Posts on Oct 2020

The One Year, Thirty Minute Challenge :: Week 44 :: Strategic Planning :: Absorptive Capacity

One of the most disconcerting things any business leader contends with is “disequilibrium”. Disequilibrium is that queasy feeling when what you think you know for sure is, all of a sudden, in question. One moment, your world is tidy – all the pieces make sense – and now, suddenly, it doesn’t. Disequilibrium happens in all parts of life, not just work – faith, relationships, health, and the list goes on. But for this week’s One Year, Thirty Minute Challenge, we’ll discuss work.

Sales are humming along. Everyone loves your product. You have to beat customers off with a stick. And then, a little-known competitor introduces a product that upends your industry. Customers flock to your competitor and your revenue plummets. Yesterday, revenue projections for the next couple of quarters looked stellar. Today, with the money on hand, you’ll only be able to make payroll for 8 more weeks.

Now what? Disequilibrium – that situation when new information comes into your world and throws everything you know out of sync – reveals your Absorptive Capacity. Absorptive Capacity is the ability to synthesize the new information you’ve received, reconcile it to what you knew before, and respond in a way that reflects your new understanding – all while pushing towards your vision and fulfilling your mission.

Before jumping into this week’s exercise, let’s illustrate with an incredibly over-simplified example. You sell cameras and the film that goes inside those cameras. People point the camera at an image, push a button and the image is etched on the film. After those people have taken a few dozen of those pictures, they send the film to a third party that puts the film through a process and prints the images from the film on special paper. That’s how pictures are made. Everyone knows that. Then, one day, you learn of a new camera. People point that camera at an image, push a button and the image is translated into millions of electronic picture elements (pixels) organized on a grid and saved on a silicon chip. No film. No third party. No printing on paper. The little chip holds hundreds of images. And the images are completely portable and can be sent to other people using a variety of electronic devices. You’ve just experienced disequilibrium. What you thought you knew about taking pictures has been disrupted with new, confusing information.

What you do next determines what your business will look like going forward. You can deny the new information – “the way we do pictures is what customers will want forever”, “this is a passing fad”, “this will never be commercially viable”. Or, you can demonstrate your Absorptive Capacity by synthesizing the new information and begin making positive progress towards your vision armed with an updated understanding of the environment in which you compete.

Let’s jump into this week’s exercise. It’s not possible to engineer a moment of disequilibrium. That’s part of the reason they’re so jarring. They come out of the blue. So, for this week’s exercise, we want to create a framework that you can use to lead yourself and your team through these events when they come. In that framework, we want to strengthen your organization’s Absorptive Capacity so you emerge from disequilibrium stronger and more prepared to reach your vision.

Understand exactly what’s threatened by the new information – Is your entire business model in jeopardy (like the camera illustration above)? Is your workforce in danger of being poached (a large employer with deep pockets is building a new plant in your city and will be hiring thousands)? Are your customer’s expectations likely to radically change (better product available, better pricing for a competing product)? What problem is being solved now more effectively than you were solving it before? This is no time to “whistle while you walk through the graveyard”. Instead it’s time for radical truth-telling. Get your most trusted team members together and ask hard questions. Talk to current and existing customers to gauge their response to the new information (depending on the information, it might or might not affect them). Define the breadth and depth of the impact from the new information.

Identify the downstream effects – What’s the impact on revenue? Does existing equipment become obsolete? Do existing core competencies become meaningless? Does customer acquisition messaging need to be reworked? Is your cost of goods sold or customer pricing impacted?

Envision the new reality – Clearly, no one has a crystal ball, but using your best judgment, envision the new world created with the new information. Who will win? Who will lose? What will the winners have done to win? What will the losers have done (or not done) to lose? What vendor resources will become important? What will be important to employees? What will be important to customers? What will be important to other stakeholders – shareholders, regulators, vendors?

Create alternatives – With your new, expanded understanding create multiple scenarios that make sense in the new reality. For each scenario, push towards effective value creation and push towards fulfilling your vision. Can new, capable competitors become strategic partners? Can new, capable competitors become acquisition targets? Should you become an acquisition target for a new, capable competitor? Can you successfully emulate a new product or service offering? Can you move up or down in the value creation chain? Is there talent you need to acquire now? Are there assets you need to jettison now? What becomes the new, valuable core competency?

