As fall rolls around, finance departments everywhere gear up for their budgeting busy seasons. If part of your job includes managing a budget, now is a great time to refresh your memory about a couple of budgeting and operations difficulties.

Sub-optimization of Resources

Company leaders insist on the budget exercise not because they love working with numbers but because they know resources are scarce. There will only be X million dollars available for capital expenditures like furniture, equipment and computers; leaders have to decide who should get the money. There is also only so much available for headcount; they have to choose which department is allowed new hires and which one has to wait.

Sub-optimization of resources like capital or headcount occurs when the budget masters put the money in a less productive/lucrative place and leave a more productive/lucrative place wanting. One reason this happens is managers who pad their budgets and request more than they actually need. A second reason is that some managers are more able to work the political system to ensure that their budgets are not cut.

If you have suffered as a result of sub-optimization decisions in the past, this is the perfect time to promote how lucrative and productive your department is. Make your case publicly with data and examples. Even if you don’t enjoy schmoozing, you may need to do some of that to point out the value your department brings.
In the long run, when resources are misapplied, no one wins.

Cross-subsidization

A common result of the budgeting process is cross-subsidization. Cross-subsidization is allowing (or insisting) that a more profitable product or business unit bear more than its fair share of allocated costs. (The less profitable product or business unit is being subsidized by the more profitable one.) Sometimes cross-subsidization is part of a market penetration strategy; sometimes it is just a glitch.

Intentional Cross-subsidization

Creating cross-subsidization can be an effective marketing strategy in some cases. For example, the retail price of a cell phone is far higher than the amount a customer actually pays . . . but only if he or she signs a monthly service agreement. The more lucrative product line (monthly service) is subsidizing the less lucrative product line (resale of phone equipment). This strategy allows providers to sell phones at less than cost and could be a winning strategy if enough people sign up and the phone provider is able to dominate the market.

Unintentional Cross-subsidization

If an organization does not realize that it is subsidizing a less profitable business at the expense of the more profitable one, strategy decisions are based on dangerously faulty assumptions. As a worst case example, a business could choose to expand the less lucrative product by shutting down the more lucrative one or give headcount to the less productive department rather than the more productive one.

Even if you are not in charge of an entire division, understanding the concept of cross-subsidization will make you more budget-savvy. Insist that people explain to your satisfaction any allocations that are added to or subtracted from your results. Learn how these costs are driven and determine what you might do to reduce company overheads. (Keep in mind that you need to influence the reduction of costs overall, not just the movement of an allocation off of your reports and onto that of another department.)

Pay Attention

Turning a blind eye to sub-optimization and/or cross-subsidization is risky. Especially at budgeting time, the successful manager is the one who recognizes the dynamics of budget decisions being made behind closed doors.

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Jean Houston Shore works with organizations that want their people to work together better. She can be reached at 770-643-9724, by email at jean@thinkbusiness.com or through her website at www.working-together-better.com. Ask for your free copy of her book Working Together Better.

Copyright © 2010, Jean Houston Shore, Business Resource Group. All Rights Reserved Internationally. No portion may be reprinted or used without prior written permission.

It’s still a year away but for tax years beginning after 2010, your W-2 form will contain some handy new information – the amount your healthcare coverage really costs. The Patient Protection and Affordable Care Act requires this disclosure by businesses and my guess is that most employees will be shocked at the number they see.

The official term to describe the number you will see is “aggregate cost of applicable employer-sponsored coverage.” This includes healthcare plans such as major medical coverage and Health Reimbursement arrangements as well as the value of on-site medical clinics and employer contributions to Flexible Spending Accounts (FSAs) and Health Savings Accounts. The “aggregate” part of that term means that both employer and employee contributions to medical coverage will be shown.

Specific regulatory guidance is still being formulated, of course. But the bottom line for employers is that the real cost of the healthcare benefits you provide will soon be out in the open for your employees to see.
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Jean Houston Shore works with organizations that want their people to work together better. She can be reached at 770-643-9724, by email at jean@thinkbusiness.com or through her website at www.working-together-better.com. Ask for your free copy of her book Working Together Better.

