Clever Geek Handbook
1 February 2026

Cash is Still King

Recommendation

Keith Checkley believes in a simple premise: Cash flow is the heart of business. It is also the heart of his new book, a sequel to 1995’s Cash is King. Using a detailed and exhaustive discussion of the cash-flow cycle as his springboard, Checkley leaps into the depths of business strategy, product development and restructurings. Just when it’s all getting a bit too deep, he surfaces with penetrating case studies from companies like Dell. BooksInShort recommends this book to financial and non-financial pros alike, all of whom will benefit from its succinct definitions of finance terms and its clear explanation of critical mathematic formulas. While many business and management books suffer from a lack of hard fact and applicability, Checkley gives you the numbers, or more importantly, he gives you the knowledge you need to crunch your own.

Take-Aways

  • Banks, companies and even countries struggle with financial problems.
  • Effective cash-flow management techniques can identify and eliminate problems.
  • Executives must adopt a strategic approach to cash-flow management.
  • Cash is the lifeblood of business. Cash allows companies to buy fixed assets, research and develop projects, pay for labor and raw materials and more.
  • The cash-flow cycle consists of development, growth, shakeout, maturity, oversupply, decline and extinction.
  • All business is risky. Examine how these risks affect your cash flow.
  • Cash flow varies according to industry. Maximize profits by understanding cash-flow cycles.
  • Although cash flow varies, most companies can try to stabilize it.
  • Only companies with a competitive advantage will prosper. Competitive advantages include distinctive product features or designs, proprietary production techniques and a strong brand.
  • Seek turnaround consultants when your business needs to restructure.

Summary

Cash Flow

Cash is the center of the capital cycle. Cash allows companies to pay taxes, buy fixed assets, research and develop projects, pay and collect debts, pay for labor and raw materials, buy and sell stock, and more. Cash flow is hard to predict because it is based on projections of future operating income, which itself depends on several variable factors, including the risks involved in a particular business, industry trends and legal and regulatory issues. Cash flows are normally reported using standard and reliable cash flow statements.

Strategies

Examine your cash flow in the context of your business plan. Some companies use a "wheel of competitive strategy," where the spokes list how the corporation achieves its objective, which is the hub. Some use the SWOT model, listing strengths, weaknesses, opportunities and threats. Still others examine cash flow with Porter’s Five Forces Model, which is most often used for evaluating competitive threats from new products or services, the bargaining power of buyers and suppliers, and rivalry among existing competitors.

“A company’s focus on cash flow has nothing but a good impact on its operating performance.” [Tom Meredith, CFO of Dell Computer Corp.]

Cash flow varies significantly between different business sectors, such as utilities, food producers, insurance, investment companies, media and pharmaceuticals. Many sectors have been influenced by conglomeration, which exists when several companies in different industries band together. Today, conglomeration is declining because of a lack of synergy between companies and due to doubts that managers can fully understand the complexities of each business. However, conglomerates presently dominate lesser-developed countries, which may lack adequate business skills, education and access to capital. The advantages to being an independent business include the ability to focus on a certain sector, the possibility of achieving an increased P/E ratio and easier access to funds.

Cash Flow Stages

The stages of the cash-flow cycle are development, growth, shakeout, maturity, oversupply, decline and extinction. The first stage, development of new products, can take years. Although thousands of new ideas are patented each year, only a few products actually make it to the market. Many firms patent their products and services to prevent competition, yet new products or businesses are high risk and hard to finance.

“The maintenance of prudent debt/equity ratios to mitigate potential business risk during economic downturns is another vital factor in any business.”

Many firms lose money during research and development, and during early growth, but as growth increases, everybody wins. When growth drops or too many companies compete for too few customers, only those with competitive advantages win. Such advantages can include price, market share, a distinct product, proprietary production techniques, unique geography or location, patents, intellectual property, control of distribution and strong branding.

“It is a matter for managerial judgment as to whether the security of a short payback outweighs the disadvantage of lower profitability.”

Shakeout occurs when the market is saturated, even if moderate growth is still possible. In developed countries, look at the sale of television sets for example. Most TV sales businesses are conglomerates or companies that have carved out a niche market. Most managers don’t want to believe that customers won’t always need or want their product or service, but today’s technological changes ensure that nothing is current for long. The decline phase can be enormously cash generative as, in addition to generating cash from operations, the company is able to recover the cash invested in working capital and fixed assets. At this stage, maintain low operating costs to prevent negative cash flows.