Leverage existing knowledge and experience – When faced with a challenge, your gut reaction is to do what you already do except to it faster, with more intensity, and with higher quality. I get it. But, if you’re riding a bicycle, you’ll never go faster or farther or carry more than your new, capable competitor who’s driving a delivery van. That’s where your knowledge and experience become your competitive advantage. You know the limits of your current team, your current model and the needs and wants of your customer base.

Leverage existing relationships – Tap the collective genius of employees, vendors, and even customers. If you don’t have one already, establish a true idea meritocracy – an environment where the best idea wins the day – no matter whose idea it is. Beware of the HIPPO (the Highest Paid Person’s Opinion).

Look for meaning in adjacent areas – Does the new information or the new reality it produces allow you to pivot to an adjacent area? Many years ago, during a downturn in general aviation sales, manufacturers of small planes become subcontractors for commercial airline manufacturers (whose business was booming) building wings, tail sections and other subassemblies for them. Can you leverage existing capabilities into new opportunities?

Look for meaning in other industries – Are there other industries that were faced with a similar situation? How did the players in those industries respond? How did the actions of the winners differ from the actions of the losers?

Fire bullets – When you’re ready to test your responses, as much as possible, fire bullets – small, controlled, cheap tests to evaluate the promise of that response. Tweak and test again until you have an effective response to the new reality. You can read about firing bullets in an earlier One Year, Thirty Minute Challenge.

Measure and adjust – As you roll out your new response, measure the factors that accurately indicate that you’ve successfully reacted to the new environment. It might be things like no decrease in customer retention, no loss of revenue, no increase in cost of goods sold, stable customer satisfaction scores or, depending on your unique situation, a whole different set of measurements. Whatever the metric, continue to evolve your response as the metrics dictate.

The speed of change in the competitive environment continues to accelerate. And the magnitude of the changes continues to increase. Increasing your Absorptive Capacity is a critical skill to ensure that your business continues to not only stay relevant but prospers in an increasingly turbulent business environment.

The One Year, Thirty Minute Challenge :: Week 43 :: Finance :: Operating Budget

According to a survey by Clutch, 61% of small business owners did not create an annual operating budget. As the number of employees shrunk, the likelihood of a business creating an annual budget shrunk even more – 74% of businesses with 1-10 employees did not create a budget. Unsurprisingly, in another Clutch survey, 35% of small business owners listed unforeseen expenses as their top financial challenge.

An operating budget certainly doesn’t insulate you from unforeseen expenses, but it does force you to deliberately examine projected revenue and expense numbers for the upcoming financial period. The exercise, if done correctly, will make you prove, with real math, that your strategic and operational plans are going to deliver the financial results you desire.

Earlier in the One Year, Thirty Minute Challenge we looked at capital budgeting. Operating budgets differ radically from capital budgets. Capital budgets deal with large-ticket items that are depreciated over several years. Their purchase is not reflected in an operating budget. Operating budgets deal with income and expense projections for an upcoming fiscal period. Money that is typically both earned and spent in that period.

Operating budgets are based on assumptions – assumptions like “what we pay for utilities will stay the same”, “we will have no major customer defections”, “our health care premiums will go up 10%” and on and on. At the beginning of the budgeting period, you’ve got to validate every assumption as much as possible. It’s also prudent to document assumptions so everyone involved knows the “facts” the budget was built on. To illustrate, in 2020, you should assess and state your assumption about the effect of the coronavirus pandemic on your organization in 2021 – it will be a distant memory, we’ll be somewhat impacted, it will still be a major factor for us or somewhere across that spectrum.

Clearly, your 30-minute exercise this week isn’t long enough to pull together a budget, so the goal is to pull together a budget plan, get the plan to the right people and be able to clearly explain your budget methodology.