Copyright © 2010, Jean Houston Shore, Business Resource Group. All Rights Reserved Internationally. No portion may be reprinted or used without prior written permission.

When federal money comes to town, you’d expect all businesses to benefit. That makes sense; more money in equals a more prosperous community. But that’s not the effect that three Harvard faculty found according to their whitepaper “Do Powerful Politicians Cause Corporate Downsizing?”

Researchers Lauren Cohen, Joshua Coval, and Christopher Malloy, Harvard professors, knew that when a state’s congressperson or senator ascends to the chairmanship of a large and powerful subcommittee, millions of dollars typically flow into that state. Those earmarks would translate into more jobs, growth and prosperity for the states involved, they thought.  Instead they found the opposite.

It turns out that when federal dollars begin flowing into a state for particular projects, other firms doing business in that state pull back, reducing research and development, physical spending and hiring. The result of this retrenchment is lower growth and stagnating sales. The researchers suggested several reasons for the pull back including the possibility that private firms had planned to perform the functions that the government stepped in to handle. Another possibility is that increased federal involvement in a community causes increased uncertainty and we know uncertainty is never good for business.

Don’t Roll Out Uncertainty

All of us should take pains to assure that business decisions designed to help don’t create uncertainty instead. A few suggestions:

• Point out the process: When communicating the reasoning behind a decision you’ve made, take care to point out the reasonable process you followed to arrive at the decision. This will help employees recognize that you are not rushing to a decision but instead have worked it through carefully.
• Explain other alternatives considered: Rarely is there only one way forward. Your employees will feel less uncertain if they know that you thoughtfully considered your various options. Even if you did not choose the option the employees would have preferred, knowing that you were aware of that option will be calming.
• Unveil the winning criteria: Hopefully you arrived at your wise business decision by analyzing each of your options against the criteria that were currently most important for your company’s success. If “low cost” won out over “ease of implementation” explain that. Just listing out the criteria that factored into your decision can serve as excellent modeling for future business decisions.

Each business decision you make has an impact on your organization. By taking steps to minimize the uncertainty surrounding business change, you can avoid creating unintended consequences.

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Jean Houston Shore works with organizations that want their people to work together better. She can be reached at 770-643-9724, by email at jean@thinkbusiness.com or through her website at www.working-together-better.com. Ask for your free copy of her book Working Together Better.

Copyright © 2010, Jean Houston Shore, Business Resource Group. All Rights Reserved Internationally. No portion may be reprinted or used without prior written permission.

In the coming months your company will need to explain how the Patient Protection and Affordable Care Act (“Healthcare Reform”) will affect your employees. You’ll probably receive some model messages from your insurer explaining each of the changes and telling you what you are required to communicate in order to be in compliance with the law. So, just forward the memo, right?

Hold on.

If you explain these health plan changes using lots of layers of detail, your employees’ eyes will quickly glaze over. They’ll glance at your five page memo and move on without reading it, often to their detriment. To be more effective in communicating these changes, commit that you will Aim with Headlines, Summarize and Annotate.

Aim with Headlines

First, use headlines to aim each chunk of information to those affected by that chunk. For example, the headline “For Children under 19: Pre-existing Conditions Now Covered under New Law” will draw the attention of your employees whose children are younger than 19 and who also have a pre-existing condition. Employees not in that group can move on another well-worded headline that does apply to their situation. Another headline might be “For Flexible Spending Accounts: OTC Drugs Now Require Supporting Documentation for Reimbursement.” Employees who use a FSA and expect to receive reimbursement for over-the-counter drug purchases will recognize that they will have to obtain proper paperwork in the future.

Summarize and Annotate

Second, summarize the detail provided by your insurer. Consider writing an executive summary-style paragraph for each section if what they have provided to you isn’t clear. Then use bold face type, underlines, indentions or other typographic conventions to draw the reader’s eye toward what is most important about each provision. Read over the model messages or your insurer’s notice to you as if you were a college student.