Developing Markets and Products

Markets can be defined as:

  • Fragmented - Many competitors, labor intensive, driven by working capital.
  • Specialized or luxury - Few competitors, small and defined markets, high value.
  • Stalemate - No dominant competitor, mature markets, commodity products.
  • Volume - Few dominant competitors, mass distribution, standardized products.
“The paramount problem is not seeing trouble ahead until it becomes intractable.”

Recognizing your market type helps you analyze how the inherent risks of your business affect your cash flow. Reviewing your business cycles also helps you weigh your cash flow risks at various stages, understand how you consume and generate cash, and evaluate your financing and investment needs. The longer your business cycle is, the more time there is for cash flow difficulties to develop. Long cycles usually imply higher risk and returns, while shorter cycles usually imply minimal value and thin profit margins. Some companies manage their cycles inefficiently by growing so quickly they can’t keep up with demand or by letting debtors slide while paying creditors quickly. Both practices can cause negative cash flow.

“A turnaround is a sustained positive change in the performance of a business to obtain a desired result.”

When a business requires funding, bankers scrutinize its cash-flow management. Businesses should first examine themselves, to monitor progress and to avoid the need for external funding. Raw materials and labor are usually a business’s highest costs. Generally, the bigger the company, the bigger the overhead. Overhead includes the costs of production and of occupying property. To cut overhead, you can lease your office space, outsource, downsize - particularly administrative functions - and sell stock or non-essential equipment. Fixed assets are another major non-cash investment, although investing is not a good way to improve short-term performance. Your company should also have a good collection method.

“A good starting point in the assessment of corporate risk is to undertake a general review on how the corporation’s strategy has been formulated.”

While cash flow patterns vary according to industry, most companies can try to stabilize unit sales and sales prices through heavy advertising or through negotiating long-term labor and supplier contracts.

Case Study: Dell Computer Corp.

"In the here-today, gone-tomorrow business of computers, speed saves," according to Dell CFO Tom Meredith. "I’ve always been grounded in the belief, right or wrong, that a company’s focus on cash flow has nothing but a good impact on its operating performance." In 1995, Dell needed to fix its lackluster performance and ballooning inventories. Dell’s formula for improving performance was: ’Days sales outstanding’ added to ’days in inventory’ subtracted by ’days payable outstanding’ equals ’cash conversion cycle.’ Or, in Dell’s shorthand: DSO + DSI - DPO = CCC. Dell also:

  • Balanced its priorities among liquidity, profitability and growth.
  • Emphasized return on invested capital and reduced cash conversion methods.
  • Educated employees, suppliers, vendors and customers about cash conversion strategies.
  • Improved functions and reduced errors in order processing and collections.
  • Centralized the treasury function for domestic and foreign operations.
  • Made business units fully responsible for credit and collections processes.
  • Improved vendor, customer and accounting processing.

Assessing Cash Flow

Examine your overall cash flow for vulnerability and volatility. Determine how quickly your cash flows are vulnerable to deterioration. Assess volatility by examining the relationship between sales, costs that tend to vary with output and fixed costs. Compare cash flows with a competitor who sells similar products or services. Reduced cash flow can lead to a potential decline and subsequent default of debts and loans. Management should make the decision to gear up or down with a full understanding of the likely volatility of future cash flows.

Capital expenditure

You can appraise your capital expenditures even though all methods of predicting cash flows have shortcomings. Predicting cash flow or predicting the time and money upcoming projects will require is tricky. Each appraisal method requires an evaluation of initial cost, expenses, the project’s estimated life span and income during that span.

  • Payback measures the time it takes for cash inflows to recoup a project’s initial investment. Payback allows management to assess how long the investment is at risk.
  • Average rate of return shows average annual net cash inflow as a percentage of the initial cash outflow by dividing the average annual net cash inflow by the initial cash outlay.
  • Net present value is calculated by estimating present-day net worth using an appropriate rate of interest.
  • Yield or internal rate of return shows the discount rate that exactly equates cash inflows with outlay. This time-consuming calculation is more complex than net present value.
“The safest way to innovate is to determine what customers want and then make it.”