According to the Corporate Finance Institute, there are four methods for putting together an operating budget –

  • Incremental – Start with last year’s actual revenue and expense numbers and ratchet them up or down based on a percentage or on anticipated changes in specific budget categories. I’m not a fan of this methodology, since it’s easy to perpetuate a budget that might have been built incorrectly in the beginning. And, it might be feeding budget categories that are no longer relevant to the success of the business.
  • Activity-based – Begins with revenue targets then fleshes out the expenses needed to reach those revenue targets. This methodology works well for “cost of goods sold” expenses but might be a bit unruly when building the underlying administrative costs.
  • Value proposition – Requires every expense to be tied back to some value creation activity for the customer, employee, shareholder, or other stakeholder. I like the premise here because, truly, if an activity doesn’t bring value, then why do it?
  • Zero-based – Every single budget line begins at zero. From scratch, you must build every line item. Consequently, the existence of the line item and the amount must be justified. I like this one also, because of the discipline required and the scrutiny given to each entry.


You can choose one of these methodologies or a hybrid of two or three. The methodology takes a backseat to the real reason for doing a budget – to correctly fund value creation activities so that projected revenue goals are met or exceeded and expenses are right-sized so that all stakeholders receive returns that cement their relationship to the company. This incredibly important point deserves a bit more attention. Customer facing activities must be sufficiently funded so that purchasers receive a product or service that exceeds their expectations and is delivered in a way that makes them feel good about their purchase. Employee compensation must keep value producers inside the organization happy and engaged and not looking for employment elsewhere. Shareholders must receive a sufficient return so their investment in the organization continues to be justified. A similar calculation must be made for every stakeholder in the organization.

Let’s jump into a few mechanics for budget building.

  • Involve the people ultimately accountable for hitting the numbers – The directors and managers who will reap the rewards or bear the consequences for financial performance for the budget entity (department, division, business unit) must create the budget for that entity. If they’re smart, they’ll involve other team members who will impact that entity’s performance.
  • Simultaneously work bottom up and top down – Expectations for profitability should be communicated down and needs for funding value creation activities should be communicated up. The organization’s desired endgame should be baked into the company culture and should be a regularly discussed topic in the organization, so there shouldn’t be any surprises here. This is just an annual exercise dedicated to examining the financial manifestations of what you’re after every day.
  • Use tools that make sense – A smaller organization might get away with an Excel template used by everyone in the organization. Larger organizations probably want to opt for some of the more robust budgeting tools available.
  • Use the right level of detail – In your office supply category, you don’t need a line item for pencils, another for staples and another for paper clips. If you do, you have the wrong people in charge. Budgets reflect the level of autonomy in that business entity.
  • Budgets should include contingencies, but those building the budgets should know that the ultimate determinant of investment is value creation – I’m in favor of adding some contingencies to a budget (for unforeseen circumstances – overtime, equipment failure, opportunity to capture an emergent opportunity), but ultimately, every expenditure in an organization should be about value creation. If a situation arises that affords an opportunity for value creation, even though that opportunity was not apparent at budget creation time, the person responsible for that budget entity should know that they can come to you with that opportunity and not be chastised for considering something “not in the budget.”
  • Budgets function as a “reality check” for projected revenue and projected expense – Let’s say your budgeted revenue reflects the sale of 3 million widgets. What is the sales commission for 3 million widgets? What is the cost of raw materials for 3 million widgets? What is the labor cost for 3 million widgets (that requires that you know how long it takes to make each individual widget)? Will any overtime be required to produce 3 million widgets? Is the present capacity of your plant sufficient to produce 3 million widgets? What does it cost to ship 3 million widgets? Will the production of 3 million widgets force you to add another shift? What will be the cost of supervisors for that shift? Are all those items in your budget? The budgeting process is the mechanism that ensures you’ve accurately identified and synced all of the revenue and costs associated with the value creation activities that get you to your financial targets.
  • At some point in the process, check your work against industry benchmarks – I’m not a big “best practices” person. Every “best practice” was once a wild idea gambled on by some innovative thinker. I’d prefer to put my money on the innovative thinker. However, that being said, it’s not a bad idea to check your work against your competitors – just to make sure you’re not missing something. For instance, you can easily find stats on what percent of revenue is spent on Information Technology in your industry. If your competitors are spending 4% of revenue on IT and you’re spending 2%, maybe you’re not being thrifty. Maybe you’re missing opportunities to automate work or offer new tech-enabled products.
  • Bake in profit margins at the budget level – If you want to make a profit of 20%, make sure your revenue and expense projections enforce that margin. Engineer the value creation activities until you’ve pushed the revenue and expense numbers far enough apart to hit your profit target.