Using a highlighter, note phrases within each paragraph that absolutely must be understood. Test your summarized/annotated version of the change communication by sharing it with a colleague and then asking them to explain verbally what they learned. Adjust your summaries and annotations to assure that only what is most important draws the reader’s attention.

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In the next few months, a flurry of healthcare reform changes will deposit themselves on your desk. Rather than just mindlessly pushing those communications out to the employee base, invest your time to make these change communications more effective. Your employees don’t have time to waste reading sloppy, undecipherable memos; they’ve got work to do.
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Jean Houston Shore works with organizations that want their people to work together better. She can be reached at 770-643-9724, by email at jean@thinkbusiness.com or through her website at www.working-together-better.com. Ask for your free copy of her book Working Together Better.

Copyright © 2010, Jean Houston Shore, Business Resource Group. All Rights Reserved Internationally. No portion may be reprinted or used without prior written permission.

Another notice went to United Healthcare’s plan participants this week. The summary? “We’re still negotiating with the hospital, but if we can’t come to agreement then you’ll soon be ‘out of network’ if your favorite hospital is Medical Center of Central Georgia.”

After some digging, we find that this is not an isolated incident at all.

In fact, back in January members that United Healthcare insures in New York got similar notices relating to the services they might wish to procure from the Continuum Health Partners, a consortium of five well known New York hospitals. The standoff ended in March and no New Yorkers had to find new medical facilities after all. United Healthcare was quick to point out in a statement that, “Not a single person will lose healthcare coverage because of the Continuum contract termination, although some people will have to change hospitals or physicians.” Right now, Tenet is in similar negotiations with Blue Cross and thousands of insured employees could be affected if they can’t work it out.

But they’ll probably work it out so there’s no need to worry. Right?

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This is the question your employees ask every time they sense the threat of change.

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Change Threat Kicks Off Coping Cycle

If you aren’t yet familiar with the Coping Cycle, now would be a great time to take your team through a training class on the subject. Coping is a sequential process, starting with something called a “cognitive disturbance” in which the person recognizes that something is out of balance. When employees learn they may have to change physicians or hospitals, it’s a cognitive disturbance. Off everyone goes on personal coping journeys, moving through the steps in the cycle.

If you don’t understanding the effect of coping skills on motivation and productivity, how can you possibly manage your people effectively? Though you are not licensed therapists, your managers should be able to recognize when employee behaviors are being motivated by problems in coping. Targeted interventions can be planned to help move employees through the coping cycle successfully, though some employees may eventually need a referral to outside assistance.

Minimize the Uncertainty with Information

You probably don’t have a direct influence on how the insurer/provider negotiations work out and you may not influence the outcomes of other change threats your teams face. However, one of the things you can do next time your team notices the threat of change is to provide as much information as possible as often as possible. During times of change, your messages will not be understood the first time. Send a memo with details and then follow that with an e-mail, a webinar and a voice mail.

Consider the varying needs of your stakeholders – customers, employees, suppliers, investors – and craft change communications documents to address those specific questions. Above all, try to reduce the uncertainty for your organization as much as possible but stop short of promising that nothing will change. Instead, express your confidence in the coping skills of those you work with; tell them that you know they will be able to manage the change successfully.

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You may find it interesting to tune in to negotiations between health care providers and insurers. Those situations may eventually affect all of us.  Whatever you do, recognize the impact that “change threats” deposit into the lives of your employees. Take positive actions to help your employee population cope.

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Jean Houston Shore works with organizations that want their people to work together better. She can be reached at 770-643-9724, by email at jean@thinkbusiness.com or through her website at www.working-together-better.com. Ask for your free copy of her book Working Together Better.

Copyright © 2010, Jean Houston Shore, Business Resource Group. All Rights Reserved Internationally. No portion may be reprinted or used without prior written permission.

The USDA’s Food Safety and Inspection Service recently provided technical guidance for cattle producers that flies in the face of business’s oft-quoted 80/20 rule.

