey, the most powerful question Gallup asked followers was about hope—69% who strongly agreed that their leaders made them “feel enthusiastic about the future” were engaged. Only 1% of those who disagreed with the statement were engaged.
One word dominates the steps to take to maximize the impact of each generation in your company: communicate Communication includes both listening and speaking:
• Listen to what each person needs. As we have demonstrated, this will vary depending on the generation, and at the same time, there are needs that need to be met for each employee, no matter the generation. So, listening will take time—you will need to spend time with each employee, better understanding what they are feeling and what they need to succeed in their role. This kind of “empathic listening” will model compassion and will improve their level of engagement.
• Communicate—vision: It has been said that “vision is a picture of the future that inspires passion.” When the leaders of a company communicate a vision of the future that inspires passion, hope is created, and when hope is created, employee engagement is strong. The future will be different for each generation in your company, but each person needs a vision of their future to feel hope. Communicate vision, consistently, clearly, and often.
• Communicate—connection: It is also important that each person understands their connection
with the company’s vision. It is one thing to see the company goal. It is another thing to feel connected, or to feel that you are a part of, achieving that goal. We all long to be part of something bigger than ourselves. Again, the connection will be different for each person, which reinforces the need to understand where they are at (listen) and to communicate how they fit into the big picture, both now and at some future point in time.
• Communicate—values. The vision of the organization is accomplished when the “right” people are engaged in the work. The “right” people are the ones who know and live out your core values. There may be multiple generations in your company, but the right people are represented in each generation. Be sure that your values are communicated clearly, consistently, and often, and that your written communication (policies and procedures) is in line with these values.
• Communicate—creatively: Be creative and flexible in how you communicate. We know that different generations have different priorities. How we speak to baby boomers, for example, will probably be different from how we speak to millennials. We also live in a time with remote workers who may be harder to engage. It will take creativity to keep the remote person engaged; to make them feel as engaged as someone who is in the office every day.
We see the multi-generational nature of our companies as an opportunity. Recognizing the differences and remembering the similarities helps us grow as leaders in our ability to lead well. We achieve our objectives when we have an engaged workforce—how is it a bad thing to recognize differences and similarities if it helps us maximize the impact that each person can have in their company?
We encourage you to seize the opportunity to grow in understanding and communicating with each person with an eye on their needs, regardless of generation differences. It is not a problem to be solved; it is the time to grow.
This article was originally published by the Harvard Business Review at HBR.org on January 9, 2023. 2023 Harvard Business School Publishing Corp.
The new year brings with it an opportunity for reflection and learning that can create a foundation for continuous improvement in the year ahead. While we certainly can do this as individuals for our own learning and development, conducting a post-mortem—and even a premortem—with your team is an opportunity to instill a learning culture,1 build psychological safety, enhance morale and team alignment, and improve results.
As their names suggest, a post-mortem looks back, while a pre-mortem looks forward. While these are typically performed for discrete projects, they can be also done at the start of the year to learn from accomplishments or progress made (or lack thereof) on team goals or initiatives over the last year and identify and pre-empt risks to future performance, both of which are aimed at increasing the chances of success for the goals or initiatives set for the coming year. The post-mortem and premortem are separate exercises but could be conducted as two sessions within a larger team offsite, ideally allowing some reflection time in between the two sessions, as additional insights may emerge.
Below are some best practices to follow to make sure you and your team maximize the productivity of your conversations to help you learn and set your team up for success in the year ahead.
If your budget permits, engaging an outside facilitator to lead the sessions is recommended. This not only frees up the team leader to be a participant (versus a facilitator), but also brings professional expertise in managing group discussions and dynamics. Specifically, a skilled professional facilitator can help modulate the emotional temperature in the room, keep the team on topic, and make sure everyone speaks and is heard by others, resulting in greater learning and clarity from these exercises.
Provide the questions you’ll be discussing a few weeks in advance, so that team members can take the time they need to reflect and answer them thoughtfully. This will be especially helpful for introverts, who prefer to think things through before discussing them. Sharing
the questions in advance will also allow people time to record their initial thoughts, while providing enough time to come back and add to them, since it’s likely that not everything will come to mind in one sitting.
Whether you assign a scribe or ask for a volunteer for this role, you’ll want someone to document essential parts of the discussion so that you don’t lose track of key points. This will be important to come back to when it’s time to step back, distill learnings, and create clear actions and accountabilities going forward (which will also need to be documented).
These are agreements that are created by the team for how everyone will work together in these sessions (and ideally, beyond the sessions). Don’t rush through these guidelines — provide the space for the team to generate them so there is buy-in from team members as to how the team will operate during the discussions. The final list should be posted somewhere the team will see them throughout the meeting to serve as a reminder, whether the team is meeting virtually or in person. Team members should also be welcome to add to the list at any time if something new occurs to them.
Some suggestions include:
• Maintain a growth mindset. See failures, shortfalls, or problems as a normal part of business and opportunities to learn and improve.
• No blaming or shaming. De-personalize comments by focusing on team results, processes, and collective behaviors, not individual team members. (Any individual feedback should be given separately, one on one).
• Don’t hold back. If you are aware of something that inhibited or helped (or might inhibit or help) team performance, it’s your responsibility to share it.
• Be present. Do not multitask—stay focused on the discussion. Phones should be on silent or off and, if the meeting is held in person, laptops should be closed (except for the note-taker’s).
• Use engaged listening. Do not interrupt. Focus on the person speaking and what they’re saying.
• Be curious. Withhold judgement and ask probing questions to discover more. Don’t assume you “already know.”
• Be vulnerable. Be willing to admit mistakes or say, “I don’t know.”
The goal of the above guidelines is to create and reinforce a sense of psychological safety so that the conversation can be as open, candid, and productive as possible, and focused on team performance. For example, being vulnerable and admitting to a mistake makes it safer for others to do so, especially if you are the team leader. The greater the psychological safety, the easier it will be for the team to openly acknowledge, discuss, and learn from actual or potential future mistakes in service of improving the team’s performance going forward. There may be other guidelines that you and your team want add to this list, but these are a good foundation to start with.
A post-mortem is a chance to step back, take perspective more objectively, and challenge the team’s assumptions. Due to our inherent negativity bias, it can be easy to gloss over successes and focus only on what went wrong. It’s important to focus equally on the team’s accomplishments as its failures, so be sure to allocate appropriate time. Research also shows that success can make us less reflective and over-confident, and we tend to attribute successes to our own talents, versus luck or other factors, including external variables, than we do for failures.
It’s important to dig into root causes of success not only to create more opportunities for success, but also to prevent the team from coasting or taking its success for granted, which can—ironically—set the team up for failure in the future. It’s also an opportunity for the team to fully celebrate its accomplishments, so that team members feel appreciated, recognized, and valued.
Questions to ask:
• Successes
» What went well and what was the impact of these things going well?
» What behaviors, factors or conditions allowed these things to go well?
» How can we carry these successes forward, leverage them in other areas or repeat them?
• Failures or shortfalls
» What didn’t go well and what was the impact of these things not going well?
» What behaviors, factors or conditions led to these things not going well?
» How can we avoid these issues going forward?