Get the responsible parties together and lay out your plan. If this is your first budget, it’s important to explain your rationale. It’s all about the discipline – the same reason you do a strategic plan or any other deliberate planning activity. It’s the opportunity to step away from the press of all the things that clamor for your attention and focus on, in this case, the finances of your organization.

After your budget is in place, check your performance against it regularly. Make it a part of your balanced scorecard. When opportunities come to deviate from it, use it as a development opportunity for your staff as you discuss the rationale behind decisions to “stick to it” or “stray from it”.

The One Year, Thirty Minute Challenge :: Week 42 :: Marketing :: Five Forces Plus 1

When vending your products and services, you spend a lot of time pressing out –

  • You create new products and services you believe current and potential customers will want
  • You tweak existing products and service to keep them attractive to current and potential customers
  • You improve the customer experience to encourage loyalty and decrease defection
  • You create new messaging to tell your story in a more compelling way

But, any healthy assessment of an organization’s competitive environment asks the question, “What is pressing back against us?” Competitors, customers, vendors, and the environment at large are always changing. So, in addition to the proactive “pressing out”, you must counterpunch – not necessarily responding tit-for-tat, but tracking what’s going on around you and responding when advantageous.

Michael Porter introduced his “Five Forces Model” in 1979. Forty years later, it’s still an effective way to examine the competitive forces in your industry. In the mid-1990s, a sixth force was added to the model (some folks have credited it to Andy Grove, the former Intel CEO).

In this week’s One Year, Thirty Minute Challenge, we’re going to walk through the six forces and ask questions that will help you look critically at what is “pressing back” at you. Then, more importantly, we’ll suggest some “counterpunching” options you can evaluate with you team.

Rivalry among existing competitors – Other companies serving the same customers, offering products similar to yours, pose, in some ways, the stickiest problem. The gut reaction to lower prices only sets up a race to the bottom as each competitor settles for less and less revenue to pick up a few more points of market share. Competing on price is an unsustainable tactic. So, for products that are largely undifferentiated, what can you do instead? The short answer is to change the basis of competition. Overnight package delivery is big business, but since the end result is a package moved from point A to point B overnight, it’s highly undifferentiated. The competitors in this industry have done a good job of turning our attention to unique competencies that distinguish them from their competitors – package tracking and outsourced logistics provider to name a couple. So, if you find yourself in a slugfest with a capable competitor, consider this –

  • Are the products or services truly undifferentiated or have you done a substandard job explaining your unique value proposition?
  • If they are truly indistinguishable (electrical outlet covers, for instance), can you shift the basis of competition to a unique delivery competency or customer experience?
  • Can you move up or down to premium or economy versions of the product and capture an “end” of the market?
  • Can you leverage the competencies that allow you to create this product and use them in a “blue ocean” – one that’s free from the bloody red waters of your war with current competitors?


Threat of New Entrants – If you’re making money, someone else would love to make it as well. Any successful enterprise is going to draw the attention of existing companies looking for new opportunities and startups looking to crash a successful party. There’s an important discipline that comes into play here that we discussed in an earlier One Year, Thirty Minute ChallengeCreative Destruction. Creative Destruction is the practice of scrutinizing your current products and processes to make sure they are impervious to competitors and, if they are not, replacing them so that they are. If you’re not engaging in this exercise, potential new entrants will be. So, how do we stave off new entrants?

  • Build a great database and communicate with the people in it frequently. In theory, you know infinitely more about your market than a new entrant does. Use your experience to be a better listener, understanding the needs of the market more accurately than potential new entrants. Tell your story in a meaningful way.
  • Give great service. Don’t give customers a reason to look elsewhere for the same good or service.
  • Leverage the learning curve that you’ve already ascended. That learning curve should translate into better vendor relationships, more mature processes, and consequently, lower costs. You should be able to price match or even undercut a new entrant and still make more money because your costs are lower.
  • One last, more radical, idea. If a new competitor is exceedingly capable, maybe you should buy them. Unless they are incredibly well capitalized, they might have shot the wad creating their new product or service.


Threat of Substitute Products – This force is different from competition with existing rivals because it considers enterprises competing for the same dollars – going to the movie theater vs streaming a movie at home or playing mini-golf vs going to the movie theater. Substitute products can span industry types – gym membership (a service) vs buying a Peloton bike (a product with an optional subscription service). Value creation is always a holy grail exercise, but, in this case, it’s really the entire discussion. How can you create an offering of surpassing value for this particular dollar?