Pre-Harvest Interventions

The guidance isn’t a regulation exactly; instead it explains a list of what it calls “Pre-Harvest Management Controls and Intervention Options” that beef producers should implement. FSIS says beef processing players should prefer cattle from producers who implement one or more of these pre-harvest interventions.

Some of the items listed include basic sanitation practices as well as vaccines and targeted antibiotics that are new or that have only spotty results in research studies. Those in the industry may view these items as small or insignificant, ideas that may not do enough to stop the spread of E.coli to be worth the trouble. However, the agency’s thinking seems to be that “multiple interventions, even if their individual effects are small, could reduce E. coli prevalence as cattle go to slaughter.”

But I Don’t Raise Cattle

Some will argue that until a particular course of action is proven to work, we shouldn’t try it. Or that the results we can expect from implementing a small change aren’t enough, that we need to see massive improvements and small ideas just aren’t worth the time. That’s 80/20 thinking at its best. (If you’ve never heard of the 80/20 rule or Pareto’s Principle, it basically suggests that 20% of your causes lead to 80% of your problems; in other words, focus on the big stuff first.)

But what if following the 80/20 rule keeps us from going far enough? What if smaller causes or ideas can combine to produce compounded positive results?

The E.coli Rule

Here are some ways you might consider following the “E. coli Rule:”

• Think about your pre-harvest parallels: What are the characteristics of the processes that come before what you do? How could you influence those who perform those processes to give you something that has higher quality, less detail or fits more seamlessly into your process?
• Round up the small ideas that people have mentioned and then dismissed: How could you mix and match these smaller concepts to create momentum and improvement?
• Regularly challenge the wisdom of blindly following the 80/20 Principle: Certainly part of the job is focusing on the big stuff but don’t let your organization get lulled into thinking that the small stuff can’t make a difference. Expand your thinking patterns and require others around you to use creativity in finding solutions to nagging problems.
• Banish workarounds: Workarounds develop when people or processes aren’t functioning as designed. Don’t make working around a problem the normal way you do business. Fix the underlying problem and you’ll erase the need to compensate.

Pareto’s Principle is too popular to go away anytime soon and there is definitely wisdom in it. However, thoughtful businesspeople will learn an important lesson from the USDA’s recommendations for reducing E. coli. We can apply 80/20 in our decision making but maybe we should “sweat the small stuff” too.

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Jean Houston Shore works with organizations that want their people to work together better. She can be reached at 770-643-9724, by email at jean@thinkbusiness.com or through her website at www.working-together-better.com. Ask for your free copy of her book Working Together Better.

Copyright © 2010, Jean Houston Shore, Business Resource Group. All Rights Reserved Internationally. No portion may be reprinted or used without prior written permission.

If you watch commercials with any interest at all, you’ll soon notice an absence of “Where’s The Beef?” spots from fast food chains. Perhaps the ads will tout the taste, convenience or even health benefits of non-beef choices. But mark my words; they going to attempt to influence you to abandon burgers for chicken tenders, ribs or sandwiches. The reason? Ground beef prices have risen by double-digit percentages since last year.


As a business leader you may also have some convincing to do. For example, healthcare costs were soaring even before healthcare reform and the true cost businesses like yours will bear remains to be seen. So, like the hamburger maker, the cost of at least one of your inputs is out of control. You’ve got to convince your employees or customers to do something differently if you are to remain profitable.

Input Price Management

Here is an input price management checklist:

1)      List the various component parts of each of your company’s processes: Research and Development, Production, Sales, Service, Administration.

2)      Now ask these questions about each component on that list: “What has changed about this input? If prices have risen, is this a temporary situation or a permanent one? What can be done to reduce this cost?”

3)      If you have identified ways to rein in the costs or to hedge against future cost increases, move today, not tomorrow, to put those plans in place.