Pre-mortems are used to help identify and mitigate risks upfront for specific projects, goals, or initiatives. They should go beyond imagining what could potentially go wrong, to using what researchers call prospective hindsight, 2 in which the team envisions that specific successes or failures have already happened. Putting yourself and the team in this imagined future state of success or failure being realized has shown to improve the ability to correctly pinpoint the causes of these respective outcomes by 30%.
With a pre-mortem, you are effectively stepping into a time machine that has sent you to the future and conducting a post-mortem for things that (in reality) haven’t happened yet, but you are discussing them as if they have.
For example, at the start of the pandemic, my colleagues and I asked ourselves (and our clients): “It’s one year from now, and we’ve given ourselves an A+ for how we managed through the pandemic thus far. What have we done to merit this grade?” Likewise, one of my favorite interview questions for job candidates is “Fast forward to six months from now. It’s not working out. What is the primary reason for this?” On the failure side of the equation, in particular, this type of questioning forces people to temporarily set aside their rose-colored glasses and voice any subtle doubts or concerns that could very well present real issues down the road.
For a pre-mortem, you’ll ideally want to first have the team’s specific goals and initiatives for the coming year defined so the conversation can be more focused and specific.
Questions to ask:
It’s one year from now, and we’re doing our post-mortem…
• We’ve met (or even wildly exceeded) goals A, B and C.
» What were the main drivers that led to this?
» What other factors were involved?
• We’ve
» What were the main drivers that led to this?
» What other factors were involved?
• How can we best leverage the drivers we identified that could contribute to our success?
• How can we address or mitigate the risks we identified?
As a group, summarize and capture the main learnings from the sessions and what priorities these point to for the team to address. Ideally, these exercises will have allowed the team to see things more objectively with some distance, connecting dots that may not have been as easily visible when otherwise heads-down in the actual work. Perhaps the team needs more lead time for recruiting the right additions to the team, greater diversification of suppliers to prevent product shortages, new processes for better intra-team communication about customer needs, or to keep pricing guidelines that have created consistency and properly reflect the company’s brand positioning.
Once the learnings and priorities have been highlighted, create an action plan for the team with initial next steps articulated for each priority, clear ownership of those actions and timelines for completion. By articulating who will do what and by when, there should be no ambiguity about what needs to happen following these meetings, even if the next step for a particular priority is to set up another meeting to continue the discussion to determine relevant actions, due to time constraints in the initial meeting. Ownership for scheduling that meeting by a certain time should also be clear.
In addition, determine a process for ongoing plans for each priority to be further fleshed out and conduct regular follow-up throughout the year. When and how often will the team check-in on progress on its goals and priorities so that issues can be addressed as they emerge, and course corrections can be made? Will team members report in at weekly staff meetings, or check-in monthly or quarterly?
Sending the summary of the key learnings, actions, as well as ownership and accountabilities from these meetings to the team ensures that everyone has the opportunity to correct anything that may have been captured inaccurately and makes sure everyone is working with the same information and understanding. This also allows team members to actively monitor the success factors and risks as they work towards the team’s goals in the year ahead.
Learning and continuous improvement as a team require open discussion about what went well and what didn’t in the prior year, as well as realistically assessing potential pitfalls and opportunities that could lead to future failure or success. Using the approach above to conduct both pre- and post-mortems can help your team increase its chances of continued success.
1. Schwartz, Tony. “Create a Growth Culture, Not a Performance-Obsessed One,” Harvard Business Review, Mar. 2018. hbr.org/2018/03/create-a-growth-culture-nota-performance-obsessed-one
2. Klein, Gary. “Performing a Project Premortem,” Harvard Business Review, Sep. 2007. hbr.org/2007/09/performing-a-project-premortem
Keywords: Employee Training; Teams; Employees; Organizations; Workshops; Strategy; Management; Managers; Leaders; Innovation; Workplace Environment; Meetings; Business
Rebecca Zucker is an executive coach and a founding partner at Next Step Partners, a leadership development firm.
Of the hundreds of thousands of business ventures that entrepreneurs launch every year, many never get off the ground. Others fizzle after spectacular rocket starts.
A six-year-old condiment company has attracted loyal customers but has achieved less than $500,000 in sales. The company’s gross margins can’t cover its overhead or provide adequate incomes for the founder and the family members who participate in the
business. Additional growth will require a huge capital infusion, but investors and potential buyers aren’t keen on small, marginally profitable ventures, and the family has exhausted its resources.
Another young company, profitable and growing rapidly, imports novelty products from the far east and sells them to large U.S. chain stores. The founder, who has a paper net worth of several million dollars, has been nominated for entrepreneur-of-the-year awards. But the company’s spectacular growth has forced him to reinvest most of his profits to finance the business’s growing inventories and receivables. Furthermore, the company’s profitability has attracted competitors and tempted customers to deal directly with the Asian suppliers. If the founder doesn’t do something soon, the business will evaporate.
Like most entrepreneurs, the condiment maker and the novelty importer get plenty of confusing counsel: Diversify your product line. Stick to your knitting. Raise capital by selling equity. Don’t risk losing control just because things are bad. Delegate. Act decisively. Hire a professional manager. Watch your fixed costs.
Why all the conflicting advice? Because the range of options—and problems—that founders of young businesses confront is vast. The manager of a mature company might ask, “What business are we in?” or ”How can we exploit our core competencies?” Entrepreneurs must continually ask themselves1 what business they want to be in and what capabilities they would like to develop. Similarly, the organizational weaknesses and imperfections that entrepreneurs confront every day would cause the managers of a mature company to panic. Many young enterprises simultaneously lack coherent strategies, competitive strengths, talented employees, adequate controls, and clear reporting relationships.
The entrepreneur can tackle only one or two opportunities and problems at a time. Therefore, just as a parent should focus more on a toddler’s motor skills than on his or her social skills, the entrepreneur must distinguish critical issues from normal growing pains.
Entrepreneurs cannot expect the sort of guidance and comfort that an authoritative child-rearing book can
offer parents. Human beings pass through physiological and psychological stages in a more or less predetermined order, but companies do not share a developmental path. Microsoft, Lotus, WordPerfect, and Intuit, although competing in the same industry, did not evolve in the same way. Each of those companies has its own story to tell about the development of strategy and organizational structures and about the evolution of the founder’s role in the enterprise.
The options that are appropriate for one entrepreneurial venture may be completely inappropriate for another. Entrepreneurs must make a bewildering number of decisions, and they must make the decisions that are right for them. The framework I present here, and the accompanying rules of thumb, will help entrepreneurs analyze the situations in which they find themselves, establish priorities among the opportunities and problems they face, and make rational decisions about the future. This framework, which is based on my observation of several hundred start-up ventures over eight years, doesn’t prescribe answers. Instead, it helps entrepreneurs pose useful questions, identify important issues, and evaluate solutions. The framework applies whether the enterprise is a small printing shop trying to stay in business or a catalog retailer seeking hundreds of millions of dollars in sales. And it works at almost any point in a venture’s evolution. Entrepreneurs should use the framework to evaluate their companies’ position and trajectory often—not just when problems appear.
The framework consists of a three-step sequence of questions. The first step clarifies entrepreneurs’ current goals, the second evaluates their strategies for attaining those goals, and the third helps them assess their capacity to execute their strategies. The hierarchical organization of the questions requires entrepreneurs to confront the basic, big-picture issues before they think about refinements and details. This approach does not assume that all companies—or all entrepreneurs—develop in the same way, so it does not prescribe a one-size-fits-all methodology for success.