Finally, organizations should monitor liquidity. Corporate tracking forms should list figures for debtors, stock, creditors, sales per year, sales per month, etc. Compare these forms with the bank’s books. Break down the debtors figure into items for normal trade, inter-company and doubtful debts. Also divide creditors into normal and preferential trade. If possible, also check stock or inventory. The only accurate method is a physical inspection.

When Restructuring Is Necessary

Corporate restructuring is often necessary for survival. Although most businesses fail to see the warning signs of decline, consultants can help companies restructure. Early warning signs of decline include cash shortages, decreased assets plus increased liabilities, stagnant sales, several quarters of losses, and increases in absenteeism, accidents and customer dissatisfaction.

“The larger the market the more interest there will be in entering it.”

Further signs of deterioration include an increase in inventory as sales decrease, late or unreliable financial or managerial information, an eroded customer base, violated loan covenants, increases in bank interest rates and the need to borrow to cover payroll. A company is in full decline when management ignores decreasing profits and overdraws bank accounts, or when employee morale is extremely low, company credibility erodes, suppliers require payment up front, checks bounce and the firm undergoes a cash crisis.

How to Conduct a Turnaround

The Frank Hawkins Kenan Institute of Private Enterprise at the University of North Carolina conducted an 18-month study on what consultants do to turn around American businesses. It showed that customer service declines as business declines and that external elements cause fewer than 20% of business failures.

“The bank is not actually a working capital item in any business.”

To turn companies around, consultants should get rid of obsolete inventory, nonproductive employees, uncollectable receivables and inaccurately valued assets. However, these very steps can be worthless if they destroy the business’s market position. In successful turnarounds, experts create revised budgets from the bottom up and strictly enforce accountability. "Analyses of cash flow are used continually to aid in developing (and revising) an operating plan." Turnaround consultants pay close attention to receivables and pricing. Anybody the business affects - including customers, employees and banks - should be part of the turnaround.

“Employee participation is essential in the turnaround process, whether management personnel or factory workers.”

The five stages of a turnaround are evaluation of the situation, creation of a plan, implementation of the plan, stabilization of the business and the business’ return to growth. These steps can be accomplished by identifying what is needed to execute the turnaround, realistically identifying a time frame, developing a profit-and-loss account, forecasting cash flow, and considering the immediate cash needs and the impact on the balance sheet.

About the Author

Keith Checkley FCIB, who once held management positions at Barclays’ Bank, is an associate director of Prebon Training Services. He has written ten business books including, Finance for Framing, Finance for Small Businesses, Lending and Cash is King - A Practical Guide to Strategic Cash Management the 1995 predecessor to this book.

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Cash is Still King

Book Cash is Still King

The Survival Guide to Cash Flow Management

AMACOM,
 


1 February 2026

The New Paradigm for Financial Markets

Recommendation

Legendary financier George Soros is worried. The financial markets face the worst credit crisis since the Depression and their existing paradigm needs to be replaced. The new paradigm Soros recommends is based on what he calls the “theory of reflexivity.” This book-length essay provides a crash course in the billionaire investor’s philosophy and view of financial markets, the origins and consequences of the current credit crunch, the boom-bust model and the behavior of market participants. Soros intersperses his market analysis with enough personal details from his early life and career to keep the book lively. He is also quite vocal in his political beliefs; Democrats will probably appreciate the case he makes against President George W. Bush’s administration and its policies. One weakness of the book, other than its repetitiveness as Soros explains his theory, is that he relies heavily on technical and financial jargon, which makes it tough to penetrate and may prove a barrier to some readers. Ironically, he seems to be fully aware of this shortcoming when he writes that readers may find one of his particularly theoretical chapters to be “somewhat repetitive and hard-going.” Nevertheless, his warm personal voice and the depth of his financial experience, which spans more than half a century, is hard to match. Thus, BooksInShort notes that this book has much to offer executives, investors, and students of financial markets and theory.

Take-Aways

  • The current paradigm for financial markets says that they tend toward equilibrium and are self-regulatory.
  • This is false and misleading; a new paradigm is necessary to explain how financial markets actually work.
  • The proposed new paradigm, the “theory of reflexivity,” says misconceptions and misinterpretations have played a key role in shaping the course of history.
  • Reflexivity refers to the disparity between one’s views and reality.
  • The theory of reflexivity runs counter to classical economic theory, which assumes that perfect knowledge exists.
  • Market participants’ perceptions are inherently biased and, thus, mistaken.
  • Their imperfect understanding of reality affects market prices.
  • The global financial system is in crisis because it is based on erroneous premises.
  • The current financial crisis began when the Internet bubble burst in 2000.
  • This crisis, the worst since the 1930s, is a result of a “superboom” that has lasted more than a quarter of a century.