4)      However, if you think the cost increases are likely permanent (like healthcare costs in my example) step backward in the process to figure out what decisions are being made by customers, employees or other stakeholders. For instance, Burger King knows that people are ordering Whoppers and that the cost of providing Whoppers is going up because of beef prices. Burger King can either try to raise Whopper prices (hard to do) or convince customers to order fish instead.

5)      Brainstorm with your colleagues to find attractive alternatives you can promote. Use creativity and a variety of appeals to convince people to make choices that will be both pleasing to them and profitable for you.


Business owners know that you’ve got to watch input prices like a hawk. But when the price increases are permanent, watching them isn’t enough. To succeed you must throw the weight of your influence behind new patterns of behavior. Today’s lunch choice? Not beef.

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Jean Houston Shore works with organizations that want their people to work together better. She can be reached at 770-643-9724, by email at jean@thinkbusiness.com or through her website at www.working-together-better.com. Ask for your free copy of her book Working Together Better.

Copyright © 2010, Jean Houston Shore, Business Resource Group. All Rights Reserved Internationally. No portion may be reprinted or used without prior written permission.

A quick look at recently released Gross Domestic Product (GDP) estimates from the Bureau of Economic Analysis (BEA) highlights a big problem for American Samoa; they’ve got all their eggs in one basket – er, can of tuna.

When you see GDP figures for the US states the breakdowns are predictable. We depend mightily on consumer spending (about 60% of the pie) and the other components, private investment, government spending and the net of imports and exports, don’t vary all that widely. Those that follow such things know that fluctuations in oil prices or housing can affect our numbers as can major changes in imports or exports.

But we do not depend on tuna.

The Problem in American Samoa

Not so a few thousand miles from here. American Samoa has a population of only about 68 thousand people. The tuna canning industry is the largest private employer in the territory and the entire economy depends directly or indirectly on how many cans of tuna the US buys.  American Samoa imports, cans and exports about $500 million dollars of tuna to the US in a good year. This is a huge per person concentration of risk.

Assessing Your Risk Concentration

Your company signs up for similar volatility if you depend too heavily on one customer, one product line or even one distribution channel. Here are some questions to ask your management team:

• To what extent do we spend a significant portion of our time, money or effort focused on a single customer or group of customers? What has changed in the business environment of those customers? Are there new regulations or technologies that might mean our customers will not be able to buy from us as they have in the past?
• To what extent are we tied to a single distribution channel? What has changed or is changing about that method of distribution? Are we being forced to take certain costs out of the equation? Are new players emerging?
• To what extent are we relying on a single source of supply for the various component parts of what we sell? What other options do we have if that supplier is no longer able to perform well?

The seven American Samoan islands are dispersed over more than 150 miles of water and the territory has a culture all its own. Still, basic risk management principles from business will probably come in handy as its leaders seek to provide an improving quality of life for its inhabitants.  You too should size up your company’s risk concentrations . . . before things start smelly too fishy.

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Jean Houston Shore works with organizations that want their people to work together better. She can be reached at 770-643-9724, by email at jean@thinkbusiness.com or through her website at www.working-together-better.com.Ask for your free copy of her book Working Together Better.

Copyright © 2010, Jean Houston Shore, Business Resource Group. All Rights Reserved Internationally. No portion may be reprinted or used without prior written permission.

Collaboration lessons tumble from Steve Jobs’ recent memo explaining why Apple isn’t supporting Adobe’s Flash software on its recent devices. (Explained: Your iPhone won’t be serving you any Flash content. Sorry about that.)  Here’s a summary of Jobs’ points and the collaboration hotspots I see:

Out of “Touch”

Flash, a widely used product for PCs that use mice as pointing devices, is not designed for touch screens that use fingers as pointing devices. Translated: Flash isn’t flexible enough to manage the newer ways people interact with their electronics. Collaboration hotspot: Obsolescence. If you haven’t yet moved into a 21^st century understanding of how your customers want to interact with your product, you’re risking your business even if you currently lead the market.