An entrepreneur’s personal and business goals are inextricably linked. Whereas the manager of a public company has a fiduciary responsibility to maximize
value for shareholders, entrepreneurs build their businesses to fulfill personal goals and, if necessary, seek investors with similar goals.
Before they can set goals for a business, entrepreneurs must be explicit about their personal goals. And they must periodically ask themselves if those goals have changed. Many entrepreneurs say that they are launching their businesses to achieve independence and control their destiny, but those goals are too vague. If they stop and think about it, most entrepreneurs can identify goals that are more specific. For example, they may want an outlet for artistic talent, a chance to experiment with new technology, a flexible lifestyle, the rush that comes from rapid growth, or the immortality of building an institution that embodies their deeply held values. Financially, some entrepreneurs are looking for quick profits, some want to generate a satisfactory cash flow, and others seek capital gains from building and selling a company. Some entrepreneurs who want to build sustainable institutions do not consider personal financial returns a high priority. They may refuse acquisition proposals regardless of the price or sell equity cheaply to employees to secure their loyalty to the institution.
Only when entrepreneurs can say what they want personally from their businesses does it make sense for them to ask the following questions:
Long-term sustainability does not concern entrepreneurs looking for quick profits from in-and-out deals. Similarly, so-called lifestyle entrepreneurs, who are interested only in generating enough of a cash flow to maintain a certain way of life, do not need to build businesses that could survive without them. But sustainability—or the perception thereof—matters greatly to entrepreneurs who hope to sell their businesses eventually. Sustainability is even more important for entrepreneurs who want to build an institution that is capable of renewing itself through changing generations of technology, employees, and customers.
Entrepreneurs’ personal goals should also determine the target size of the businesses they launch. A lifestyle entrepreneur’s venture needn’t grow very large.
In fact, a business that becomes too big might prevent the founder from enjoying life or remaining personally involved in all aspects of the work. In contrast, entrepreneurs seeking capital gains must build companies large enough to support an infrastructure that will not require their day-to-day intervention.
What risks and sacrifices does such an enterprise demand?
Building a sustainable business—that is, one whose principal productive asset is not just the founder’s skills, contacts, and efforts—often entails making risky long-term bets. Unlike a solo consulting practice—which generates cash from the start—durable ventures, such as companies that produce branded consumer goods, need continued investment to build sustainable advantages. For instance, entrepreneurs may have to advertise to build a brand name. 2 To pay for ad campaigns, they may have to reinvest profits, accept equity partners, or personally guarantee debt. To build depth in their organizations, entrepreneurs may have to trust inexperienced employees to make crucial decisions. Furthermore, many years may pass before any payoff materializes—if it materializes at all. Sustained risk-taking can be stressful. As one entrepreneur observes, “When you start, you just do it, like the Nike ad says. You are naive because you haven’t made your mistakes yet. Then you learn about all the things that can go wrong. And because your equity now has value, you feel you have a lot more to lose.”
Entrepreneurs who operate small-scale, or lifestyle, ventures face different risks and stresses. Talented people usually avoid companies that offer no stock options and only limited opportunities for personal growth, so the entrepreneur’s long hours may never end. Because personal franchises are difficult to sell and often require the owner’s daily presence, founders may become locked into their businesses. They may face financial distress if they become sick or just burn out. “I’m always running, running, running,” complains one entrepreneur, whose business earns him half a million dollars per year. “I work 14-hour days, and I can’t remember the last time I took a vacation. I would like to sell the business, but who wants to buy a company with no infrastructure or employees?”
Finding the optimal growth rate for a new enterprise is a difficult and critical task. To set the right pace, entrepreneurs must consider many factors, including the following:
Economies of scale, scope, or customer network. The greater the returns to a company’s scale, scope, or the size of its customer network, the stronger the case for pursuing rapid growth. When scale causes profitability to increase considerably, growth soon pays for itself. And in industries in which economies of scale or scope limit the number of viable competitors, establishing a favorable economic position first can help deter rivals.
The ability to lock in customers or scarce resources. Rapid growth also makes sense if consumers are inclined to stick with the companies with which they initially do business, either because of an aversion to change or because of the expense of switching to another company. Similarly, in retail, growing rapidly can allow a company to secure the most favorable locations or dominate a geographic area that can support only one large store, even if national economies of scale are limited.
Competitors’ growth. If rivals are expanding quickly, a company may be forced to do the same. In markets in which one company generally sets the industry’s standard, such as the market for personal-computer operating-system software, growing quickly enough to stay ahead of the pack may be a young company’s only hope.
Resource constraints. A new venture will not be able to grow rapidly if there is a shortage of skilled employees or if investors and lenders are unwilling to fund an expansion that they consider reckless. A venture that is growing quickly, however, will be able to attract capital as well as the employees and customers who want to go with a winner.
Internal financing capability. When a new venture is not able to attract investors or borrow at reasonable terms, its internal financing capability will determine the pace at which it can grow. Businesses that have high profit margins and low assets-to-sales ratios can fund high growth rates. A self-funded business, according to the well-known sustainable growth formula, cannot expand its revenues at a rate faster than its return on equity.
Tolerant customers. When a company is young and growing rapidly, its products and services often contain some flaws. In some markets, such as certain segments of the high-tech industry, customers are accustomed to imperfect offerings and may even derive some pleasure from complaining about them. Companies in such markets can expand quickly. But in markets in which buyers will not stand for breakdowns and bugs, such as the market for luxury goods and mission-critical process-control systems, growth should be much more cautious.
Personal temperament and goals. Some entrepreneurs thrive on rapid growth; others are uncomfortable with the crises and firefighting that usually accompany it. One of the limits on a new venture’s growth should be the entrepreneur’s tolerance for stress and discomfort.
Entrepreneurs must reconcile what they want with what they are willing to risk. Consider Joseph Alsop, cofounder and president of Progress Software Corporation. When Alsop launched the company in 1981, he was in his mid-thirties, with a wife and three children. With that responsibility, he says, he didn’t want to take the risks necessary to build a multibillion-dollar corporation like Microsoft, but he and his partners were willing to assume the risks required to build something more than a personal service business. Consequently, they picked a market niche that was large enough to let them build a sustainable company but not so large that it would attract the industry’s giants. They worked for two years without salaries and invested their personal savings. In 10 years, they had built Progress into a $200 million publicly held company.
Entrepreneurs would do well to follow Alsop’s example by thinking explicitly about what they are and are not willing to risk. If entrepreneurs find that their businesses—even if very successful—won’t satisfy them personally, or if they discover that achieving their personal goals requires them to take more risks and make more sacrifices than they are willing to, they need to reset their goals. When entrepreneurs have aligned their personal and their business goals, they must then make sure that they have the right strategy.
Many entrepreneurs start businesses to seize shortterm opportunities without thinking about long-term strategy. Successful entrepreneurs, 3 however, soon make the transition from a tactical to a strategic orientation so that they can begin to build crucial capabilities and resources.
Formulating a sound strategy is more basic to a young company than resolving hiring issues, designing control systems, setting reporting relationships, or defining the founder’s role. Ventures based on a good strategy can survive confusion and poor leadership, but sophisticated control systems and organizational structures cannot compensate for an unsound strategy. Entrepreneurs should periodically put their strategies to the following four tests:
A company’s strategy will fail all other tests if it doesn’t provide a clear direction for the enterprise. Even solo entrepreneurs can benefit from a defined strategy. For example, dealmakers who specialize in particular industries or types of transactions often have better access to potential deals than generalists do. Similarly, independent consultants can charge higher fees if they have a reputation for expertise in a particular area.