Summary

The Global Financial Crisis

The present financial crisis, the worst since the 1930s, is a result of a “superboom” that has lasted more than a quarter of a century. The global financial system got into this kind of trouble largely because it is based on a faulty, “false and misleading” paradigm, which holds that markets tend toward equilibrium. Market participants widely accept the incorrect concepts of perfect competition and the possibility of perfect knowledge, leading them to hold biased perceptions that affect prices and their underlying fundamentals.

“The theory of reflexivity offers a genuine alternative to the currently prevailing paradigm. If the theory of reflexivity is valid, the belief that financial markets tend towards equilibrium is false, and vice versa.”

The markets need a new paradigm that focuses on the relationship between thinking and reality. This new paradigm must recognize that misinterpretations play a key role in history. Market participants should seriously consider the “theory of reflexivity,” which says that markets do not reach the equilibrium that is said to exist. Instead, it acknowledges that misconceptions are inevitable and that a true understanding of the markets should reflect the impact of misunderstandings.

“Setting the Stage”

The current financial crisis is more than a housing bubble and is greater than the previous crises the markets have witnessed. It began in August 2007, when central banks in Europe, the U.S. and Japan stepped in to provide liquidity to their respective banking systems. The crisis had its roots in 2000, when the Internet bubble burst, followed by the terrorist attacks of September 11, 2001. The U.S. Federal Reserve Bank (Fed) responded by lowering rates and permitting cheap money, which ultimately resulted in the emergence of a housing bubble. Mortgage lenders encouraged business growth, and new construction boomed along with the value of existing properties. In the early 2000s, the subprime mortgage market grew and hedge funds became a market phenomenon. The current crisis has ballooned beyond housing to include many market segments, especially those that are involved with new synthetic financial instruments.

“The Core Idea”

Market participants’ understanding of the world, their “cognitive function,” is inherently imperfect. Therefore, the connection between what they understand and their attempts to change the actuality of their financial situation, breeds an element of uncertainty. Although investors would like to affect reality by using their “manipulative function,” they face a “reflexive situation,” meaning that their views and reality do not match. The problem is that the theory of rational expectations does not appropriately address how financial markets function. Contrary to the existing paradigm, the markets are not self-correcting and do not tend toward equilibrium. Consequently, this paradigm must be replaced. It is mistaken to compare the structure of social events to the structure of natural phenomena. Reflexivity attempts to demonstrate the relationship between thinking and reality, and is limited to social phenomena. This is preferable to the current paradigm, where participants base their decisions on biased views and interpretations of reality, and not on knowledge.

“Autobiography of a Failed Philosopher”

In 1947, author George Soros immigrated to England from communist-held Hungary, having survived Nazi occupation. As a lonely outsider in London, he ran out of money and vowed never again to reach bottom. At the London School of Economics, he was introduced to the work of philosopher Karl Popper, who was a great influence on him. In agreement with Popper, Soros created the reflexivity concept that market participants operate with imperfect understanding. His theory is not scientific, but it rebuts common misconceptions and provides a basis for understanding financial events involving people, who are innately fallible. Since his theory does not yield firm predictions, Soros does not know to what extent his financial success is a result of his philosophy.

“The distinguishing feature of reflexivity is that it introduces an element of uncertainty into the participants’ thinking and an element of indeterminacy into the situation in which they participate.”

Reflexivity comes into play where the truth of a statement depends on the statement itself. For example, if you say, “It is raining,” it doesn't make a difference whether you say so or not, it will still be raining. In contrast, if you tell someone, “You are my enemy,” the fact that you said so may make it true.

“The Theory of Reflexivity”

Reflexivity highlights a distortion in the way philosophers and scientists view the world. They focus primarily on cognitive function, and thus make mistakes. Reflexivity introduces the idea that market participants’ thinking is inherently uncertain and that all “cultures are built on fertile fallacies,” which can result in adverse consequences. While Popper asserts that market participants might be wrong, Soros goes further by saying that they are “bound” to be wrong. This concept, which he calls the “postulate of radical fallibility,” says that misconceptions exist and play a role in history. Radical fallibility and fertile fallacies are pivotal to Soros’s beliefs. He says they should replace the concepts of general equilibrium and rational expectations, which do not correspond to reality.