  • What is the desired end result for this expenditure? Get healthy, be entertained, not be hungry any more, be confident that my car is safe and reliable again?
  • What stands in the way of the customer achieving that goal? How can you most efficiently and convincingly eradicate those obstacles?
  • What pushes them closer to that goal? How can you most efficiently and convincingly show them that your solution takes them faster and farther towards that goal?
  • How can you communicate that you “get it” and that your methodology for reaching their goal affords them complete control, provides the biggest bang for the buck, overcomes all of their objections and checks every box – or at least checks the boxes better than all available alternatives?


Bargaining Power of Customers – You know intuitively that customers have power, but in some circumstances their power is outsized. If a customer’s defection leaves you with a ton of unrecovered acquisition costs (i.e. it cost you a bunch of money to get the customer to buy the first time and they’ve not made enough purchases to offset those costs) or, on the other end of the spectrum, if one or two customers represent such a large part of your revenue that their departure could cripple or destroy your company, those customers exercise substantial control over your company.

  • It seems a counterintuitive, but how can you inflict some pain on the customer if they leave? I, of course, don’t mean real pain, but something like loyalty points or a discount that can only be redeemed on a future purchase. Withhold that benefit until they transact more business.
  • If your product or service is a bit more sophisticated, can you introduce some switching costs into the equation? If you provide a service like accounting or tax preparation, institute an onboarding regimen that involves a thorough (but valuable) data-gathering exercise where you not only gather historical financial data but discuss future financial goals. The prospect of spending that time again, with a new provider, might dissuade them from defecting.
  • If one customer represents a significant percentage of your revenue (high customer concentration in finance lingo) there are a couple of things you might want to consider. If you service only one industry, can you solicit other potential clients in that industry and leverage your deep industry expertise? If servicing competitors poses a problem for your large client, change geography so that prospective client bases don’t overlap. Or, look for ways to leverage the skills you are using to service that client and find other industries where those skills are in demand. Project management, software development, process improvement and a host of other skills are highly transferrable.


Bargaining Power of Suppliers – The risk with a powerful supplier is three-fold. They can drive up your costs with price increases because the materials they supply are unique or scarce. They can halt or cripple your value creation activities by being late or erratic in delivery. Or they can negatively affect your quality by providing products that perform inconsistently.

  • How can you create a partnership with a powerful supplier? How can you configure your relationship so that successes and failures are shared? For example, a retroactive per piece payment or bonus payment if every shipment in the previous quarter was on time and the defect rate was below 1%? Or penalty payments, a .5% reduction in unit cost for each hour the production line was out of service because of a stockout on the part the vendor supplies?
  • How can you give them greater visibility into your processes so they can see how their product is utilized and when it will be reordered next (so they can prepare for production)?
  • How can you leverage their expertise to improve quality and drive down costs as you contemplate future versions of their product? How early can you bring them into the discussion? If you help them build ease of manufacturing into future versions, costs can come down.


Complimentary Products – We are awash in manifestations of this competitive force – razors and blades, phones and cases, phones and apps, printers and ink – and the list goes on. But, leveraging this for competitive advantage has some fairly straightforward components.

  • Can you clearly see the beginning and ending of the complementary wave you’re riding? If you make cell phone cases, you’ll be retooling every 8-12 months. If you make ink cartridges for printers, a model could be in use for several years. Complimentary products also vary in complexity – a VHS tape had moving parts, a DVD had none.
  • Will you be directly benefitting from both sides of the equation? Will you be making razors and blades or will you only be making blades?
  • If the complimentary products are in the tech realm, is the successor technology likely to be in your wheelhouse? Streaming video is not at all like Blu-Ray Players and Blu-Ray discs. Can you be proficient in and can you afford to play in very disparate spaces?


In almost every case, the things you do to press out will be more important than the things that are pressing in, but you can’t ignore the environment in which you complete.