An entrepreneur who wants to build a sustainable company must formulate a bolder and more explicit strategy. The strategy should integrate the entrepreneur’s aspirations with specific long-term policies about the needs the company will serve, its geographic reach, its technological capabilities, and other strategic considerations. To help attract people and resources, the strategy must embody the entrepreneur’s vision of where the company is going instead of where it is. The strategy must also provide a framework for making the decisions and setting the policies that will take the company there.
The strategy articulated by the founders of Sun Microsystems, for instance, helped them make smart decisions as they developed the company. From the outset, they decided that Sun would forgo the nichemarket strategy commonly used by Silicon Valley start-ups. Instead, they elected to compete with industry leaders IBM and Digital by building and marketing a general-purpose workstation. That strategy, recalls cofounder and former president Vinod Khosla, made Sun’s product-development choices obvious. “We wouldn’t develop any applications software,” he explains. This strategy also dictated that Sun assume the risk of building a direct sales force and providing its own field support—just like its much larger competitors. “The Moon or Bust was our motto,” Khosla says. The founders’ bold vision helped attract premier venturecapital firms and gave Sun extraordinary visibility within its industry.
To be useful, strategy statements should be concise and easily understood by key constituents such as employees, investors, and customers. They must also preclude activities and investments that, although they seem attractive, would deplete the company’s resources. A strategy
Few entrepreneurs start out with both a well-defined strategy and a plan for developing an organization that can achieve that strategy. In fact, many start-ups, which don’t have formal control systems, decisionmaking processes, or clear roles for employees, can hardly be called organizations. The founders of such ventures improvise. They perform most of the important functions themselves and make decisions as they go along.
Informality is fine as long as entrepreneurs aren’t interested in building a large, sustainable business. Once that becomes their goal, however, they must start developing formal systems and processes. Such organizational infrastructure allows a venture to grow, but at the same time, it increases overhead and may slow down decision-making. How much infrastructure is enough and how much is too much? To match investments in infrastructure to the requirements of a venture’s strategy, entrepreneurs must consider the degree to which their strategy depends on the following:
Delegating tasks. As a young venture grows, its founders will probably need to delegate many of the tasks that they used to perform. To get employees to perform those tasks competently and diligently, the founders may need to establish mechanisms to monitor employees and standard operating procedures and policies. Consider an extreme example. Randy and Debbi Fields pass along their skills and knowledge through software that tells employees in every Mrs. Fields Cookies shop exactly how to make cookies and operate the business. The software analyzes data such as local weather conditions and the day of the week to generate hourly instructions about such matters as which cookies to bake, when to offer free samples, and when to reorder chocolate chips.
Telling employees how to do their jobs, however, can stifle initiative. Companies that require frontline
employees to act quickly and resourcefully might decide to focus more on outcomes than on behavior, using control systems that set performance targets for employees, compare results against objectives, and provide appropriate incentives.
Specializing tasks. In a small-scale start-up, everyone does a little bit of everything, but as a business grows and tries to achieve economies of scale and scope, employees must be assigned clearly defined roles and grouped into appropriate organizational units. An all-purpose workshop employee, for example, might become a machine tool operator, who is part of a manufacturing unit. Specialized activities need to be integrated by, for example, creating the position of a general manager, who coordinates the manufacturing and marketing functions, or through systems that are designed to measure and reward employees for cross-functional cooperation. Poor integrative mechanisms are why geographic expansion, vertical integration, broadening of product lines, and other strategies to achieve economies of scale and scope often fail.
Mobilizing funds for growth. Cash-strapped businesses that are trying to grow need good systems to forecast and monitor the availability of funds. Outside sources of capital such as banks often refuse to advance funds to companies with weak controls and organizational infrastructure.
Creating a track record. If entrepreneurs hope to build a company that they can sell, they must start preparing early. Public markets and potential acquirers like to see an extended history of well-kept financial records and controls to reassure them of the soundness of the business.
that is so broadly stated that it permits a company to do anything is tantamount to no strategy at all. For instance, claiming to be in the leisure and entertainment business does not preclude a tent manufacturer from operating casinos or making films. Defining the venture as a high-performance outdoor-gear company provides a much more useful focus.
2Can the strategy generate sufficient profits and growth?
Once entrepreneurs have formulated clear strategies, they must determine whether those strategies will allow the ventures to be profitable and to grow to a desirable size. The failure to earn satisfactory returns should prompt entrepreneurs to ask tough questions: What’s the source, if any, of our competitive edge? Are our offerings really better than our competitors’? If they are, does the premium we can charge justify the additional costs we incur, and can we move enough volume at higher prices to cover our fixed costs? If we are in a commodity business, are our costs lower than our competitors’? Disappointing growth should also raise concerns: Is the market large enough? Do diseconomies of scale make profitable growth impossible?
No amount of hard work can turn a kitten into a lion. When a new venture is faltering, entrepreneurs must address basic economic issues. For instance, many people are attracted to personal service businesses, such as laundries and tax-preparation services, because they can start and operate those businesses just by working hard. They don’t have to worry about confronting large competitors, raising a lot of capital, or developing proprietary technology. But the factors that make it easy for entrepreneurs to launch such businesses often prevent them from attaining their long-term goals. Businesses based on an entrepreneur’s willingness to work hard usually confront other equally determined competitors. Furthermore, it is difficult to make such companies large enough to support employees and infrastructure. Besides, if employees can do what the founder does, they have little incentive to stay with the venture. Founders of such companies often cannot have the lifestyle they want, no matter how talented they are. With no way to leverage their skills, they can eat only what they kill.
Entrepreneurs who are stuck in ventures that are unprofitable and cannot grow satisfactorily must take radical action. They must find a new industry or develop innovative economies of scale or scope in their existing fields. Rebecca Matthias, for example, started Mothers Work in 1982 to sell maternity clothing to professional women by mail order. Mail-order businesses are easy to start, but with tens of thousands of catalogs vying for consumers’ attention, low response rates usually lead to low profitability—a reality that Matthias confronted after three years in the business. In 1985, she borrowed $150,000 to open the first retail store specializing in maternity clothes for working women. By 1994, Mothers Work was operating 175 stores generating about $59 million in revenues.
One alternative to radical action is to stick with the failing venture and hope for the big order that’s just around the corner or the greater fool who will buy the business. Both hopes are usually futile. It’s best to walk away.
The next issue entrepreneurs must confront is whether their strategies can serve the enterprise over the long term. The issue of sustainability is especially significant for entrepreneurs who have been riding the wave of a new technology, a regulatory change, or any other change—exogenous to the business— that creates situations in which supply cannot keep up with demand. Entrepreneurs who catch a wave can prosper at the outset just because the trend is on their side; they are competing not with one another but with outmoded players. But what happens when the wave crests? As market imbalances disappear, so do many of the erstwhile highfliers who had never developed distinctive capabilities or established defensible competitive positions. Wave riders must anticipate market saturation, intensifying competition, and the next wave. They have to abandon the me-too approach in favor of a new, more durable business model. Or they may be able to sell their high-growth businesses for handsome prices in spite of the dubious long-term prospects.