“Reflexivity in Financial Markets”

The markets provide a good venue for demonstrating that reflexive developments exist and are historically important. The role of expectation is very clear in financial markets, however, Soros has successfully used a fund-management model that demonstrates that the concept of rational expectations does not make sense. Because market participants always act with imperfect knowledge, they fall victim to unintended consequences, such as incorrectly valued market prices.

“In financial markets, where expectations play an important role, the contention that markets tend towards equilibrium does not correspond to reality.”

In the 1960s, Soros achieved early success as a hedge-fund manager by taking advantage of the conglomerate boom. That boom was based on a typical old-paradigm misconception: the prevailing belief that companies should be valued based on the growth of their reported earnings per share, no matter how they achieved those earnings. When stock prices fell, they revealed the stark difference between expectations and reality. All boom-bust processes are based on some misunderstanding or misconception. After a slow start, a gradual acceleration follows the boom phase; then a moment of truth occurs, followed with a period of twilight before the catastrophic crash. The positive news is that periodic crises in the financial system have led to regulatory reforms.

“The ‘Super-Bubble’ Hypothesis”

The current crisis is unlike the periodic crises that have affected different parts of the financial system since the 1980s. This crisis – including both the housing bubble and the “longer-term super-bubble” – has led the whole financial system to the verge of collapse.The U.S. housing bubble grew after the technology bubble burst in 2000 and the Fed lowered rates. The housing bubble likewise followed Soros’s model of boom-bust. The misconception inherent in that bubble was that loose lending standards would not hurt the value of collateral. Until 2007, speculative demand sustained the bubble. The super-bubble, which is more complex than the housing bubble, reflects the added impact of sophisticated forms of credit creation. The super-bubble is the result of extreme dependence on “market fundamentalism,” the current paradigm. That adds to the case for abandoning this paradigm, which is responsible for the present market turmoil.

“Autobiography of a Successful Speculator”

Soros has 55 years of financial market experience. When he began his career in London in 1954, credit cards did not exist, governments tightly regulated banks and markets, and the U.S. dominated the global financial system. He moved to the U.S. in 1956 and became part of the first generation of hedge-fund managers. In 2001, long since a billionaire, he converted his hedge fund into an “endowment fund” to manage his foundations’ assets. In the interim, he worked through a lot of financial turmoil. The first oil crisis, in 1973, gave birth to the Eurodollar market. International lending grew rapidly from 1973 to 1979. As the world faced an inflationary boom in the 1970s, the U.S. suffered stagflation– rising inflation combined with high unemployment rates. The international banking crisis began in the 1980s. For example, by 1982, Mexico was on the brink of defaulting on its debt. The International Monetary Fund worked to bail out Mexico and other debtor countries. After the IMF and other actors contained the crisis, regulators gave U.S. banks more freedom to create money and lifted other restrictions.

“I adopt as my working hypothesis that we are bound to be wrong. I call this the postulate of radical fallibility.”

In the current crisis, regulatory authorities are to blame for not being able to calculate the risk of new, sophisticated financial instruments. They should not have permitted the institutions they supervised to take on risks that they, the regulators, could not calculate. The Fed is likewise to blame for failing to regulate the mortgage industry. Banking and investment banking are now likely to undergo further regulatory changes.

Soros’s 2008 Predictions

The consequences of the economic crisis will be more severe and long-lasting than the results of previous financial crises, and economic growth will not resume as quickly. President George W. Bush is unlikely to take much action regarding the housing crisis during the waning months of his administration. The current account deficit in the U.S. has peaked and this, too, will hurt the American economy. Financial institutions have yet to unwind fully. The Federal Reserve and the Bush administration are unlikely to do whatever is necessary to avoid recession; in fact, the commodity boom and the vulnerable dollar may prevent them from being able to act. Thus, the U.S. will hit a recession some time in 2008, but it remains to be seen whether or not the global slowdown will become a global recession.

“The policies pursued by the Bush administration have impaired the political dominance of the United States, and now a financial crisis has endangered the international financial system and reduced the willingness of the rest of the world to hold dollars.”