The One Year, Thirty Minute Challenge :: Week 41 :: Leadership :: Hard Skills and Soft Skills

Over the last couple of decades, we’ve collectively “seen the light” on hard skills vs. soft skills. To maximize our own effectiveness as a leader, we know we need both hard skills and soft skills. When we screen potential employees, we’ve added tools to assess not just hard skills – proficiency in a particular programming language, driving a forklift, tax planning, creating a PowerPoint deck – but also soft skills. We want to know if the potential team member is empathetic, a team player, a good communicator, a good problem solver and more.

You and every employee in your organization come to the office, factory, hospital, or studio with a unique combination of personality, innate abilities, life experiences, and education that has shaped your current set of hard skills and soft skills. Those factors have an oversized influence on how easily you’ll be able to continue honing those existing skills and adding new ones. Those with healthy self-awareness are a leg up on those who are blissfully ignorant of their own skills deficit. Those with good lateral thinking skills might have an advantage over those with only vertical thinking skills (depending on the new skill they are trying to master).

This week’s One Year, Thirty Minute Challenge is an exercise in adding soft skill and hard skill components to your employee development program. If you don’t have an employee development program (you need one), you can find a framework HERE.

A good Employee Development Program aligns the interests of the employee with the interests of the company. Achieving growth goals benefits the organization and the individual. As goals are determined and milestones are set, a mix of hard skill and soft skill mastery punctuates the path.

Translating the learning of a hard skill to employee development exercises is straightforward –

  • Read a manual
  • Take a class (online or in-person)
  • Become an apprentice

And proving mastery of the skill is equally objective

  • Take a test
  • Demonstrate a technique
  • Produce a product
  • Speak the new language

You get the idea.

But I’m afraid mastering a new soft skill seems “squishier”. It is, after all, a soft skill. So, how can we integrate soft skill development activities into our employee development program. HR sites are chock-full of lists of desirable soft skills. You’ll find items like empathy, teamwork, communication, problem-solving, work ethic, creativity, adaptability and many, many more. So, during that employee development meeting, how are you going to get that team member to learn empathy and how are they going to prove they did it?

Since none of us have a magic Geiger-counter that we can wave over a teammate and detect empathy, problem-solving or any other soft skill, we have to translate that skill into actions we can use to teach the skill and to evaluate mastery of that skill. In employee development meetings, we need to connect the dots between the desired soft skill and the action so the team member is mindful, “When I do this action, I’m giving outward evidence of this soft skill.”

So, here’s this week’s exercise. For your direct reports, make a list of the hard skills and soft skills you’d like them to add in the next 12 months – it shouldn’t be more than 1 or 2 of each. For each of the skills, identify the how. For the hard skills, it might be take a class or work with another team member who has that skill and is able to act as a mentor (that mentor might be you). For the soft skills, translate them into observable, executable actions that the employee can begin to practice. To give you a head start, I’m giving you a few activities that translate into some of the most sought-after soft skills.