Consider Edward Rosen, who cofounded Vydec in 1972. The company developed one of the first stand-alone word processors, and as the market for the machines exploded, Vydec rocketed to $90 million in revenues in its sixth
year, with nearly 1,000 employees in the United States and Europe. But Rosen and his partner could see that the days of stand-alone word processors were numbered. They happily accepted an offer from Exxon to buy the company for more than $100 million.
Such forward thinking is an exception. Entrepreneurs in rapidly growing companies often don’t consider exit strategies seriously. Encouraged by short-term success, they continue to reinvest profits in unsustainable businesses until all they have left is memories of better days.
Entrepreneurs who start ventures not by catching a wave but by creating their own wave face a different set of challenges in crafting a sustainable strategy. They must build on their initial strength by developing multiple strengths. Brand-new ventures usually cannot afford to innovate on every front. Few start-ups, for example, can expect to attract the resources needed to market a revolutionary product that requires radical advances in technology, a new manufacturing process, and new distribution channels. Cash-strapped entrepreneurs usually focus first on building and exploiting a few sources of uniqueness and use standard, readily available elements in the rest of the business. Michael Dell, the founder of Dell Computer, for example, made low price an option for personal computer buyers by assembling standard components in a college dormitory room and selling by mail order without frills or much sales support.
Strategies for taking the hill, however, won’t necessarily hold it. A model based on one or two strengths becomes obsolete as success begets imitation. For instance, competitors can easily knock off an entrepreneur’s innovative product. But they will find it much more difficult to replicate systems that incorporate many distinct and complementary capabilities. A business with an attractive product line, well-integrated manufacturing and logistics, close relationships with distributors, a culture of responsiveness to customers, and the capability to produce a continuing stream of product innovations is not easy to copy.
Entrepreneurs who build desirable franchises must quickly find ways to broaden their competitive capabilities.4 For example, software start-up Intuit’s first product, Quicken, had more attractive features and was easier to use than other personal-finance software
programs. Intuit realized, however, that competitors could also make their products easy to use, so the company took advantage of its early lead to invest in a variety of strengths. Intuit enhanced its position with distributors by introducing a family of products for small businesses, including QuickBooks, an accounting program. It brought sophisticated marketing techniques to an industry that “viewed customer calls as interruptions to the sacred art of programming,” according to the company’s founder and chairman, Scott Cook. It established a superior product-design process with multifunctional teams that included marketing and technical support. And Intuit invested heavily to provide customers with outstanding technical support for free.
After defining or redefining the business and verifying its basic soundness, an entrepreneur should determine whether plans for its growth are appropriate. Different enterprises can and should grow at different rates. Setting the right pace is as important to a young business as it is to a novice bicyclist. For either one, too fast or too slow can lead to a fall. The optimal growth rate for a fledgling enterprise is a function of many interdependent factors.
The third question entrepreneurs must ask themselves may be the hardest to answer because it requires the most candid self-examination: Can I execute the strategy? Great ideas don’t guarantee great performance. Many young companies fail because the entrepreneur can’t execute the strategy; for instance, the venture may run out of cash, or the entrepreneur may be unable to generate sales or fill orders. Entrepreneurs must examine three areas—resources, organizational capabilities, and their personal roles—to evaluate their ability to carry out their strategies.
The lack of talented employees is often the first obstacle to the successful implementation of a strategy. During the start-up phase, many ventures cannot attract top-notch employees, so the founders perform most of the crucial tasks themselves and
recruit whomever they can to help out. After that initial period, entrepreneurs can and should be ambitious in seeking new talent, especially if they want their businesses to grow quickly. Entrepreneurs who hope that they can turn underqualified and inexperienced employees into star performers eventually reach the conclusion, along with Intuit founder Cook, that “you can’t coach height.” Moreover, after a venture establishes even a short track record, it can attract a much higher caliber of employee.
In determining how to upgrade the workforce, entrepreneurs must address many complex and sensitive issues: Should I recruit individuals for specific slots or, as is commonly the case in talent-starved organizations, should I create positions for promising candidates? Are the recruits going to manage or replace existing employees? How extensive should the replacements be? Should the replacement process be gradual or quick? Should I, with my personal attachment to the business, make termination decisions myself or should I bring in outsiders?
A young venture needs more than internal resources. Entrepreneurs must also consider their customers and sources of capital. Ventures often start with the customers they can attract the most quickly, which may not be the customers the company eventually needs. Similarly, entrepreneurs who begin by bootstrapping, using money from friends and family or loans from local banks, must often find richer sources of capital to build sustainable businesses.
For a new venture to survive, some resources that initially are external may have to become internal. Many start-ups operate at first as virtual enterprises because the founders cannot afford to produce in-house and hire employees, and because they value flexibility. But the flexibility that comes from owning few resources is a double-edged sword. Just as a young company is free to stop placing orders, suppliers can stop filling them. Furthermore, a company with no assets signals to customers and potential investors that the entrepreneur may not be committed for the long haul. A business with no employees and hard assets may also be difficult to sell, because potential buyers will probably worry that the company will vanish when the founder departs. To build a durable company, an entrepreneur may have to consider integrating vertically or replacing subcontractors with
full-time employees.
How strong is the organization?
An organization’s capacity to execute its strategy depends on its “hard” infrastructure—its organizational structure and systems—and on its “soft” infrastructure—its culture and norms.
The hard infrastructure an entrepreneurial company needs depends on its goals and strategies. Some entrepreneurs want to build geographically dispersed businesses, realize synergies by sharing resources across business units, establish first-mover advantages through rapid growth, and eventually go public. They must invest more in organizational infrastructure than their counterparts who want to build simple, single-location businesses at a cautious pace.
A venture’s growth rate provides an important clue to whether the entrepreneur has invested too much or too little in the company’s structure and systems. If performance is sluggish—if, for example, growth lags behind expectations and new products are late—excessive rules and controls may be stifling employees. If, in contrast, the business is growing rapidly and gaining share, inadequate reporting mechanisms and controls are a more likely concern. When a new venture is growing at a fast pace, entrepreneurs must simultaneously give new employees considerable responsibility and monitor their finances very closely. Companies like Blockbuster Video cope by giving frontline employees all the operating autonomy they can handle while maintaining tight, centralized financial controls.
An evolving organization’s culture also has a profound influence on how well it can execute its strategy. Culture determines the personalities and temperaments of the workforce; lone wolves are unlikely to want to work in a consensual organization, whereas shy introverts may avoid rowdy outfits. Culture fills in the gaps that an organization’s written rules do not anticipate. Culture determines the degree to which individual employees and organizational units compete and cooperate, and how they treat customers. More than any other factor, culture determines whether an organization can cope with the crises and discontinuities of growth.
Unlike organizational structures and systems,5 which
entrepreneurs often copy from other companies, culture must be custom-built. As many software makers have found, for instance, a laid-back organization can’t compete well against Microsoft. The rambunctiousness of a start-up trading operation may scare away the conservative clients the venture wants to attract. A culture that fits a company’s strategy, however, can lead to spectacular performance. Physician Sales & Service (PSS), a medical-products distribution company, has grown from $13 million in sales in 1987 to nearly $500 million in 1995, from five branches in Florida to 56 branches covering every state in the continental United States, and from 120 employees to 1,800. Like other rapidly growing companies, PSS has tight financial controls. But, venture capitalist Thomas Dickerson says, “PSS would be just another efficiently managed distribution company if it didn’t have a corporate culture that is obsessed with meeting customers’ needs and maintaining a meritocracy. PSS employees are motivated by the culture to provide unmatched customer service.”