The financial crisis and a U.S. recession may not significantly hinder dynamic growth developments in China, India and some oil-producing nations. China will emerge unscathed from the current financial crisis and from any consequent recession, though its longer-term outlook is uncertain. China’s current growth bubble could lead to a crisis in several years. Elsewhere, offshore natural gas should enable India to become energy self-sufficient in the next few years, so expect its economy to perform well. Some Middle-Eastern oil-producing nations also will become sources of economic strength. Developing countries will outperform developed ones.

Policy Recommendations

Soros’s already finds that the financial system is being disrupted more severely than he had anticipated as widening credit spreads cause mortgage rates to rise. The housing market has yet to find a bottom and the dollar is falling to new lows. Monetary authorities need to avoid the formation of any other asset bubbles.

“This is the first time since the Great Depression that the international financial system has come close to a genuine meltdown. That is the crucial difference between this financial crisis and previous ones.”

The new reflexivity paradigm recognizes the fallibility of financial markets and regulatory authorities, which have failed to exercise control. They now must regulate credit creation, re-establish control over excess leverage, learn to understand recent innovations and prohibit practices they do not fully comprehend. The public must hold them responsible if they allow an institution to get so out of control that it needs rescuing. The government should create a clearing-house for credit default swaps as one means of helping to resolve the credit crisis.

“I foresee a period of political and financial instability, hopefully to be followed by the emergence of a new world order.”

As for the housing crisis, regulators must take necessary measures to limit the collapse in the prices of homes. Avoiding foreclosure should be a primary objective of policy measures. U.S. Representative Barney Frank is correct in proposing modification of the bankruptcy law to empower bankruptcy judges to rewrite loan terms for principal residences. Frank also proposes enabling the Federal Housing Administration (FHA) to offer guarantees to assist subprime borrowers in refinancing into more affordable mortgages. In New York City and Maryland, Soros’s foundation is working to keep borrowers in their homes.

About the Author

Billionaire financier, investor, philanthropist and former hedge-fund manager George Soros chairs Soros Fund Management. He founded a global network of foundations that support open societies. His best-selling books include The Bubble of American Supremacy, Underwriting Democracy and The Age of Fallibility.

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The New Paradigm for Financial Markets

Book The New Paradigm for Financial Markets

The Credit Crisis of 2008 and What It Means

Public Affairs,
 


1 February 2026

Finding and Keeping Great Employees

Recommendation

Job seekers and job holders alike tend to think they’re National Football League free-agents when it comes to getting and keeping jobs in this low unemployment era. Thus, corporations can find it very tempting to act like football teams - throw money at recruits, throw money at employees with wanderlust - and then throw up their hands when people leave. No need for all that, say authors Jim Harris and Joan Brannick. Finding and keeping great employees isn’t about winning the bidding, it’s about getting to the source of employee alienation and rebuilding connections among people, their jobs, their lives and your company. BooksInShort recommends this book to employees, especially unhappy ones, and to human resources professionals of all stripes, from recruiters to compensation analysts to development specialists, and even football coaches.

Take-Aways

  • The biggest obstacle to finding and maintaining the most talented workforce is lack of connection between employees and their companies, jobs and personal values.
  • Successful recruitment and retention requires aligning your employment efforts with your organizational culture.
  • Pursue a culture driven by customer service, innovation, operational excellence or spirit.
  • Aligned companies use eight recruitment strategies and eight retention strategies.
  • Inventory your staffing practices and prioritize your efforts.
  • Obtain employee feedback on your current alignment and proposed efforts.
  • Develop initiatives to improve alignment.
  • Pilot test these initiatives on a staggered schedule, and then implement fully.
  • Monitor your alignment continually.
  • Re-evaluate your core culture and employment policies whenever your organization undergoes a structural change.

Summary

Disconnection and Alignment

Push someone hard through a revolving door, and they are likely to end up where they started - on the outside looking in. Despite lavish recruiting programs and gargantuan signing bonuses, companies are finding it increasingly difficult to recruit and retain outstanding employees. However, this is not an inevitable consequence of a tight labor market. Many companies achieve low turnover, even in this competitive employment climate. They succeed because they really understand why employees’ eyes tend to wander: disconnection and lack of alignment.