  • Listen when you’d normally offer an opinion – This change in behavior can help build empathy, synthesis (creating a “mash up” of previously uncombined ideas, methodologies or technologies) and problem-solving. Don’t listen to respond better. Listen to understand more fully. Practice active listening activities like notetaking, repeating back the salient points of the speaker in your own words and nodding your head when the speaker says something you agree with.
  • Ask good questions – When you’re tempted to start a conversation with statement, use a question instead. Replace, “Send out an email blast to all our existing customers announcing our new extended warranty” with “What do you think about using an email blast to announce our new extended warranty?” Use a methodology like the “5 Whys” to probe deeper if you feel like the current discussion is addressing a “branch” and not the “root” of an issue. Questions promote teamwork, collaboration and the ensuing conversation provides an opportunity to practice the mentor mindset.
  • Look for the common ground first – Team members with a more operational bent can sometimes easily find the ten problems a new initiative will create without acknowledging the upside of the initiative (they see the upside, but they quickly run to solve the problems first, so the initiative can work). On purpose, acknowledge the upside of new ideas before jumping into areas of disagreement or potential problems. If you can’t get on board at all with the methodology, see if you can agree that they’ve identified a problem worth solving, “I couldn’t agree more that we have to solve this hold time problem. Let’s hammer away at this and see if we can figure out the best customer experience possible.” This approach fosters collaboration and problem-solving.
  • Deliberately get out of your intellectual comfort zone – Read a book or listen to a podcast authored by someone that doesn’t share your political bent, professional expertise or approach to life. For the content that espouses a different perspective, the opportunity to hold two differing opinions in your head at the same time (yours and the author’s) encourages problem-solving (enumerating and evaluating the merits of two opposing views), empathy (learning why the author holds those view) and lateral thinking. For the content that explains a skill set different that yours, the ability to understand the degree of complexity in another discipline encourages teamwork (as you appreciate someone else’s skill set) and synthesis.
  • Ask for a critique – This might be the toughest one on the list. Ask two or three people (who you respect and would go to for advice) to critique your communication style, management style or leadership ability. Receiving the feedback graciously and openly displays adaptability and a commitment to lifelong learning.
  • Find a way to help a coworker succeed – Look for a team member with a perpetually tough job or maybe one with a new, challenging assignment and figure out what you can do to help. Be a mentor, run interference so they can get the resources they need, or provide additional support from your department. Making an investment when you’re not promised anything in return shows teamwork, mentor mindset and empathy.
  • Look for a better way – Find an existing activity in the organization and look for a way to make it better. Can you more effectively engage employees, communicate more clearly with customers, or take steps out of a process (and keep the quality intact or maybe even improve it)? Improving an activity demonstrates creativity, adaptability and problem-solving.
  • Come in early and stay late and don’t waste time during the workday – This might seem like a no-brainer but putting in a full day shows work ethic.
  • Ask for extra, more challenging work – In addition to looking for a better way and putting in extra time, ask your boss for a challenging assignment or “the task nobody wants”. Executing on this extra work shows adaptability, problem-solving, and a commitment to lifelong learning.
  • Learn how to write code – It doesn’t matter what your job is, if you want to learn to think in a linear way (vertically) and to never leave any stone unturned, learn a programming language. Truly the software will only do what you tell it to do. If it’s wrong, you get immediate feedback in the form of erroneous results. If it’s incomplete, you have immediate feedback in the form of circumstances that aren’t addressed. It’s a shortcut to linear thinking, problem-solving, detail orientation, zooming out and zooming in, research, and creativity.
  • Learn how to draw – In contrast to the previous bullet point, if you want to learn to think laterally, learn to zoom out and zoom in (for a whole different reason) and be creative, take an art class.

When you’ve finished this exercise for your direct reports, schedule a one-on-one meeting, discuss the growth in skills you’d like to see, agree on the specific action items, timeline, check-in schedule and metrics for measuring progress. Encourage your direct reports to do the same thing with their team members.

The One Year, Thirty Minute Challenge :: Week 40 :: Governance :: Organizational Structure

There aren’t very many things in the course of growing a business that a business owner “falls” into – and there shouldn’t be. Each move should be calculated and deliberate. But if there’s one thing that happens, almost automatically, it’s the organizational structure.

If an electrician starts a new business, the first hire is most likely another electrician. But as the business grows, there might be an accountant, then a customer service rep, a procurement person, an IT person – you get the idea. Each of these people become the de facto head of a department and, “Viola” you have a traditional Functional Organizational Structure.

Most of the small businesses I know have this structure and most of the time it works well. And, I’m guessing the boss spends very little spare thought time considering another option.

This week’s One Year, Thirty Minute Challenge isn’t an exhortation to change your organization’s current structure, but instead an encouragement to ponder the pluses and minuses inherent in that structure and to consider whether another structure might make it easier to execute your mission and push you closer to achieving your vision.

The Functional Organization Structure is easy and intuitive. There are three primary advantages to the functional structure –

  • Focus – The finance folks direct their attention to finance, the IT folks to IT, the production folks to production, etc. Unlike the solo practitioner who is salesperson, accountant, service provider and janitor, people who work in a functional structure can train all their attention to a single discipline. This, theoretically, produces superior work, allows for narrow specialization, and lessens the probability for dropping the ball in that discipline.
  • Collaboration – Having the software developers, or salespeople, or accountants together allows them to bounce ideas off one another, work in tandem on projects, and encourages mentorship.
  • Redundancy – Having multiple people working in the same discipline allows for cross training and for one person to have a working knowledge of the responsibilities of a co-worker. This mitigates the risk of a “single point of failure.” If one person gets hit by the proverbial “bus”, the work of the company goes on, uninterrupted.