When entrepreneurs neglect to articulate organizational norms and instead hire employees mainly for their technical skills and credentials, their organizations develop a culture by chance rather than by design. The personalities and values of the first wave of employees shape a culture that may not serve the founders’ goals and strategies. Once a culture is established, it is difficult to change.
Entrepreneurs who aspire to operate small enterprises in which they perform all crucial tasks never have to change their roles. In personal service companies, for instance, the founding partners often perform client work from the time they start the company until they retire. Transforming a fledgling enterprise into an entity capable of an independent existence, however, requires founders to undertake new roles.
Founders cannot build self-sustaining organizations simply by “letting go.” Before entrepreneurs have the option of doing less, they first must do much more. If the business model is not sustainable, they must create a new one. To secure the resources demanded by an ambitious strategy, they must manage the perceptions of the resource providers: potential customers, employees,
and investors. To build an enterprise that will be able to function without them, entrepreneurs must design the organization’s structure and systems and mold its culture and character.
While they are sketching out an expansive view of the future, entrepreneurs also have to manage as if the company were on the verge of going under, keeping a firm grip on expenses and monitoring performance. They have to inspire and coach employees while dealing with the unpleasantness of firing those who will not be able to grow with the company. Bill Nussey, cofounder of the software maker Da Vinci Systems Corporation, recalls that firing employees who had “struggled and cried and sacrificed with the company” was the hardest thing he ever had to do.
Few successful entrepreneurs ever come to play a purely visionary role in their organizations. They remain deeply engaged in what Abraham Zaleznik, the Konosuke Matsushita Professor of Leadership Emeritus at the Harvard Business School, calls the “real work” of their enterprises. Marvin Bower, the founding partner of McKinsey & Company, continued to negotiate and direct studies for clients while leading the firm through a considerable expansion of its size and geographic reach. Bill Gates, cofounder and CEO of multibillion-dollar software powerhouse Microsoft, reportedly still reviews the code that programmers write.
But founders’ roles must change. Gates no longer writes programs. Michael Roberts, an expert on entrepreneurship, suggests that an entrepreneur’s role should evolve from doing the work, to teaching others how to do it, to prescribing desired results, and eventually to managing the overall context in which the work is done. One entrepreneur speaks of changing from quarterback to coach. Whatever the metaphor, the idea is that leaders seek ever-increasing impact from what they do. They achieve this by, for example, focusing more on formulating marketing strategies than on selling; negotiating and reviewing budgets rather than directly supervising work; designing incentive plans rather than setting the compensation of individual employees; negotiating the acquisitions of companies instead of the cost of office supplies; and developing a common purpose and organizational norms rather than moving a product out the door.
In evaluating their personal roles, therefore, entrepreneurs should ask themselves whether they continually experiment with new jobs and responsibilities. Founders who simply spend more hours performing the same tasks and making the same decisions as the business grows end up hindering growth. They should ask themselves whether they have acquired any new skills recently. An entrepreneur who is an engineer, for example, might master financial analysis. If founders can’t point to new skills, they are probably in a rut and their roles aren’t evolving.
Entrepreneurs must ask themselves whether they actually want to change and learn. People who enjoy taking on new challenges and acquiring new skills—Bill Gates, again—can lead a venture from the start-up stage to market dominance. But some people, such as H. Wayne Huizenga, the moving spirit behind Waste Management and Blockbuster Video, are much happier moving on to get other ventures off the ground. Entrepreneurs have a responsibility to themselves and to the people who depend on them to understand what fulfills and frustrates them personally.
Many great enterprises spring from modest, improvised beginnings. William Hewlett and David Packard tried to craft a bowling alley foot-fault indicator and a harmonica tuner before developing their first successful product, an audio oscillator. Walmart Stores’ founder, Sam Walton, started by buying what he called a “real dog” of a franchised variety store in Newport, Arkansas, because his wife wanted to live in a small town. Speedy response and trial and error were more important to those companies at the start-up stage than foresight and planning. But pure improvisation—or luck—rarely yields long-term success. Hewlett-Packard might still be an obscure outfit if its founders had not eventually made conscious decisions about product lines, technological capabilities, debt policies, and organizational norms.
Entrepreneurs, with their powerful bias for action, often avoid thinking about the big issues of goals, strategies, and capabilities. They must, sooner or later, consciously structure such inquiry into their companies and their lives. Lasting success requires entrepreneurs to keep asking tough questions about where they want to go and whether the track they are on will take them there.
1. Nadkarni, Shirish. “Are You Cut Out to Be an Entrepreneur?” Harvard Business Review, Sep. 2021. hbr.org/2021/09/are-you-cut-out-to-be-an-entrepreneur
2. Molinsky, Andy. “Being a Successful Entrepreneur Isn’t Only About Having the Best Ideas,” Harvard Business Review, Aug. 2016. hbr.org/2016/08/being-a-successful-entrepreneur-isnt-only-about-having-the-best-ideas
3. Dougherty, Jim. “The Two Traits Every Entrepreneur Needs,” Harvard Business Review, Mar. 2016.
hbr.org/2016/03/the-two-traits-every-entrepreneur-needs
4. Morris, Gillian. “Traveling the World Made Me a Better Entrepreneur,” Harvard Business Review, May 2015.
hbr.org/2015/05/traveling-the-world-made-me-a-better-entrepreneur
5. Schlesinger, Leonard A. and Charlie Kiefer. “Act Like an Entrepreneur Inside Your Organization,” Harvard Business Review, July 2014.
hbr.org/2014/07/act-like-an-entrepreneur-inside-your-organization
Amar Bhidé is the Thomas Schmidheiny Professor at the Fletcher School at Tufts University in Somerville and Medford, Massachusetts, and a visiting professor at Harvard Business School in Boston, Massachusetts. He is a member of the Council on Foreign Relations, a founding member of the Center on Capitalism and Society, and the author of A Call for Judgment: Sensible Finance for a Dynamic Economy (Oxford, 2010). A former senior engagement manager at McKinsey & Company and proprietary trader at E.F. Hutton, Bhidé also served on the staff of the Brady Commission, which investigated the 1987 stock market crash.
Maybe we have already recognized that categorizing a site’s risk factors and knowing how to apply that knowledge can greatly help in developing and implementing a successful water treatment program.
Having a sense of how risky the site is can help in determining things such as:
a. The required water treatment chemical program.
b. The service frequency by a service provider.
c. Type of services required and qualifications of the service engineer.
d. How to communicate and coordinate efforts most effectively between the service provider and the end user client.
e. How and where to set goals for improvements or risk reduction.
This assessment process can be created for any water treatment system including:
• Boiler
• Cooling
• Clarification & Wastewater
• Membrane Systems
• Closed Loops
• Specific Processes
We can consider three major categories (W.O.E. shown below) that will affect the results as being positive and successful, or prone to problems and poor results:
1. Water Quality & Variability
2. Operations & Control
3. Equipment Used & System Design
For each system category we can create a list of factors to assess that will help identify the risk as low, medium, or high. This can be quantified as much as possible, or used subjectively, as long as reasons for the ratings can be explained and strategies for improvement created where possible.