“Aon Consulting, a unit of the Chicago-based Aon Insurance company, found that 55% of workers said they would switch jobs for a pay increase of 20% or less.” [St. Petersburg Times, Feb. 8, 1998.]

During the 1980s and 1990s, a time called "the most turbulent in business history," corporate success became dramatically unhinged from employee well being. Three realms of employee disconnection developed. "Company disconnection" arose in the wake of downsizing programs that reshaped the once traditional long-term connection between company and employee. Believing their jobs could disappear at any moment, employees became sanguine about disappearing themselves. "Job disconnection" resulted from greater strategic flexibility and dizzying technological advancement. Employees who did not get continual training saw the gulf between their skills and their job duties widen dangerously before their eyes. Finally, long hours of unfulfilling work became a recipe for "personal disconnection" between employees’ jobs and their values, such as family ties and societal contributions.

“Employees disconnect on three levels: company, job and personal. To find and keep outstanding employees, organizations must overcome this growing chasm of disconnection or risk losing long-term competitive advantage.”

Companies need to understand that turnover is fundamentally a disconnection problem so they can recognize that they need to build a strong, stable and lasting consciousness of connection for both prospective and current employees. This connection is not to a lifetime with the company. Rather, it unites employer and employee in a shared core culture. By understanding the concept of core culture, embracing one culture over all others, and tailoring recruiting, screening, promotion, and retention programs to promote that culture, ordinary companies can become aligned companies.

How Companies Benefit from Alignment

Alignment gives companies several competitive advantages.

  • Strategy - Aligned companies meet strategic goals more easily because staffing and retention programs maintain a strategically motivated workforce.
  • Simplicity - Alignment offers clear cultural criteria for hiring, promotion and retention.
  • Reinforcement - People with common cultural values reinforce their organization’s core culture through the decisions they make.
  • Company connection - Aligned companies connect to their employees through the common values they share.
  • Job connection - Alignment links all jobs to the core culture and helps employees see the connection between individual professional duties and the company’s overall goals.
  • Personal connection - When employees share their companies’ values, they perceive hard work as a means of promoting their beliefs.
  • Talent center - When your staff can achieve peak performance without having to surmount cultural obstacles, you will find it easier to maintain a pool of talent.

The Four Core Cultures

Aligned companies possess and cultivate one of four core cultures in their staffing and retention programs, recognizing that "financial performance is a result or an outcome, not a driver, of organizational excellence."

  1. Customer-service culture - This culture strives above all to "create solutions to meet customer needs." Customer-service organizations put customers’ needs before their own. They empower frontline employees to solve customers’ problems on the fly. Customer-service organizations frequently cultivate customer contact at every organizational level. Their greatest challenge is inculcating the service culture in their customers, which sometimes requires diverting resources.
  2. Innovation-driven culture - This approach is characterized by a passion to "create and shape the future" - and to do so better and more quickly than the competition. Innovation-driven organizations develop new products and services as quickly as they can, constantly cannibalizing their latest and greatest to create something newer and better. These companies cultivate a sense of adventure and pushing the limits, giving employees the freedom to take their intelligence and creativity as far as they can.
  3. Operational excellence - This culture tries "to create processes that minimize costs while maximizing productivity and efficiency." These companies relentlessly pursue quality. While they abhor waste and ferret out any process bottlenecks, they make enormous investments in improving procedures. Operational excellence demands as much standardization as possible, creating clear performance guidelines at every level.
  4. Spirit-driven culture - These companies are "obsessed with creating environments that unleash the limitless creativity, enthusiasm and energy of people." These companies focus on employees, social causes or even religion as their employees’ primary motivators. They foster a managerial attitude of service, a sense among employees that their individual jobs promote a greater good and a commitment to promoting more than just the bottom line, even in situations that test the company-employee bond.

Staffing

The staffing process involves all aspects of the recruitment and selection of potential employees. In particular, the staffing function requires job definition, job marketing, candidate screening and hiring. Aligned companies pursue eight staffing "best practices."