Reliability, Security, Performance

Jobs pointed out issues with Flash’s reliability (is it working properly?), security (am I vulnerable when I use it?) and performance (is it running slowly again?).  Collaboration hotspot: Mistrust. If you believe for a second that your coworkers are unreliable, you’ll probably begin watching them closer, double-checking their work, yanking them off of high profile assignments. As the reliability questions escalate, the entire team may begin to feel fear – how vulnerable are we when we trust this guy? The question of performance (speed, quality) turns into an issue of waste. If the employee can’t meet requirements, everyone suffers. But these are worklife basics, aren’t they? Work fast enough, deliver high quality and don’t make anyone worry that their trust in you is misplaced.

Third party Tourniquet

Apple is also miffed because Adobe keeps developers from quickly taking advantage of Apple’s new features. Unless and until Adobe upgrades, developers must wait on the sidelines. Collaboration hotspot: Control. It’s tough to let others sit at the table, isn’t it? A culture of fear causes you to hold on tightly rather than consider what could be accomplished if other people were allowed to play too. Ease up some, okay?

Leadership Summary

If your understanding of your customer’s way of interacting with your product isn’t fresh, get with the program. But even as you think about the new stuff, keep an eye on basic business requirements – reliably deliver high quality output. And consider inviting others to collaborate with you rather than insisting that you know it all.

That’s it! Keep on Working Together Better.

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Jean Houston Shore works with organizations that want their people to work together better. She can be reached at 770-643-9724, by email at jean@thinkbusiness.com or through her website at www.working-together-better.com.Ask for your free copy of her book Working Together Better.

Copyright © 2010, Jean Houston Shore, Business Resource Group. All Rights Reserved Internationally. No portion may be reprinted or used without prior written permission.

It’s a social networking success story, right? One of your friends, a long-time good guy and a person you trust completely, hints that he’d like to work at your company and there’s an open position he just might be able to fill. Should you hire him?

Not so fast. Even if company policy doesn’t prohibit hiring a friend, you should consider this situation from several angles. It’s best to think long and hard before attempting to transform a personal relationship into a professional one. Here’s a digest of what you should consider.

Your Friendship Will Probably Change

When your once-a-month golfing buddy becomes your everyday-in-the-halls coworker you may find you’ve got too much of a good thing. In the past, your buddy gave you a safe place to unwind without having to censor your conversation. The updated relationship may have you knowing information he can’t know or vice versa. Alternately, changes in the workplace could pit you against one another in competing for resources, promotions or sales. While workplace censorship and competition is a fact of corporate life, your friendship will be complicated by it. Before you take the plunge, decide how important the friendship is to you, because there’s a good chance the friendship will eventually be overtaken by corporate reality.

Hiring Your Friend Affects Everyone

Over time, each of your current work team members has negotiated working relationships among themselves that are working pretty well. Changing the team composition upsets that balance since roles, responsibilities and working styles have to be renegotiated each time a new team member is hired. This situation is even more complex when other team members perceive that the new hire is “special” because of his preexisting personal relationship with you. If they have good relationships with you, they may arrive more quickly at a good relationship with him, transferring goodwill to him. Or, they may perceive the new hire as someone who receives preferential treatment. If this happens, it will bond the non-friend team members with each other, but against the new hire and perhaps against you. This puts you in an untenable position.

Hiring your friend also raises the possibility of affecting the workplace should something in someone’s personal life, a nasty divorce for example, cause the friendship to disintegrate. Without the blended relationship, your friend would simply drift out of your life; since he is now a coworker his drama has the possibility to affect your career. This possibility is exacerbated if you have become co-owners of a business. Other employees will be worried by the changes in your personal friendship, even if you try to insulate them.

More on this subject in my next post.

–Jean

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Jean Houston Shore works with organizations that want their people to work together better. She can be reached at 770-643-9724, by email at jean@thinkbusiness.com or through her website at www.working-together-better.com.

Copyright © 2010, Jean Houston Shore, Business Resource Group. All Rights Reserved Internationally. No portion may be reprinted or used without prior written permission.