With the categorization we can design a water treatment program and communication protocol to optimize results for the given situation and set goals for improvements if required.
An easy to understand index that is called the W.O.E Relative Risk Factor Index (RFI for short) along with a matrix spreadsheet for creating an overall system or site score have been created to help identify and quantify the many contributing factors and to produce a final assessment for a given site as being low, medium, or high risk.
In practice it was intended that this three-digit index could be universally applied in the industry and be consistent when determined by experienced and trained water treatment professionals. Valuable feedback suggested that initially this may be most useful as a tool for assessment and site improvement and made to be customized by each user for their specific purposes.
There are sites and situations that could more easily be quantified than others. Perhaps into the future, if adapted and applied, a more consistent rating schedule could be developed recognizing that there is much room for development of the Risk Factor Index as a tool to improve water management efforts.
The RFI has three digits and each is a rating scale of 1, 2, or 3. First digit applies to Water, Second digit is Operations; Third digit is Equipment – W.O.E.
1 – Low Risk; 2 – Moderate Risk; 3 – High Risk
Example: RFI = 323
This example indicates that the site or system has been assessed as follows:
• Water (W.) – High risk water and/or high variability in water quality.
• Operations (O.)–Moderate risk operations and control.
• Equipment (E.)–High risk around equipment in use or the equipment system design.
(Water: 3, high risk; Operations: 2, moderate risk; Equipment: 3, high risk)
With a lot more detail used to reach this index example, one possible interpretation of this RFI of 323 and possible strategy could be: We may need a robust chemical treatment program due to the poor water quality or its variability; see if there are ways to improve operations
with training and more service time on site; and we might want to make improvements to the equipment or help to get new equipment installed.
It should be noted that the ease or difficulty in moving from a 3 to a 2 or to a 1 could be quite varied depending on each particular situation and reason for the rating. This will best be revealed from the details behind each rating.
What are Successful Outcomes of Water Treatment Programs?
The first step in the process is identifying or labelling what we are assessing. What are desirable outcomes or what is at risk?
Some Possible Successful Outcomes:
1. Meet all safety concerns
2. Efficient plant production, maximize uptime, reduced operating costs
3. Maintaining asset integrity
4. Good, consistent water quality
5. Clean heat exchangers
6. Proper and efficient operation of all boiler pretreatment equipment
7. Clean boilers
8. Acceptably low corrosion
9. High steam purity
10. Minimal clean-in-place requirements for the membrane system
11. Meet wastewater treatment plant water discharge requirements
12. Meet budget or cost goals for chemicals and other OPEX
13. No Legionella or microbiological issues
14. Meet environmental stewardship goals
15. Minimize water and energy consumption
16. Satisfy service and maintenance objectives
17. Establish proper competencies and trainings
18. Meet improvement goals
19. Meet key performance indicators (KPI’s)
20. Maintain open and effective communication and planning
What are Some Considerations per W.O.E. Category to Assess a System Risk, to Determine the Overall Site Score, and to Assign the RFI?
Boiler Systems:
W. Water Quality & Variability:
1. Water source (municipal, ground, surface, recycle). A good and consistent municipal supply is generally low risk.
2. Water quality (calcium, alkalinity, TDS, TOC, etc.; consistent or variable).
3. Feedwater: Low risk–0 to trace hardness, low Fe, low alkalinity; or higher risk–hardness > 1 ppm, Fe > 0.1 ppm, and alkalinity creating high boiler alkalinity or high CO2 content in steam?
4. Process contamination potential. Are there processes that could contaminate the condensate, boiler, or makeup water?
5. Other relevant information?
1. Reliability of chemical feed equipment, age, and control consistency.
2. Historical treatment success and results.
3. Ease of access to the site.
4. Relationship with plant personnel.
5. Service frequency requirements to maintain control and effectiveness.
6. Attention by plant personnel, testing, monitoring, necessary adjustments made.
7. Boiler operations and stream production: 24/7 or frequent shut-downs, steady or widely varied steam or makeup loads.
8. Condensate return amount and quality.
9. Proper boiler layup procedures followed.
10. Plant bidding process and pressure on program to minimize cost and service. Can adequate chemical treatment and service be applied?
11. Other relevant information?
1. DA or feedwater heater? DA condition and performance: DO < 10 ppb?
2. Other pretreatment equipment and performance.
3. Steam traps and condensate return equipment condition and performance.
4. Condition, age, and reliability of chemical feed equipment and controllers.
5. Boiler condition and design; clean or dirty; high flux; etc.
6. Other relevant information?
1. Water source (municipal, ground, surface, recycle). A good and consistent municipal supply is generally low risk.
2. Water quality (calcium, alkalinity, etc.; consistent or variable). Will cycled cooling tower water be highly scale forming or highly corrosive?
3. Is there pH control? If acid is being fed and scale control is dependent on acid, then system is more risky.
4. Effective side stream filtration? If there is a good sidestream multimedia filter or other type providing 5–10 micron removal, then clean systems are easier to attain.
5. Area air quality and tower contamination. If the towers are located near areas of dirty air that contaminates the water, then this creates higher risk.
6. Process contamination potential. Are there processes that could contaminate the cooling tower water and create water treatment issues?
7. Other relevant information?
1. Reliability of chemical feed equipment, age, and control consistency.
2. Historical treatment success and results.
3. Ease of access to the site.
4. Relationship with plant personnel.
5. Service frequency requirements to maintain control and effectiveness.
6. Attention by plant personnel, testing, monitoring, adjustments.
7. Biological control history.
8. Plant bidding process and pressure on program to minimize costs and services. Can adequate chemical treatment and service be applied?
9. Other relevant information?
1. HVAC, or other applications with high skin temperatures? (Chillers are generally low risk, but processes such as air compressors, or high heat processes increase scale potential and corrosivity).
2. Heat exchanger types & designs: Do chillers have rifled tubes or are there plate and frame exchangers? Both require lows TSS and good MB control.
3. Automation (accuracy of cycle control and saturation indices or ratios).
4. Condition, age, and reliability of controllers.
5. Condition of the systems (clean and passivated or deposits and corrosion).
6. Cooling tower design and condition.
7. Other relevant information?
Clarification and Wastewater:
1. Water source (lake, river, recycle, etc.).
2. Water constituents (TSS, TDS, TOC, COD, pH, metals, biological, etc. Normal, minimum, and maximum of each constituent).
3. Is there adequate equalization of flows and constituents?
4. Are all possible contamination sources known and accounted for?
5. What are water temperature variations?
6. Other relevant information?
1. Reliability of chemical feed equipment, age, and control consistency.
2. Historical treatment success and results.
3. Ease of access to the site.
4. Relationship with plant personnel.
5. Service frequency requirements to maintain control and effectiveness.
6. Attention by plant personnel, testing, monitoring, and adjustments.
7. Are treatment processes quality and flow based?
8. Do jar testing results duplicate plant treatment?
9. Plant bidding process and pressure on program to minimize costs and service. Can adequate chemical treatment and service be applied?