  1. The "WOW" factor - Aligned companies know what makes them unique relative to the competition, or what Tom Peters describes as "stepping out and standing out from the growing crowds of look-alikes." These companies know how to communicate their uniqueness by incorporating culture into recruitment and screening processes.
  2. Treat applicants as customers - Aligned companies invest significant resources in understanding the qualities and characteristics of ideal applicants, communicate a consistent message to applicants and customers and do everything possible to give applicants a positive experience, even when they have to reject a candidate.
  3. Cultivate a leadership image - Aligned companies create images as community leaders and industry experts. These firms cultivate a strong reputation in relevant industries and support local, regional and nationwide initiatives for social causes.
  4. Get real - Aligned companies are able to convey the positive and negative aspects of working for them.
  5. Job or no job - Aligned companies pounce on talented people, whether or not there is a specific opening at the moment.
  6. Multiplicity - Aligned companies recruit with multiple methods, involving multiple people and departments. Interviewers introduce recruits to their prospective colleagues.
  7. Great-employee profile - In addition to understanding what knowledge, skills and abilities the ideal employee will have, aligned companies know the characteristics of employees who fit the organization culturally and pursue candidates with those traits.
  8. Beyond benchmarking - Aligned companies learn the status quo by tracking and measuring organizational performance. They collect and analyze staffing metrics, so they know what is working and what is not. Important metrics include the cost per hire, monthly or annual turnover rates by position and department, relative use of different recruiting sources, average time to fill a position and the quality of employees hired using each method. This information helps firms improve the staffing function.

Retention

Aligned companies pursue eight "best practices" to retain employees. This is critical because, "the occupational half-life in 1970 was estimated at somewhere between 12 and 15 years. Frighteningly, according to the Federal Department of Labor, today’s best estimates of occupational half-life are in the range of 30 to 36 months."

  1. Engage the soul - Pursue ways to engage employees’ hearts and souls.
  2. What gets rewarded gets done - Match rewards to activities that promote core cultural values.
  3. More than money - Embrace intangible benefits above and beyond competitive pay and traditional benefit plans.
  4. Learning drives earning - Invest in training employees and make learning an integral part of the core culture.
  5. Get a life - Help employees balance their work with their personal lives.
  6. In the loop - Connect employees’ individual duties with the organization’s big goals.
  7. Lighten up - The company should take your work extremely seriously, while taking itself not so seriously.
  8. Free at last - Give employees the maximum operational freedom possible.

Getting Started

Using a six-step process, you can help your company become better aligned.

  1. Clearly embrace one core culture - This is your most important task because it sets the standard to which your other cultures will be aligned. This is also your most difficult task because it requires extreme honesty, enough to deconstruct your company’s mission or vision statements if necessary. You may even determine that your company’s current core culture does not support its long-term, strategic objectives. In that case, you will have to battle to realign your company’s culture and its mission.
  2. Prioritize your alignment efforts - Find two or three examples of how your organization implements each of the eight staffing best practices and each of the retention best practices. Based on these lists, identify your strengths and weaknesses, and identify ways to leverage your strengths and implement new initiatives or improvements where needed.
  3. Obtain employee feedback on alignment - To get the maximum number of perspectives and the best chance of full participation and support, involve employees from all levels and divisions of your organization. Determine which of your current staffing and retention programs are best aligned with the company’s core culture and decide how to align those that are not. Discover and cure any organizational barriers to alignment. Determine who should be involved at various points in the alignment process, and strategize the best ways to monitor and evaluate the new programs.
  4. Create alignment initiatives - Use the employee feedback to re-tool current staffing and retention initiatives and to develop new ones. Involve representatives from all parts of the company.
  5. Implement alignment initiatives - This is an ongoing process, and it works best when you can test and refine any new initiative. Generally, you want to stagger implementation of new staffing and retention initiatives over time.
“To have a fully-aligned staffing function, you must measure what you currently do and use that information to revise and improve. Measurement is the key for keeping and improving staffing practices that consistently attract culturally aligned top talent.”

Monitor and evaluate alignment initiatives - Effective alignment is an ongoing process. New staffing and retention initiatives must be evaluated regularly, and changes should be made accordingly. Also, any change in the organizational structure - such as a merger, acquisition or change in executive leadership - may result in a change in the company’s core purpose, and require a shift in core culture and therefore a shift in staffing and retention to re-align to the new protocol.

About the Authors

Jim Harris, Ph.D., is president of the James Harris Group. He is author of Getting Employees to Fall in Love With Your Company. Joan Brannick , Ph.D., is president of Brannick Human Resources Connections.

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Finding and Keeping Great Employees

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