However, the functional structure has a couple of built-in challenges –

  • Hand Offs – Every organization I work with struggles with hand offs. How does the new customer order flow seamlessly from sales to production to accounting to customer service? How do we make sure that nothing falls through the cracks? How do we make sure the customer service rep has complete visibility into all the information they need to service the customer just as soon as the order is taken? As the boss, if you want your functional structure to work, focus your attention on hand offs.
  • Alignment – As the organization grows, functional areas can sometimes take on a life of their own – especially if a particular discipline is preeminent in the value creation activities of the company. A software company might elevate the importance of brilliant software developers or a company in a very competitive commoditized industry might elevate the importance of a few star salespeople who can land large, lucrative clients and gain market share. These are good things. Excellent performers should be recognized. But the difficulties begin when some functional areas begin to wag the dog – when production becomes the enemy of the salespeople who procured the killer order that now must be fulfilled or advertising becomes the enemy of editorial who claim that taking advertising from a particular business will compromise the journalistic integrity of the enterprise. As the boss, it’s your job to keep every functional area on the same side of the equation.
  • Kingdom building – A possible ugly symptom of failed alignment – a bad apple in the management ranks can begin to kingdom build. Amassing an outsized staff or exercising undue influence in the organization is unhealthy. It’s your responsibility to build an idea meritocracy where the best ideas rule the day, not the overgrown influence of a single person or department. Kingdom builders have ceased to look out for the good of the organization and are focused on their own enrichment.

I want to look at two other organizational structure options for small and medium sized enterprises.

The Matrix Structure has the components of a functional structure, but project or product teams cut laterally across the functions. The idea is to eliminate handoff problems by creating a multi-discipline team that focuses on a project or product with representatives who act as the authority and proxy for the discipline they represent.

The first thing you probably noticed is the very thing that makes this structure challenging. People have two bosses – a straight line to a functional boss and a dotted line to a project or product manager. So who do they listen to when priorities are conflicting? Typically, employees give more allegiance to the boss that has the greatest ability to make their life better (does their performance review, gives them raises, affects their upward mobility in the company). This structure can work, but the mechanics of the dual reporting must be crystal clear to the functional boss, the project manager, and the employee.

The Product Team Structure works to remove the dual reporting problem.

In this structure, the employee truly reports to the product or project manager but keeps a dotted line relationship back to the functional area they represent. This dotted line relationship attaches them to resources for collaboration with others in the same discipline and maybe even provides some redundancy for their work, but they are tied to the project/product team. The project manager is their boss (does their review, gives them raises, affects their upward mobility in the company). Representatives of each discipline (depending on the size and complexity of the project, there might be multiple people representing each discipline) are true cross-discipline collaborators since their fortunes are more strongly tied to the success of the project than they are to the functional area they represent.

I’ve laid these out a bit more cut and dried than they have to be. Certainly, companies can morph them to work for their particular situation (for example, in either the matrix or product team structures, functional and project bosses could collaborate on employee reviews instead of an either/or situation).

So finally, let’s jump into this week’s exercise. For this one, I’d suggest you get your leadership team together and step through each of the structures and associated pros and cons. If you think changing structures makes sense, discuss what it would look like to make the change. Ask why? Do you want to change because you’re doing a sub-par job managing in the current structure? If so, why will a new structure make the managing better? If you’re convinced a new structure is desirable, explore the changes necessary to make the transition. How will the responsibilities of managers and supervisors change? How will the responsibilities of employees change? How will career paths change? How will processes change? How will the customer experience change? Will these changes build the company culture you’re trying to install/maintain? Will these changes make it easier to execute your mission? Are any technology changes necessary to support the new structure?

If in the comparison, you feel like you’ve got the optimal structure now, evaluate how well you’re capitalizing on the strengths of that structure and how well you’re dealing with the weaknesses. Identify corrective action items for anything that you need to fix or exploit and assign them to someone. Get it on your calendar to check back in a couple of weeks to track progress.

Since you’re a reader of the One Year, Thirty Minute Challenge, it’s unlikely you’re the CEO of global enterprise. That was never the target audience. So the chances that you need an organizational structure that spans multiple business units or multiple large geographies are slim. But, if you need to examine organizational structures that are more complex, hit me up at and we can explore some additional options.