10. Other relevant information?
1. Do the equipment, flow, and mixing allow completion of necessary reactions?
2. Are there adequate redundancies and spare equipment and parts?
3. Are the processes adequately automated or are there high labor requirements?
4. Condition, age, and reliability of system controls.
5. Are sensors accurate and calibrated as required?
6. Can unit operations be easily isolated or diverted as needed?
7. Other relevant information?
1. Water source (municipal, ground, surface, recycle). Good and consistent ground or municipal supply are generally low risk.
2. Water constituents (calcium, alkalinity, etc.; consistent or variable). Will concentrated RO water be highly scale forming? Dependency on scale control chemicals makes it more risky.
3. Is there pH control? If acid is being fed and scale control is dependent on acid, the system is more risky.
4. Is there a potential for microbiological contamination and high nutrient loading?
5. Is the SDI low and consistent?
6. Process contamination potential. Are there processes that could contaminate the cooling tower water and create water treatment issues?
7. Other relevant information?
1. Reliability of chemical feed equipment, age, and control consistency.
2. Historical treatment success and results.
3. How often do the machines stop and start, and is there proper pre-flush and post-flush?
4. Ease of access to the site.
5. Relationship with plant personnel.
6. Service frequency requirements to maintain control and effectiveness.
7. Attention by plant personnel, testing, monitoring, and adjustments.
8. Can the RO’s be shut down and cleaned when trigger points call for a clean-in-place (CIP)?
9. Plant bidding process and pressure on program to minimize costs and service. Can adequate chemical treatment and service be applied?
10. Other relevant information?
1. Is there an N+1 or greater design (redundancy and surplus capacity)?
2. Is there internal recycle of concentrate? Recycle increases risk.
3. Are spare membranes stored on site or readily available?
4. Is there good automation (accuracy of control of flows and recovery rates)?
5. Condition, age, and reliability of process controls.
6. Condition of the systems.
7. Proper flux design and operating flux for the given water quality.
8. Good and convenient CIP system?
9. Other relevant information?
10. Spreadsheets for each type of system are used to create the RFI and to create an overall site score such as shown below.
It may be advantageous to have multiple people involved in the process of risk assessment to gain different perspectives from varying levels of expertise.
Site assessments should probably also be made on some level of regularity since the risk factors can change over time.
Once the systems or sites are assessed and the relative risks identified and recognized, the real value then is in creating a fitting strategy to reduce the risk of failure and to make improvements going forward. It is also advisable to establish a properly informed client along with open communications.
A menu of options and strategies can be developed and referenced as a starting baseline of options along with more site-specific strategy discussions.
1. Begin or improve upon remote monitoring capabilities.
2. Change service frequency or duration of visits.
3. Provide higher qualified service provider or supplement service with backup support. Provide site visits by managers, technical experts, or those with needed specific skills, etc.
4. Locate a better water source if possible, such as drill a well.
5. Improve pretreatment process or equipment to improve water quality and reliability.
6. Create better plant control with better on-site automation.
7. Develop better testing or more valuable testing as required. Composite sampling where it is useful; lab testing as required; more accurate procedures, etc.
March 30, 2021
Some Considerations per Category to Assess a System Risk & Determine Overall Site Score and to Assign the RFI: A.
1. Water source (municipal, ground, surface, recycle). A good and consistent municipal supply is generally low risk.
2. Water quality (calcium, alkalinity, etc.; consistent or variable). Will cycled cooling tower water be highly scale forming or highly corrosive?
3. Is there pH control? If acid is being fed and scale control is dependent on acid, then system is more risky.
4. Effective side stream filtration? If there is a good side‐stream muiltimedia filter or other type providing 10 micron removal, then clean systems are easier to attain.
5. Area air quality and tower contamination. If the towers are located near areas of dirty air that contaminates the water, then this creates higher risk.
6. Process contamination potential. Are there processes that could contaminate the cooling tower water and create water treatment issues?
1. Reliability of chemical feed equipment, age, and control consistency.
2. Historical treatment success and results.
3. Ease of access to the site.
4. Relationship with plant personnel.
5. Service frequency requirements to maintain control and effectiveness.
6. Attention by plant personnel, testing, monitoring, adjustments.
7. Biological control history and nutrient loading.
8. Plant bidding process and pressure on program to minimize costs and service. Can adequate chemical treatment and service be applied?
9. Other relevant information?
C. Equipment & System Design:
1
1. HVAC? Other applications with high skin temperatures? (Chillers are generally low risk, but processes such as air compressors increase scale potential and corrosivity).
2. Heat exchanger types & designs: Do chillers have rifled tubes or are there plate and frame exchangers? Both require low TSS and good MB control.
3. Automation (accuracy of cycle control and saturation indices).
4. Condition, age, and reliability of controllers.
5. Condition of the systems (clean and passivated or deposits and corrosion). Dirty and corroded are higher risk.
6. Cooling tower design and condition.
6. Other relevant information?
Comments on Overall Site Assessment and Risk of Attaining a Successful Water Treatment Program and Results:
8. Select or design proper chemical treatment to best reduce inherent risks such as better polymer selection, best and required dosages, broader LSI range, better inhibitors, etc. (Get an appropriately robust treatment chemistry for each treated process).
9. Create redundancies and adequate supplies where appropriate for improved reliability. (Spare parts; alternative chemistries if needed for certain situations; spare membranes, etc.).
10. Provide dual feed systems such as primary feed and trim feed where it could improve control and reliability.
11. Provide more training along with written standard operating procedures (SOP’s).
12. Know possible contamination possibilities with response plans. Have contingency procedures in place for upsets or abnormal situations.
13. Provide temporary or full-time operators or operating support.
14. Create priorities list of improvements to make.
15. Regular formal technical reviews.
16. Create partnerships with other businesses or people where beneficial.
17. Consider temperature extremes for all process and the impact on processes and water treatment programs. Have freeze protection in place where appropriate.
18. Learn and help improve plant politics and cooperation level between all people, departments, and shifts.
19. Know operations on 24/7 basis and how they may differ based upon time or shift. What is the plant operating schedule?
20. Are there proper shutdown, start-up, and storage procedures? (Many of system failures occur during these periods or during upsets and not during normal operations). Consider the unforeseen and be prepared to them.
21. Have a thorough knowledge of the cleanliness of all systems (deposits, corrosion, biofilm, deposits, etc.) and how that effects the various programs and results. Dirty or corroded versus clean and passivated greatly impacts treatment success.
22. Site history is important. If certain programs in the past failed, know why. If past programs were successful, should they be continued?
23. What is the plant safety history and is it safe now and going forward?
24. Establish site key performance indicators (KPI’s); have good tracking of KPI’s; and create strategies to successfully meet them.
25. Establish excellent information and communication strategies to keep all well informed on a timely basis and to foster a cooperative vendor/client partnership type relationship:
a. Remote monitoring with alarms to multiple people.
b. Real time reports showing KPI’s and high-risk areas.
c. Client is well aware of risks and consequences.
d. Open coordination with plant management, production, operations, maintenance, purchasing, and service provider.
e. Regular training and in person or virtual meetings with frequent progress and situation reviews.
Conclusion:
A method can be used to more formally assess a system or site by doing a detailed investigation around three critical categories of water quality & variability, operations & control, and equipment & system design. The goal is to know the relative level of risk of achieving or not achieving desirable outcomes.
With adequately skilled water treatment professionals, a Risk Factor Index (RFI) can be determined and used as a tool to develop appropriate treatment strategies, improvement plans, and communications protocols.
